Hudbay's Recent Disappointing Actions and Desperate Unprofessional
Tactics Show that Adult Supervision is Urgently Needed
Current Board Ignored Settlement Proposal Supported by Approximately
35% of Shareholders, Demonstrating Deep Entrenchment
Hudbay is at a Strategic Inflection Point and Desperately Requires
Effective Strategic Thinking and Fresh Perspectives on the Board to
Create Real Value for Shareholders
Company’s Attempts to Mislead Shareholders and then Cover Up
Falsehoods Reveals Crisis of Judgment at the Board Level
Shareholders are urged to Elect Five Independent, Highly-Qualified
Director Candidates to the Board: A.E. Michael Anglin, Peter Kukielski,
Richard Nesbitt, Daniel Muñiz Quintanilla and David Smith
Vote on the BLUE Proxy and Submit
Prior to 5:00 p.m. (Eastern time) on Thursday May 2, 2019
Waterton Precious Metals Fund II Cayman, LP ("Waterton Mining LP")
and Waterton Mining Parallel Fund Offshore Master, LP ("Waterton
Fund II"), each of which are managed by Waterton Global Resource
Management, Inc. ("WGRM", and collectively with Waterton
Mining LP and Waterton Fund II, "Waterton"), owning in the
aggregate 12.09% of the issued and outstanding common shares (the "Shares")
of Hudbay Minerals Inc. ("Hudbay" or the "Company")
(TSX: HBM) (NYSE: HBM), today filed an information circular (the "Waterton
Circular") and issued a letter to shareholders of the Company (the “Shareholders”)
in connection with its nomination of independent, highly-qualified
director candidates for election to the Company's Board of Directors
(the "Board") at the Annual and Special Meeting of
Shareholders scheduled for Tuesday, May 7, 2019 at 10:00 a.m. (Eastern
time) (the "Meeting").
Waterton's slate of director candidates now includes five individuals,
who, if elected, would constitute a minority of the post- Meeting Board:
A.E. Michael Anglin, Peter Kukielski, Richard Nesbitt, Daniel Muñiz
Quintanilla and David Smith.
The full text of Waterton's open letter to Shareholders follows:
April 15, 2019
Dear Hudbay Shareholders,
Waterton Global Resource Management, Inc. on behalf of itself and each
of Waterton Mining Parallel Fund Offshore Master, LP and Waterton
Precious Metals Fund II Cayman, LP (collectively, “Waterton”, “we”
or “our”), owns 12.09% of the issued and outstanding common
shares of Hudbay Minerals Inc. (“Hudbay” or the “Company”)
(TSX: HBM) (NYSE: HBM), making us the Company’s second largest
shareholder. Waterton is seeking your support to elect a minority slate
of five highly-qualified and experienced independent director candidates
(the “Waterton Nominees”) to the Company’s board of directors
(the “Board”) at the Company’s Annual and Special Meeting of
Shareholders to be held on Tuesday, May 7, 2019 at 10:00 a.m. (the “Meeting”).
The Waterton Nominees are fully independent of Waterton, have impeccable
credentials and possess the relevant, diverse and global experience to
help fix the broken culture of Hudbay’s current Board by providing
much-needed oversight of strategy and capital allocation in order to
create long-term shareholder value at the Company.
Throughout our public engagement with Hudbay, Waterton has sought to
keep the campaign focused on the facts. We have not made things
personal. Consistently, we have backed up our assertions with data and
clearly stated our intentions – which are to drive long-term share price
appreciation for all Hudbay shareholders.
In contrast, the approach taken by the Company in its recent Management
Information Circular dated April 5, 2019 (the “Hudbay Circular”)
clearly falls short of even the most basic standards of
professionalism. Waterton is shocked and disappointed that a Chairman
and Board of a ~$2 billion market capitalization company would conduct
themselves in such a childish manner, including by spending shareholder
money on creating such a document.
