Hudbay Minerals Inc. (TSX: HBM) is a Canadian mining company with its operations, property developments, and exploration activities across the United States. The major mines that Hudbay operates are located in Manitoba, Canada, Arizona, United States and Peru.

Why should Investor’s Book Profit?

• Higher Balance Sheet risk: Investors in HBM are exposed to a higher balance sheet risk, as Debt/Equity ratio of the company stood at 0.84x in Q3FY21, which was significantly higher than the industry median of 0.23x. Moreover, the company reported its net debt to EBITDA of 7.87x in Q3FY21, as compared to the industry median of 1.47x. A higher ratio suggests poor debt protection ability of the firm, which remains as a major reason for concern.

• Weak liquidity profile: The company reported its quick ratio and current ratio of 1.05x and 1.38x, respectively, in Q3FY21, as compared to the industry median of 1.50x and 2.57x, respectively. A lower ratio suggests that the company is struggling to meet its current liabilities through its current assets.

• Reported higher net loss on YTD basis: The company reported a higher net loss of USD 233.905 million in 9MFY21, as compared to the net loss of USD 151.990 million in pcp. The above was on the backdrop of higher revenue (USD 1,076.828 million in 9MFY21 v/s USD 770.128 million in pcp). The above indicates poor cost management, and continuation of the above trend is likely to dampen the company’s performance in the coming period.
  

Valuation Methodology (Illustrative): Price to CF based.

Stock Recommendation

In Q3FY21, the company reported its copper equivalent production of 42,243 tonnes, lower than 47,445 tonnes in pcp. Moreover, the company reported a lengthy cash conversion period of 82.9 days in Q3FY21, as compared to the industry median of 56.4 days, which indicates poor operating efficiency.

We have valued the stock using the Price to CF-based relative valuation method and have arrived at a double-digit downside (in percentage terms). For the said purposes, we have considered peers like Yamana Gold Inc, Teck Resources Ltd and Lundin Mining Corp. Considering the aforesaid facts, we recommend a ‘Sell’ rating on the stock of HBM at the last traded price of CAD 9.17 on January 05, 2021.

One-Year Technical Price Chart (as on January 05, 2021). Analysis by Kalkine Group

Altius Minerals Corp

Altius Minerals Corp (TSX: ALS.TO) is engaged in the business of obtaining diversified mining royalty. It holds interests in mining operations that produce metals and minerals such as copper, zinc, nickel, cobalt, gold, silver, and potash. The corporation also holds other pre-development stage royalty interests and various earlier stage royalties.

Why Should Investors Book Profit?

• Increasing uncertainties: The resurgence of various new Covid variant cases has raised a lot of questions, and it might have an influence on the company's operations and cash flows as the government may tighten some mandatory lockdowns to combat the spread.

• Higher average collection period: ALS is having a higher average Accounts Receivable day of 71.1 days, against the industry median of 30.8 days. A higher average collection period indicates that the organization is collecting its payments at a slower pace. This may create a difficulty for the company to have enough cash on hand to meet their financial obligations.

• Long cash cycle days: The company’s Cash Cycle (Days) has increased compared to the previous sequential quarters, implying the company is taking more days to convert its inventory to cash. In Q3 2021, its Cash Cycle stood at 71.1 days against 68.8 days in Q2 2021. Also compared to industry median its very high, which is at 56.4 days only.

• Stretched valuations: ALS shares are available at an NTM Price/Cash Flow multiple of 15.5x compared to the industry (Metals & Mining) median of 2.2x, while on NTM EV/Sales multiple, it is trading at 9.4x compared to the industry median of 1.7x. This implies that the shares are overvalued against the industry.

• Exhausted technical indicators: Recently, the stock witnessed a healthy rally on the daily price chart and has moved close to the upper band of the Bollinger band, indicating the stock is perhaps overbought and due for a price correction or a consolidation.

Source: REFINITIV, Analysis by Kalkine Group 

Valuation Methodology (Illustrative): EV to EBITDA

Analysis by Kalkine group

Stock recommendation 

Most of the commodity prices that are relevant to Altius have been strengthening over the past year and in certain cases are at or near multiyear highs. These price increases have resulted in higher year over year royalty revenues, as a result the company posted robust financial results in Q3 2021. However, the resurgence of the delta variant and omicron is wreaking havoc and could impact the volume of the business, which would dent the company’s cash flows. Moreover, it also has a prolonged Cash Cycle (Days), which may create a difficulty for the company to have enough cash on hand to meet their financial obligations. Additionally, the stock is trading at premium valuations even the technical indicator suggests that stock is perhaps overbought and due for a price correction or a consolidation. Therefore, based on the above rationale and valuation, we recommend a “Sell” rating on the stock at the closing price of CAD 17.83 on January 5, 2022.

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

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.