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Stock Report:

SECTOR: MaterialsSECTOR HEAD: Larry IpSR. ANALYST: Luiza SantosJR. ANALYSTS: Rafael Grados, Kelly Kaminski,

Reeve Porter, Pooja Sahani

EM Demand

Chile Supply Slowing

Copper Mines

Expansion

Plans

Investment Recommendation

Key Drivers:

© Dyrect Investing, Ltd. - 2

HudBay Minerals, Inc.Recommendation BUYCurrent Price $16.721yr Target Price $19.36% Upside 15.8%

Company Overview

Market Capitalization (MM) $2,500

Revenue (ttm) (MM) $762EBITDA (ttm) $251EPS (ttm) $0.37Forward P/E 16.77Debt/Equity 0.19Dividend Yield (Estimated) 1.20%

Beta 1.83© Dyrect Investing, Ltd. - 3

HudBay Minerals, Inc.• Integrated mining company with assets in North, Central, & South America, focused on the discovery, production and marketing of base metals.

•Growth plan to optimize and expand principal operating platform in Manitoba, and seek growth opportunities farther afield, esp. Peru.

-100%

0%

100%

200% HBM vs. S&P 600

HBM S&P600

Big Competitors &

Market Cap

$284.6B

$144.0 B

$44.8 B

Industry OverviewThe Small Cap Copper Industry

Companies that engage in the exploration and extraction of copper deposits in the United States and Canada, processing the

copper into commoditized cathode sheets.


$2.50 B

$1.83B

$391.86M$879.75

M

Small Cap Copper Companies Market

Cap

Find feasible deposits and

properties that could yield resources

Build mining infrastructure

Lock future revenues via

supply contracts

Extract & Concentrate

Minerals

Refine into cathode sheets at

Metallurgical Plants

Sell refined copper to customers

Revenue Generation


4. Operations 6. Sales

2. Development1. Exploration

3. Supply Contracts

5. Refining

TRENDS AND OPPORTUNITIES

Trend #1: World Copper Usage


10

12

14

16

18

20

22

1999 2001 2003 2005 2007 2009 2011

Refi

ned

Usa

ge (m

m to

nnes

)

World Copper Usage

CAGR = 2.21%

Trend #2: Copper Output

CAGR = 1.43%

Production

RoC Y/YF F F

0

2000

4000

6000

MM

tonn

es2009 Cu Production by Country

-6%-4%-2%0%2%4%6%8%

5.0

5.5

6.0

6.5

7.0

7.5

8.0

2007 2008 2009 2010 2011 2012 2013 2014

Rate of Change (%

)

Prod

uctio

n(M

M to

nnes

)

Chilean Copper Output (2007-2014)

000 tonnes Series2


HBM vs. CompetitorsNumber of

MinesExpansion

PlansEV / value of in-situ reserves

Current Ratio

8Norsemont Mining in

Peru.0291 6.13

4 Hold on to Prosperity .0332 3.24

9Mt.

Milligan in Canada

.0827 9.79

2Mt. Hope & Liberty

molybdenum

.0347 3.76


HBM vs. Competitors

HBM: 8 TCP: 9 TKO: 4 GMO: 2

Mine Locations Expansion into Peru

Background:• World’s 2nd largest copper

producer• Stable mining regulatory

environment

Competition: • Big players: BHP Billiton

& Teck Resources hold stake in copper operations

• Small Players: Not there

Outlook:• Joy Global anticipate

growing investment in Peruvian mine development

• Southern Copper and Buenaventura continue to operate profitably


Norsemont Acquisition


350% increase in copper reserves190% increase in copper equivalent

reserves

Copper Equivalent Reserves

+350%

Au Eq., 24%

Zn, 33%

Cu, 43%

CurrentAu Eq., 15%

Mo, 7%

Zn, 11%

Cu, 67%

Pro Forma

0

1,000

2,000

3,000

4,000

5,000

6,000

HudBay Pro Forma HudBay

Cu Au Eq Zn Mo

HBM Financial Projections

Revenue CAGR= 20.6%

0%2%4%6%8%10%12%14%16%18%20%

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

2009 2010 2011e 2012 e 2013e 2014e 2015e

Net

Inco

me

Mar

gin

Rev

enue

(MM

)Revenue and Net Income Margin

(2009-2015)

Revenue Net Income Margin


HBM Financial Projections


2011e

2012e

2013e 2014e2015e

Revenue $952 $1,225

$1,530 $1,995 $2,586

Revenue Growth

24.9% 28.7% 24.8% 30.4% 29.6%

Gross Margin

26.2% 28.8% 30.6% 32.3% 33.5%

EBITDA Margin

23.6% 26.8% 28.9% 31.0% 32.6%

EPS $0.28 $0.64 $1.04 $1.69 $2.52

Valuation


Year 2011(e) 2012(e) 2013(e) 2014(e) 2015(e)

