Hudbay’s ‘enhanced’ Copper World prefeasibility gets mixed reviews

Hudbay Minerals’ (TSX: HBM; NYSE: HBM) updated prefeasibility study for the first phase of its Copper World project in Arizona has improved its economics and extended the mine life compared with a June 2022 preliminary economic assessment. However, the study, released Friday, drew mixed reactions from experts, mainly due to increased operating costs and cautious permitting approaches.

The Copper World PFS highlights show a project with lower up-front capex, a streamlined flowsheet, flexible modular construction optionality, and higher early-year grades which are positives for the project. However, Jackie Przybylowski, a mining analyst at BMO Capital Markets points out that offsetting these positives are higher unit operating expenditure estimates and “a restrained stance on the revised permitting timeline,” now anticipated by mid-2024.

Despite these reservations, Przybylowski retains a buoyant one-year target for Hudbay at $10.00 per share, holding onto the ‘outperform’ rating.

The revised mine plan expects to generate over US$850 million in federal and state taxes while creating about 400 direct and 3,000 indirect jobs.

Hudbay’s latest Copper World economic study pegs the project’s after-tax net present value (8%) at US$1.1 billion and an internal rate of return of 19%, considering a copper price of US$3.75 per pound.

In a press release, CEO Peter Kukielski highlighted the substantial slash in the initial capital costs to about US$1.3 billion from the previously estimated $1.9 billion. This financial recalibration was made possible by postponing the construction of a concentrate leach facility to year four in the new plan. The delay reduces expenses and could open doors to future government incentives for critical minerals processing.

“Copper World is an attractive copper growth project for Hudbay and our stakeholders… We will continue to be prudent with our financing plans for Copper World as we remain focused on meeting all of the prerequisites for project sanctioning as laid out in our 3-P plan,” said president and CEO Peter Kukielski.

In putting together a finance package for Copper World, the company has introduced a three prerequisites plan (3-P), including specific leverage targets that it would need to achieve before making an investment decision in the project, receiving all state-level permits required for Phase I, and completing a definitive feasibility study with an internal rate of return of greater than 15%, all while identifying and negotiating a viable financing strategy.

The Copper World project is expected to produce about 92,000 tonnes of copper annually for its first 10 years, with cash costs of US$1.53 per lb. and ongoing costs of US$1.95 per pound. The project has adopted a variable cut-off grade strategy to amplify production, thereby boosting mill head grades in the initial decade.

Moreover, the project aspires to champion the green energy shift in the U.S., positioning itself as the third-largest domestic copper cathode producer and markedly reducing its carbon footprint compared with the initiatives outlined in the PEA.

Hudbay has updated resources for the project, increasing measured and indicated resources (including reserves) to 1.2 billion tonnes at 0.42% copper for 5 million lb. of in-situ copper metal, representing a 4% increase over the 2022 estimate.

According to Hudbay, this confirms significant upside at Copper World with an intended Phase II expansion onto federal land to enhance the project economics further and extend the mine life beyond 20 years.

Investors weren’t impressed much by the study, trading the stock down 1.4% at $6.35 late on Friday after testing $5.00 and $8.47 over the past 12 months. It has a market capitalization of $2.2 billion.