The Gold Report - Thu, Apr 5, 2018

E&D Firm's Updated Mine Plan Encompasses 'Higher Copper Grades, Recoveries'

Jacques Wortman, an analyst with Eight Capital, outlined the key takeaways from this miner's new reports and increased the firm's target price.

Copper coils

As noted in an April 2 research note, HudBay Minerals Inc. (HBM:TSX; HBM:NYSE) released an updated mine plan and an updated mineral reserves/resources estimate for its Constancia mine, the former including a "revised production profile for both the Constancia and Pampacancha pits and new grade, recovery, capex and opex assumptions," reported Eight Capital analyst Jacques Wortman.

He indicated the new mine plan increased Eight Capital's value of Constancia, located in southern Peru, by 15%, increasing the net asset value per share to CA$12.97 from CA$11.56. He concluded the plan is "positive for HudBay, confirming the positive grade bias and boasting improved economics through higher recoveries and life-of-mine (LOM) metal production."

Additionally, Eight Capital increased its target price on HudBay to CA$16 per share from CA$15.50 per share, reflecting a projected return of about 75%. The Buy-rated mining company is currently trading at around CA$8.91 per share.

According to the mine plan, 105 thousand tons of contained copper would be produced annually between 2019 and 2023 at a cash cost of $1.09/lb and an all-in sustaining cost of $1.38/lb, excluding byproduct credits.

Compared to the 2016 report, the LOM now is longer, by one year, the period spanning 2018-2036. The new plan outlines 25% more production between 2022 and 2025 and 9.5% more production over the LOM. LOM copper recoveries, at about 86%, also are higher than the previous 81%.

As for the satellite deposit Pampacancha, mining should begin in 2019, having been delayed one year. "HudBay is still negotiating to secure surface rights for the Pampacancha deposits but was granted access to the land to carry out early-works activities," Wortman noted. In the meantime, the company would mine in the Constancia pit.

At Caballito, Maria Reyna and Kusiorcco, the newly acquired assets within 10 kilometers of Constancia, "early-stage permitting and community relations work is ongoing," wrote Wortman.

As for the annual mineral update, contained copper at Constancia and Pampacancha increased 12% and 13%, respectively, mostly due to higher grade assumptions, Wortman indicated. The reserves were calculated using $3 a pound ($3/lb) copper, $11/lb molybdenum, $18 per ounce ($18/oz) silver and $1,260/oz gold.

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