Maintain their $15.50 target. GLTA
Q2/24 Model Updates; Copper Trending To Guidance Low End Our Conclusion
Earlier today, Hudbay reported in-line Q2/24 operational results but an
earnings miss due to delays in sales timing. We expected the stock to open lower and trade better through the day; that has mostly played out with the stock almost recovering earlier losses. With this note, we have actualized Q2/24 results and refined our forward estimates. After model updates, we maintain our Outperformer rating and C$15.50 price target.
We expect the market to continue to focus on FCF generation, balance sheet
deleveraging and updates on Copper World permitting (on schedule by end
of 2024). At spot prices, HBM trades at 4.4x EV/2024E EBITDA and 1.0x
NAVPS compared to peers averages at 7.7x and 0.9x, respectively.
Key Points
Model Updates. Our model updates primarily reflect Q2/24 actual results.
On a consolidated basis, we model a 20% increase in copper sales and a
4% increase in zinc sales in H2/24 compared to H1/24, considering shipping
delays in late Q2/24. Our full-year copper production estimate of 137.4kt
tracks towards the lower end of the guidance range of 137kt-176kt, mainly
due to lower grades at the Peru operations in Q3. We model full-year cash
costs at $0.86/lb, better than the updated guidance range of $0.90-$1.10/lb,
with our H2 gold price assumption of $2,375/oz one factor for the variance.
Peru Grade. HBM expects copper grade milled at Pampacancha to improve
in Q3/24 to 0.35%-0.40% from 0.30% in Q2/24, and further increase to
0.55%-0.57% in Q4 or early 2025, supported by the ongoing stripping
program through September at Pampacancha.
Copper World Permitting. Management noted that public comments
received on the company’s application of Aquifer protection permit in Q2/24
were generally supportive and the company expects to receive this state-
level permit and the air quality permit in H2/24. Strong support from the
Arizona Department of Environmental Quality is expected to enable the
completion of the permitting process by end of 2024, with no anticipated
impact from U.S. election landscape due to the permits’ state-level nature.
The company continues to seek a long-term partner for the project and
expects to start a JV process once the permit is secured.
Copper Mountain Ramp-up. Mill throughout currently fluctuates between
35ktpd-40ktpd driven by feed size, but HBM expects this to stabilize to
41ktpd by the end of 2024 and has the potential to achieve full feasibility rate
of 50kptd with additional capital projects. Haulage rates are improving, and
unit costs are expected to decrease due to the relatively fixed stripping costs
(equipment leases, workers, and fleet)