The approach taken by the Company in the Hudbay Circular confirms for us
what we previously believed: adult supervision from serious
professionals is required at Hudbay. Evidently, the Company is on the
wrong side of the facts, and so certain factions of the Board have
resorted to desperate measures, vitriol and scattershot arguments to
maintain their entrenchment. We will continue to focus on the facts.
Focus on the Facts: The Coverup is Always Worse
than the Crime
The manner in which Hudbay has elected to conduct itself in this proxy
contest has been increasingly unprofessional and disappointing. However,
there is a stark difference between running an aggressive campaign and
running a deceitful one. It’s a bright line. And it’s a line that Hudbay
has crossed.
The Hudbay Circular and accompanying materials were rife with misleading
statements, inaccuracies and blatant mistruths. But there was one
accusation made against Waterton that stood out, both for its
seriousness and the fact that it was such a galling lie. On page 32 of
the investor presentation Hudbay released concurrently with the Hudbay
Circular, the Company argues that Waterton has had a negative impact on
Hudbay’s share price. The page states that “WATERTON MADE ~60% OF ITS
PURCHASES AFTER DRIVING HUDBAY’S SHARE PRICE DOWN.” Hudbay then stated
that a “Bloomberg Article Seeded by Waterton” artificially manipulated
Hudbay’s share price in order for Waterton to purchase shares at a
discount and increase Waterton’s ownership position. The article in
question was the October 4, 2018 Bloomberg article regarding Hudbay’s
deal talks with Mantos Copper.
Just to summarize: Hudbay and its Board accused its second largest
shareholder of market manipulation – a serious allegation against any
institutional investor.
Note that in our description we used the past tense of the word
“accused.” That is because at some point last week Hudbay
surreptitiously updated its presentation. In the new version, the words
“seeded by Waterton” have been removed from the sentence referring to
the Bloomberg report. Even though this alleged action by Waterton had
been positioned in the previous version as the smoking gun for the
entire argument that Waterton had manipulated Hudbay’s share price, the
rest of the page remains unchanged.
It is not surprising that investors would not have been aware of this
highly significant alteration to Hudbay’s materials, as there was no
refiling, noted correction, or any other form of disclosure around the
event.
Clearly Hudbay lied. The fact that the Company and the Board then tried
to sweep their baseless accusation under the rug without any public
disclosure, well after virtually all its investors would have reviewed
Hudbay’s proxy materials, demonstrates an utter lack of integrity or
regard for honest communication with shareholders. In our view, all of
Hudbay’s current directors are responsible for this error in judgement
and the subsequent coverup. Waterton intends to immediately take the
necessary legal steps to ensure that shareholders are given the truth.
In addition to this surreptitious conduct, Hudbay also attempted to
discredit Mr. Nesbitt, Mr. Kukielski and Mr. Muñiz in their proxy
materials through patently false and grossly misleading information.
Focus on the Facts: Hibben, Stowe and Gonzales
are requesting to be in the Boardroom, Waterton is not
In the Hudbay Circular, the Company makes a number of irresponsible and
misleading statements about Waterton’s investment track record and
specific investments. Waterton is a top performing private equity fund
with an institutional, multi-disciplinary, platform and it is widely
accepted in the market that we are one of the most successful investment
firms in the mining sector. To be clear, we are a private investment
firm and the Company does not have visibility into our complete
investment portfolio.
Hudbay seemingly spent copious amounts of time on Google gathering
inaccurate, fragmented and largely irrelevant data points in an effort
to mislead shareholders about our investment track record. Hudbay
conveniently forgot to mention that our return on our Hudbay investment
is 61% and that ~$750 million of value has been created for our fellow
shareholders. While we are proud of this performance, we would once
again like to reiterate that Waterton’s track record is not relevant to
this campaign. All of the Waterton Nominees are entirely independent of
Waterton and Waterton will not be in the boardroom.
