HudBay mines new CEO with a history

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This article was published 24/04/2009 (6032 days ago), so information in it may no longer be current.

PETER Jones says he still has to get up to speed as the newly installed CEO of HudBay Minerals Inc., but everybody understands there are few people who know that company better than Jones.

Jones reclaimed the helm of the northern Manitoba miner in March, 14 months after being forced to the sidelines while HudBay went through one of the most unusual years in Canadian corporate history.

He was the key member of a "dissident" slate of board nominees that was installed March 23 after HudBay’s incumbent board resigned en masse. It was two days before a shareholder vote that would have sent them packing had they not resigned first.

Jones, 61, had been CEO of HudBay up until January 2008, when he was asked to step down and was replaced by the company’s former chairman, Allen Palmiere, who proceeded to lead the company from one hapless deal to the next.

In an interview with the Free Press Thursday, Jones said he was never given any precise reason why he was asked to retire.

"One has to assume they were more interested in acquisitions rather than preservation of cash at that time," he said.

Jones’ return to the company is a homecoming for the former Brit and may well spell a return to a Manitoba focus for the company whose head office moved from Winnipeg to Toronto last September.

Joining him on the new board are two former Winnipeg HudBay executives.

Some analysts say they believe the company’s fortunes lie in more concentrated development of its Manitoba assets.

At the beginning of 2008, HudBay had more than $500 million in cash in the bank, its shares were trading at more than $20 and metal prices were hitting historic highs.

But Jones said he believed the market was overheated and did not subscribe to the belief that metals were in for a long bull run.

He resisted urgings to use HudBay’s enormous war chest to go on a mining assets spending spree.

But new CEO Palmiere had no such compunctions and went out and closed a $400-million deal in June to acquire Skye Resources, which owned a large nickel property in Guatemala.

That deal closed just as global commodity prices started to nosedive. Weeks later, the plan to develop the Guatemala property was shelved.

"When that happened, the financial community looked at HudBay and said, ‘Just a minute. You paid more than $400 million and within a few weeks you shut it down. What sense does that make?’" said Jones.

The dismal Skye deal was followed in November by an even more contentious proposal to buy Lundin Minerals Inc., another Canadian mining company that had interesting assets but was in a precarious financial situation.

Investors went bananas when they heard the details. HudBay was paying too much, they said, diluting HudBay shareholders’ holdings almost in half and taking on a sizable debt load that Lundin could not handle on its own.

When the details were disclosed, it immediately knocked 40 per cent off the price of HudBay shares.

In the next several weeks, the Canadian investment community witnessed a rare occurrence where otherwise powerless shareholders rose up and challenged management that had run amok. SRM Global Master Fund Limited Partnership, a Monaco hedge fund that owned about 11 per cent of HudBay, put together a proposed new slate of independent directors for shareholders to vote on, which included Jones and two other former HudBay executives.

After weeks of bitter wrangling, court battles and regulatory intervention, the former board was forced to call a vote on the controversial plan to acquire Lundin and a proposed new board of directors.

"The HudBay board resisted (holding a shareholder vote)," Jones said. "They had the power if they so wished to take this (Lundin deal) to shareholders. But obviously they knew, as any reasonable person would, that there wasn’t a chance the shareholders would support it. Why would they support it? There was already a 40 per cent decline in the share price."

Not only did the former board resist taking the deal to shareholders, when they were finally forced to do so, they scheduled it after the Lundin deal was expected to close.

The company received an extraordinary wrist-slapping from the Ontario Securities Commission over corporate governance practices that the regulator said ran roughshod over shareholder rights.

After mounting an unprecedented aggressive campaign to win shareholders’ votes, complete with full-page newspaper ads and expensive circulars, the former board finally backed off. The Lundin deal was unwound and Palmiere resigned a couple of weeks before the March 25 scheduled shareholder vote.

Jones was appointed CEO immediately after the incumbent board resigned March 23.

In a manner of speaking, this is Jones’ third stint running the company that has been mining the Flin Flon greenstone belt for 80 years.

He was senior manager of the Flin Flon operations when it was owned by Anglo American in the early part of this decade and it decided to divest the zinc, copper, nickel, gold and silver mining operation. He helped a shell company raise about $340 million to buy the company from Anglo American and became the original CEO when HudBay went public in December 2004.

He was CEO as the company’s profits soared and the share price skyrocketed — it was the second-highest gainer on the TSX in 2006. The company benefited from $400 million of investments by Anglo American in the years preceding the IPO and it was in excellent position to take advantage of the ramp-up in commodity prices that reached historic levels.

In the midst of the vicious boardroom battles late last year, the share price fell below $3 in January. Since the dust has settled, the price has recovered to close at $6.95 on Thursday.

George Topping, a veteran mining analyst at Blackmont Capital, said the company has good options, not least of which is development of the potentially massive Lalor zinc and gold discovery near Snow Lake.

martin.cash@freepress.mb.ca

 

HudBay Minerals

1912 — mining gets underway in Flin Flon in what will prove to be one of the most productive ore bodies in the world.

2004 — South African/UK mining giant Anglo American sells the Flin Flon operation to a shell company, which raised $340 million and takes the company public at $2.10 a share.

2007 — HudBay shares hit $28.

 

2008

January — CEO Peter Jones suddenly leaves the company and is replaced by board chairman Allen Palmiere.

March — Lalor Lake discovery near Snow Lake indicates potential of 20 million tonnes of high-grade zinc and significant gold zones.

June — HudBay pays $450 million in an all-stock deal for Skye Resources Inc.

August — HudBay’s Balmat zinc mine and concentrator in upstate New York closes.

November — plans to develop Skye’s Guatemala nickel mine are shelved.

November — HudBay proposes acquisition of Lundin Mining Corp. in an all-stock deal worth $488 million.

December — With a slumping stock price, disgruntled shareholders seek to force the company to hold a shareholder vote on the Lundin deal and replace the board of directors.

 

2009

January — HudBay temporarily closes Chisel North mine in Snow Lake.

January– OSC orders HudBay to hold shareholder vote on Lundin deal.

February — Lundin deal terminated.

March — Palmiere resigns

March — board resigns, new board installed and Peter Jones appointed CEO.