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Bear of the Day: Hudbay Minerals (HBM)

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This year has been quite challenging for metals miners with declining demand for metals and rising inventories. And disappointing results have in turn led to downward estimates revisions, sending Hudbay Minerals (HBM - Free Report) to a Zacks Rank # 5 (Strong Sell).

About the Company

Headquartered in Toronto, Canada, Hudbay is an integrated mining company with operations, development properties and exploration activities across the Americas, principally focused on base and precious metals, including copper, zinc, gold and silver.

Disappointing Quarterly Results

On July 31st, Hudbay reported its second quarter results.  The quarter resulted in a loss of $52.7 million or $0.31 per share, compared with a loss of $29.6 million or $0.17 per share in the second quarter of 2012.

Total revenue for the quarter was $130.7 million, down $59.2 million from the same quarter a year ago. This decrease was primarily due to lower sales volumes (mainly resulting from some mine closures) and lower metals prices. 

The company reduced its semi-annual dividend to $0.01 per share, down from $0.10 per share, declared in March.

Downwards Estimates Revisions

Due to disappointing results, quarterly and annual estimates have been revised sharply downwards in the past few weeks.

Zacks consensus estimate for the current quarter now stands at a negative $0.01 per share versus a positive $0.02 per share, 30 days ago, while the full-year consensus estimate is now for a loss of $0.04 per share, down from earnings of $0.06 per share.

The Bottom Line

While the company is trying to grow production and reduce costs, lower metals prices resulting from high inventories and global slow-down continue to act as headwinds.

HBM is currently a Zacks Rank # 5 (Strong Sell) stock and it has a longer-term recommendation of “Underperform”. Further, the Zacks Industry rank of 250 out of 265 indicates weakness in the near to mid-term.  Thus we think investors should avoid this stock for the time being.

Better Play?

Investors looking for exposure to the beaten-down mining industry could look at Avalon Rare Metals (AVL)—a Zacks Rank #1 (Strong Buy) stock with an ‘Outperform’ recommendation.

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