Chairman Alan R. Hibben, Kenneth G. Stowe and Igor A. Gonzales, however,
are requesting to be in the Boardroom and their judgement and track
record is relevant. Let’s consider each of their performance: Chairman
Hibben and Mr. Stowe have served on the Board in conjunction with the
current CEO, CFO and COO being in senior management roles for nearly a
decade and Mr. Gonzales has done the same for more than half a decade,
during which time an incredible amount of shareholder value has been
destroyed. Total shareholder returns (“TSR”) relative to its
peers (“Peers”)1 during the tenures of Chairman
Hibben, Mr. Stowe, and Mr. Gonzales, prior to our public involvement,
were -131%, -88% and -75%, respectively. There is no hiding or
explaining away this fact. For Board refreshment to be meaningful and
effective, Hudbay’s nomination of three new directors out of an
11-person Board slate is not enough in light of the level of
entrenchment, poor judgement and value destruction that has occurred
under this Board.
Focus on the Facts: This Entrenched Board is
Yet Again Ignoring the Views of Holders of Approximately 30% of Its
Shares
On the morning of April 3, 2019, Waterton submitted what was its second
term sheet (the “April Term Sheet”) to Chairman Hibben that set
forth a settlement proposal supported by holders of approximately 30% of
Hudbay’s shares. Waterton and the Company had a meeting scheduled for
April 4, 2019. Our intentions were to discuss the supported settlement
proposal with Chairman Hibben and director Sarah Kavanaugh at the
meeting and progress negotiations on the April Term Sheet in the days
following, as the Company had until mid-April to issue its circular.
During this meeting, once again, we found Chairman Hibben to be
dismissive. Chairman Hibben conveyed that he would discuss the proposal
with the remainder of the Board and revert with feedback. We
took his words at face value.
The very next day, Mr. Hibben requested a call with Waterton at 10:45
a.m. and on that call indicated that the Company would be rejecting the
supported settlement. Mr. Hibben did not provide any feedback or a
counter proposal. Less than two hours after the call ended, the Company
issued the Hudbay Circular and other proxy-related materials.
From Waterton’s perspective, we believe the April 4 meeting was merely a
charade on the part of Hudbay to create the optics of engagement. The
fact that the Company had a press release, presentation, and its
circular ready to go – replete with over the top attacks and false
accusations against Waterton and our Waterton Nominees – in our minds
demonstrates that they had no interest in a true negotiation. In fact,
the Board’s bad faith approach to negotiations has been a consistent
theme. In November 2018, when Waterton first engaged in settlement
discussions with the Company and owned approximately 8% of the Company,
Chairman Hibben offered Waterton 2 of 10 Board seats. In April 2019,
despite Waterton now owning approximately 12% of the Company and having
~30% Shareholder support for a settlement proposal, Chairman Hibben
offered us 2 of 11 seats, a nonsensical downgrade from his original
position. Ultimately, the Board, under the
leadership of Chairman Hibben, has shown itself much more adept at
entrenchment maneuvers and gamesmanship than at doing what’s right for
shareholders.
Focus on the Facts: Hudbay is at a Critical
Inflection Point
Hudbay is at a strategic inflection point and the upcoming quarters for
the Company will not be about picking low-hanging operational fruit –
which is the extent of what the Company has done to date. In fact, we
believe that the current Hudbay simply builds for the sake of building –
without regard for the critical issue of how shareholder returns are
impacted by its operational decisions. Put another way, the Company’s
focus on operational issues is tantamount to seeing only the tip of the
iceberg. The Board does not have the experience or the skillset needed
to see the issues which constitute the rest of the iceberg below the
surface – issues which could sink the Company and destroy even more
shareholder value, similar to the Company nearing insolvency and almost
defaulting on debt covenants in 2016 after building Constancia. And this
is the fundamental difference between the “strategy” of the incumbent
Board and the meaningful strategy that the Waterton Nominees would
implement: the incumbent Board just takes the next operational step
because it’s there, the Waterton Nominees would keenly consider
long-term shareholder value before taking any
step.
At this critical moment, the Company must resolve key strategic issues
and make transformational decisions. These include:
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The appropriate mix of assets from a portfolio construction
perspective;
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The future of its Manitoba Business Unit;
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The construction of the Rosemont project which Hudbay estimates has a
capex of $1.9 billion;
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The appropriate joint venture partner and ownership structure for
Rosemont;
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The appropriate financing strategy for Rosemont; and
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Land and community matters at Constancia.
