Hudbay announces construction delay for the proposed Rosemont copper mine

Hudbay Minerals Inc. announced Wednesday that construction of the proposed Rosemont copper mine will be delayed until the depressed copper market improves but that it still intends to build the $1.5 billion project.

Low copper prices also forced Toronto-based Hudbay to reduce the value of the Rosemont project.

The company said “a pre-tax and after-tax impairment of $114.5 million was recognized on Rosemont goodwill mainly as a result of lower expected copper prices and an expected delay in the start of construction on the Rosemont project.”

Nevertheless, Hudbay stated it intends to eventually build the Rosemont mine.

“Hudbay remains committed to advancing Rosemont, which is expected to be one of the first new copper projects to be built once copper prices and capital market conditions improve,” the company stated in a news release reporting its 4th Quarter earnings.

But those conditions are not expected to return for some time, the company acknowledged. Hudbay projects copper prices of $2.25 a pound in 2016 and 2017 rising to $3.00 a pound “in 2019 and thereafter.”

Hudbay officials have previously stated that it would not build a new copper mine until copper prices reach $3.50 a pound. Copper was trading at $2.11 a pound Wednesday.

Hudbay also reported that it is slowing down the rate of expenditures on engineering and permitting for Rosemont. The company previously stated it intended to spend $30 million in the first six months of 2016 on the massive open-pit mine in the Santa Rita Mountains on the Coronado National Forest southeast of Tucson.

It is now projecting that it will spend $30 million for the entire year.

“This amount is expected to be sufficient to advance a definitive feasibility study and the permitting process, and, upon receipt of permits, complete a mine plan of operations,” Hudbay stated.

Hudbay must still obtain a Section 404 Clean Water Act permit from the U.S. Army Corps of Engineers and an Air Quality Control permit for the Arizona Department of Environmental Quality.

The Army Corps is expected to make a decision on the 404 permit later this year. Hudbay is appealing a 2015 Maricopa County Superior Court ruling that overturned the state-issued air pollution permit.

The U.S. Forest Service must also issue a final Record of Decision before Hudbay could submit a final mine plan of operations, which also must be approved by the forest service.

Low copper prices also forced Hudbay to restructure a portion of its debt as well as take an after-tax impairment of $198.8 million ($264.4 million pre-tax) on goodwill and property, plant and equipment at its largest mine, the Constancia open-pit project in Peru.

The Rosemont and Constancia write-downs resulted in Hudbay posting a $255.5 million loss for the 4th Quarter of 2015, compared to a profit of $43.6 million for the 4th Quarter of 2014.

Hudbay reported that it has reached an agreement with lenders to delay repayment of $550 million in lines of credit secured by the company’s Manitoba mines and Peru operations. As of year end, $347.1 million had been drawn on the credit facilities.

The Canadian line of credit was repayable in full in March 2018 and the Peru facility is currently repayable in quarterly installment that began in Dec. 2015. Both lines of credit are now repayable in March 2019, the company states.

“As a result, 2016 scheduled principal amortization payments of $53.4 million will be deferred,” Hudbay reported.

Hudbay also announced a $50 million reduction in capital spending for 2016 from its earlier projected spending of $270 million.

The company said it expects a slow down in production at the Constancia mine during the first quarter to repair equipment that was damaged last year.

“Constancia’s production in the first quarter of 2016 is expected to be affected by the planned replacement of the trunnions on both the SAG and ball mills on one of the two grinding circuits.

“The trunnions were damaged due to a lubrication failure during the commissioning period, and the affected line is expected to be shut down at the end of February to begin an estimated six to eight week outage to replace the trunnions, during which the second grinding circuit should continue to operate normally.”