Hudbay acquiring Copper Mountain for US$439 million

Hudbay Minerals Inc.  [HBM-TSX, NYSE] has agreed to acquire Copper Mountain Mining Corp. [CMMC-TSX] in a transaction worth $2.67 a share or US$439 million.

The companies said the deal will create a premier Americas-focused copper mining company that is well positioned to deliver sustainable cash flows from an operating portfolio of three long life mines, as well as organic growth from a pipeline of copper expansion and development projects.

These assets are expected to deliver US$30 million annually in operating efficiencies and corporate synergies.

The combined company represents the third largest copper producer in Canada (150,000 tonnes annually), based on 2023 estimated copper production.

Hudbay’s Constancia operations in Cusco, Peru, produce copper, with gold, silver and molybdenum by-products. Its Snow Lake operations in Manitoba produce gold with copper, zinc and silver by products. Its organic pipeline includes the Copper World project in Arizona and Mason project in Nevada.

Copper Mountain’s key asset is the 75%-owned Copper Mountain Mine in British Columbia, which currently produces approximately 100 million pounds of copper equivalent per year, with average annual production expected to increase to approximately 140 million pounds of copper equivalent at a cash cost of US$1.19 per- pound over the first 10 years of its 21-year mine life.

The company has been drilling a satellite deposit known as New Ingerbelle in a bid to define sufficient reserves to add another 10 years of production to Copper Mountain’s life of mine plan.

On October 6, 2022, Copper Mountain said it had agreed to sell its other key asset —  the Eva Copper Project in the Mount Isa region of Queensland — to Harmony Gold Mining Co. for US$230 million. The deal called for an upfront cash payment of US$170 million.

On April 12, 2023, Hudbay shares closed at $7.00 and currently trade in a 52-week range of $9.80 and $4.07. Copper Mountain closed at $2.26 and has traded in a 52-week range of $3.89 and $1.23.

Under the arrangement with Hudbay, each Copper Mountain shareholder will receive 0.381 of  Hudbay common share for each Copper Mountain share held. The transaction consideration represents a 23% premium to Copper Mountain shareholders based on Hudbay’s and Copper Mountain’s 10-day volume-weighted average share prices on April 12, 2023.

In light of the transaction, Gil Clausen has postponed his retirement and will remain as President and CEO of Copper Mountain until the deal closes, likely late in the second quarter or early in the third quarter of 2023.

The arrangement will require the approval of at least 66 and 2/3% of the votes cast by Copper Mountain shareholders at an upcoming special meeting.

The officers and directors of both companies have entered into a voting support agreement requiring them to vote their shares in favor of the transaction.