Hudbay facing shareholder rebellion for “systematic” mismanagement

Hudbay Minerals is facing a shareholder rebellion from one of its largest institutional investors angered over its slumping stock price and “systematic” mismanagement including “fundamentally” misunderstanding the permitting process and public opposition for its proposed $1.9 billion Rosemont Copper Mine.

Canadian private equity fund Waterton Global Resource Management, which says it owns 4.9 percent of Hudbay’s shares, issued a scathing Oct. 5 press release lambasting Hudbay’s operations: “The Company’s recent market performance and operational misses have led Waterton to lose confidence in management and the Board.”

Waterton specializes in the metals and mining sector and says it has experts with “extensive experience in evaluating, optimizing and permitting mining assets around the world, and specifically in the Americas, including in Arizona.”

Screen Shot 2018-10-08 at 11.22.59 AMHudbay’s stock has fallen 44 percent since last January compared to a 12 percent decline in copper prices, Waterton notes.

Waterton was sharply critical of Hudbay’s handling of its primary assets in Manitoba, Peru and the proposed Rosemont project planned for the Santa Rita Mountains in the Coronado National Forest southeast of Tucson.

“Hudbay’s stewardship of its Rosemont copper project in Arizona has been a case study in poor execution,” Waterton stated. “The Company has, by its own admission, surpassed its own ‘worst case’ permitting timeline scenario even though permitting for Rosemont has been ongoing for a decade.”

Hudbay, Waterton stated, “seems to have fundamentally misunderstood the permitting regime in the United States.”

Hudbay CEO Alan Hair

Hudbay CEO Alan Hair

The investment firm notes that Hudbay CEO Alan Hair admitted during an Aug. 31 meeting with Waterton that Hudbay made a “major miscalculation” when it issued C$242 million in new stock in September 2017 with the expectation that Rosemont construction would begin in late 2017.

Hudbay’s management, according to Waterton, assumed there would be no legal challenges to the Coronado National Forest’s decision to issue its Record of Decision approving Rosemont in June 2017 and the U.S. Fish Wildlife Service’s release of its final Biological Opinion supporting construction of the mine. Hudbay also assumed the U.S. Army Corps of Engineers would quickly issue the Clean Water Act Section 404 permit clearing the way for Rosemont construction in late 2017.

Hudbay’s assumptions proved to be wrong, Waterton states.

The Center for Biological Diversity filed a federal lawsuit challenging the Biological Opinion in October 2017. Two months later, four Arizona conservation groups filed a federal lawsuit challenging the Forest Service’s Record of Decision in November 2017. Three Arizona Indian tribes filed a third federal law suit against the Forest Service in April also seeking to block the mine.

“Any reasonable person with permitting and regulatory experience in the United States would have known that the likelihood of (Hudbay’s) assumptions proving true was extremely low given the challenges, regulatory uncertainty and public opposition to Rosemont’s permitting process,” Waterton stated.

“Assuming that the permits would not be challenged, and that construction of Rosemont could proceed in late 2017, shows a patent and clear lack of understanding of the key issues relating to one of the Company’s core assets,” Waterton stated.

Waterton issued the statement after Bloomberg News reported that Hudbay was in discussions to purchase Mantos Copper SA, a Peruvian miner, for as much as $780 million. Waterton stated it, along with approximately one-third of Hudbay’s shareholders, were opposed to Hudbay’s plan to acquire any other mining company.

Hudbay issued a statement shortly after the Bloomberg story appeared saying that “acquisitions that fit Hudbay’s stringent criteria” are part of its management strategy.

Waterton, however, is demanding that Hudbay focus its funds on developing the Rosemont project. Hudbay is telling investors it expects to begin construction on the mile-wide, half-mile deep open pit mine in the first quarter of 2019.

The Army Corps’ Los Angeles district recommended against issuing the Section Clean 404 Clean Water Act permit in July 2016. The Army Corps’ San Francisco regional office is reviewing Hudbay’s permit application.

The investment firm also criticized Hudbay for its failure in Peru to obtain an agreement with local communities to build a satellite open pit mine near its Constancia mine, “forcing Hudbay to reduce its 2018 precious metals production guidance at Constancia by ~20%,” Waterton stated.

Hudbay has faced intense opposition from Peruvian communities that are upset over how the company executed agreements that allowed the company to develop the Constancia open-pit mine site. Hudbay has used its contract with the Peruvian National Police to violently break up community demonstrations.

Hudbay’s confrontation with Peruvian communities is featured in the 2015 documentary “Flin Flon Flim Flam.”

