HudBay Minerals: Uncertainty Reigns

| About: Hudbay Minerals (HBM)

HudBay Minerals Inc. (HBMFF.PK) reported fourth-quarter earnings on Thursday, but analysts are focused on two other issues: the company's reserve life and its proxy battle.

A number of analysts have noted that HudBay needs its Lalor Lake project in Manitoba for growth, and they are concerned about how long it will take for it to come on. Onno Rutten of UBS Securities does not expect Lalor to go into production until 2013, which leaves a "hole" in HudBay's production profile, assuming the closure of the Trout Lake mine in 2011. He is surprised that Lalor is not getting a quicker go-ahead given its "robust" economics and HudBay's strong cash position.

In the shorter-term, the company is locked in a proxy battle with its largest shareholder, SRM Global Master Fund LP. The hedge fund wants to replace the board and reinstate Peter Jones as CEO.

Canaccord Adams analyst Gary Lampard wrote that he expects SRM to win. He is not impressed with the transaction record of the current board, but is also concerned that a new board and management might return too much cash to shareholders and constrain HudBay's ability to develop Lalor Lake.

Greg Barnes, an analyst at TD Newcrest, wrote that HudBay's big cash position means that it is still a defensive name in the mining sector, but the upcoming proxy vote adds a layer of uncertainty that "significantly muddles" the company's future direction.

"Without changes, investors are likely to be very cautious given [the current board's] troubling acquisition record over the past 12 months. However, if a new board is elected and a new CEO announced, we would expect that it could take up to six months for a new strategy to be developed," he wrote.

He downgraded the stock to "hold" (from "buy") but maintained his price target of $6.50 a share.