HudBay Minerals Inc. [HBM-TSX, NYSE] shares lost almost 20% of their value Thursday August 1 after a U.S. Federal Court blocked construction of the company’s Rosemont copper project in Arizona. The court overturned the Final Record of Decision issued by the U.S. Forest Service in mid-2017
HudBay said it will launch an appeal. But in an investment report, Scotiabank said the appeal of this ruling is expected to take one to two years and is also likely to derail the company’s near-term plans to secure a 30% minority joint venture partner. The ruling could also delay the production start-up until 202, Scotiabank said.
It is why investors reacted to the news by sending HudBay shares down 19.19% or $1.23 to $5.18 on volume of 4.92 million. The shares are currently trading in a 52-week range of $10.42 and $4.505.
The Court ruling is also a setback for Wheaton Precious Metals Corp. [WPM-TSX, WPM-NYSE], which has a precious metals purchasing agreement with HudBay. The deal entitles Wheaton to 100% of the payable silver and gold production from the mine.
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 Rosemont Project is an open-pit copper-molybdenum-silver porphyry-skarn deposit located in Arizona. It is expected to be one of the largest copper mines in the U.S., accounting for 10% of total U.S. copper production.
HudBay said Rosemont is one of the world’s best undeveloped copper projects, one that delivers at 15.5% after-tax unlevered IRR at a copper price of US$3.00 a pound, based on the results of a 2017 feasibility study by HudBay.
Rosemont is expected to produce approximately 127,000 tonnes of copper annually at a cash cost of US$1.14 per pound (net of by-product credits) over the first 10 years of operations.
However, U.S. Federal District Judge James Soto has overturned the Final Record of Decision issued by the U.S. Forest Service on the grounds that there was no factual basis to determine that Rosemont has valid unpatented mining claims on 2,447 acres and that the claims are invalid under the Mining Law of 1872.
In the case of Rosemont, an unpatented mining claim is a claim on Forest Service lands. It means HudBay only has the right to the minerals, not the surface land itself. The court ruling serves as an injunction and prevents development of the project.
In a press release Thursday, HudBay said it believes the Court has misinterpreted federal mining laws and Forest Service regulations as they apply to Rosemont. “As such the company will be appealing the court’s decision to the U.S. Ninth Circuit Court of Appeals,” HudBay said.
It said the Final Record of Decision was issued in June, 2017 after a thorough process of 10 years, involving 17 co-operating agencies at various levels of government, 16 hearings, over 1,000 studies, and 245 days of comment, resulting in more than 36,000 comments.
“We are extremely disappointed with the Court’s decision. We strongly believe that the project conforms to federal laws and regulations that have been in place for decades,” said HudBay Interim President and CEO Peter Kukielski. “We will be appealing the decision as we evaluate next steps for the Rosemont Project,” he said.