Analysts Applaud HudBay-Skye Deal; Rival Bid Unlikely

Analysts like what they see from HudBay Minerals Inc.'s (HBMFF.PK) C$432-million friendly offer to buy Skye Resources Inc. (SKRZF.PK), despite some dilution for shareholders.

In a note to clients, Desjardins Securities analyst John Hughes wrote:

We believe HudBay's move to diversify its asset portfolio with one of the largest known nickel reserves in the world is an excellent investment of the company's significant cash balance of C$781-million.

He lowered his target on HudBay to C$20.00 a share (from C$22.00) after calculating 27% share dilution from the deal, but maintained a "top pick" rating.

At UBS Securities, analyst Onno Rutten noted the relatively "modest" premium being offered to Skye shareholders relative to other deals in the nickel space. That reflects "the urgency of Skye to find a well-funded partner to proceed on time with development of the Fenix [project]," he wrote. He upgraded HudBay to "buy" from "neutral," but lowered his price target to C$17.50 a share (from C$20.00).

Adam Schatzker of RBC Capital Markets calls it "mission accomplished" for HudBay. He wrote:

HudBay had recently stated that its preferred use for its large cash position is to acquire a project that was pre-development and was facing financing challenges in a difficult market — a perfect description of Skye.

He also upgraded the stock (to "sector perform") while lowering his target (to C$15.50).

None of the analysts think a rival bid for Skye is very likely. That is partly because the company has been effectively shopped for the last two years with no takers, and partly because Vale Inco already has marketing rights to Skye's production.