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My Take on Snow Lake – April 12, 2019

Waterton looks to take over Hudbay board
Hudbay’s Lalor Mine headframe and office/dry complex.
Hudbay’s Lalor Mine headframe and office/dry complex.

Friday, April 5 brought a new and somewhat strange offering in the steady stream of news releases from Hudbay over the past several months. It included a letter warning stockholders that Waterton Global Resource Management was threatening the company’s positive momentum.

Noting that Hudbay’s current board and management team have executed a strategic plan and performance that has impressed many analysts, Hudbay board chair Alan Hibben explained in the news release that, “Hudbay is operating exceptionally well and is creating value for shareholders today, while positioning the company for sustainable value creation in the future. Our repeated attempts to constructively engage with Waterton have been met with escalating, changing and self-serving demands that would put Waterton first, at the expense of other shareholders. Given the facts regarding Hudbay’s strong performance and experienced and engaged board and executive leadership, the only rational explanation is that Waterton is seeking control and influence in support of another agenda it has chosen not to reveal.”

Throughout the release, Hudbay made their case for the current board’s composition and their delivery of shareholder value from all aspects of the mining business. They documented both current and historical statistics from operations in Manitoba and South America, as well as the process of acquiring and permitting the Rosemont property in Arizona.

The company stated that Waterton is a relatively recent Hudbay shareholder and is attempting to replace 80 per cent of the board, including the chair and CEO, despite holding only 12 per cent of the company’s shares. Furthermore, they say Waterton lacks a credible mining track record, and the share price of companies in which it makes investments has almost universally declined. “Waterton is currently embroiled in a lawsuit in which it is accused of fraud and misrepresentation leading to its acquisition of the mine of a company in which it invested to the detriment of its shareholders,” Hudbay said.

“Hudbay’s good-faith attempts to constructively engage with Waterton have been met with escalating, changing demands that would put Waterton first, at the expense of other shareholders,” the release stated. They say that Waterton has moved from demanding an acquisition moratorium to a demand for three board seats plus a “board observer” who would have access to confidential information without standing for election as a director to their current demands.

Hudbay adds that while criticizing the company’s current operations, Waterton has not offered any alternative plans, while their proposed chair, CEO and many of the other nominees are unqualified. “Waterton’s proposed chair has never served independently on a public company board and has no mining experience, but does have a longstanding relationship with Waterton’s managing partner and was involved in an excessive compensation controversy,” read the release. “Waterton’s proposed CEO has just over a year of CEO experience and a track record of development project failures, disappointing production results and an inability to acquire growth assets. Waterton’s slate also includes individuals whose experience was gained at companies with very poor environmental, community engagement and safety performance.”

 Board chair Hibben noted that in spite of Waterton’s refusal to engage constructively on a settlement that would be in the best interests of all shareholders, Hudbay will in fact support two qualified director nominees from Waterton’s slate to fill vacancies on the 10-member board left by departing board members W. Warren Holmes and Alan J. Lenczner. The current board felt that Waterton’s nominees –Mike Anglin and David Smith – have skills and experience that could allow them to make valuable contributions to the company.

The company’s governance and nominating committee also considered the current composition of the board and recommended the addition of Richard Howes as a new independent director, moving the board to 11 members. “Mr. Howes has nearly 40 years’ experience as a mining industry leader and has technical and technological skills and expertise that will complement the board,” read the release.

Closing out the release/letter to shareholders, Hudbay noted that it strongly believes that changes to the board beyond their proposed nominees could result in significant disruption to the company’s positive momentum and risks the future value of shareholder investment in Hudbay. “Incremental refreshment of a board through the regular replacement of directors is sound corporate governance. Replacement of the majority of a competent board with an unqualified slate of directors with no knowledge of a company’s assets is dangerous and should be avoided,” Hudbay said.

The 2019 annual and special meeting of shareholders of Hudbay is scheduled for May 7. The shareholders’ voting deadline is 10 a.m. (Eastern Standard Time) May 3.

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