Hudbay Minerals Inc.

Hudbay Minerals Inc. (TSX: HBM) is a Canada-based diversified mining company that is primarily producing copper concentrate, consisting of copper, gold, and silver, as well as zinc metal. In addition, it is focused on the discovery, production, and marketing of base and precious metals.

Key Highlights:

Reported Topline Growth in Q3FY21 (YoY): The company's reported revenue in the quarter just gone by increased by 13.6% on a YoY basis, driven by higher average commodity realization prices and increased gold production.

Strong Copper Prices: Copper futures rose about 1.5% on Monday to above USD 4.3 per pound, after a 3.4% loss on Friday as concerns about shortages and low inventories more than offset demand worries from the spread of the Omicron coronavirus variant. Also, the long-term outlook for copper is quite substantial given the increased demand for copper for varied industrial uses.

Strong Gold and Silver Prices: The underlying commodities prices are firm. In addition, a resurgence of COVID-19 cases will potentially increase gold and silver prices, as investors may switch to safe-haven asset classes amid rising uncertainties over speculative asset classes.

Financial Highlights: Q3FY21

Source: Company report

Reported revenue during the Q3FY21 increased by 13.6% to USD 358.96 million from USD 316.11 million reported in the same quarter of the previous financial year.

During the quarter under consideration, the company's reported cash generated from operating activities increased to USD 139.80 million, compared to USD 77.94 million in Q3FY20.

Adjusted EBIDTA in Q3FY21 improved to USD 119.3 million compared to USD 96.1 million reported in the same quarter of the previous financial year.

Valuation Methodology (Illustrative): Price to Cash Flow-based valuation

Stock Recommendation

The company reported decent performance in the quarter just gone by. However, bottom-line performance was impacted by an unusual expense. Also, gold and silver production improved significantly on a YoY basis, and underlying solid commodity prices will potentially boost the company's overall health in the upcoming quarter. Furthermore, copper prices are firm. Hence the overall financial health of the company is expected to be better in the upcoming quarter. Also, on a sequential-quarter basis, HBM has deleveraged its balance sheet. Hence, based on the above rationale and valuation done, we recommend a "Hold" rating at the closing price of CAD 8.93 (as on November 29, 2021).

One-Year Technical Price Chart (as on November 29, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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