HudBay sells Guatemala mine to stick to mining techniques it knows well | CanadianBusiness.com
HudBay sells Guatemala mine to stick to mining techniques it knows well
By Mary Gazze, The Canadian Press | August 08, 2011
TORONTO – HudBay Minerals Inc. (TSX:HBM) sold a promising nickel mine in Guatemala to focus on Canadian and Peruvian projects the company can develop using mining techniques it has been using for more than eight decades.
Analysts said Monday the sale was a long time coming because the Guatemala project had a different geology than HudBay’s other mines and prospects.’
“We have been expecting a sale of the project for some time – admittedly,” said TD Newcrest analyst Greg Barnes .
“We are somewhat pleasantly surprised that management was able to secure a price for the project that is very close to the value for the asset.”
Late Friday, Toronto-based HudBay announced the sale of its 98 per cent stake in the Fenix project to global miner Solway Group for US$170 million.
HudBay plans to take a $212.7-million non-cash charge on the Fenix sale when it reports its second quarter earnings Tuesday, which could lead to a big loss for the miner.
The Lalor and Constancia projects in Manitoba and Peru are nickel sulphides — which are generally mined underground — while Guatemala has so-called lateritic ores, which require open pit mines and chemical treatment of the ores.
HudBay spokesman John Vincic said HudBay is focused on sulphide deposits, and has been mining them in Manitoba for 85 years. The company has never mined a project like the one in Guatemala before.
“We decided to look for partners or sell the project and through the process it became clear that the value of Fenix was much lower than the current carrying value on our books and that’s why we have to take the charge,” Vincic said in an interview Monday.
“We had a buyer with an attractive offer on the table which we thought was very fair for our shareholders, and it’s going to give us additional capital that we need right now to redeploy on these two large construction projects.”
Desjardins Securities analyst John Hughes said the sale “is in line with their strategy to develop assets that are of a specific geological type, which Fenix was not.”
The writedown was required on the miner’s books because the Fenix project had a book value of about $346 million, Hughes said.
Privately held Solway is based in Cyprus and has major operations in Russia, the Balkans, Asia and South America.
HudBay says it will put the money towards its Lalor nickel-zinc-copper-gold project in Manitoba and its Constancia nickel and copper project in Peru.
HudBay has been refocusing its business on its more promising projects under a new management team that replaced former CEOs Allen Palmiere and Peter Jones. Jones was succeeded by Palmiere, who engineered the purchase of Fenix in a corporate takeover in June 2008.
Jones later returned to the company in 2009, after a failed takeover of Lundin Mining was rejected by many of HudBay’s shareholders.
TD Newcrest’s Barnes wrote in a research note that the Fenix project was a “thorn in HudBay’s side” because it was bought by a former management team and didn’t fit the company’s current plan.
“Current CEO, David Garofalo made it clear early in his tenure that the project would not be pursued to development by HudBay and that the project was non-core,” Barnes wrote.
Shares in HudBay Minerals (TSX:HBM) closed down four per cent, or 48 cents to $11.35 on the Toronto Stock Exchange in Monday trading.
Earlier this year, a group of 11 women from Guatemala filed a suit in Canada against HudBay, alleging gang rapes in 2007 at the Fenix project.
HudBay, which didn’t own the mining operations when the alleged offences occurred, has said it would investigate allegations that security personnel, along with members of the police and military, attacked the women.
Vincic said the lawsuits will stay with HudBay but he would not comment further because the matter is before the courts.
However, the company has said the accusations in the lawsuit contradict available information and that it would defend itself “vigorously against them.”
HudBay will report its second quarter results after markets close on Tuesday.
Note to readers: This is a corrected story. A previous version incorrectly stated Peter Jones orchestrated the corporate takeover that led to the Fenix ownership. In fact, it was Allen Palmiere.