Tumbling copper prices expected to delay Hudbay’s Rosemont construction plans

Economic turmoil in China has pushed copper prices to a six-year low which is dragging down the share prices of major copper producers including Toronto-based Hudbay Minerals, which is seeking state and federal permits to construct the Rosemont Copper Mine southeast of Tucson.

The precipitous decline in copper prices is expected to delay Hudbay’s decision on whether to construct the Rosemont copper project until copper prices recover, which may be several years.

Hudbay is also facing an ongoing strike by about 180 machinists at its Manitoba mines in Flin Flon, Snow Lake and Reed Lake. The International Association of Machinists and Aerospace Workers Local 1848 walked off the job on May 1 and continues to picket Hudbay’s three Manitoba mines.

The union on Tuesday accused Hudbay of violating Canadian labor laws by forcing non-striking workers to perform the jobs of the striking machinists.

“Many employees are working day and night, and have had summer vacations cancelled, so that they are available to perform not just their normal duties, but the duties of striking workers as well,” the union stated on its website.

Hudbay will release second quarter financial and mine production results in mid-August, which will provide an indication of whether the machinists’ strike is impacting productivity.

But in the immediate future, it is China that is having the biggest impact on world copper prices and, inturn, Hudbay’s share price and the future of the Rosemont Mine.

China is the world’s largest copper consumer, accounting for roughly 40% of world copper demand. China’s economy has been slowing and new construction has dropped this year while manufacturing has contracted. This has made investors worry about future demand for raw materials, the Wall Street Journal reported Tuesday.

The most actively traded copper contract, for September delivery, settled down 9.15 cents, or 3.6%, at $2.4465 a pound on the Comex division of the New York Mercantile Exchange, the Journal reported. This was the lowest close since July 17, 2009, and the biggest one-day drop since January.

Hudbay’s stock has declined sharply since May 1 when it closed at $10.28 on the New York Stock Exchange. Hudbay’s shares closed Wednesday at $7.45.

The tumbling copper prices are more than a $1 per pound below the target price Hudbay’s CEO David Garofalo indicated at the company’s May 22 annual meeting would be necessary before Hudbay would bring additional production online. Garofalo told shareholders the company’s target price is $3.50 per pound.

In an investor’s report that accompanied the company’s annual meeting, Hudbay projected copper prices to be near $3 for the next five years. Garofalo also indicated during the annual meeting that Hudbay’s board of directors must still approve construction of the Rosemont project.

Falling copper prices aren’t the only hurdle facing Hudbay’s plans to construct the $1.5 billion Rosemont Mine.

Hudbay still must obtain a federal Clean Water Act permit from the U.S. Army Corps of Engineers and an Air Quality Control Permit from the Arizona Department of Environmental Quality. A Maricopa County Superior Court judge earlier this year revoked Rosemont’s Air Quality Control permit that had been issued by the state.

The company faces significant, if not insurmountable hurdles, on both permits.

In addition, the U.S. Forest Service must issue a Final Record of Decision approving construction of the mile-wide, half mile deep open pit mine that would be blasted into the Northeastern flank of the Santa Rita Mountains on the Coronado National Forest. More than 3,000 acres of Coronado National Forest would be buried under waste rock and mine tailings from the proposed massive open pit mine.

The Forest Service decision has been delayed, in part, until Endangered Species Act reviews are completed. There are a dozen endangered species that will be impacted by the mine, including the only known jaguar in the United States.