Sunday, May 11, 2008

Hudbay Mineral - A $6 stock priced at $18

I first looked at Hudbay Mineral when I contrasted it to Blue Note just over a year ago. I saw nothing but downside to it, although I wasn't overly critical, yet. Blue Note that I liked has yet to perform, and with the retraction of zinc price it is unlikely to perform.

I anticipated a retraction of zinc prices, but simply not to the degree that they have retracted. Zinc was at $1.53/lb and the Canadian US dollar means that was about $$1.80 Canadian. It was $1.18 for the last quarter and it is now down to $0.96.

I made a prediction on Hudbay in the fall, and I specifically said the problems would not show up until this quarter.

Hudbay minerals looked to be valued at about 2-3x the valuation of Blue Note when I looked at them together. Today Hudbay's earning look to me like they are heading to the 50c/share for a full year range, and that won't show up on the next quarter, but Q1 2008 would have earnings in the 10-13c/share range based on today's metal prices and exchange rates. Q4 already has some better metal prices rounded into the quarter. I saw some serious reasons to see earnings declines when I reported on this stock and they have shown up and further declines will likely happen.

I missed on my prediction as they came in at 17c/share. It looks like they did well on their silver, "silver production increased 24.0% owing to higher silver content in the purchased concentrates processed in Q1 2008." That would account for about 2c that I'm out. They also produced 23,000 ounces of gold and an extra say $200/oz is an extra $4.6 million, so the gold and silver holdings off set the reductions I predicted.

So, gold, silver and zinc are all down right now compared to Q1, so expect earnings to go lower. Just to give some reference for how far Hudbay has fallen, news on the 4th quarter showed:

Canada's third-biggest zinc and copper producer earned C$28.5 million, or 22 Canadian cents a share, in the quarter ended Dec. 31, down from C$165.8 million, or C$1.29 a share, a year earlier.

1 comment :

GS751 said...

I remember your post on Zinc.