Event: "HBM announced that it has entered into a definitive agreement to sell 100% of its interest in the Fenix Project (Guatemala) to the Solway Group for $170Mln in cash. Under the terms of the agreement, HBM will receive $140Mln in cash at closing, and the remaining $30Mln upon satisfaction of certain conditions during the course of the development of the project. HBM holds a 98.2% interest in the Fenix Project, a brownfield nickel mine and processing plant located obtained as a result of its acquisition of Skye Resources in August 2008."
Impact: "Positive; non-core asset sale is consistent with mgmt's stated strategy. We have historically viewed Fenix as a non-core asset and a difficult project for HBM to build in lieu of challenges over social license. As a result, we have historically assigned zero value to Fenix in our NAV. We suspect proceeds from the sale of Fenix will likely be used for strengthening of HBM's balance sheet ahead of construction spending at Constancia (Peru)."
Catalysts: "Including cash proceeds from the Fenix sale, we estimate that HBM will have a cash balance of $760Mln by year-end 2011, plus an additional $300Mln available on its undrawn credit revolver. HBM expects to record a non-cash charge related to its investment in Fenix of approximately $212.7Mln (C$1.24/share) in its consolidated 2Q11 financial results. Closing of the transaction is expected to occur in the 3Q11."
Valuation: Maintain Outperform; net +4% impact to NAV. "Our TP of $22 is based on 70/30 weighting of 1x our revised NAVPS estimate of C$22.33 (from $21.54) and 6x FY11/12 EV/EBITDA. HBM remains one of our better defensive plays in the Canadian metals sector, where we are positive on upside potential from organic growth prospects (Lalor Lake, Constancia, exploration) as well as low the jurisdictional risks associated with its major asset base (Flin Flon) and the defensive qualities of its balance sheet."
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