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4 Responses to Hudbay facing shareholder rebellion for “systematic” mismanagement

  1. DR ALAN JOHNSON says:

    HUDBAY HAS BEEN SEVERELY SCOLDED BY ONE OF ITS MAJOR SHAREHOLDERS FOR NOT BEING ABLE TO HANDLE A DEPRESSED COPPER MARKET AND A STATE OF ECONOMIC UPHEAVAL CAUSED BY THE INTERFERENCE IN WORLD TRADE COMING FROM THE U.S. WHITE HOUSE .

    HUDBAY HAS STATED THAT THEY NEED US$3.00 COPPER TO JUSTIFY THE CAPEX REQUIRED TO BRING THE ROSEMONT COPPER PROJECT INTO PRODUCTION . THE CURRENT PRICE IS SIGNIFICANTLY BELOW US$3.00 AND MAY STAY THAT WAY FOR SOME TIME TO COME . ALSO , THE CANADIAN DOLLAR IS WEAK AND HUDBAY MAY HAVE DIFFICULTY BORROWING MONEY FOR NEW DEVELOPMENT PROJECTS UNDER THE CIRCUMSTANCES .

    THE PERMITTING PROCEDURE FOR MINERAL RESOURCE DEVELOPMENT IN THE US LACKS TRANSPARENCY AND INVOLVES MANY LAYERS OF GOVERNMENT BUREAUCRACY . THE PROCEDURES ARE PLAGUED WITH POLITICAL INFLUENCES THAT IGNORE THE FACTS AND FAVOUR THE AMBITIONS OF THE PARTY IN POWER .

    MINING IN MANY CASES INVOLVES THE ” FLIPPING ” OF MINING PROSPECTS . ALL MINING COMPANIES FOLLOW THIS PRACTICE . HUDBAY CHANGED ITS SENIOR ADMINISTRATION AFTER IT HAD ALREADY ACQUIRED THE ROSEMONT PROSPECT FROM AUGUSTA . HUDBAY’S STARY-EYED PRESIDENT OF THE DAY WAS GIVEN TOO MUCH FREEDOM BY THE BOARD AND HE EMBARKED ON A VERY AMBITIOUS INTERNATIONAL BUYING SPLURGE . HE EFFECTIVELY OVER-EXTENDED HUDBAY’S VERY CONSERVATIVE HISTORY OF MINING PRIMARILY IN CANADA . THIS HAS COST HUDBAY DEARLY BUT HAVE THEY LEARNED FROM IT ? IT APPEARS NOT .

    THE ROSEMONT PROPERTY MAY NEVER ACHIEVE PRODUCTION IN WHICH CASE , HUDBAY WILL HAVE TO WRITE THE PROJECT OFF AS A CASE OF MISADVENTURE . ON THE OTHER HAD , FINAL PERMITTING COULD BE HANDED DOWN ALLOWING HUDBAY TO PROCEED . IT IS INTERESTING THAT FREEPORT HAS JUST LOST ITS FLAGSHIP COPPER MINE IN INDONESIA AND HAS INDICATED THAT IT IS LOOKING FOR POSSIBLE DOMESTIC ACQUISITIONS IN THE U.S. . COULD THIS LEAD TO A JOINT VENTURE BETWEEN HUDBAY AND FREEPORT REGARDING THE DEVELOPMENT OF THE ROSEMONT PROJECT ? AT THIS POINT , ANYTHING AND EVERYTHING IS POSSIBLE .

    INVESTORS WANT VALUE FOR THEIR MONEY INVESTED BY WHATEVER MEANS . THEY HAVE CLIENTS TO SATISFY AND AT THE END OF THE DAY , ANY AND ALL SIGNS OF NEGATIVITY MUST BE AVOIDED .

  2. J Meyer says:

    Hudbay should sell Rosemont, forget about this mine that no one wants, (unless they
    can make a buck). This area is beautiful and will be ruined forever! Stealing our water, polluting our air, totally ruining the peace and quiet of Sonoita, which residents and tourists so appreciate! The mine will use our lifeline road 83, for all hauling and supplies and no one knows where the ore will be HAULED, to be shipped to China, taking this ore, with no royalty to our government and shipping it to China. The Coronado Forest Service aproved the mine not knowing how the ore would be hauled, what a NEPA process! Unlawful?

    ADOT told our committee against the mine (SSSR and Mountain Empire Alliance) that highway 83 must be totally rebuilt from the ground up, requiring blasting, realignment adding lanes! This is the only road to Tucson, our lifeline! How long and who pays for this? We do not need a new road with NO mine!
    Say NO, Army Corps of Engineers!
    Ridiculous! Did Hudbay ever divulge the results of their exploration, sure didn’t see. Maybe they know there isn’t a viable mineral source and just keeping shareholders
    hopeful!

  3. DR ALAN JOHNSON says:

    Have you forgotten to moderate my comments ?