Zinc

[Lone Clone]

Cash-rich HudBay Minerals ponders acquisitions, dividends
Wed Aug 15, 5:41 PM
Laura Bobak

http://ca.news.finance.yahoo.com/s/15082007/2/biz-finance-cash-rich-hudbay-minerals-ponders-acquisit...

By Laura Bobak

TORONTO (CP) - Zinc producer HudBay Minerals (TSX: HBM.TO) says the current slump in the price of mining company stocks may be the big break it's looking for as it seeks growth through acquisitions.

"Obviously, we've seen some very high valuations for acquisitions over the last several months and it's fair to say we certainly, from an acquisitions perspective, welcome this adjustment that we see in the marketplace right now as a potential buying opportunity," CEO Peter Jones told analysts in a conference call on Wednesday to discuss the company's latest quarterly results.

Jones made the comments after the company reported net income for the second quarter ended June 30 fell to $69.1 million, compared with $152.8 million a year ago.

The Manitoba-based company said the lower profit is partially due to a non-cash income tax charge of $41.9 million, as well as higher operating costs and the strong Canadian dollar.

But despite these interim profit issues, HudBay is flush with $564 million in cash on hand, money company execs say they want to use to get bigger and better.

Its spending options include developing current assets like its Laylor Lake exploration property, which recently turned up 10 promising drill holes showing zinc mineralization.

It's also shopping for a new acquisition, while at the same time coming under pressure from investors who would like to see some of the cash returned through dividends.

HudBay, which also copper, gold and silver from its four operating mines, is looking for targets in these categories, and would also consider a nickel acquisition, Jones said.

Meanwhile, HudBay itself is considered to be a takeover target by some observers of the metals industry, which has seen a flurry of consolidation in recent months.

Many companies in the booming sector are facing increased costs, as mining consultants are scarce, and materials such as oil, steel, and hydrocarbon have increased in price, HudBay said.

Jones said increased operating costs in the second quarter were $45.17 per tonne, about 23 per cent higher than during the same period last year.

He said the increases reflect greater tonnage from high-cost sources, mainly from its Balmat zinc mine in New York state. The costs were also the result of greater volumes of extraction lower-grade ore at Trout Lake. Both cost hikes were expected.

Jones also said the company has an aggressive 2007 exploration program, mostly in the area of Flin Flon, Man.

HudBay's main production platform is in northern Manitoba and includes the 777 mine, the Trout Lake mine, a concentrator, copper smelter and zinc plant at Flin Flon.

The new Laylor Lake drill holes are located near Snow Lake, Man., where the company operates the Chisel North mine and a concentrator.

"We're pretty excited about it," Jones said in an interview.

"It's close to our facilities. It's a great opportunity," Jones said, noting it's also near a haul road.

Meanwhile, he said the company's board will continue to consider if and how it might return some cash to shareholders.

"We expect all this to come together in the fourth quarter," he said.

The Manitoba operations have benefited from $435 million in capital expenditures completed in early 2005 to bring the 777 and Chisel North mines into operation and expand and modernize the metallurgical plants.

In addition, HudBay produces zinc oxide at its Zochem facility in Brampton, Ont., and produces copper cathode at its White Pine refinery in Michigan.

Shares in HudBay closed down 97 cents, or four per cent, at $22.90 on the Toronto Stock Exchange Wednesday.

The shares have a 52-week high of $29.63 and a low of $12.19.