A return to glory for a Canadian mining stock
After a long rough patch in the Canadian mining industry, things are definitely looking up, says this expert, especially for one notable stock.
The stars of the Canadian mining industry have not had an easy time of it in the past few years.
The biggest of them all, Teck Resources (TSX-TCK.B) swallowed Fording Canadian Coal Trust and suffered a terrible case of indigestion.
Two other notable names, HudBay Minerals (TSX-HDB) and Lundin Mining (TSX-LUN), got involved in a tawdry romance. Their proposed marriage came to grief with a messy breakup last winter.
And while these indignities were going on, commodity prices were withering up in the face of a global economic meltdown.
But this is Canada. We take a back seat to nobody when it comes to mining. Things have got to look up, right?
Right. One expert is especially keen on the outlook for HudBay Minerals. Its share price has doubled from its rather downtrodden status in the spring. And that should be the start of better things to come, says Mr. Robert Floyd in Investor's Digest of Canada.
To see why, we’ll travel to northern Manitoba.
Something to crow about
Mr. Floyd, who heads his own capital management firm, last wrote about HudBay in June, when the company had put together a fresh management team.
In September, that team had something to crow about as it announced “spectacular drilling results” at its 100-per-cent-owned property at the Lalor deposit. This is in the big Flin Flon Greenstone Belt, near the Snow Lake Concentrator that produces zinc from the Chisel North mine.
The company believes it has intersected “a new zone with significant mineralization of copper and gold,” explains Mr. Floyd.
What’s more, HudBay announced just over a week ago that it would immediately re-start the Chisel North mine and Snow Lake Concentrator, which had been on care and maintenance since the spring due to depressed zinc prices.
While all this good news comes from Manitoba, HudBay is a fully integrated firm with international addresses. It has interests in Central America as well as North America, including operations in Michigan and New York State.
But the heart of its operations is in Manitoba. In addition to the properties already mentioned, it has two other mines and a copper smelter and zinc plant in Flin Flon.
Rather depressing reading
HubBay’s second quarter results, released in August, were still stuck in the bad days of the economic slowdown and its unhappy effect on commodities.
Revenue, cash flow and earnings were all down sharply from the prior year. The company received a lower level of interest payments and cut back its exploration expenses.
Thanks to the stoppage at Chisel North and at its New York State zinc mine, the company naturally projected lower zinc production for the year as well. It all made for rather depressing reading.
But now it’s time for the stock to “retain some of its former glory,” says Mr. Floyd.
A new link
The future begins with the new management team, headed by Mr. Peter Jones. Brought in following a bitter dispute between the previous managers and the existing shareholders, he has a solid resume built at Cominco, Anglo American and HudBay itself.
While exploration expenses are still down from the previous year, activity is heating up and the money will follow.
In early October, the board of directors approved a plan that will effectively link the Lalor deposit with the Chisel North mine. It will take roughly 30 months and add 1,200 tonnes of ore to production.
But the key to HudBay’s future may lie in its attractiveness to others.
A possible takeover
HudBay is cash-rich and not highly leveraged for the size of its operations, Mr. Floyd states. That makes the company “vulnerable to a possible takeover.”
The company is well capitalized, he adds, “and has the ability to develop its existing operations or purchase some attractively priced properties.” It has “escaped the ravages” of the credit crisis and its new copper-gold deposit is “a stellar opportunity” for the future.
Plus, as an individual investor, Mr. Floyd says to his Investor's Digest of Canada readers, it’s useful to know when the big institutional investors are sniffing around.
Those big investors are out searching for “larger base metal opportunities,” he says, “and HudBay Minerals represents one of the few possibilities in Canada.”
Taking all this into consideration, HudBay is attractively priced. The shares hovered around $8 in the spring. They’re at $16.60 today. (For the record, Lundin has risen smartly as well, from penny-stock status in the spring to $4.55 today. And Teck has rallied from beneath $5 to $34.50.)
When a recovery beckons, many Canadian investors naturally cast their eyes toward our commodities. And this analyst believes they’re getting more attractive all the time.
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