Major Hudbay Shareholder in Bid to Fell Company Leadership

A major shareholder of copper-focused Hudbay Minerals (TSX:HBM) has announced eight dissident board nominees and an alternative CEO in a bid to replace much of the Canadian company’s leadership team.

In a letter to shareholders, Waterton Global Resource Management, an 11.9-percent shareholder of Hudbay, nominated the eight directors and “transformational” CEO Peter Kukielski (formerly of Nevsun Resources (TSX:NSU)) for election at the upcoming Hudbay annual meeting.

Waterson said that it is “not typically an activist as it has never run a proxy fight, but as significant shareholders the firm believes change at the board and management level is necessary to maximize shareholder value.”

In the letter to shareholders, Waterton lays out its grievances with Hudbay’s leadership, accusing the upper levels of “a pervasive culture of entrenchment” and “a deficiency of real leadership” from Chairman Alan Hibben and CEO Alan Hair.

Waterton also claims there is a lack of expertise in key areas and a lack of “focus from certain board members” — chiefly Igor Gonzales, who is president and CEO of Sierra Metals (TSX:SMT) — which Waterton points out has a lot going on at the moment in South America.

“Due to the considerable attention required of Mr. Gonzales to address the issues facing Sierra, he lacks the adequate bandwidth that Hudbay shareholders deserve.”

The major shareholder said it believes in the company though, saying it has the potential to become a world-class intermediate copper producer.

“However, under the oversight of the current board, the company has been a chronic underperformer. The company’s 1-year, 3-year and 5-year total shareholder return relative to its peer group has been an abysmal -37 percent, -89 percent and -68 percent, respectively.”

Five members of Hudbay’s leadership — including Hibben and Hair — are described as members of the “Entrenched Five,” who have “either been on the board or in a senior management role at the company for nearly a decade,” says Waterton.

The team nominated to replace much of Hudbay’s leadership includes Peter Kukielski, who until recently was the CEO of Nevsun — the same Nevsun that was taken over by China’s Zijin Mining (HKEX:2899) for C$1.86 billion to secure its Timok copper project in Serbia.

“We believe Mr. Kukielski is the right person to lead Hudbay because he has exceptional operating experience and a proven track record of creating and crystallizing market value for investors.”

Waterton continues, “Mr. Kukielski was announced as CEO of Nevsun in May 2017. During his tenure, total shareholder return for Nevsun investors was 93 percent. During this same period, Hudbay’s Total Shareholder Return was -12 percent.”

Also nominated by Waterton are Richard Nesbitt for chairman and Mike Anglin, David Deisley, Emily Moore, Daniel Muniz Quintanilla, Ernesto Balarezo and David Smith as directors. Each have been furnished with an exhaustive biography and list of reasons why they’d be a good fit for Hudbay.

Hudbay is yet to respond to the list of nominees — which it has known has been coming — but said in December that it was “disappointed” by Waterton’s attacks on company leadership and “selective use of performance metrics.”

Waterton Global Resource Management has been calling for a moratorium on acquisitions from Hudbay since October 2018, when Bloomberg reported that the company was in talks to acquire Mantos Copper.

At the time, Waterton said that given Hudbay’s underperformance, any transactions would be conducted “from a position of weakness” and therefore negatively impact shareholders.

Hudbay later announced it was acquiring Mason Resources (TSX:MNR) for C$31 million, citing the smaller Canadian company’s Ann Mason deposit in Nevada as the target of its acquisition.

On the TSX, Hudbay Minerals was trading at C$7.40 as of 10:00 a.m. PST on Wednesday (January 16), up 2.49 percent. This time last year, Hudbay was trading at C$11.71.

The Hudbay annual meeting is not currently scheduled, but will be held in early to mid-May.

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Securities Disclosure: I, Scott Tibballs, hold no direct investment interest in any company mentioned in this article.