Hudbay reduces spending on Rosemont as permitting decision looms

Hudbay Minerals Inc. said it will sharply reduce spending on its proposed Rosemont copper mine for the remainder of 2016.

“Capital expenditures in Arizona on the Rosemont project are expected to decline substantially over the balance of 2016,” the company stated in its Management Discussion & Analysis report for the 1^st Quarter.

The reduced spending comes at the same time as major permitting decisions are looming including the crucial U.S. Army Corps of Engineers decision on whether to issue a Section 404 Clean Water Act permit for the mine.

In an unusual action since acquiring the Rosemont project in July 2014, Hudbay did not mention Rosemont in a press release announcing the company’s release of its quarterly financial results.

The Toronto-based company reports spending $11.5 million in the 1^st Quarter on the Rosemont prospect in the Santa Rita Mountains on the Coronado National Forest 30 miles southeast of Tucson.

Hudbay’s financial reports project spending an additional $28.5 million over the remaining nine months of 2016 on Rosemont.

Hudbay continued its five quarter string of losses posting a $15.8 million loss in the first quarter, despite a sharp increase in revenue as interest payments on $1.3 billion in debt left the company in the red.

“Notwithstanding lower metals prices, revenues nearly doubled in the first quarter of 2016 to $253.6 million, $124.9 million higher than the same period in 2015,” the company stated in its MD&A.

“This increase was primarily due to higher sales volumes compared to the first quarter of 2015 as a result of commercial production being achieved at Constancia,” Hudbay stated.

Constancia is an open-pit copper mine in the Peruvian Andes that is Hudbay’s largest operation and is similar in size to the proposed Rosemont project.

But $43.7 million in semi-annual interest payments  cut deeply, leaving the company with a loss. Hudbay must repay $920 million in long term bonds in October 2020.

The combination of depressed copper prices and substantial long term debt payments puts Hudbay in a difficult position to finance construction of the Rosemont project, even if it obtains the necessary permits and withstands expected legal challenges.

Low copper prices have cut sharply into the company’s expected revenue from Constancia, which was projected to provide enough free cash flow for Hudbay to internally finance the $1.5 billion Rosemont project.

Hudbay announced earlier this year that it has delayed construction of Rosemont, but is continuing to pursue the necessary permits to build what would be the third largest copper mine in the United States.

Hudbay has lost money in each of the last five quarters including a $255 million loss in the 4^th Quarter of 2015, $11.8 million loss in the 3^rd Quarter of 2015, a $55.2 million loss in the 2^nd Quarter of 2015 and a $237 million loss in the 1^st Quarter of 2015.

Hudbay will hold its annual meeting on May 19 in Toronto.