Blackmont Capital: Expect More Discoveries from HudBay Minerals

Jun. 3.08 | About: Hudbay Minerals (HBM)

HudBay Minerals Inc. (HBMFF.PK) may be down nearly 10% this year and more than 25% in the past 12 months on slumping zinc prices and the strong Canadian dollar, but its valuation does not reflect the diversified mining company’s more modest capital budget than its peers. In addition, it remains a takeover target due to its large cash position, high quality 777 mine and Lalor Lake discovery, as well as its safe country location, according to Blackmont Capital analyst George Topping.

He noted that U.S. hedge fund SRM Global Master Fund LP holds roughly 18% of HudBay, with most of its purchases above the 10% mark made at prices between C$24 and C$26. The stocks is currently trading in the C$17.50 range.

Mr. Topping also noted that the financing troubles encountered by fellow zinc miners as a result of credit concerns should delay future mine supply of the metal, which bodes well for prices. He expects HudBay to generate C$400-million in free cash flow in the next three years.

As for its recent discovery at the Lalor Lake zinc exploration project near Snow Lake, Manitoba in the Flin Flon Greenstone Belt, where it has been active for more than 75 years, the deposit of more than 4 billion ounces of zinc is testimony to the area’s highly-productive reputation, the analyst said. Moreover, with an annual exploration budget of more than C$40-million, he expects HudBay to make more discoveries.

Mr. Topping rates the stock a “buy” with a C$23.80 price target.