HudBay bets big with Constancia project as rivals pull back – by Pav Jordan (Globe and Mail – March 8, 2013)

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Toronto-based HudBay Minerals Inc. is a rare breed these days. In an industry reluctant to spend on anything beyond operating costs, the base metals miner is plowing ahead with a copper project in Peru called Constancia that will cost it nearly as much to build as the company’s entire market capitalization.

Even as global miners report billion-dollar cost overruns and asset writedowns and the industry is buffeted by demand headwinds in commodity markets – HudBay is spending $75-million a month on Constancia, where thousands of workers are already on site.

“It’s a relatively small company with a big project in development in Constancia and that’s got the market a little bit concerned,” said John Hughes, an analyst with Desjardins Securities in Toronto, who nevertheless has a “buy” on the stock and a target price that is 30 per cent higher than where it’s currently trading.

Others share not only his concerns, but also his enthusiasm about potential growth at the company, and 80 per cent of analysts polled by Bloomberg News have a “buy” rating on HudBay, which closed at $10.12 a share on Thursday.

“They’re basically betting their market cap on one mine,” said George Topping, an analyst with Stifel Nicolaus in Toronto, who also has a “buy” on the stock, with a target price of $13.75 a share.

In fact, the $1.5-billion Constancia project is one of three put into development by HudBay since it hired a new chief executive officer in 2010, just as investors bet it was ripe for takeover, with bulging balance sheets and no growth plans.

Constancia and two projects in Canada, Lalor and Reed in Manitoba, will contribute to a fivefold increase in HudBay’s copper production within two years. Gold production will double in the same period and zinc output will grow by a third.

“We’ve come a long way from a company that was really just harvesting its operations in northern Manitoba,” said CEO David Garofalo.

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