Due to the rapid electrification of the economy, copper prices recently reached an all-time high and are expected to remain elevated in the near future for a number of reasons. An electric vehicle (EV) battery, for example, requires four times more copper than a conventional auto battery. In addition, limited mining operations, as well as “not-in-my-backyard” (NIMBY) challenges, all contribute to higher copper demand. Within the industry, copper producer Hudbay Minerals (NYSE:HBM) looks prime and ready to capitalize on the growing demand for the highly desired metal.
The stock is up nearly 73% year-to-date, with plenty of space for growth. It is an attractive opportunity for investors seeking exposure to copper (and gold) mining stocks.
Hudbay’s Strong Position
Hudbay is a diversified metals producer that discovers, finances, builds, and operates low-cost, long-lifespan, and cash-generating assets. Its focus is chiefly on copper projects located in mining-friendly, investment-grade zones. Noteworthy among these are the Constancia mine in Peru, the Copper Mountain mine in British Columbia, the Lalor mine in Manitoba, and the Copper World Complex and Mason projects in the United States.
Hudbay’s consolidated copper production is forecasted to average 153,000 tonnes over the next three years, marking a 16% rise from 2023 levels. Simultaneously, its gold production is projected to average around 272,500 ounces, indicating a consistently high annual gold yield due to its operations in Manitoba and the effective management of Pampacancha’s high-grade gold zones in Peru from 2023 to 2025. The company’s all-sustaining cash cost (AISC) of $2.00 to $2.45 per pound makes the current copper market price of $4.60+ highly profitable.
According to BloombergNEF, demand for copper is set to continue rising and is anticipated to result in copper prices surging 20% by 2027. Further, gold is projected to rise from the current $2370 per ounce to $2800 to $4649 per ounce by 2030. This growth trajectory places Hudbay in a solid position to leverage copper’s favorable long-term supply-demand dynamics.
Hudbay’s Recent Financial Results and Outlook
Hudbay recently reported Q1 financial results. The company bolstered its operation stages, yielding consolidated copper production of 34,749 tonnes and gold production reaching a peak of 90,392 ounces, exceeding anticipations. Revenue for the quarter stood at $524.99 million, witnessing a significant jump of 77.8% year-over-year and surpassing expectations by $69.1 million.
The company delivered a robust adjusted EBITDA of $214.2 million for the quarter, with a trailing twelve-month figure of $760.5 million. Non-GAAP EPS of $0.16 beat estimates by $0.12.
Cash and cash equivalents increased by $34.6 million to $284.4 million during the first quarter, attributable to strong operating cash flows, which were strengthened by high copper and gold prices and sales volumes. This also allowed the company to reduce its net debt by $43.5 million during the period.
During the quarter, Hudbay completed $10 million in net repayments on its revolving credit facilities. It also made further progress in meeting its obligations under the gold forward sale and prepay agreement. As a result, the company’s gold prepayment liability has been reduced and is projected to be fully repaid by August 2024.
Further, Hudbay issued 42,366,000 common shares on a bought-deal basis, including an over-allotment option of 5,526,000 common shares for $9.50 per common share, yielding aggregate gross proceeds of $402.4 million.
What Is the Price Target for HBM Stock?
Analysts following Hudbay Minerals have been bullish on the stock. For instance, Scotiabank analyst Orest Wowkodaw, a five-star analyst according to TipRanks ratings, recently raised the price target for HBM stock from C$15 to C$17 while maintaining an Outperform rating to reflect improvement in the near-term commodity price outlook.
Overall, Hudbay Minerals is rated a Strong Buy based on 13 recommendations, of which 12 are Buy ratings. The average price target for HBM stock is $11.24, representing an upside potential of 17.94% from current levels.
The stock has been trending upward, climbing over 17% in the past month. It trades toward the high end of its 52-week price range of $3.94-$10.49 and shows ongoing positive price momentum, trading above its 20-day (9.41) and 50-day (8.48) moving averages. The stock appears to be trading at a discount, with the enterprise value (EV) to free cash flow (FCF) ratio of 18.51 well below the Copper industry average of 31.37.
Conclusion on HBM
Hudbay Minerals’ production forecast points towards a significant rise in copper and gold yield over the next few years, making it perfectly placed to leverage the predicted surge in copper and gold prices. The company’s recent financial results demonstrate strong performance, with higher-than-expected production and significant revenue growth.
While trading at a discount, HBM stock’s positive price momentum makes it an attractive opportunity for investors seeking exposure to growth opportunities in the mining space.
