TORONTO (Reuters) - HudBay Minerals <HBM.TO> said on Friday its lenders have refused to renew an C$80 million ($63 million) credit line due to uncertainty over a key shareholder's attempt to oust the mining company's board.
Shares of HudBay, which earlier this week canceled its all-stock takeover bid for Lundin Mining <LUN.TO>, dropped more than 7 percent on the news, as well as on a steep drop in copper prices.
HudBay, which mines mostly copper and zinc, said the undrawn credit facility was due to expire February 28.
It said the lenders' reluctance stems from a move by SRM Global Master Fund -- HudBay's top shareholder, with an 11 percent holding -- to call a meeting for March 25 to toss out HudBay's board of directors and replace them with its own slate.
SRM launched the challenge after HudBay announced its bid for Lundin -- initially valued at around C$800 million -- in November.
The offer was aggressively resisted by SRM, as well as by other HudBay shareholders, and eventually collapsed following a regulatory ruling that HudBay must seek shareholder approval to issue the shares it was using to buy Lundin.
"The lenders noted the uncertainty regarding the future direction of HudBay, and expressed concerns that a new board may distribute much of HudBay's cash balances to shareholders rather than maintain them for ongoing development," HudBay Chief Executive Allen Palmiere said in a statement.
The company has a cash position of $686 million, it said. It said SRM has made repeated requests that HudBay use the cash to conduct a major share buyback.
HudBay's shares were down 42 Canadian cents at C$5.53 on the Toronto Stock Exchange shortly after the market's open.
In a separate statement on Friday, HudBay urged its shareholders to vote against ousting the board.
HudBay said such a move would allow SRM to gain control over the company without paying a premium to shareholders.
"We believe SRM is motivated by a desire to cause as short-term increase in HudBay's share price for their own benefit, is disregarding the best interests of HudBay, and is potentially destroying long-term shareholder value," Palmiere said.
