HudBay stokes interest of Indian mining giant

ANDY HOFFMAN

From Monday's Globe and Mail

April 27, 2009 at 3:13 AM EDT

MINING REPORTER

An Indian mining giant has quietly amassed a near 10-per-cent stake in HudBay Minerals Inc., securing a major advantage over potential rival suitors for the Canadian zinc and copper producer that has hired advisers to explore the company's strategic options.

Documents filed in Ontario Superior Court show Lakomasko BV, a privately held company based in Amsterdam, owns 14.5 million HudBay shares - about 9.5 per cent of the Toronto mining firm.

Well-placed sources confirm that Lakomasko is controlled by Vedanta Resources PLC, India's largest base metals mining company. Indeed, there are strong links between Lakomasko and Vedanta, whose shares trade on the London Stock Exchange. Corporate records obtained by The Globe and Mail list "K. Coimbatore Venkatakrishnan" as the principal and top executive of Lakomasko.

Vedanta has been aggressively expanding outside its home base in India.

Industry sources said HudBay, which produces zinc and copper at its mining and smelting operations in and around Flin Flon, Man., would fit well into the Indian firm's growth strategy.

Through its Sterlite Industries Ltd. subsidiary, the Mumbai-based metals producer, with a market value of about $4-billion (U.S.), recently struck a pending $1.7-billion deal to buy the assets of Tucson copper producer Asarco LLC. Asarco been trying to reorganize under Chapter 11 protection in U.S. bankruptcy court.

HudBay's Flin Flon copper smelter may soon have to be shuttered due to tightening environmental regulations. If Vedanta secures control of the Asarco assets, HudBay's copper production could provide much needed feed for its smelters in Arizona.

HudBay chief executive officer Peter R. Jones confirmed last week that the company had hired investment bankers to review the company's strategic options. The advisers will consider potential acquisitions for HudBay, as well as potential suitors. With about $700-million (Canadian) in cash on its balance sheet, HudBay could be a target for opportunistic buyers.

Mr. Jones was returned to the CEO job last month after the board of directors resigned following a bitter proxy battle between HudBay's largest shareholder and the company.

Monaco-based hedge fund SRM Global Master Fund LP, which owns 11 per cent of HudBay's stock, nominated Mr. Jones and a fresh slate of directors to take control of the company.

The hedge fund and other investors revolted after HudBay tried to buy rival Lundin Mining Corp. using its shares. The failed deal would have diluted shareholders by 100 per cent without giving them a vote on the proposed transaction.

In addition to the proxy fight, SRM also filed suit against HudBay, asking an Ontario court to stop the proposed Lundin deal.

Documents related to that case include letters of support for SRM from other large HudBay shareholders, including Lakomasko.

"We are legal counsel to Lakomasko BV (the "Holder"), the holder of 14,500,000 common shares of HudBay Minerals Inc. ... The Holder supports the relief sought in the Application," says the letter from the law firm Blake Cassels & Graydon LLP.

HudBay held discussions with potential buyers before the board resigned in March. Sources confirmed that Vedanta was among the companies that held talks with HudBay.

Chinese mining firms are also understood to be interested in HudBay.

The Flin Flon assets could provide China with a beachhead to acquire more Canadian mining assets.