FCF ($MM) $75 $164 $239 $349 $494

DCF: 40%WACC 15.94%Growth Rate 3.00% DCF Value $2,6471yr Target Price

$15.58

Comps: 30%/30%Price/Earnings

16.8x

1yr Target Price

$22.39

TEV/EBITDA 5.3x1yr Target Price

$21.361yr Target

Price $19.36 + 15.8%

Risks & Sensitivities


45%

25%

15%

15%

Weight

$16.47

$18.49

$18.88

$15.34

$17.17

Current Forecasted

$15.00 $17.00 $19.00 $21.00

Price of Copper Changes by 50%

Price of Zinc Changes by 50%

Price of Gold/Silver Changes by 50%

Canadian Dollar Exchange Rate Changes by 50%

Weighted Risks

Price per Share

Q&A

Appendices

Index•Breakdown of Operations

•Cross-Sectional Analysis

•Financial Comps

•Index Performance

•Industry Revenues

•Initial Investment Recommendation

•Investment Thesis

•Materials Prices Simulator

•Risks

•Trends: Increase in Copper Prices

•US Copper Output

Investment ThesisDemand in Asia on the Rise• Chinese and Indian copper demand are set to rise 7% and 9%, respectively, in 2011

• China’s copper demand to rise from 6.1 million tons in 2009 to 8.5 million tons in 2015

Chilean Copper Mines Slowing Output • Chilean copper output growth (top global copper mining country) to slow by 12% in 2011 and by 5% in the three following years

• Power and transportation infrastructure concerns damaged by natural disasters

Peruvian Labor Problems• Labor strikes have been disturbing operations in Peruvian Copper mines for the last 5 years

• Peru is the 3rd largest copper producer

© Dyrect Investing, Ltd. - 19Index

Breakdown of Operations1. Mines

– 777, Trout Lake, Chisel North, Basmalt– Goal: increase mineral grades and

production

2. Concentrators– Flin Flon, Snowlake, Balmat– Goal: process minerals by separating

them from gravel

3. Metallurgical Plants– Gets minerals from own concentrators or buys

concentrates from third parties– Refines minerals – Sells to customers who make wires, tubes, and

brass– Goal: increase sales


Trends: Increase in Copper Prices

Source: Mintel/U.S. Census Bureau, Service Annual Survey


$0

$2

$4

$6

$8

$10

Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10

Thou

sand

sLME 3-Month Copper Contract ($/tonne)

U.S. Copper OutputPr

oduc

tion

(th

ousa

nd t

onne

s)

2005 2006 2007 2008 2009 2010 E 2011 F

CAGR = 3.18%

Source: Business Monitor © Dyrect Investing, Ltd. - 22Index

0

5,000

10,000

15,000

20,000

25,000

Financial Comps

Stock Price

Market Cap Revenue Profit

Margin EBITDA LT Debt EPS P/E EV/

EBITDA

TGB $4.67 $872M $188.9M 5.6% $47.7M $14.9M $0.06 5.66 14.28

TC $13.12 $1.8B $373.4M (14.9%) $177M $10.5M ($0.44) – 6.70

HBM $17.15 $2.5B $720.7M 15.6% $263M – $0.73 15.58 7.05

GMO $5.40 $392M – – ($8.9M) $10.4M ($0.14) - (43.04)

Yahoo.com/finance© Dyrect Investing, Ltd. - 23Index

Risks• Tariffs and Exchange Rate Fluctuations

– U.S. and Canada copper mining is an export-heavy industry

– Revenues are sensitive to macro environment– Chinese tariffs are 5% on refined copper exports and

10% on blister and scrap copper• Labor

– Union strikes may set back copper mining productions• Collahuasi copper miners 2010

• Environmental Regulations– Expenditure for pollution and abatement and

control© Dyrect Investing, Ltd. - 24Index

Industry Revenue


$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

2005 2006 2007 2008 2009

Mill

ions

Index Performance


2010

Index

-100%

-50%

0%

50%

100%

150%

200%

2005 2006 2007 2008 2009

Peer Index Performance

Peer Index:TC, TGB, GMO, HBM S&P600

Cross Sectional Analysis

PEG

EPS Growth


0.0

0.5

1.0

1.5

2.0

0% 20% 40% 60%

PEG Ratio vs. EPS Growth

Initial Recommendation• Due to the increasing global demand for

copper, and slowdown of output of the top copper producer in the world, we believe the small cap US copper industry is an attractive investment opportunity

• Suggested company for further research and analysis: Hudbay Minerals


Material Prices Simulator 1






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