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May 12
HBM : TSX : C$9.45 Buy , Target C$15
Q1/12 financials a minor miss; Constancia financing imminent
Event
HudBay Minerals reported Q1/12 headline diluted EPS of C$0.05. We calculate an adjusted diluted EPS of C$0.10, slightly lower than both our estimate of C$0.11 and consensus of C$0.12. Production volumes were in line with or better than our forecasts. The miss against our forecast was due to higher than expected income tax. HBM management still expects to present a formal Constancia project recommendation, including a financing plan, to its Board of Directors by mid-2012.
Impact
Our revised 2012-14 EBITDA forecasts are C$177 million, C$187 million, and C$288 million, up from C$175 million, C$173 million, and C$266 million. Our revised 2012-14 adjusted diluted EPS forecasts are C$0.28, C$0.17, and C$0.23.
Valuation
Based on the average of: i) 8x our 2013E EV/EBITDA, which would imply a share price of C$11.02; and ii) our NPV8 estimate of C$17.72. Accounting for full production growth, 4x 2016E EBITDA would equate to a share price of about C$20.00.
Next potential catalyst and investment risks
We estimate that Constancia capex of US$1.5 billion could be covered by the existing US$300 million credit facility plus US$560 million of project debt. However, we believe it would be prudent for HBM to secure additional debt facilities upfront, to deal with potential overruns and/or delays, and the possibility of lower than forecast cash flows from existing operations.
