PDAC-HudBay eyes prospects with majors on sidelines

Wed Mar 6, 2013 10:17am EST

Related Topics

* Senior miners avoid M&A after unpopular deals

* Juniors struggling to survive, seek takeovers

* Mid-tiers positioned to get first pick

* HudBay seeks next generation of projects

By Julie Gordon

TORONTO, March 6 (Reuters) - Most of the world's top miners are shying away from takeovers this year, clearing the way for mid-tier producers like HudBay Minerals Inc to make competitive bids for assets coming up for sale, the company's CEO told Reuters at a Toronto mining convention.

After being burned by costly deals made during the boom, most major metals companies have pledged to rein in costs - with some even looking to divest non-core assets.

That's a big shift from just two years ago, when soaring metal prices had the majors elbowing out the smaller guys to get their hands on the best projects, said David Garofalo, chief executive of HudBay, on the sidelines of the Prospectors and Developers Association of Canada convention in Toronto.

"As long as I've been in the business the seniors have been buying, buying, buying - trying to fill out an increasingly large pipeline," he said. "Now they're selling."

The change is creating opportunities for smaller base metal miners, which have been consolidating in recent years with tie-ups such as the KGHM Polska Miedz takeover of Quadra FNX.

For those able to finance a deal in the current market, there are both producing assets and development-stage projects available for the taking.

HudBay, which produces copper, zinc and precious metals at mines in Manitoba, already has two major projects under construction - the Lalor mine, also in Manitoba, and the Constancia project in Peru. It is eyeing only smaller deals for now.

"We're looking at a lot of things," Garofolo told Reuters. "We're better off picking up something in the pre-feasibility or scoping stage that we could bring into construction once Lalor and Constancia are built out."

The idea is to buy within the year, complete the development work, and have projects ready to go when the current builds are completed.

"To introduce that next-generation growth you have to be thinking about picking up something today," Garofolo said.

ARMS IN THE AIR

While most juniors hope one day to be swallowed up by a larger player, the need to secure a deal is looking desperate for many smaller companies struggling to find the cash to stay afloat, let alone to complete exploration work.

"There's a lot of arm-waving involved," said Garofolo. "Particularly in this market where they're capital starved - they're waving their arms more vigorously than they otherwise would."

Capital has dried up across the sector, and equity financing is so dilutive at current share prices that almost no one is pursuing it. With valuations low and the situation dire for many of the juniors, there are opportunities to be had on the floor at the PDAC convention.

While Garofolo declined to comment on specific companies, he reiterated that HudBay's focus is on base metal projects in the Americas.

HudBay had about C$1.34 billion in cash and cash equivalents as of Dec. 31. The company is planning some C$1.24 billion in capital spending in 2013, with the bulk earmarked for the Constancia development.

The company plans to hit peak construction at the $1.5 billion Constancia project in Peru around mid-year, with first ore expected by the end of 2014.

While wages remain high in the South American country, a slowdown of other development activities has left a decent labor supply for the bulk of the construction, said Garofolo.

"This is a great time to be building," he said. "As a smaller producer you don't want to be building when everyone else is - you'll get trampled to death."

HudBay shares were down 0.11 percent at C$9.47 shortly after market open on Wednesday on the Toronto Stock Exchange. The share price is down about 25 percent over the past 12 months.

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