Russia's Solway Group, which owns a ferrno-nickel plant in the Ukraine, has bought HudBay Minerals' (HBM-T, HBM-N) Fenix ferro-nickel project in Guatemala for US$140 million in cash at closing and an additional US$30 million if certain conditions are met.
HudBay purchased Fenix in June 2008 for about $500 million and expects to record a non-cash charge of about $212.7 million in its consolidated financial results for the three months ended June 30.
Scotia Capital analyst Tom Meyer views the sale positively. "The US$140 million in cash will be useful in funding HudBay's project development pipeline," he wrote in a research note to clients. "We have increased our NAVPS to $16.19 versus $16.07 previously."
"We view the price as good," Meyer continued, adding that while the project was well-advanced, it "still carries significant development/execution and political risks."
"Including the contingent payment, the sale price implies a P/NAV multiple of approximately 0.30x."
Meyer has a twelve-month target price on the stock of $16. At presstime in Toronto HudBay was trading at $11.61 per share within a 52-week range of $11-$18.98.
David Garofalo, HudBay's president and chief executive, outlined in a press release that while the company believes Fenix is a "robust project that warrants development, the project does not fit our strategy of focusing on VMS and porphyry deposits."
"We believe that the sale proceeds will further strengthen our balance sheet as we develop our Lalor and Constancia projects."
The transaction is expected to close in the third quarter.
The Solway Group is an experienced ferro-nickel operator. According to Meyer, the group's main business is conducted in Russia, the CIS countries, Central and Eastern Europe, Latin America and Australasia. The Group's core industrial investments include the Pobugsky ferro-nickel plant in the Ukraine, the SASA zinc and lead mine in Macedonia, the Buchim copper mine, also in Macedonia, and the Syas pulp and paper plant in Russia.
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