Hudbay now requires a significant change at the Board level to ensure
that once the pressure is off, the value that has been created since
Waterton’s involvement continues to grow over the long-term. We believe
if meaningful change is not made immediately, Hudbay will revert to its
characteristic myopic short-term thinking and poor capital allocation
decision-making, something it can ill afford to do at this critical
moment.
The Company needs sufficient additional bench-strength in the Boardroom
that will:
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Make strategic decisions with a view toward creating long-term
shareholder value;
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Allocate capital based on predefined hurdles and as a part of a
holistic strategy; and
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End the culture of entrenchment and introduce meaningful
accountability.
Lack of Strategic Thinking and Poor Capital Allocation: The
Constancia Precedent
The Company’s current Board has a terrible track record when it comes to
analyzing and executing on key strategic matters. Note that Constancia
was built under the oversight of a significant proportion of the current
Board. To this day, the Board and C-Suite repeatedly reference building
Constancia as their biggest “win”. Let’s factually review what happened
to this Company when Constancia was built under this Board’s oversight.
Yes, the Company built a mine. But, in the process the Board turned a
company with a market capitalization of close to $2 billion
into a $380 million dollar company, loaded
its balance sheet with debt and took Hudbay to the brink of insolvency,
as it was in jeopardy of breaching its debt covenants. As noted by
sell-side analysts, “Hudbay [faced] potential debt covenant breaches”2
and they were “basically betting their market cap on one mine.” 3
After Hudbay built Constancia, the Company’s debt-to-equity ratio was
approximately three times greater than its Peers.4 It was the
Board’s judgement on when to build, how to finance and other key
strategic factors that took Hudbay to the brink of insolvency. We now
have a strikingly similar situation to that of 2012. In recent months
and weeks, Hudbay has made it abundantly clear to the market that its
intention is to construct Rosemont, and it has initiated preliminary
construction activities. But Hudbay today is in a far worse cash and
debt position relative to April 2012, with a similar market
capitalization and facing a greater capex requirement.
It is time to rein in this Company’s reckless behaviour. The reality is
the Company is in “build for the sake of building” mode and there’s
little long-term strategic foresight dictating the decisions around
Rosemont.
Lack of Strategic Thinking and Poor Capital Allocation: The Mantos
Deception
On October 4, 2018, Bloomberg reported that Hudbay was in talks to buy
Mantos Copper SA for ~$780 million, a project with a ~$990 million
follow-on capital requirement, according to Bloomberg. Following the
report, Hudbay’s share price fell 7.9% intraday. Waterton vocally
opposed the acquisition because of the Company’s existing capital
requirements, its then discounted valuation and its need to focus on its
own operational issues. To put this into perspective, according to the
Bloomberg article, Hudbay was pursuing a transaction that could have
resulted in ~$4.2 billion of existing debt obligations and potential
capital requirements, while the Company’s market capitalization was only
$1.25 billion.
In the months following the Bloomberg article, Hudbay has been evasive
with respect to its statements on Mantos and has not categorically
denied that it was in the late stages of pursuing the transaction. Was
it one of the last parties left in the process? Was it negotiating with
the seller in late stage exclusive negotiations? Were purchase
agreements going back and forth? Was the proposed purchase price ~$780
million? The Company will not say – and that is problematic in light of
the alarming deterioration of Hudbay’s share price resulting from this
article and the chorus of Shareholder concern about the potential
acquisition.
Never mind the issue of dealing with the Company’s shareholders
truthfully and transparently, the issue of whether the Company was in
the late stages of a Mantos deal is critical because it goes to a key
question: does this Board have the strategic judgement to create
long-term shareholder value? If the Company was indeed pursuing the
Mantos transaction, a deal that would have massively destroyed
shareholder value, shareholders should know that before they cast their
vote at the Meeting.
