Hudbay projects 2022 as the “hypothetical” year for its embattled Rosemont project to begin copper production

Toronto-based Hudbay Minerals is presenting a “hypothetical scenario” to investors that its embattled Rosemont Mine could begin copper production in 2022 which would require construction to begin next year on the proposed site in the Santa Rita Mountains on the Coronado National Forest southeast of Tucson.

Hudbay Minerals is telling investors it is financially prepared to begin construction on its proposed $1.9 billion project “soon” after receiving final permitting approval for the massive project that would be the third largest open pit copper mine in the United States and dump waste rock on more 2,500 acres of national forest.

“Rosemont project development is conditional upon receipt of final permits and Board approval,” the company’s January 2018 Investor Presentation states on page 29. Hudbay states it expects to spend $35 million in 2018 on advancing the permitting process, up from $20 million in 2017.

But the company is far from setting a groundbreaking date on the project which has repeatedly been touted to be primed for construction by Hudbay and its previous owner, Augusta Resource Corporation, since 2009.

Rosemont continues to face strong opposition from a Native American tribe, and conservation and environmental groups that have already filed federal law suits (here and here) seeking to block the project.

The U.S. Environmental Protection Agency, which has veto authority over a Clean Water Act permit that has not been issued, late last year concluded the mine doesn’t meet the regulatory requirements to receive the permit.

The U.S. Army Corps of Engineers is reviewing Hudbay’s latest application for a Section 404 Clean Water Act permit and has not provided a time frame for a decision. The Corps’ Los Angeles district office recommended permit denial in July 2016.

Hudbay subsequently submitted a revised environmental mitigation plan as part of its 404 permit application last September. The EPA blasted the plan in a scathing 77-page assessment. The plan has been sharply criticized by conservation groups and a highly respected private consultant.

Pima County is also opposing the mine and is suing the Arizona Department of Environmental Quality on a Clean Water Act issue. In a separate matter, Pima County is alleging Hudbay’s Clean Water Act permit application violates federal law.

Hudbay’s investor report states that projections of higher, long-run copper prices well above $3 per pound is making the economic fundamentals more attractive to construct Rosemont. Hudbay’s investor report projects copper prices to steadily rise to $3.75 a pound by 2023.

The company states that a “lack of advanced development projects will lead to tight metal market early in (the) next decade.” The company hopes to cash in on this window of high prices that will only diminish after “significant supply from uncommitted projects” that require long planning and permitting periods to come online. The company also sees additional potential demand from renewable energy projects and electric vehicles.

“Copper prices are now in the range we have said is necessary to build the project. We anticipate being able to fund construction of the project” from Hudbay’s internal cash flow and other sources, Hudbay told the Arizona Daily Star in a Jan. 28 article.

Copper prices have rebounded from below $2 a pound in January 2016 to above $3 a pound this year. Spot copper prices have traded between $3.15 and $3.20 a pound this week. In the last year, Hudbay’s stock has traded on the New York Stock Exchange in a range between a low of $4.70 on June 17, 2017, to a high of $10.05 on January 18 of this year. The stock closed Tuesday at $8.65.

Taking advantage of higher copper prices since they bottomed in early 2016, the company has used “free cash flow” generated primarily at its Constancia Mine in Peru to slash its net debt to $650 million at the end of the 3rd Quarter, down from about $1.6 billion in early 2016. (The company defines net debt as long-term debt less cash and cash equivalents.)

Hudbay, however, is vulnerable to a significant drop in total copper production beginning in 2022 as its 777 copper mine in Flin Flon, Manitoba is projected to close in 2021. Without the addition of Rosemont to its portfolio, Hudbay projects total copper production to fall from about 140,000 tons of copper concentrate in 2021 to about 100,00o tons in 2022, the investor presentation shows.

Copper production could fall further if Hudbay does not begin construction on a contentious project in Peru where the company is seeking to obtain community approvals.

Hudbay wants to begin mining a high-grade copper from a satellite pit near its Constancia project called Pampacancha later this year. The company, however, has not yet received community approval to build the Pampacancha project nor has it determined the cost of acquiring surface rights from the community for the mine, according to the investor report.

Community protests in the region in the past have lead to the seizure of the Constancia mine pit. Hudbay has a contract with the Peruvian National Police to protect its mine site and police have used teargas and beat protestors who claimed that Hudbay failed to abide by the community agreements for the Constancia mine site, according to the 2015 documentary Flin Flon Flim Flam.

In Arizona, the Rosemont project has long been touted as on the verge of production. In May 2015, for example, former Hudbay vice president of Arizona operations Patrick Merrin told Arizona Mining Review that the company hoped to begin construction in 2016.