Hudbay Minerals Inc T.HBM

TD update METALS

[Ridgeback]

We have increased our price deck for a number of commodities - copper, zinc, nickel, and uranium (Exhibit 1) - reflecting stronger year-to-date prices than previously expected, continuing tight supply/demand balances, low inventories, still challenging supply chains and our belief that hard assets act as a hedge against an inflationary environment.

Russia's invasion of Ukraine has also emphasized the importance of Russia to global supply for a number of commodities, most notably nickel and uranium. We believe that as markets shift from reliance on Russian supply, higher long-term prices will be required to incentivize supply - we have increased our LT uranium and nickel price forecasts. The conflict in Ukraine and the Fed tightening interest rates have raised fears of a stagflationary shock - or a period of slower growth, combined with inflation. There are also growing concerns about a potential recession with some portions of the yield curve inverting.

Our view remains that a recession is a lowlikelihood scenario, albeit a period of slower growth should be expected over the next 18-24 months. Overall, we expect metal prices to be lower in 2023 versus 2022, but to remain at levels that will allow mining companies to generate significant free cash flow.

We note that the copper-focused miners in our coverage are currently discounting a flat copper price of US$3.46/lb. A slowing Chinese property market has been a concern for metals demand for much of the past 12 months. And recent data indicates that these concerns are justified - so far in 2022, new home starts, property sales, and land purchases have declined 12.2%, 9.6% and 42.3% year-over-year through February, respectively.

However, we believe that the government will apply monetary, fiscal, and regulatory solutions sufficient to prevent sharply lower growth. In fact, on March 15, Chinese Vice Premier Liu announced that Beijing plans to take measures to boost the domestic economy, including pausing plans to expand trials of a property tax to ease pressures on the debt-laden property sector.

We are maintaining our OVERWEIGHT sector recommendation, particularly given the Canadian mining sector's preponderance of copper exposure. The myriad of concerns that are troubling commodity markets will not, in our view, undermine the longer term outlook for metals demand, particularly for copper, nickel, lithium and uranium.

These metals are firmly embedded in the energy transition and their role over the longer term will intensify on the back of de-carbonization and the ‘greening’ of the economy. Our ACTION LIST BUY recommendation remains Teck Resources. Our other top picks are First Quantum, Champion Iron, and Solaris. We will review targets and recommendations as Q1 earnings are released.

[satchmo6]

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