HudBay Minerals Update

HBM : TSX : C$8.81
BUY 
Target: C$12.00

COMPANY DESCRIPTION:
HudBay Minerals is an integrated Canadian zinc and copper producer with operating assets in Manitoba, and development or exploration properties elsewhere in Canada, in the U.S., and in Peru.
All amounts in C$ unless otherwise noted.

Metals and Mining — Base Metals and Minerals
2013 PRODUCTION A LITTLE WEAK, BUT 2014 GUIDANCE IN LINE AND CONSTANCIA ON TRACK
Event
HBM on January 8 released 2013 production and 2014 guidance. 2013 copper production’s miss against guidance is the aberration. 2014 production guidance is consistent with our forecasts. HBM confirmed Constancia’s budget and schedule, and provided surprisingly high 2014 production guidance (pre-commercial production) of 5,000-10,000 tonnes.
Impact
Our revised 2013-15E EBITDA forecasts are C$23 million, C$129 million, and C$485 million, which compare to our previous forecasts of C$32 million, C$129 million, and C$485 million. Our revised 2013-15E adj. dil. EPS forecasts are C$0.03, C$0.16, and C$1.08, from previous forecasts of C$0.07, C$0.15, and C$1.08.
Action and valuation
We are maintaining our BUY recommendation and our 12-month target of C$12.00, which is based on the average of: i) 5x our 2015E EV/EBITDA, which would imply a share price of C$11.97; and ii) our NPV10 estimate of C$11.62, (which includes C$7.79 for Constancia).
Next potential catalyst and investment risks
We are forecasting Q4/13 adjusted diluted EPS of negative (C$0.02) based on: i) payable zinc and copper sales of 24,400 tonnes and 7,800 tonnes, ii) realized zinc and copper prices of US$0.93/lb and US$3.31/lb (before treatment and refining charges, but after provisional pricing adjustments), and iii) after by-product credit costs of +US$1.41/lb of copper.

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