Hudbay Minerals Inc. 

Hudbay Minerals Inc. (TSX: HBM) is a diversified metal mining company which primarily produces copper concentrate (including copper, gold, and silver) and zinc. The company owns four ore concentrators, three polymetallic mines, and a zinc production facility.

On June 11, 2020, the company informed the appointment of Steve Douglas as the company’s Senior Vice President and Chief Financial Officer, with effect from June 30, 2020.

Q1FY20 Financial Update: HBM declared its quarterly results, wherein the company reported a lower revenue of US 245.10 million, as compared to US 292.26 million in pcp. The decline was primarily due to a slump in the base metal prices namely, copper and zinc and lower sales volumes for copper and silver, offset by a higher gold price The Group reported a gross loss of USD 21.99 million, as compared to a profit of USD 240.44 million in pcp. Results from operating activities stood at a loss of USD 38.36 million, as compared to a profit of USD 19.81 million in Q1FY19 due to a gross loss, partially supported by significantly lower selling and administrative expenses and other operating expenses. The loss for the period widened to USD 76.134 million, as compared to USD 13.41 million due to an increase in net finance expenses. The group exited the quarter with cash and cash equivalents of USD 305.99 million, while total assets stood at USD 4,366.23 million.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Valuation Methodology: Price to Cash Flow Based Relative Valuation (Illustrative)

Note: All the forecasted figures are taken from Refinitiv, (Thomson Reuters), NTM: Next Twelve Months

Stock Recommendation: The stock of HBM witnessed an unprecedented gain of ~84% in the last three months. The quarter witnessed lower realization price from the base metals, which constituted a larger section of the company’s income and reported a gross loss in Q1FY20. The group witnessed operational and supply chain disruptions, including a temporary suspension of operations at Constancia for a period of eight weeks as the government declared state of emergency in March. Operations continued in Manitoba without any impact to production and supply chain disruption. Though Constancia mine received the approval from the government to start production on 14 May and the group has ramped up the operation; it is likely to affect the group’s second-quarter result adversely as the production remained on halt for approximately eight weeks of the second quarter. The company had decent liquidity of USD 306.0 million in cash and USD 445.9 million from undrawn availability under the revolving credit facilities, which seems to sufficient to surpass the current pandemic. We have valued the stock using Price to CF based relative valuation approach and considered Lundin Mining Corp (TSX: LUN), Turquoise Hill Resources Ltd (TSX: TRQ) and First Quantum Minerals Ltd (TSX: FM) etc., as a peer group and arrived at a target price offering lower single-digit upside potential (in % terms). Hence, we recommend a ‘Watch’ stance on the stock at the closing market price of CAD 3.83 as on June 12, 2020.

HBM Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Osisko Mining Inc.

Osisko Mining Inc. (TSX: OSK) is a precious metal mining company. It is engaged in acquiring, exploring and developing mineral properties. The company's project portfolio includes Urban-Barry, Windfall Lake Property, Catherine Fault.

The company reported the shutdown of its mining activities from March 24, 2020, to April 15, 2020, except the Windfall Project site.

The company entered into an agreement where Canaccord Genuity Corp. and Eight Capital agreed to purchase 41,100,000 units of the group's equity shares at a price of ~CAD3.65 per share on a bought-deal private placement basis

Guidance: Prior to the COVID-19 crisis, a 1,200,000-metre drill campaign continued with approximately 18 drill rigs on the Windfall Property (4 rigs underground). When operations continue in the future, the group is likely to continue surface drilling, mostly focusing on the Lynx, Lynx Extension and Triple Lynx zones, while advancing the infilling drilling program on existing, and newly discovered zones.

Q1FY20 Financial Highlights: Osisko announced its quarterly results, wherein the company reported a lower operating loss of CAD 7.43 million, as compared to an operating loss of CAD 31.72 million in the previous corresponding period. Compensation expense was up at CAD 4.85 million, from CAD 4.18 million in pcp while the group reported an extended loss from the marketable securities, partially offset by a significantly higher flow-through premium income. General and administration expenses stood lower at CAD 1.27 million against CAD 1.38 million in Q1FY20. Loss and comprehensive loss stood considerably lower at CAD 10.93 million from CAD 37.48 million in pcp. The group exited the quarter with cash and cash equivalents of CAD 117.41 million and total assets of CAD 735.47 million.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Stock Recommendation: The Stock of OSK corrected ~22% so far this year. The company is associated with drilling activities and is yet to report income. Further, the company has halted its operations at its Windfall Project site, and it is uncertain when the drilling activities would resume. Further, the company reported a higher finance cost during the first quarter of FY20. The group is not generating any revenue from its operation and is not in commercial production on any of its mineral properties. During the three-month period ended March 31, 2020, the group had negative cash flow from operating activities, and the anticipates it will have negative cash flow from operating activities in future periods. Further, the group is trading at a P/BV ratio of 1.8x against industry (metals and mining) industry median of 1.3x. Hence, we recommend a ‘Watch’ stance on the stock at the closing price of CAD 3.16 as on June 12, 2020.

OSK Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

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