TD updateEvent Hudbay reported updated Constancia and Snow Lake mine plans and provided its annual reserve and resource update. The company also released an updated threeyear production guidance.
Impact: SLIGHTLY POSITIVE Our consolidated NAV-8% is now C$11.59/share (up 2.9% from C$11.26/share). Our NPV-8% for the Constancia mine is $1.86bln, or C$8.93/share (previously $1.81bln, or C$8.68/share). Our NPV-8% for the Snow Lake operations (Lalor + Lalor Gold) is $1.05bln, or C$5.07/share (previously $1.11bln, or C$5.35/share).
Average annual copper production at Constancia is expected to average ~102,000 t/year at a cash cost of $1.18/lb over the next eight years; this is an ~13% improvement versus our previous forecast of ~90,000 t/year at a cash cost of $1.29/lb.
Gold production will average 58,000 ozs/year (TD's previous estimate 51,000 ozs/year). Mine life has been extended by one year to 2037. However, capex (sustaining + growth) over the next eight years is ~58% higher than our forecast at $854mm (TD: $542mm).
The combined mill throughput at the Lalor and Snow Lake operations (Stall and New Britannia mills) is now forecast at 5,300 tpd versus the previous base case of 4,500 tpd, starting after the 777 Mine closes in mid-2022. Hudbay has also incorporated the 1901 Zone into the mine plan starting in 2026.
Gold and copper recoveries through the Stall Mill are projected to improve by early-2023 once a $19mm optimization plan has been completed. Gold production is now expected to average +180,000 ozs/year from Lalor and Snow Lake once the New Britannia mill reaches full capacity (TD's previous forecast: ~174,000 ozs/year).
Hudbay also announced the discovery of high-grade copper mineralization at its Copper World project adjacent to the stalled Rosemont development project. Four deposits have been identified, with a combined strike length of over five kilometres; mineralization starts at or close to surface. Multiple drill intersections over lengths of 300-600 feet and grades of 0.40-1.0% copper were reported. Hudbay has six drilling rigs on the property and expects to increase its $10mm exploration budget for the area.
TD Investment Conclusion We are maintaining our BUY recommendation and C$14.00 target price.