As is always the case, shareholders are temporarily disappointed with a financing because there's a hit to the SP. But given that the SP only crossed $13.00 for the first time in well over 10 years on 14 May, this is a huge vote of confidence from the financial community.
Got lucky and opened a position this morning. Also, here is the more extensive G&M article from the day the earnings were released. Will post at least a few of these analyst reports later this morning. GLTA
Citing its “strong operational outlook, near-term growth catalysts at Copper World and a discounted valuation in light of recently improving copper price environment,” National Bank Financial analyst Shane Nagle raised his recommendation for Hudbay Minerals Inc. to “outperform” from “sector perform” previously.
“Our upgrade stems from Hudbay’s strong leverage to currently elevated copper price (one of the highest in our coverage along with Taseko Mining),” he said. “The robust and higher trending copper price environment is already benefitting HBM financials as evidenced by Q1, with improving outlook for remainder of the year as the gold forward sales agreement rolls off in August. HBM also remains undervalued amongst its peers, currently trading at 6.5 times EV/2024 estimated CF compared to intermediate peers at 8.5x and a P/NAV of 1.44 times, compared with multi-asset peers (CS/ERO/LUN) at 1.59 times. Several near-term catalysts remain supportive of an improved outlook with Copper World permits anticipated in Q3/24, with a partnership agreement and prudent financing package expected to reported ahead of launching a feasibility study.”
On Tuesday, shares of the Toronto-based miner jumped 14.1 per cent after it reported better-than-expected first-quarter financial and operation results, driven by higher by-product gold revenues. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) came in at US$214-million, topping both Mr. Nagle’s US$172-million estimate and the consensus forecast of US$175-million on higher-than-anticipated gold sales. Adjusted earnings per share of 16 US cents also blew past expectations (1 US cent and 3 US cents, respectively).
Hudbay also reaffirmed its three-year operating outlook, projecting consolidated copper production to average 153,000 tons per year over the next three years “as growth from Copper Mountain offsets declines in Peru and as the Pampacancha deposit is depleted in late-2025.”
“Copper production was somewhat below NBF Estimates on lower grades, mitigated by higher throughput at Constancia and record throughput at New Britannia,” said Mr. Nagle. “Gold production of 90,392 ounces was 22 per cent above NBF Estimates driving the Q1 beat. We anticipate additional copper growth throughout the year as stabilization efforts at Copper World are beginning to bear fruit.”
Seeing an improving operational outlook and elevated commodity prices aiding deleveraging efforts, the analyst added: “Hudbay ended the quarter with US$284-million in cash, US$1.28-billlion in long-term debt and US$335-million of available credit. HBM repaid US$10-million on the credit facility in Q1 and a further US$10-million after quarter-end. Current ND/EBITDA is 1.31 times, which we model decreasing to 1.0 times at the end of 2024.”
After incorporating the results and outlook into his forecast, Mr. Nagle raised his target for Hudbay shares to $15.50 from $12. The average target on the Street is $14.04, according to LSEG data.
“HBM is one of the more leveraged names to an improving copper price environment helping to support improved underlying financial results,” he said. “Strong operational results to start the year, an improving near-term growth outlook, upcoming catalysts at Copper World and a discounted valuation all support an Outperform rating (was Sector Perform). We have adopted a higher target multiple (in line with other intermediate copper peers) to reflect the improved outlook.”
Elsewhere, analysts making target changes include:
* RBC’s Sam Crittenden to $17 from $11 with an “outperform” rating.
“Hudbay continues to generate strong FCF and has leverage to both higher copper and gold prices. We think they could be in a position to start construction of the Copper World project in Arizona next year if they are able to secure permits later this year,” said Mr. Crittenden.
* Scotia’s Orest Wowkodaw to $14.50 from $13.50 with a “sector outperform” rating.
“HBM reported markedly better than anticipated Q1/24 results driven by meaningfully higher gold volumes. All 2024 guidance was reaffirmed,” said Mr. Wowkodaw. “The company generated positive FCF for the third consecutive quarter as deleveraging efforts remain in focus. Overall, given the strong momentum, we view the update as positive for the shares.
“Despite relatively elevated debt leverage, we rate HBM shares Sector Outperform based on an attractive valuation, significant leverage to higher Cu-Au prices, and takeover optionality.”
* BMO’s Jackie Przybylowski to $15 from $14 with an “outperform” rating.
* CIBC’s Bryce Adams to $15.50 from $13 with an “outperformer” rating.
* TD Cowen’s Gregory Barnes to $16 from $14 with a “buy” rating.