Focus on the Facts: More Change is Needed
Hudbay is speaking out of both sides of its mouth. On the one hand it is impugning
Waterton’s motives, judgment and slate of nominees, while on the other
hand effectively endorsing our judgment by selecting two of our
nominees to add to its slate of director candidates. As we have stated
all along, A.E. Michael Anglin and David Smith would be remarkable
additions to the Hudbay Boardroom.
The reality is, however, that changing over two director seats,
mitigated by the expansion of the Board to 11 members and the addition
of another Hudbay-selected director, does not constitute the level of
change that is desperately needed. This amount of change is dangerously
insufficient for three reasons: (1) the entrenchment in the Hudbay
Boardroom and C-Suite goes back nearly a decade, (2) the Board would
still be lacking key skills and expertise that are necessary to create
long-term shareholder value, and (3) there is a systemic lack of
accountability at the Board, as evidenced by, among other things,
Hudbay’s 2018 Corporate Scorecard where the Board awarded management a
score of 93.5/100 despite Shareholders having lost 42% on their
investment.
Waterton believes that substantial changes must still be made to the
Hudbay Board to give shareholders the comfort that the change and proper
oversight needed at Hudbay can be effective. That is why we continue to
advocate for the election of three additional director nominees, beyond
Mr. Anglin and Mr. Smith. We believe that the addition – in total – of
five of our nominees will effect a marked change in the dynamics in the
Boardroom at the Company and help drive improvements in strategy and to
end the current culture of entrenchment. By refreshing the Board with
five Waterton Nominees, we believe the Company will have the necessary
strategic oversight, capital allocation discipline, accountability to
hold management to account and, importantly, institutional-grade
professionalism. In these specific circumstances, we are willing to
provide the current CEO with a full and fair opportunity to demonstrate
his capabilities. We also note that five directors would constitute a minority
of what will be an 11-member Board. To be clear, we are no longer asking
for control of the Board.
Hudbay’s shareholders should not be deprived of this unique opportunity
to materially upgrade its Boardroom with institutional-grade talent. In
addition to our nominees A.E. Michael Anglin and David Smith who have
been included on Hudbay’s Board slate, our nominees Richard Nesbitt,
Peter Kukielski and Daniel Muñiz Quintanilla, on objective measure of
merit and experience, are just that – a material upgrade. Why shouldn’t
our Company have the best of the best in the Boardroom, particularly now
that each of these professionals are ready and willing to engage?
Waterton’s Highly-Qualified, Independent
Nominees – Upgraded and Needed Oversight
The Waterton Nominees have the required skills, fresh perspectives, and
expertise the Company’s Board and management team sorely need. As
highlighted below, each Waterton Nominee fulfills the immediate
experience sorely needed at the current, flawed and entrenched Board.
The Waterton Nominees’ backgrounds and credentials can be found in
Waterton’s information circular accompanying this letter under “Matters
to be Acted Upon at the Meeting – Waterton Nominee Profiles” and on our
website at www.NewHudbay.com.
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Director
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Proposed Role
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Expertise Requirement
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A.E. Michael Anglin
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Independent Director
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Construction & Operation of Large-Scale Copper Projects
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Peter Kukielski
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Independent Director
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Proven Leadership & Relevant Track Record with Strategic
Partnerships
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Richard Nesbitt
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Independent Director
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Corporate Governance & Accountability
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Daniel Muñiz Quintanilla
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Independent Director
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Board & C-Suite Experience at South America’s largest mining
projects
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David Smith
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Independent Director
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Capital Allocation & Project Finance Expertise
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The Waterton Nominees not only have the experience to move Hudbay
forward, they also have a strategy to deliver long-term shareholder
value. If elected, the Waterton Nominees are in a position to help
execute this strategy starting immediately after the Meeting, including:
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Accountability: Ensure management is held
to account and fully aligned with shareholders.
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Corporate Governance: Implement best
governance standards and practices based on a culture of transparency
and professionalism.
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Portfolio Optimization: Require a
holistic portfolio review and a strategic optimization plan for the
assets to maximize long-term shareholder value.
