HudBay+ Breakwater Resources Ltd.Partnership?

HudBay CEO exit reopens M&A debate
ANDY HOFFMAN


HudBay Minerals Inc. abruptly parted ways with its long-time chief executive officer Peter Jones, naming chairman Allen Palmiere to the top job, a shakeup sources said was a result of a conflict over the miner's strategic direction.


The Winnipeg zinc and copper producer has sat on the sidelines amid a frenzy of merger and acquisition activity in the mining sector. Record metal prices have swelled the company's cash position to an estimated $800-million.


Some shareholders, including a Monaco-based hedge fund controlling 16 per cent of the company's stock, have been agitating for a special dividend or major share repurchase.


A plan, announced in December, to buy back up to 9.5 per cent of the company's stock disappointed some investors as too small.


"Peter and the board have been at loggerheads for some time," said an industry source familiar with the situation.


Despite its large war chest, HudBay has been unsuccessful in attempts to close a major transaction. The company is understood to have held talks with several potential partners including Breakwater Resources Ltd., Lundin Mining Corp. and Inmet Mining Corp. Sources said it also discussed deals with Aur Resources and EuroZinc Mining before both those companies were taken over.


Widely lauded as one of the best mining operators in the business, Mr. Jones, CEO since 2002, has demonstrated a cautious approach to deal making and is wary of overpaying in what could be the market peak, sources said.


"The evidence is clear. They didn't acquire anything and there were plenty of chances to do so. Allen [Palmiere] is not a technical guy, he's a big-picture guy. He'll probably be in a better position to understand what's required to do a deal," a source said.


On a conference call, Mr. Palmiere refused to discuss the reasons for Mr. Jones' sudden departure as a HudBay director as well as president and CEO. In a press release, the company said Mr. Jones had chosen to retire.


Mr. Palmiere is expected to bring a more forceful approach to HudBay's merger and acquisition activity. An accountant who has held a series of executive jobs in the mining sector, he could also increase initiatives to return cash to shareholders through share buybacks or dividends.


"Given the current turmoil in the marketplace, there are significant opportunities potentially being created on the acquisition front, and I think like any company, we will have to continue to be, and perhaps be more aggressively focused, on opportunistic investment opportunities," he said.


HudBay shares jumped 9 per cent in heavy trading on the TSX. Before yesterday's gains, the stock had lost 18 per cent this year.


In a note to clients, Wellington West analyst Catherine Gignac said the management changes could signal that HudBay is "in play" and might be receptive to a takeover.


"The aggressive current merger climate in the mining sector suggests that HudBay could be acquired in this weakened status with its high cash position," she said.


HUDBAY (HBM-T)


Close $17.50, up $1.45.


Copyright 2001 The Globe and Mail