Pair of possible HudBay suitors is revealed

B.C., Indian firms reveal stakes in company

MINING REPORTER

Quadra Mining Ltd. QUA-T has acquired a significant interest in HudBay Minerals Inc., HBM-T joining India's Vedanta Resources PLC on the list of stakeholders who are potential suitors or partners for the Canadian mining firm.

Documents filed with the Ontario Superior Court show Quadra, a Vancouver-based copper miner, holds 5.7 million HudBay shares or about 3.7 per cent of the company.

Quadra president and chief executive officer Paul Blythe said his company acquired the stock after holding early stage talks with HudBay management last year.

"We felt it would be of mutual interest to consider some sort of combination," Mr. Blythe said in an interview.

Quadra joins Vedanta, India's largest base metals company, on the list of strategic HudBay stockholders. HudBay, which mines and processes zinc and copper at operations in Manitoba, has hired outside advisers to explore its options.

HudBay shares jumped 10 per cent yesterday after Vedanta confirmed it owns about 14.5 million HudBay shares or about 9.5 per cent of the company through a Dutch subsidiary.

The Indian mining giant's stake is a probable precursor to a takeover offer, analysts said.

"We believe a premium bid for HudBay is likely," Blackmont Capital Inc. analyst George Topping said in a report.

Scotia Capital's Lawrence Smith told clients that there is now a 20-per-cent chance HudBay will be acquired. HudBay could be sold for between $12.90 and $14.10 a share. With aggressive international expansion plans, Vedanta is a "plausible candidate to acquire HudBay," Mr. Smith said.

With more than $700-million on its balance sheet, HudBay is cash rich but growth challenged. The Toronto company's previous board resigned after shareholders revolted over management's attempt to buy out struggling rival Lundin Mining Corp. using HudBay stock.

A new slate of directors and CEO, nominated by 11-per-cent shareholder SRM Global Master Fund LP, took control of HudBay last month. CEO Peter R. Jones said the company will consider acquisitions, internal growth projects and potential takeover offers.

Quadra operates two copper mines in Nevada and Arizona but has struggled to contain costs. Mr. Blythe said his company is trying to achieve "critical mass" through mergers and acquisitions. Quadra recently completed the takeover of Centenario Copper Corp.

Mr. Blythe said he would still be interested in discussing a potential combination with HudBay but fears that his company may be outmatched by Vedanta and its 9.5-per-cent stake.

"Once the big boys start playing in this arena, it always becomes much harder for us to make something work," he said.

Another Vedanta subsidiary recently struck a pending $1.7-billion (U.S.) deal to buy the assets of bankrupt copper producer Asarco LLC, including smelters in Arizona.

With HudBay's own copper smelter slated to be shut down to comply with new environmental regulations, HudBay's copper concentrate could provide feed for the smelters.

Vedanta may also covet HudBay's Fenix nickel project in Guatemala, industry sources said. A major copper, zinc, iron ore and aluminum producer, Vedanta does not have nickel in its portfolio. Vedanta has considerable power-generating assets and expertise in the field. Fenix has been plagued by questions surrounding how to power the project.

HudBay (HBM)