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Capital Allocation & Balance Sheet:
Demand a comprehensive capital allocation strategy with a focus on
return on invested capital.
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Performance: Ensure management delivers
on transparent and value accretive performance objectives.
A Simple Choice:
We believe that stacking up the experience and expertise of the Waterton
Nominees against those of Hudbay’s incumbent directors paints an
incredibly clear picture. Hudbay can grasp at straws all it wants to try
to portray its directors as experienced leaders, but shareholders will
not be fooled. The bottom line is that incumbent directors Alan R.
Hibben, Kenneth G. Stowe and Igor A. Gonzales, have had their chance to
exercise responsible oversight of Hudbay’s governance and strategy – and
they have not been effective in doing so. In contrast, our Waterton
Nominees are better positioned on every count to push for the change
that is desperately needed at the Company. We believe that shareholders
should not be deprived of this rare opportunity to have Board members
with such impressive and relevant experience and expertise.
The facts speak for themselves:
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Waterton Nominees
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Hudbay Nominees
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Richard Nesbitt
Seasoned Leader
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Has led some of Canada’s largest and most important institutions
and has executed some of the country’s most seminal corporate
transactions
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Track record of creating immense shareholder value, as
demonstrated by his 487% TSR as President, CEO and board member
of the TSX Group and his 122% TSR as COO of CIBC, and Chairman
and CEO of CIBC World Markets
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During Mr. Nesbitt’s tenure as COO of CIBC and Chairman and CEO
of CIBC World Markets, CIBC’s share price increased from $67 to
$107, and the market capitalization increased by $12 billion
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Other leadership roles include President and CEO of HSBC
Securities (Canada) Inc. and President and CEO of the Global
Risk Institute
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Alan Hibben
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Track record of destroying shareholder value, as demonstrated by
the abysmal TSRs at the majority of companies he’s served on the
board of, including Pinetree Capital -50%, DHX Media -53%,
Discovery Air -81%, Peace Arch -92% and Home Capital 169%
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Since 2009, he has collected approximately C$2 million in
compensation at Hudbay for his service on the Board, despite the
Company’s TSR of -131% relative to its Peers
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Primary board experience is serving on micro-cap and small-cap
company boards
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Hudbay is the largest company board that Mr. Hibben has served
on in his entire public company boardroom career, approximately
seven times larger than the average company size in Mr. Hibben’s
board history
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Has not held a C-Suite role in a publicly traded company
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Peter Kukielski
Superior Mining Experience
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Track record of creating immense shareholder value, as
demonstrated by his 25% TSR while a board member of South32 (a
~$10 billion market capitalization mining company) and his 93%
TSR at Nevsun (a diversified mid-tier mining company as at the
end of his tenure) as the CEO and executive board member
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30+ years of extensive global experience within the base metals,
precious metals and bulk materials sectors
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Oversaw global operations for companies such as BHP Billiton,
Teck Resources, ArcelorMittal, Falconbridge
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Named CEO of the Year at Mines and Money in 2018
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As CEO of ArcelorMittal’s mining division, grew that business
unit so much that it began being reported separately and came to
represent ~30% of the company’s EBITDA
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Kenneth Stowe
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Track record of destroying shareholder value at the companies
where he served as an independent board member, including
Klondex -55%, Fire River -60%, Zenyatta Ventures-61%, Alamos
-63% and Centenario -78%
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Has gained the majority of his boardroom experience serving on
small-cap and micro-cap mining company boards
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Has not held a C-Suite position in a major mining company
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As a result of his limited experience serving on the Board of or
holding C-Suite positions at major mining companies, Mr. Stowe
brings a small company mentality to the Hudbay Boardroom
