HudBay Minerals Inc.

(HBM-T) C$9.37

Q3/12 -- Staying on course

Event

HudBay reported Q3/12 adjusted EPS of $0.07 compared with TD forecast

EPS of $0.05 and consensus estimate of $0.09. The company will be holding

a conference call to discuss Q3/12 results on Nov. 2 at 10:00AM (EST).

Impact – NEUTRAL

While results were better than expected, we would view Q3/12 results as

largely neutral with most of the beat related to higher-than-expected sales

volumes and a higher-than-expected realized zinc price. Production was also

better than expected; however, this was related to the processing of stockpiled

ore through the Flin Flon concentrator. The company has maintained its 2012

production and cost guidance.

Timeline targets appear to be on schedule for Lalor, Reed and Constancia.

Capital budgets remain unchanged for all three projects, although the timing

of expenditures has changed slightly with 2013 expenditures reduced slightly

and shifted to 2014. This appears to be related to more clarity on the timing of

equipment and other deliveries. The first phase of the Lalor project (with

production via the main ventilation shaft) is expected to be declared in

commercial production in Q2/13.

While the company reported an operationally sound quarter with production

ahead of our expectations, we would view the near to medium-term outlook

for the company as neutral with flat production over the next few years with

the Trout Lake and Chisel mines now closed. Production until 2014 will be

mainly sourced from 777, with limited production coming Lalor until the

production shaft is complete. Significant production growth will not occur

until 2014/15 when the Lalor and Constancia projects come online. We are

maintaining our HOLD recommendation.