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Hudbay Minerals (TSX: HBM; NYSE: HBM) now has in hand the second-last permit it needs to start construction at its 85,000-tonne-per year Copper World project in Arizona.
The permit granted on Thursday advances Copper World, Hudbay’s main development project, towards becoming the third-largest copper cathode producer in the US. It could boost Hudbay’s yearly copper output by over 50% to around 250,000 tonnes starting in 2029, contingent on a construction decision by 2026, other permits, financing and building.
“Receiving the aquifer protection permit is a significant de-risking event for Copper World as it brings us one step closer to being fully permitted,” president and CEO Peter Kukielski said in a news release.
The company’s next target is securing an air quality permit, which Kukielski notes is progressing as planned with completion expected by the end of the year. Hudbay plans to complete a definitive feasibility study in 2025, but not before considering a 25-30%-stake joint venture partner. The partner would assist in funding the feasibility study and contribute to the project’s design and construction.
Haywood Capital Markets mining analyst Pierre Vaillancourt is bullish on the stock. It’s a good time to buy Hudbay ahead of Copper World milestones, dovetailing into expected smoother sailing operationally elsewhere in the company’s portfolio for this year’s second half, he said in a note on Friday.
Although Friday’s price of C$10.96 is up 50% year-to-date (63% year-on-year), it is down 23% since May. That reflects a weaker second quarter and a softer copper price, according to Vaillancourt. Shares have touched C$5.46 and C$14.33 over the past 12 months, with a market capitalization of C$4.3 billion.
“However, we continue to like Hudbay based on free cash flow growth, strong gold production to complement copper, and attractive valuation relative to peers,” he said. The company’s strong balance sheet, with $524 million in cash following the equity financing on May 21 for $350 million at $9.50 per share, underpins his reasoning.
Copper World is an alternative to Hudbay’s stalled Rosemont project next door. It has faced legal and environmental challenges, notably a 2019 federal court ruling that blocked its development due to concerns over its potential impact on federal lands and local water resources. Copper World, by contrast, is being developed mainly on private land, which allows it to proceed under state and local permits, bypassing the federal hurdles that impeded Rosemont.
Hudbay forecasts Copper World, with a mine life of over 20 years, to be a key contributor to the US domestic supply chain. The project also holds the potential to create a significant economic impact in Arizona, with the company estimating more than $850 million in US taxes over the mine’s life, along with over 400 direct jobs and up to 3,000 indirect jobs.
Copper World is set to be a major player in the US copper supply, producing “made-in-America” copper cathodes exclusively for domestic customers, according to Kukielski.
A September updated prefeasibility study for the first stage of Copper World improved economics and extended the mine life compared with a June 2022 preliminary economic assessment. The new study pegs the project’s after-tax net present value at $1.1 billion with an 8% discount rate and an internal rate of return of 19%, based on a copper price of $3.75 per pound.
