HudBay Minerals (HBM-T, HBMFF-O) is keeping tight-lipped about the first payment made to Callinan Mines (CAA-V, CCNMF-O) for a net profits interest (NPI) and royalty agreement that is being disputed in court.
Callinan received a $358,000 cheque from HudBay on Nov. 8 for its 6.67% NPI on the 777 copper zinc property in Flin Flon, Man., part of an agreement 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 costs relating to the property, home to the 777 mine, which began production in 2004.
Callinan also has a 25-per-tonne royalty for ore milled from the site, which HudBay has been paying.
HudBay reported after-tax earnings of $66.5 million for the quarter and $198.7 million year-to-date from all its operations.
During a HudBay conference call on Nov. 9, analysts asked Brad Woods, HudBay’s director of investor relations, for some guidance on what the cheques might look like in the future.
“We’ll probably disclose it on an annual basis, but not on a quarterly basis as it’s relatively small, though I’m not sure if they are going to break it out specifically,” Woods said.
Callinan filed an action with the Manitoba Queen’s Bench against HudBay subsidiary Hudson Bay Mining and Smelting last March, after it became suspicious of HudBay’s accounting. The company wants an independent auditor to review HudBay’s books.
Callinan’s investor relations director Braden Maccke says the company deserves to know more.
“This is the thin edge of the wedge of the lawsuit — they haven’t provided us with detailed accounting statements,” Maccke says.
Callinan’s statement of claim says it did not receive the required information from HudBay in 1990, 1991, 1998, 2000 or 2005.
Analyst Mike Collison of Dundee Securities says he wasn’t surprised by HudBay’s minimal public disclosure.
“Guidance is always at the company’s discretion,” he says. “Some companies give no guidance on all sorts of things, important things.”
The amount of the NPI royalty will be affected by many different factors, Collison says, including the mine plan, metal produced and metal prices.
“It’s not as easy as a straight NSR.”
Collison says he understands Callinan’s 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 we’ll probably find out when a judge rules on it.”
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