Blackmont Capital Not Happy With HudBay/Lundin Merger Proposals

Blackmont Capital analyst George Topping is not thrilled with the proposed merger of HudBay Minerals Inc. (HBMFF.PK) and Lundin Mining Corp. (LMC) But, he thinks the plan that Jaguar Financial Corp. (JGFCF.PK) has put forward for HudBay could be even worse.

On Friday, Jaguar chief executive Vic Alboini unveiled his plan: he wants to replace HudBay's directors with an alternate slate, and fight the Lundin acquisition in court on the basis that it is an alleged "related party transaction." He would also return a great deal of HudBay's cash to shareholders.

Mr. Topping wrote that if HudBay's proposed acquisition of Lundin is somehow cancelled, it would probably trigger a protracted legal fight that would be negative for both companies.

He wrote in a note to clients:

We doubt Jaguar is the right vehicle for [HudBay] shareholders and hope that [HudBay's] cash attracts other larger parties. While the Lundin transaction should be accretive in the long run, we maintain that [HudBay] seriously overpaid for a cash-strapped Lundin.

Mr. Topping maintained a "hold" rating on HudBay's stock, noting that the uncertainty from Jaguar's proposal adds extra risk. He still think it is a good buy for risk-tolerant investors, and has a target price of C$7.80 a share. That is more than double the current price.