Higher production costs in Manitoba, lower than expected earnings and continued slumping copper prices weakened by President Trump’s trade war with China sent Hudbay Mineral’s stock into a tailspin this week falling below $5 a share on the New York Stock Exchange for the first time since June 2017.
Hudbay’s stock fell 30 points on Aug. 1 to close at $4.95 a share on the NYSE. The stock last closed below $5 on June 16, 2o17 at $4.85 a share on the NYSE. Hudbay regained some of the loss on Aug. 3, closing at $5.05 in New York.
Zachs Investment Research expected Hudbay to post $.13 per share earnings for the second quarter ending June 30, but instead the company announced earnings of $.09 per share, or $24.7 million, according to Hudbay’s second quarter financial statement.
Canadian copper mining companies were hammered Wednesday after Trump announced he was considering placing 25 percent tariffs on $200 billion of Chinese imports. The possibility of increased tariffs come as concerns build that China’s economy is slowing.
“There seems to be some talk about fears that China growth is slowing, which always has a big effect on materials,” Michael Currie, vice-president and investment analyst at TD Wealth, told CTV News.
Spot copper prices slipped to $2.74 a pound Thursday. Copper prices have seesawed since late 2017 when the price hovered near $3.30 a pound before declining to below $3 a pound in early April before rebounding to around $3.30 a pound in early June. The Trump initiated trade war, however, sent copper prices reeling.
The sell off occurred shortly after Hudbay held an Aug. 1 second quarter earnings conference call with stock analysts, who were more aggressive than usual in their questions particularly concerning higher production costs at Hudbay’s Manitoba operations.
Hudbay’s Reed Mine is scheduled to close this month while production at the 777 Mine in Flin Flon is slowing down as it nears the end of its production projected in 2021. Lower amounts of ore being processed tends to force overall production costs higher.
“It sounds like you’re sort of saying that costs are going to remain elevated for the next couple of years, is that fair?” stock analyst Orest Wowkodaw of Scotia Bank asked according to a transcript of the call provided by Seeking Alpha.
“You know when we had –when we were filling all the plants, yeah the costs were lower. It’s just they’re trending upwards now,” Cashel Meagher, Hudbay’s Senior Vice President and Chief Operating Officer, responded.
Hudbay’s earnings could have been much higher if the company had not continued its established pattern of reducing long term debt whenever possible. The company said in a press release it reduced its net debt by $49 million in the second quarter.
“In the first half of the year, we delivered solid production results and growing free cash flow, and applied that cash flow to substantial net debt reduction and funding the development of our exploration pipeline,” said Alan Hair, Hudbay president and chief executive officer.
“Our focus for the remainder of the year is to deliver on our operating targets, complete the ramp-up of ore production at Lalor and move Rosemont through the permitting process into development,” Hair stated.
Toronto-based Hudbay is seeking permits to construct the $1.9 billion Rosemont open-pit copper mine in the Santa Rita Mountains on the Coronado National Forest southeast of Tucson.
Hudbay needs a Clean Water Act permit from the U.S. Army Corps of Engineers. The U.S. Environmental Protection Agency, which has veto power over Corps’ permits, warned earlier this year that the mine fails to meet regulatory requirements for the crucial permit.
Hudbay must also successfully navigate through three federal lawsuits (here, here and here) seeking to stop the project and gain final approval from the U.S. Forest Service of its Mine Plan of Operations before construction could begin.
Construction of facilities is expected to take three years before mining begins, up from previous projections of 18 months.
THE PRICE OF COPPER IS DOWN FOR EVERYONE IN THE MINING INDUSTRY . FOR THOSE WHO RELY ON COPPER ALONE , THE ECONOMICS OF SUCCESS ARE FAR MORE RESTRICTIVE THAN FOR THOSE WHO OPERATE WITH A DIVERSIFIED METAL PORTFOLIO .
HUDBAY HAS BEEN AROUND FOR A LONG TIME AND HAS FACED DIFFICULT TIMES IN THE PAST . THE CURRENT SITUATION IS NOT NEW TO THEM . THEY CAN GO ANYWHERE IN THE WORLD IN SEARCH OF THE BEST OPPORTUNITIES .
ROSEMONT IS EFFECTIVELY A LONG TERM INVESTMENT PROJECT . THE COPPER WILL REMAIN IN THE GROUND AS IT SHOULD AND IT IS THE GOVERNMENT THAT WILL DETERMINE OTHERWISE . ANY AND ALL DELAYS IN PERMITTING FAVOUR HUDBAY AS IT GIVES THEM A GOOD EXCUSE FOR NOT PROCEEDING WITH THE DEVELOPMENT OF THE ROSEMONT PROPERTY .
THE THREAT TO RESOURCE DEVELOPMENT IN THE USA IS THE CURRENT POLITICAL SCENE NOT HUDBAY .
PLEASE STOP POINTING THE FINGER AT HUDBAY AS THE GUILTY PARTY WHEN IT COMES TO DEVELOPING THE ROSEMONT COPPER PROSPECT .
THE DECISION TO DEVELOP THE ROSEMONT COPPER PROSPECT RESTS SOLELY WITH THE GOVERNMENT . THEY COULD TERMINATE THE PROJECT AT ANY TIME BASED ON A VARIETY OF REASONS FULLY BACKED BY GOVERNMENT RULES AND REGULATIONS .