Hudbay Minerals Inc. shed more than a fifth of its market value Thursday after a U.S. federal judge ordered the Canadian miner to cancel plans to build a massive copper mine in Arizona, a project touted as the company’s next major growth engine.
Toronto-based Hudbay spent more than a decade securing approvals for its US$1.9-billion Rosemont mine, and cleared what appeared to be the last major hurdle with the issuance of a water permit in March. But on Wednesday, the U.S. District Court for Arizona ruled that the U.S. Forest Service had erred when it issued a key permit for the mine in 2017.
After the approval was issued by the forestry service, a number of local environmental and native communities objected to the construction of Rosemont, arguing an open-pit mine in the heavily forested area would devastate the local habitat. Rosemont is located in Arizona’s Coronado National Forest in the Santa Rita Mountains, about 50 kilometres southeast of Tucson.
Rosement was supposed to go into production in late 2022 and would have been the third-biggest copper mine in the U.S. with average yearly production of 112,000 tonnes. The mine is key to the copper and zinc miner’s plans as production at some of its other properties tails off over the next few years.
Over an 11-year period, Hudbay spent more than $100-million, and attended multiple public hearings on Rosemont, fielding tens of thousands of public comments, and conducted 1,000 impact studies.
In a statement on Thursday, Hudbay says it will appeal what it characterized as an “unprecedented” decision by the court.
“We strongly believe the project conforms to federal laws and regulations,” Peter Kukielski, interim chief executive officer of Hudbay, said in a statement.
Hudbay’s shares lost 21.4 per cent of their value on Thursday, closing at $5.04 on the Toronto Stock Exchange.
In an interview, GMP Securities Inc. analyst Ian Parkinson said it was “preposterous” that Hudbay had seemingly successfully navigated every hurdle, only to have Rosemont’s construction halted at the 11th hour.
“It comes as a complete shock,” he said.
Some observers were optimistic that Hudbay may be able to reverse the district court decision but even a successful outcome will take a lot of time.
“The route to overturn the decision may take up to two years in the courts,” wrote George Topping, analyst with Industrial Alliance Securities Inc. in a note to clients.
"We had originally assigned a US$379-million value to Rosemont. However, it’s now best to be conservative and assume zero value. "
Mr. Topping said the steep decline in the company’s value also leaves Hudbay vulnerable to an opportunistic takeover.
The shock at Rosemont comes not long after the company weathered a proxy fight with Toronto-based activist shareholder Waterton Global Resources. The private equity fund, which won a partial victory earlier this year, had pushed for a number of management and board changes, and advocated that the company ditch its CEO Alan Hair. Mr Hair stepped down last month.
Founded in 1927, Hudbay has copper and zinc mines in Manitoba, Saskatchewan and Peru.
Earlier this year, Hudbay said it was looking for a joint-venture partner that would buy up to 30 per cent of Rosemont to help defray the cost of building the mine.
“Finding a joint venture partner at this time to de-risk the Rosemont project will likely be delayed,” Credit Suisse analyst Mark Llanes wrote in a report to clients.
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.