SRM And Palmiere Go Head To Head

The week leading up to the Prospectors and Developers Association of Canada, the eighth trading week of the year, continued to see fallout from HudBay Minerals’ failed takeover of Lundin Mining,

• The controversial takeover was friendly at the board level, but prompted a decidedly hostile reaction from HudBay shareholders, who ultimately rose up to scuttle the deal after the Ontario Securities Commission intervened to force management to allow a HudBay shareholder vote.

HudBay management has now moved into damage-control mode, and launched a public relations offensive ahead of a key March 25 shareholder meeting, when a dissident group will try to wipe out the board and replace it with an experienced new slate of directors that includes former top HudBay executives.

The proxy circular filed by dissident shareholder SRM Global Master Fund Ltd. Partnership on March 3 is pretty damning, and makes for compelling reading at www.sedar.com.It includes transcripts of previously private text messages between HudBay CEO Allan Palmiere and Lundin president and CEO Phil Wright, obtained via SRM’s successful oppression application.

Combining the above with Palmiere’s unconvincing performance in a conference call with incredulous analysts in late February, we’d have to slot the current HudBay board in the “dead man walking” category, corporately speaking, and expect the dissident group to clear the playing field on March 25.

But after wasting $450 million in shares buying Skye Resources and its dud Fenix nickel laterite project in Guatemala’s politically dodgy Lake Izabal region, and losing another $62 million on a bad investment in Lundin, a lot of the damage meted out on HudBay’s share price since last summer can’t be undone.

Lundin Mining, meanwhile, now has to squarely face the problem of how to service its huge debt burden with a cash flow that’s shrivelled due to declining base metals prices. The miner that once aspired to fill the vacuum left in the Canadian investment scene by the disappearance of base metals giants Inco, Noranda and Falconbridge is now pinning its hopes on a far-from-certain recovery in base metals prices in the coming years and a successful startup of the large-scale Tenke Fungurume copper-cobalt mine in the difficult Democratic Republic of the Congo.

• Gold mining is one of the few industries able to raise capital from private sources these days. And there’s no better example than the closing this week of Osisko Mining’s blockbuster $402-million bought-deal financing with a syndicate of underwriters led by Thomas Weisel Partners Canada and BMO Nesbitt Burns.

Osisko issued 88.55 million units priced at $4.55 apiece, with a single unit comprised of a share and half a warrant. A full warrant entitles the holder to buy another share for $5.45 until Nov. 17, 2009. Overnight, Osisko now has one of the strongest balance sheets in the junior gold sector.

Most of the proceeds will be ploughed into the development and construction of its Canadian Malartic low-grade, open-pit gold project in northwestern Quebec, which is tagged in a feasibility study to produce an average of 591,000 oz. gold annually over a 10- year mine life. This year’s plans include an intense drill program encompassing 200,000 metres of drilling using nine rigs.

• At presstime came word of another blow to workers in the sagging nickel subsector, with Vale following up on its December nickel job cuts with a fresh round of restructuring that will see about 900 full-time positions eliminated in its nickel business, which employs 14,000 worldwide. The company describes the cuts as being focused in large part on corporate, management and business support functions.

In Canada, Vale notes that after the cuts are made, the company will still employ 700 more people here than Inco did just prior its takeover by Vale.

The Globe and Mail reports that Vale is eliminating 423 jobs in Canada, specifically: 261 in Sudbury, Ont.; 39 in Voisey’s Bay, Labrador; 24 in Thompson, Man.; 19 in its corporate offices in Toronto,; 74 in its Mississauga, Ont., labs; and 6 at its Port Colborne refinery. The layoffs reportedly won’t affect members of the United Steelworkers union.

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