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Daniel Muñiz Quintanilla
Superior South American Experience
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Has a track record of creating immense long-term shareholder
value, as demonstrated by his 376% TSR at Grupo Mexico (serving
as CFO and executive board member for ten years) and his 86% TSR
at Southern Copper (serving as Executive Vice President and
executive board member for ten years). Southern Copper’s
operations are significantly more complex, and its market cap
(~$32 billion) is significantly larger (>15x larger), than
Hudbay’s
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Was critical in establishing a capital allocation and execution
strategy to increase production at Southern Copper and Grupo
Mexico by 81% and 86%, respectively, and increasing the market
capitalization by $3.3 billion and $11.0 billion, respectively
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Great addition to the Hudbay Board, bringing to bear his
executive experience in South America, prudent approach to
capital allocation, his focus on profitability and his knowledge
and track-record of community engagement in Peru
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Igor Gonzales
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As CEO of Sierra Metals, a base metals company operating in
South America, he is extremely distracted by the following
factors: (i) Sierra Metals is undergoing an expansion at all
three of its core operating mines in 2019, (ii) Sierra Metals’
silver operation is projected to operate at a loss in 2019,
(iii) as of December 31, 2018, Sierra Metals had a negative
working capital balance, and (iv) Sierra Metals has
significantly underperformed its peers year-to-date
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As CEO of Sierra Metals, Mr. Gonzales is subject to potential
commercial conflicts, requiring recusal, further limiting his
utility on the Board
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By his own admission, he was a key leader at Pascua-Lama, on
which Barrick took a $5.1 billion write down which will go down
in the mining sector as being one of the worst examples of
capital allocation, having capex estimates increase from $1.2
billion to ~$8.5 billion
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We Need Your Support
We encourage our fellow shareholders to consider the facts and remember
Hudbay’s consistent poor performance, ongoing flawed strategy, damaged
credibility and entrenched culture. The Waterton Nominees are ready and
willing to help create new Hudbay with a defined strategy and a focus on
creating long-term shareholder value. Please read Waterton’s information
circular accompanying this letter and review the additional shareholder
materials available, including the comprehensive investor presentation
titled “Rebuilding Hudbay & Maximizing Shareholder Value” setting out a
detailed path forward for Hudbay to recognize its potential and unlock
shareholder value at www.NewHudbay.com.
Your vote is critical to initiate much-needed change at the Board and
management level at Hudbay and we encourage you to vote for the Waterton
Nominees on the BLUE form of proxy
and/or BLUE voting instruction form
by 5:00 p.m. (Eastern time) on Thursday, May 2,
2019. Shareholders willing to express their support for the
Waterton Nominees may contact Kingsdale Advisors, our strategic
shareholder advisor and proxy solicitation agent, at 1-888-518-1563
toll-free in North America, or at 416-867-2272 outside of North America
(collect calls accepted), or by email at contactus@kingsdaleadvisors.com.
Sincerely,
Isser Elishis
Chief Investment Officer
About Waterton
Waterton is an investment firm that manages capital for global
institutional investors, sovereign wealth funds and endowments. The firm
has ~US$2 billion in assets under management and focuses solely on the
metals and mining sector. Waterton has a culture of thoroughness and a
disciplined approach to capital allocation, and utilizes its significant
industry expertise to produce out-sized risk-adjusted returns.
Additional Information
In its early warning report dated January 22, 2019 (the "January
EWR"), Waterton had disclosed that it intended to nominate and
solicit proxies for a slate of eight director candidates for election to
the Board at the Meeting. As announced today, Waterton is now intending
to solicit proxies for five individuals for election to the Board at the
Meeting.
Waterton owns and exercises control or direction over an aggregate of
31,583,117 Shares, representing approximately 12.09% of the issued and
outstanding Shares. At the time of the January EWR, Waterton owned and
exercised control or direction over 31,352,658 Shares, representing
approximately 12.00% of the issued and outstanding Shares.
The Shares were acquired for investment purposes and for other reasons
detailed herein and in Item 5 of the January EWR and other early warning
reports filed by Waterton under applicable Canadian securities laws.
Waterton may, depending on market and other conditions, acquire
additional Shares through market transactions, private agreements,
treasury issuances, exercise of warrants, or otherwise, or may sell all
or some portion of the Shares, or may continue to hold the Shares.
