RE:Analysrt Update TD HudBay Minerals Inc.
(HBM-T) C$11.65
Q2/14 -- EPS Miss on Timing of
Sales; Liquidity Cushion in
Place
Event
HudBay reported Q2/14 adjusted EPS
of $(0.03), compared with our
forecast of $0.08 and consensus of $0.05.
The company will be hosting a
conference call this morning (J
uly 31) at 10:00 AM (EST).
Impact: NEUTRAL
Timing of sales hits Q2/14 results
— We believe that a portion of the EPS
miss versus our forecast relates to lower sales than we had forecast owing to
rail issues in northern Manitoba related to the extremely cold winter and
recent flooding. Copper sales for the qua
rter were ~8,400 tonnes versus our
forecast of 11,800 tonnes. Management expects to draw down metal
inventories over the rest of the year, predominantly in Q4/14. Production and
cost targets have been maintained for 2014.
Development is approximately 85% complete at Constancia.
The
company continues to expect to commence production later this year and
achieve commercial production in Q2/15; capex guidance has been
maintained at US$1.708 billion.
Lalor remains on sc
hedule and on budget.
The main production shaft has
been commissioned.
The company continues to expect production through
the main shaft to commence in late 2014.
Available liquidity looks okay
— Management estimates that the remaining
capital spending plus accrued but unpaid
expenditures total ~$500 million for
the rest of 2014. This compares with a total available liquidity of ~$0.9
billion. The company should have a liquidity cushion of ~$400 million for
the Constancia ramp-up through H1/15.
TD Investment Conclusion
We are maintaining our BUY recommenda
tion and $13.50 target price
.
We believe that the rapid growth in both production and cash flow over the
next 12–18 months from both Constancia and the Lalor zinc project position
HudBay favourably versus its peers as the sector-leading copper production
growth story. Furthermore, the additi
on of the Rosemont project provides
long-term copper optionality and production growth, albeit with risks of more
permitting delays. We also expect that HudBay's balance sheet should de-
lever as cash flow accelerates through 2015, positioning the company to fund
the development of the Rosemont project and/or the construction of a new
mill at Snow Lake for the Lalor operation.
Metals & Minerals
Recommendation:
BUY
Unchanged
Risk: H