TD UPDATETHE TD COWEN INSIGHT We are refreshing our Canada Best Ideas pick which was originally published on September 30 (note). We note that our thesis is unchanged, and we are simply updating the Canada Best Ideas note with our most up to date estimates.
HudBay is a mid-cap copper producer with production of ~150ktpa supplemented by a substantial gold credit of ~300kozpa (~30% of revenues). With three operating assets and... ...an attractive growth project in Copper World progressing towards FID the company is well positioned for investors looking for copper growth exposure in top-tier jurisdictions and is our Top Pick in the base metals space.
Summary Of Our Thesis: In contrast to many of its peers, HudBay's copper production growth is expected to come from stable jurisdictions (the U.S. & Canada). Additionally, we view the company's current flagship operation, the Constancia mine in Peru, as an attractive low-cost, long-life cash flow generating asset with significant exploration potential.
Another differentiator relative to peers, nearly one-third of the company's revenues come from gold, which offers investors exposure to more defensive-oriented cash flows with gold prices near record highs.
What Is Underappreciated Or Misunderstood? HBM has substantially reduced its debt levels over the past ~1.5yrs (2.0x to 0.7x ND/ EBITDA), fundamentally reshaping the company, in our view, following its 2023 acquisition of the Copper Mountain mine in B.C. Against a backdrop of rising geopolitical risk globally, the vast majority of the company's copper production growth is set to come from assets in the U.S. and Canada, which are good mining jurisdictions in our view.
Additionally, HBM has exploration upside at Constancia and its 100%-owned adjacent properties that could substantially extend the mine life. Copper mineralization is known to be present on both the Caballito and Maria Reyna properties. The company continues to work with Peruvian authorities to secure drilling permits, which are expected in 2025.
We maintain our view that there is little to no value in HBM's current share price for this potential upside. We also highlight that from a NAV perspective, HBM has the highest sensitivity to an increase in long-term copper prices among our coverage universe.
Catalysts & Milestones To Watch: Copper World received its Aquifer Protection permit in late August, which represents the 2nd to last major state permit. The last key state-level permit, the Air Quality Permit, is expected in the near future (potentially by yearend) and represents a significant catalyst for the company, in our view.