Good News, Bad News for HudBay Minerals

Jan.12.09 | About: Hudbay Minerals (HBM)

HudBay Minerals Inc. (HBMFF.PK) had two announcements on Friday, one good and one clearly bad. The company made a new gold discovery at its Lalor Lake deposit, and it announced the suspensions of its Chisel North mine and Snow Lake concentrator (all operations are in Manitoba).

RBC Capital Markets analyst Adam Schatzker considers the gold discovery to be great news. He wrote in a note that HudBay could potentially develop the gold zone of Lalor first, and that would then pay for the infrastructure for the whole project.

"We think that HudBay may be able to fast-track the Lalor project as a gold mine first, and then extend the mine life as a large base metal mine," he wrote.

In the case of Chisel North, he wrote that there is a good chance that the mine will never re-open. But the Snow Lake concentrator could be used to process ore from Lalor Lake, and possibly from the Reed Lake project as well.

John Hughes, an analyst at Desjardins Securities, wrote that the Chisel North and Snow Lake closures are no surprise given that they were marginally unprofitable back when zinc prices were $0.80 a pound (compared to $0.55 today). He calculated that the operations should report a net loss of C$2-million to C$4-million for the fourth quarter, and that the suspensions would be accretive to earnings by C$0.01 to C$0.02 a share at current zinc prices.

Mr. Schatzker rates HudBay an "outperform" with a target of C$5.00 a share, while Mr. Hughes has a "buy" rating on the stock and a C$5.90-a-share target.