Hudbay facing shareholder rebellion for “systematic” mismanagement

Hudbay Minerals is facing a shareholder rebellion from one of its largest institutional investors angered over its slumping stock price and “systematic” mismanagement including “fundamentally” misunderstanding the permitting process and public opposition for its proposed $1.9 billion Rosemont Copper Mine.

Canadian private equity fund Waterton Global Resource Management, which says it owns 4.9 percent of Hudbay’s shares, issued a scathing Oct. 5 press release lambasting Hudbay’s operations: “The Company’s recent market performance and operational misses have led Waterton to lose confidence in management and the Board.”

Waterton specializes in the metals and mining sector and says it has experts with “extensive experience in evaluating, optimizing and permitting mining assets around the world, and specifically in the Americas, including in Arizona.”

Hudbay’s stock has fallen 44 percent since last January compared to a 12 percent decline in copper prices, Waterton notes.

Waterton was sharply critical of Hudbay’s handling of its primary assets in Manitoba, Peru and the proposed Rosemont project planned for the Santa Rita Mountains in the Coronado National Forest southeast of Tucson.

“Hudbay’s stewardship of its Rosemont copper project in Arizona has been a case study in poor execution,” Waterton stated. “The Company has, by its own admission, surpassed its own ‘worst case’ permitting timeline scenario even though permitting for Rosemont has been ongoing for a decade.”

Hudbay, Waterton stated, “seems to have fundamentally misunderstood the permitting regime in the United States.”

Hudbay CEO Alan Hair

The investment firm notes that Hudbay CEO Alan Hair admitted during an Aug. 31 meeting with Waterton that Hudbay made a “major miscalculation” when it issued C$242 million in new stock in September 2017 with the expectation that Rosemont construction would begin in late 2017.

Hudbay’s management, according to Waterton, assumed there would be no legal challenges to the Coronado National Forest’s decision to issue its Record of Decision approving Rosemont in June 2017 and the U.S. Fish Wildlife Service’s release of its final Biological Opinion supporting construction of the mine. Hudbay also assumed the U.S. Army Corps of Engineers would quickly issue the Clean Water Act Section 404 permit clearing the way for Rosemont construction in late 2017.

Hudbay’s assumptions proved to be wrong, Waterton states.

The Center for Biological Diversity filed a federal lawsuit challenging the Biological Opinion in October 2017. Two months later, four Arizona conservation groups filed a federal lawsuit challenging the Forest Service’s Record of Decision in November 2017. Three Arizona Indian tribes filed a third federal law suit against the Forest Service in April also seeking to block the mine.

“Any reasonable person with permitting and regulatory experience in the United States would have known that the likelihood of (Hudbay’s) assumptions proving true was extremely low given the challenges, regulatory uncertainty and public opposition to Rosemont’s permitting process,” Waterton stated.

“Assuming that the permits would not be challenged, and that construction of Rosemont could proceed in late 2017, shows a patent and clear lack of understanding of the key issues relating to one of the Company’s core assets,” Waterton stated.

Waterton issued the statement after Bloomberg News reported that Hudbay was in discussions to purchase Mantos Copper SA, a Peruvian miner, for as much as $780 million. Waterton stated it, along with approximately one-third of Hudbay’s shareholders, were opposed to Hudbay’s plan to acquire any other mining company.

Hudbay issued a statement shortly after the Bloomberg story appeared saying that “acquisitions that fit Hudbay’s stringent criteria” are part of its management strategy.

Waterton, however, is demanding that Hudbay focus its funds on developing the Rosemont project. Hudbay is telling investors it expects to begin construction on the mile-wide, half-mile deep open pit mine in the first quarter of 2019.

The Army Corps’ Los Angeles district recommended against issuing the Section Clean 404 Clean Water Act permit in July 2016. The Army Corps’ San Francisco regional office is reviewing Hudbay’s permit application.

The investment firm also criticized Hudbay for its failure in Peru to obtain an agreement with local communities to build a satellite open pit mine near its Constancia mine, “forcing Hudbay to reduce its 2018 precious metals production guidance at Constancia by ~20%,” Waterton stated.

Hudbay has faced intense opposition from Peruvian communities that are upset over how the company executed agreements that allowed the company to develop the Constancia open-pit mine site. Hudbay has used its contract with the Peruvian National Police to violently break up community demonstrations.

Hudbay’s confrontation with Peruvian communities is featured in the 2015 documentary “Flin Flon Flim Flam.”