HudBay to seek acquisitions, internal growth under new management, says new CEO

By Kristine Owram, The Canadian Press

TORONTO - The new chief executive at HudBay Minerals Inc. (TSX: HBM.TO) says the company will seek acquisitions and grow internally under new management in the wake of its failed takeover of rival Lundin Mining Corp.

"We're a company that I describe as being in a perfect storm," Peter Jones said in an interview Wednesday with Business News Network, a business TV channel based in Toronto.

"We have low market valuations for competitors and mining assets in our field, and we're a company that is sitting with approximately $700 million on our balance sheet.

"That leaves us in a position to be an acquiror for growth and also to look at organic opportunities inside the company to grow new deposits, for exploration and also where it might make sense for shareholders, any potential acquisitions of us that may become apparent."

Blackmont Capital mining analyst George Topping said HudBay will likely focus on bringing internal assets online, including the Reed Lake deposit, which HudBay owns jointly with VMS Ventures (TSX: VMS.TO), and the Lalor Lake deposit, both in northern Manitoba.

But Topping said the new board will also be focused on improving the company's share price, which has lost a quarter of its value since last May.

"The quickest way to get a higher share price is to attract an offer," Topping said. "You attract a couple of suitors, get an auction going, and that would be the quickest way that you could get a return on your capital."

He said Quadra Mining Ltd. (TSX: QUA.TO), Teck Cominco Ltd. (TSX: TCK-B.TO), FNX Mining Co. Inc. (TSX: FNX.TO) and Vale Inco could all be potential suitors.

HudBay has been mired in controversy since it unsuccessfully pursued an unpopular takeover of Lundin (TSX: LUN.TO) in November, a deal that collapsed a few weeks ago and led to a change in leadership at the Toronto-based mining company.

The proposed deal, opposed by shareholders because it would significantly dilute HudBay's stock, also left the Canadian miner with a 20 per cent stake in Lundin, a base metals producer with operations in Europe.

After the deal fell apart, dissident shareholder SRM Global Master Fund LP nominated a new slate of directors to replace former chief executive Allen Palmiere and his board.

On Monday, HudBay said its board, facing defeat at a shareholder meeting, resigned, clearing the way for the appointment of the new board, including Jones as the company's new CEO.

Jones, who was CEO of HudBay from 2002 until early 2008, is known for his cautious approach to business and helped turn the miner into an important mid-tier producer.

Palmiere found himself in hot water when he attempted to acquire Lundin without holding a shareholder vote on the deal.

After several of the company's shareholders - including Jaguar Financial Inc. (TSX: JFI.TO), SRM, the Ontario Teachers' Pension Plan and Corriente Master Fund - protested being left out of the deal, the Ontario Securities Commission ruled that a vote must be held.

Jones said the company has been continually operating in northern Manitoba for 80 years and is looking at expanding its zinc deposits there. Recently, HudBay also recently acquired the Fenix nickel project in Guatemala through the 2008 purchase of Skye Resources.

HudBay deferred development of the Fenix project last November because of low nickel prices.

"This is a significantly sized deposit," Jones told BNN. "It's economically challenged at this point. But certainly we need to re-look at the economics of that, the development plan, and decide exactly what is necessary and what economic environment is necessary - principally metal price - to bring that project to production."

As for future acquisitions, Jones said HudBay's "preference is to start close to home."

"But more importantly what we have to do is rebuild the confidence of our shareholders. We have to make absolutely sure that any transaction we do is accretive and makes good business sense not just to the company but our shareholders as well."

Analysts have also speculated the new board will initiate a major stock buyback or a dividend for shareholders.

HudBay's main operations are in northern Manitoba and Saskatchewan, with others in Central America.

HudBay shares traded Wednesday at $5.84, down 16 cents, on the Toronto Stock Exchange.