For further information and to obtain a copy of the early warning
reports filed by Waterton, please see Hudbay's profile on the SEDAR
website at www.sedar.com
or contact Richard Wells, Chief Financial Officer of WGRM at
416-504-3505.
The head office address of WGRM is Commerce Court West, 199 Bay Street,
Suite 5050, Toronto, Ontario, M5L 1E2, Canada. The head office address
of each of Waterton Mining LP and Waterton Fund II is Ugland House,
Grand Cayman, Cayman Islands, KY1-1104.
The head office address of Hudbay is 25 York Street, Suite 800, Toronto,
Ontario, Canada M5J 2V5.
Legal Notices and Disclaimers
The data, information and opinions contained or referenced herein
(collectively, the "Information") is for general informational purposes
only for the Shareholders in order to provide the views of Waterton
regarding certain changes we are requesting to the composition of the
Board, and other matters which Waterton believes to be of concern to
Shareholders described herein. The Information is not tailored to
specific investment objectives, the financial situation, suitability, or
particular need of any specific person(s) who may receive the
Information, and should not be taken as advice in considering the merits
of any investment decision. The views expressed in the Information
represent the views and opinions of Waterton, whose opinions may change
at any time and which are based on analyses of Waterton and its
advisors. Unless otherwise indicated, the Information has been derived
or obtained from public disclosure and filings with respect to and/or
made by Hudbay and other issuers that we consider to be comparable to
Hudbay, and from other third party reports (see "Legal Notices and
Disclaimers - Disclaimer Respecting Publicly Sourced Information" in the
Waterton Circular, a copy of which is available on SEDAR at www.sedar.com
or on www.newhudbay.com).
The Information contains forward-looking statements or forward-looking
information within the meaning of applicable securities laws
(collectively, "forward-looking statements"), including, without
limitation, Waterton's and Hudbay's respective priorities, plans and
strategies for Hudbay and certain members of Hudbay's operational,
compensation and other noted peer groups' anticipated financial and
operating performance and business prospects. All statements and
information, other than statements of historical fact, included herein
are forward-looking statements, including, without limitation,
statements regarding activities, events or developments that Waterton
expects or anticipates may occur in the future. Certain forward-looking
statements contained herein may be considered to be future-oriented
financial information or a financial outlook for the purposes of
applicable Canadian securities laws. These forward-looking statements
can be identified by the use of forward-looking words such as "will",
"expect", "intend", "plan", "estimate", "anticipate", "believe" or
"continue" or similar words and expressions or the negative thereof.
There can be no assurance that the plans, intentions or expectations
upon which these forward-looking statements are based will occur or,
even if they do occur, will result in the performance, events or results
expected.
We caution readers not to place undue reliance on forward-looking
statements contained herein, which are not a guarantee of performance,
events or results and are subject to a number of known and unknown risks
and uncertainties, including but not limited to those set forth in the
Waterton Circular under the heading "Legal Notices and Disclaimers –
Forward-Looking Statements" and those risks and uncertainties detailed
in the continuous disclosure and other filings of Hudbay and certain
members of Hudbay's operational, compensation and other noted peer
groups with applicable securities regulators, copies of which are
available on SEDAR at www.sedar.com
or on the Electronic Data Gathering, Analysis, and Retrieval at www.sec.gov.
We urge you to carefully consider those risks and uncertainties. The
forward-looking statements contained herein are expressly qualified in
their entirety by this cautionary statement. Unless expressly stated
otherwise, the forward-looking statements included herein are made as of
April 15, 2019 and Waterton disclaims any obligation to publicly update
such forward-looking statements, except as required by applicable law.
109718806 v1
1 Peers include Antofagasta, Ero Copper, First Quantum,
Freeport, Lundin, Oz Minerals, Southern Copper
2 Canaccord Genuity, January 14, 2016.
3 Quote by George Topping at Stifel Nicolaus, The Globe &
Mail, “HudBay bets big with Constancia project as rivals pull back,”
March 7, 2013.
4 FactSet. As of December 31, 2015; debt defined as
short-term debt and long-term debt; equity defined as market
capitalization as of December 31, 2015.
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