Hudbay Minerals (TSX: HBM; NYSE: HBM) was among the first off the starting blocks this year with news of a $1-billion capital budget for 2014 — the lion’s share of which is earmarked for growth initiatives — and a $150-million bought-deal financing that the company says will give it the flexibility to grow.
The mid-tier base metals producer forecasts metal production this year of 41,000 to 55,000 tonnes copper (90 million to 121 million lb. copper), up 60% year-on-year; 87,000 to 105,000 tonnes zinc (192 million to 231 million lb. zinc), up 11% year-on-year; and 101,000 to 123,000 equivalent oz. gold (with a 50-to-1 silver-to-gold ratio in concentrate), up 23% year-on-year.
Commercial production is set to get underway in the first half of the year at its 70%-owned copper–zinc–gold Reed mine in the Flin Flon greenstone belt in Manitoba and commercial production from the main production shaft at its 100%-owned copper–zinc–gold Lalor mine, also in Manitoba, will kick off in the second half of the year.
Other upcoming milestones include initial production at its Constancia copper mine in Peru in late 2014, with commercial production to follow in the second half of 2015.
A $20.4-million exploration budget will focus on developing an underground exploration drift at Lalor during the second half of the year, and other exploration efforts near existing and planned processing infrastructure in Manitoba and Peru.
In Peru, Hudbay will continue exploration on the porphyry and skarn mineralization potential of its property near the Constancia deposit and in Manitoba, and continue underground exploration drilling at the 777 mine, with the goal of extending mine life beyond 2021. The 777 mine has been producing zinc, copper, gold and silver since 2004.
In terms of its 2014 capex of $1 billion, $714 million is earmarked for Constancia, $75 million for Lalor and $5 million for Reed.
Analyst Stefan Ioannou of Haywood Securities comments in a research note that Hudbay’s current market value “provides a compelling buying opportunity for investors looking to take advantage of the option value that successful growth execution entails [on the back of anticipated medium-term zinc price strength].”
At press time Hudbay was trading at $8.46 per share within a 52-week range of $6.02 to $12.10. The company has 172 million shares outstanding.
Alec Kodatsky, a mining analyst at CIBC, has a 12- to 18-month target price of $12 per share, while BMO’s Aleksandra Bukacheva’s target price is $8 per share.
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