Callinan questions HudBay’s transparency

HudBay Minerals (HBM-T, HBMFF-O) is keeping tight-lipped on details about the first payment made to Callinan Mines (CAA-V, CCNMF-O) for a net profits interest and royalty agreement that is being disputed in court.

Callinan received a $358,000-cheque from HudBay on Nov. 8 for the 6.67% agreement on the 777 copper zinc property in Flin Flon, Man., signed nearly 20 years ago.

The amount is 75% of an NPI estimate for an unknown portion of the third quarter, leaving Callinan in the dark about what future payments will look like. The first payment signifies that HudBay has now paid off development debts relating to the property, home to the 777 mine, which began production in 2004.

HudBay reported after tax earnings of $66.5 million for the quarter and $198.7 million year-to-date, but earnings were not only from the 777 mine complex.

During a HudBay conference call today, analysts asked Brad Woods, HudBays director of investor relations, for some guidance on what the cheques might look like in the future.

Well probably disclose it on an annual basis but not on a quarterly basis as its relatively small, though Im not sure if they are going to break it down specifically, Woods said.

Callinan filed an action with the Manitoba Queens Bench against HudBays subsidiary, Hudson Bay Mining and Smelting, last March, after it became suspicious of HudBays accounting. The company wants an independent auditor to review HudBays books.

Callinans investor relations director Braden Maccke says the company deserves to know more.

This is the thin edge of the wedge of the lawsuit they havent provided us with detailed accounting statements, Maccke says.

Callinans statement of claim says it did not receive the required information from HudBay in 1990, 1991, 1998, 2000 or 2005.

Anaylist Mike Collison of Dundee Securities says he wasnt surprised by HudBays minimal public disclosure.

Guidance is always at the companys discretion, Collison says. Some companies give no guidance on all sorts of things, important things.

Collison says the amount of the NPI royalty will be affected by many different factors including the mine plan, metal produced and metal prices.

Its not as easy as a straight NSR, Collison says.

Collison says he understands Callinans position, noting that knowing the NPI in advance would be beneficial to its share price.

But whether or not the actual agreement says that HudBay is required to provide that transparency? I have no idea, and well probably find out when a judge rules on it, Collison says.