HudBay shares sink on Constancia Mine update

HudBay's Constancia polymetallic mine 100 km south of Cusco, Peru. Source: HudBay Minerals Inc.

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HudBay’s Constancia polymetallic mine 100 km south of Cusco, Peru. Source: HudBay Minerals Inc.

HudBay Minerals Inc.  [HBM-TSX, NYSE] on Monday April 2 filed an updated NI 43-101 technical report for its 100%-owned Constancia Mine in Peru. The 2018 technical report includes updates to the mineral reserves and resources and mine plan, including anticipated throughput recoveries and capital and operating costs for the remaining life of mine at Constancia.

The company has also provided an annual mineral reserve and resource update for its producing properties.

HudBay is an integrated mining company, primarily producing copper concentrate (containing copper, gold and silver), zinc concentrate and zinc metal. The company owns four polymetallic mines, four ore concentrators and a zinc production facility.

The operations are located in northern Manitoba and Saskatchewan, Peru and Arizona.

The 100%-owned Constancia Mine is situated in the Province of Chumbivilcas in southern Peru and consists of the Constancia and Pampacancha deposits.

Constancia is primarily a copper mine. The secondary metals are molybdenum and silver.

According to the company’s recent guidance report, HudBay is expecting the Peru operation to produce 95,000 to 115,000 tonnes of copper this year, down from 121,781 tonnes in 2017. HudBay also said it gold and silver equivalent production in Peru is expected to come in at between 65,000 and 85,000 ounces this year, up from 51,493 ounces in 2017.

The company’s overall production of copper contained in concentrates in 2018 is forecast to decrease by approximately 15% compared to 2017. This is due to lower copper grades at Constancia as the mine shifts to production of lower-grade hypogene ore in the main pit.

Highlights of the Constancia technical report include:

  • Updated Constancia reserves (including the Pampachanca satellite deposit) of 569 million tonnes, grading 0.32% copper. That’s up from 548 million tonnes, grading 0.30% at the end of 2016.
  • After accounting for 2017 depletion (29 million tonnes, grading 0.53%), this represents a net addition of 16 million tonnes with an overall reserve grade increase of 12% However, life of mine copper recoveries of 86% declined from 88% previously.
  • The mine plan contemplates average annual production of 105,000 tonnes of copper in concentrate over the next five years (2019-2023) at an average cash cost, net of by-product credits, of US$1.09/lb of copper, and an average sustaining cash cost of, net of by-product credits of $1.38/lb of copper (including the impact of capitalized stripping and the precious metals stream agreement with Wheaton Precious Metals Corp. [WPM-TSX, NYSE]).

Compared to the company’s previous technical report in 2016, anticipated copper production will increase by 25% in the years 2022 through 2025.

Mining of The Pampacancha (satellite deposit) is now scheduled to begin in 2019, one year later than contemplated in the previous technical report.

Permitting and community relations work is ongoing to support exploration work on the Caballito, Maria Reyna, and Kusiorcco properties near Constancia, the company said in a press release. The properties were acquired in January, 2018.

HudBay shares eased 2.1% or $0.19 to $8.93 on Monday. That’s down from the $10.30 level two weeks ago, a move that reinforces the view that the update would negatively impact the stock price.

Scotiabank analyst Orest Wowkodaw has reduced his 12 month target price for the shares to $13 from $14.

HudBay’s asset portfolio includes the 777 Mine and processing facilities located in Manitoba’s Flin Flon Mining District. As the 777 operation has less than four years of mine life, it will soon require additional ore.

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