In these times of economic and political turmoil, boring has become the new exciting. With mining companies of all stripes running aground on the shoals of cost overruns, nationalization movements and environmental opposition, any executive that manages to guide a company to fiscal health, sustainable growth and positive community relations stands head and shoulders above his peers. And so this year, Hudbay Minerals president and CEO David Garofalo is our Mining Person of the Year for his fine job in making Hudbay a standout success story amid the dwindling list of mid-tier base metal miners.
Garofalo is a accountant by training, with a B.Comm. from the University of Toronto and a Chartered Accountant designation. He started out in 1990 as treasurer of Inmet Mining before joining Agnico-Eagle Mines in 1998 and becoming CFO in 1999. That was back when it only had one gold mine — the pre-expansion LaRonde in Quebec’s Abitibi region — and penny pinching was the order of the day, as gold traded for just US$250 per oz.
Garofalo helped Agnico nail down financings that allowed the company to grow prudently through mine expansions and asset purchases, without having to hedge production in a rising gold environment. In 2009, a year in which Agnico raised about a billion dollars, Garofalo won the award for “Canada’s CFO of the Year,” an honour that’s usually handed out to CFOs from much larger and more established Canadian companies.
At a breakfast meeting a few weeks ago with The Northern Miner in Toronto’s King Edward Hotel, Garofalo recalled that with Agnico president and CEO Sean Boyd being young and dynamic, it was increasingly obvious that he’d need to leave the Agnico cocoon to lift his career to the next level.
Garofalo took the reins of Hudbay Minerals as president and CEO in July 2010, and in speaking with him, it’s clear he relishes the role.
Prior to Garofalo stepping in at Hudbay, the management situation had devolved into the Gong Show of Canadian mining. To the delight of journalists, there had been a string of management comings and goings, overheated conference calls, out-of-the-blue acts such as a failed takeover of Lundin Mining (stopped only by a Hudbay shareholder revolt) and dubious moves such as the purchase of the violence-plagued Fenix nickel project in Guatemala (quickly sold at a loss after Garofalo took charge).
Garofalo says one of his most important first moves was to push for the rapid development of the newly discovered, gold-rich Lalor volcanogenic massive sulphide deposit in the Flin Flon belt. It was a bit of a departure for a copper-zinc miner like Hudbay, but with Garofalo having come directly from Agnico and its gold-rich VMS assets at LaRonde, the new direction was a natural one.
Hudbay now has three projects in construction in Manitoba’s Flin Flon belt and south of Cuzco in Peru, which will more than replace lost output from two closing mines in Manitoba.
“Manitoba is our core business,” Garofalo says. “It’s important to keep talented people and not lay them off.”
Garofalo speaks with paternal fondness of Hudbay’s “farm system” — a constellation of 15 to 20 junior grassroots exploration companies in which Hudbay owns small but significant stakes. Describing juniors as “severely capital starved,” he’s happy to take the portfolio approach and leave the grassroots stuff to the juniors while Hudbay’s crack in-house team, which is particularly adept at geophysical surveying, focuses on brownfield exploration.
“We need to think in five-year timelines,” Garofalo says, blaming the dip in Hudbay’s production this year mainly on a lack of planning five years ago, when assets weren’t being dropped into the project pipeline.
“All the money in mining is made in drilling and building, not in cash flow,” Garofalo says. Two of the most successful “graduates” of the farm system have been VMS Ventures with its Reed project in Manitoba, and Norsemont’s Constancia copper-gold deposit in Peru, which is now being built into a US$1.5-billion mine by Hudbay in its first major development outside Canada.
Taking place in the heart of a boisterous land like Peru, Constancia’s development is again notable for its lack of over-the-top protests, crippling cost overruns or multi-year delays. Indeed, with the global economic recovery limping along, Garofalo sees this as great time to build a mine, as costs for goods and services have softened, and quality personnel are increasingly available.
Hudbay is able to jump on these opportunities because of its strong financials, which were cemented by its management team pulling off the feat of raising its market capitalization in cash in recent times.
Garofalo also sees unique opportunities ahead for Hudbay, as base metal titans such as Xstrata and Glencore shed non-core assets in response to their investors’ pressing need for liquidity.
At the same time, Garofalo has learned a few hard lessons about overextension during his Agnico days, recalling how Sean Boyd commented that the “most important lesson you learn by building five mines at once, is don’t build five mines at once!”
While less bullish on zinc, where supplies have soared since silver prices took off, Garofalo is guardedly optimistic about the prospects for copper prices and for all miners generally in the years ahead, predicting that “money will swing back to quality assets.”
After two years with Garofalo at the helm, that means it will most certainly swing back to Hudbay.
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