HudBay Minerals releases Q3 results

A shortage of railcars to transport concentrate was largely to blame for lower third-quarter sales and earnings for HudBay Minerals (HBM-T).

By the end of September the transportation bottleneck caused by the company’s rail service provider resulted in excess inventories of about 5,000 tonnes of copper and 7,800 ounces of gold contained in copper concentrate.

If the inventory had been sold in the third quarter at a price of US$3.60 per lb. copper and US$1,283 per oz. gold (the average realized prices for copper and gold during the quarter), “the impact on revenues, earnings before tax and net earnings per share from the sale is estimated to be an additional approximately $50 million, $28 million and 11¢ per share, respectively,” the company stated in a press release.

Instead, earnings for the three months ended Sept. 30 reached $11.7 million, or 8¢ per share, down from $20 million, or 13¢ per share, in the same quarter last year.

EBITDA came in at $55.5 million and operating cash flow at $39.8 million.

HudBay has made arrangements to lease additional rail cars and said the inventory “is expected to be drawn down in the first half of 2011 as additional railcar capacity becomes available.”

On the cost front, cash costs per lb. zinc sold net of byproduct credits were a negative US$0.27 per lb., compared with negative US$0.23 per lb. in the third quarter of 2009.

At Sept. 30 the company had a cash position of $852 million and on Nov. 4 established a new, four-year $300 million revolving credit facility.

“We continue to possess one of the strongest financial positions in the industry,” David Garofalo, HudBay’s president and chief executive, told analysts and investors during a conference call.

UBS analyst Onno Rutten wrote in a note to clients on Nov. 4 that he expects HudBay “to maintain substantial liquidity of approximately $1 billion going forward in support of its ambitious M&A and growth agenda.”

“M&A is likely going to be focused on VMS and/or porphyry deposits, with at least one near-term “shovel-ready” development project being sought,” Rutten continued.

Rutten has a 12-month target price on the stock of $18 per share. At presstime in Toronto HudBay was trading at $17.48 per share.

HudBay also reported during the conference call that it is making good progress with its planned 3,000-metre access ramp from the Chisel North mine to its Lalor project.

The ramp has advanced 1,154 metres and should reach the 810-metre level at the Lalor orebody in early 2012.