RBC coverageThis has been posted before, but I believe it bears repeating. If ind RBC is fairly conservative in it's estimates. The target is $23. One of the things that stood out for me is " HudBay has three operating mines and controls more than 300,000 hectares of exploration lands in the prolific Flin Flon mining camp in Manitoba and Saskatchewan. It is very rare for a mid-sized mining company to have control of almost a whole mining camp" . I have copied the entire article below. I'm a hold until the price gets over $20 at which point I will take some profits, then hang on for the ride. There is going to be a lot of money looking for a home after the Inco deal goes through.
jimi
HudBay Minerals Inc. (TSX: HBM) Outperform/Above Average Price: $14.64 Target: $23.00
Adam Schatzker (Analyst) (416) 842-7850 All values in Canadian unless otherwise noted.
Event
We are initiating coverage of HudBay Minerals Inc. with an Outperform, Above Average Risk rating and a 12-month target price of $23.00 per share.
HudBay provides investors with substantial exposure to the zinc price and, to a lesser extent, the copper price through the company’s mining, smelting
and refining infrastructure. The core assets of the company, Hudson Bay Mining and Smelting (HBMS), are located in the world-class Flin Flon mining
camp, of which HudBay controls the largest land package. HudBay is well positioned to participate in the mining industry consolidation and we expect
it will produce significant cash flows over the next three years. Based on our forecasts, we believe the shares of HudBay are currently undervalued.
Investment Opinion
Excellent Exposure to Zinc and Copper Prices. HudBay has the highest leverage to the zinc price within our North American coverage universe – only
Zinifex Limited offers higher leverage. For a $0.05/lb change to our forecast zinc price in 2007E, we estimate HudBay’s earnings per share would
change by $0.11 or 4%. Over the next three years, we believe HudBay can generate almost $1.2 billion in cash flow from operations (2007E to
2009E).
World Class Mining Camp Exposure. HudBay has three operating mines and controls more than 300,000 hectares of exploration lands in the prolific
Flin Flon mining camp in Manitoba and Saskatchewan. It is very rare for a mid-sized mining company to have control of almost a whole mining camp
and we believe this positions HudBay well for exploration success and new mine discovery.
Attractive Valuation and Share Price Upside Potential. HudBay is trading well below our target price and we believe the shares offer excellent upside
potential. HudBay is a relatively new company having been “created” in late-2004. We believe that the market has yet to recognize the full potential of
the assets as they were previously hidden within Anglo American. Additionally, we think that management team has the ability to grow the asset base
through exploration and reserve/resource expansion.
Valuation. Our target price for HudBay is determined using a 7.5 multiple of our 2006E EPS of $3.11. This methodology is in line with our valuation for
Inmet and EuroZinc, both mid-tier zinc and copper companies. Our Outperform rating reflects the upside potential in the share price given our outlook
for the metals markets over the next twelve months. We apply an Above Average risk rating to HudBay given the relative importance of the 777 mine –
while the company has three mines and one under development, we believe its reliance on 777 gives it a risk profile similar to a one mine company.