Hudbay unveils exploration MOU with Japanese conglomerate

Hudbay Minerals Inc.  [HBM-TSX, NYSE] said Thursday it has signed a memorandum of understanding (MOU) with Japanese conglomerate Marubeni Corp. that establishes the framework for a multi-year exploration partnership.

It will focus on the discovery of new deposits within trucking distance of Hudbay’s existing processing facilities in Flin Flon, Man.

“This exploration partnership would allow us to couple our operational and exploration expertise with Marubeni’s balance sheet strength to test our large Flin Flon land package and potentially revive our dormant Flin Flon processing facilities,’’ said Hudbay President and CEO Peter Kukielski. “We have discovered and operated 29 mines in Hudbay’s nearly 100-year history in Manitoba and we have the potential to continue that success with this renewed focus on Flin Flon,’’ he said.

In connection with the MOU, Hudbay and Marubeni have agreed to negotiate the terms of a definitive agreement to govern the relationship between the parties and the Flin Flon properties that would form the subject of the exploration partnership.

It is currently contemplated that Marubeni would be required to fund approximately $10-$15 million of exploration expenditures on the project properties and that Hudbay would act as operator and carry out exploration activities. The definitive agreement will provide for the allocation of these expenditures among the project properties.

The MOU also provides a framework for a future joint venture between Hudbay and Marubeni if the exploration efforts are successful in discovering new deposits in the Flin Flon region. Upon satisfaction of certain earn-in obligations, it is expected that Marubeni would have the option to acquire a substantial minority interest in the projects, allowing the parties to jointly pursue their development.

On Thursday, Hudbay shares eased 3.0% or 19 cents to $6.09 on volume of 653,790. The shares are currently trading in a 52-week range of $8.47 and $4.07.

Hudbay is currently the third largest copper producer in Canada, behind Teck Resources Ltd. (TECK.B-TSX, TECK.A-TSX, TECK-NYSE) and Vale SA [VALE-NYSE] (150,000 tonnes annually), based on 2023 estimated copper production.

Hudbay recently merged with Copper Mountain Mining Corp. in a transaction worth $2.67 a share or US$439 million.

The companies said the deal creates a premier Americas-focused copper mining company that is well positioned to deliver sustainable cash flows from an operating portfolio of three long life mines, as well as organic growth from a pipeline of copper expansion and development projects.

Copper Mountain’s key asset is the 75%-owned Copper Mountain Mine in British Columbia, which currently produces approximately 100 million pounds of copper equivalent per year, with average annual production expected to increase to approximately 140 million pounds of copper equivalent at a cash cost of US$1.19 per- pound over the first 10 years of its 21-year mine life.

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