Hudbay Minerals (HBM.TO)

(A Top Pick Dec 11/13. Up 23.61%.) A lot of people doubted their ability to finance and bring on the constancy of a mine, which will be coming on stream next year. That will provide a further boost to their valuation. In the meantime, they have done some very smart things by selling a royalty stream into Silver Wheaton (SLW-T). Management has done a very good job of manoeuvring this company and putting it in place for future production increases. Should there be any appreciation in commodity prices in the next couple of years that will be an added kick to the valuation.

Lundin (LUN-T) or Hudbay (HBM-T)? Owns both because they have the lowest development risk as a percentage of NAV. As to 1) when are they are at the end of their big capital spending run, 2) when does free cash flow start to get generated and 3) when does free cash flow start, Lundin is slightly better. This company is just finishing off Constantia which goes into production next year. He likes both.

Metals tend to wait a little for the market to pick up a little bit and some conviction in the economy. Also, emerging markets tend to have a seasonal period that starts later on in November, a little bit later than the broad Western markets. So companies like this will actually start performing well at about that time. It might start earlier, but right now there's no sign of that happening.

In the metals business you have to be very specific about what type of company and which metal. He likes to see them all much less expensive. Prefers NSU-T.

His model price is $12.81. If it went above his green line of $9.74, he would take a flyer on it. The material space has been beat up, and he has been picking away at golds.

He would definitely be a buyer of this. There are some big projects. Have done some very smart things by doing the royalty stream on Constancia with Silver Wheaton (SLW-T), which is coming on next year.

Strong from the end of October to the end of December. In May it has another period of seasonal strength. Recently it started to trend on the downside. It is below its 20 day moving average and weak compared to the market. It could bottom by the end of October.

Base metals were beaten up over the last while. He has not looked at this one, but it is in the right area when you decided to buy in. Commodity indexes are down badly.

Nobody knows where base metal prices are going, but his suspicion is more down than up at the moment. He would hesitate on any of these stocks.

He is optimistic on the outlook for zinc. He would prefer to play it through TCK.B-T, but he likes this company very much. You have to be patient with it. It is likely to go sideways over the next 6 months.

Base metal stocks have been suffering. This one has actually been doing a little better and has been the exception. Still well below where it was back in 2010-2011. If you want to switch into energy producers such as Canadian Natural Resources (CNQ-T) or Suncor (SU-T), it would probably not be a bad move.

Hudbay Mining (HBM-T) or Lundin (LUN-T)? He likes zinc. Some of the major mines will be shutting down over the next couple of years so the price has been moving very well on base metals for the last few months. Both companies have exposure, but Lundin has more nickel exposure so he would lean more towards this company for the zinc exposure. This company is also bringing on mines in Peru, and will double or triple production of copper, zinc and gold over the next couple of years. Great management.

This has satisfied some of his requirements. 1) A highly shorted stock (Shorts have been covering lately) and 2) the Relative versus the Broader TSX was improving. The three-year chart shows the declining strength during 2012-2013. Now it is moving up and the gap is getting narrower because the Relative is improving. A perfect scenario this late in the Bull.

If you are buying this or any of the big mines, you are positive on the China story. He thinks China is going to get better and the numbers are going to justify it by the end of the year. They have said they are going to grow their economy by 7.5% and the numbers look like it is going to be even higher. That means they are going to have to import a lot of materials to get there. He would treat this as a trade, not as a long term investment. (See Top Picks.)

Hudbay (HBM-T) or Lundin Mining (LUN-T) for the zinc? He likes them both, and likes very few mid-tier Canadian mining companies. Probably prefers this and the way management is expanding further outside Manitoba. They’ve acquired Augusta in this very depressed market, which was a very interesting thing to do. They now have a great North American asset. The expansion is working.