Hudbay, Mitsubishi approve $2.1B Copper World mine

Hudbay Minerals and Mitsubishi approved construction of the $2.1 billion (C$2.9 billion) Copper World copper project in southern Arizona, 59% above the $1.3 billion capital estimate in the project's 2023 prefeasibility study.

Scope changes since that study added $200 million of capital cost, Hudbay said in a statement. The company expects to contribute about $500 million, less than one-quarter of the initial investment, with its first installment deferred until 2028. The sanction, reported by The Northern Miner on Oct. 21, follows completion of a definitive feasibility study and clears the way for first production in the second half of 2029. The Northern Miner describes Copper World, about 50 km southeast of Tucson, as one of the largest new copper mines in the United States.

For allocators holding Hudbay as copper exposure, the terms to track are the split and the schedule. Less than a quarter of the capital bill sits with the company, its first installment is deferred until 2028, and no tonnes reach the consolidated total before the second half of 2029.

The base case is a 15-year mine life on proven and probable reserves of 390 million tonnes grading 0.47% copper, with annual output averaging 102,000 tonnes in the first decade, 11% above the 92,000 tonnes projected in 2023. Average cash costs are estimated at $1.65 per pound over that decade. The development plan includes adding an in-pit crushing and conveying system in year four.

Using a long-term copper price of $5 per pound and an 8% discount rate, Hudbay puts the project's after-tax net present value at $1.2 billion, the internal rate of return at 17% and the payback period at 5.4 years. At $6 copper the NPV rises to $2.3 billion and the IRR to 22%. Alongside growth initiatives at existing operations, Copper World is expected to help double Hudbay's consolidated annual copper production to about 250,000 tonnes.

RBC Capital Markets mining analyst Sam Crittenden called the decision "a positive step towards Hudbay's medium term growth plans, although the share price reaction may be limited as the scope of the project and initial capex estimates are largely as expected."

Hudbay shares rose 0.2% to C$33.34 in Toronto that morning, valuing the company at about C$14.8 billion ($10.6 billion). The stock has traded between C$20.26 and C$44.48 over the past year.

Jefferies mining analyst Fahad Tariq said the expectation had been "significant capex inflation," adding that "Copper World is highly leveraged to copper prices."