HudBay Minerals Inc.

(HBM-T) C$8.34

US$500mm high-yield notes offering provides funding

headroom

Event

HudBay announced the pricing on a US$500mm high-yield senior unsecured

notes offering.

Impact – NEUTRAL

The offering was upsized from the previously announced US$400mm

offering. The US$500mm notes were priced at 100% of the aggregate

principal amount and will yield 9.50% to maturity; the notes are due in 2020.

The offering is expected to close on or before September 13, 2012.

Upon completion of the offering, HudBay expects to discontinue the

syndication of the previously announced US$600mm credit facility and will

retain its existing US$300mm credit facility.

We expect HudBay to capitalize the interest costs related to the Notes

(~US$47.5mm/yr) during the construction of the Lalor and Constancia

projects over the next several years. As a result, our estimates over our

2012/13 forecast period remain unchanged.

Based on our forecasts over the 2012-2014 timeframe, HudBay should have

approximately US$300mm in funding headroom over and above our forecast

required funding of ~US$2.2bln, which is reasonable but not completely

comfortable given the rapid pace of capex inflation experienced by the mining

industry over the past several years. We continue to be cautious while

HudBay moves into full development of its Constancia project; while the

company has bolstered its project funding capacity, we believe that the

margin for error remains relatively narrow. We are maintaining our HOLD

recommendation and we have eased our target price down to $10.50 (from

$11.00) based on a lower target EV/2013 EBITDA multiple of 3.5x

(previously 3.75x), which now matches the target multiple we use for Inmet Mining