Withdraws Special Meeting Requisition to Focus
on Pressing Need for Board Reconstitution at Hudbay
Believes Immediate Leadership Change Is
Required to Address Massive Value Destruction and Chronic
Underperformance Plaguing Hudbay
Waterton Has Attempted to Engage Constructively
with Hudbay but Has Been Disappointed by Company’s Pattern of Bad
Faith Interactions and Misleading Statements
Will Soon Announce a Slate of 100% Independent
and Distinguished Director Nominees, Including a Transformational
Potential CEO Candidate, for Election at 2019 Annual Meeting
Waterton Precious Metals Fund II Cayman, LP and Waterton Mining
Parallel Fund Offshore Master, LP (the "Funds"), each of which are
managed by Waterton Global Resource Management, Inc. (the
"Investment Adviser", the Investment Adviser together with the
Funds ("Waterton" or "We")), owning approximately 10% of the issued
and outstanding shares (the “Shares”) of Hudbay Minerals Inc.
("Hudbay" or the "Company") (TSX:HBM) (NYSE: HBM), today announced
that, upon finalizing its slate, it will be nominating a majority
slate of independent director candidates for election to the
Company's Board of Directors (the "Board") at Hudbay’s 2019 Annual
Meeting of Shareholders (the “Annual Meeting”). Waterton also
announced that it has withdrawn its requisition of a special
meeting of the Company’s shareholders (the “Special Meeting”) in
connection with an advisory resolution urging the Board not to
approve certain potential material transactions prior to the Annual
Meeting.
Waterton today issued the following open letter to Hudbay
shareholders:
December 13, 2018
Dear Hudbay Shareholders:
Waterton Precious Metals Fund II Cayman, LP and Waterton Mining
Parallel Fund Offshore Master, LP (the “Funds”), each of which are
managed by Waterton Global Resource Management, Inc. (the
"Investment Adviser", the Investment Adviser together with the
Funds (“Waterton”)) own approximately 10% of the issued and
outstanding shares of Hudbay Minerals Inc. ("Hudbay" or the
"Company") (TSX:HBM) (NYSE:HBM), making us one of the Company’s
largest shareholders.
In late October, Waterton requested a meeting with the Hudbay
Board to discuss how the Board may be refreshed to unlock value for
the Company’s shareholders. Waterton’s objective was to engage in a
constructive dialogue with the Board to arrive at a mutual
resolution that would provide for the level of Board change,
enhanced oversight and renewed accountability and independence that
we believe is required at Hudbay. In early November, we met with
Chairman Alan Hibben and director Sarah Kavanagh to discuss a
potential framework for the changes that are both necessary and
appropriate for the Hudbay Board. Key aspects of this meeting are
as follows:
- At the beginning of the meeting, we
made it clear to Mr. Hibben and Ms. Kavanagh that, prior to sharing
the identities of our potential director nominees, we strongly
preferred to settle the terms and conditions of any settlement
framework. Stated simply, it would have been unfair to our
potential nominees and unprofessional to publicize their identities
(and subject them to entirely superfluous dialogue) without knowing
whether a framework for settlement was even achievable.
- We further communicated to Mr. Hibben
and Ms. Kavanagh that, once a settlement construct had been agreed,
we would be more than happy to share the identities of our
potential nominees so that they could be vetted in accordance with
all applicable market practices, because we were confident about
such nominees’ qualifications and credentials.
- Ms. Kavanagh seemed to acknowledge the
reasonability of our position as, having heard our views on nominee
identity disclosure, she requested that Waterton prepare a concise
term sheet outlining our proposed settlement framework for Mr.
Hibben and Ms. Kavanagh to discuss with the rest of the Board. We
appreciated Ms. Kavanagh’s reasonable approach.
- In good faith, Waterton promptly
prepared and provided the Board with a draft term sheet (the “Term
Sheet”) for settlement. In the Term Sheet, Waterton did not request
that any Waterton representatives be added to the Board of
Hudbay.
- After we provided the Term Sheet at
their request, the Board engaged in what can only be described as a
clear and unfortunate about-turn: the Board refused to engage in
any manner with us on the Term Sheet and, instead, once again
reverted to their initial position of requesting that we share the
identities of our potential nominees. This was clearly in bad faith
and inconsistent with the parameters under which the Term Sheet had
been initially requested and issued.
Needless to say, we were naturally frustrated, but not
surprised, by the Board’s arbitrary and dismissive conduct.
The Hudbay Board and management team have demonstrated a pattern
of systemic bad faith and lack of engagement with shareholders. We
believe that the Company’s behavior stems from a culture of toxic,
value destructive, entrenchment at both the Board and C-Suite
levels. Given the unfortunate and revealing about-turn after Ms.
Kavanagh’s request for a Term Sheet, we further believe that
Chairman Alan Hibben may be exerting a troubling level of influence
over the Board during his now near decade long tenure. This concern
about Mr. Hibben exerting an inappropriate and undue level of
influence over the Board and management has been communicated to us
by multiple long-term shareholders of Hudbay who have seen the
value of their investment eroded.
Following these latest events, we reviewed the Company’s
performance under its current entrenched leadership team and the
results are shockingly abysmal. Hudbay’s Total Shareholder Return1
vs its peer group2 for 1 year, 3 years, 5 years, during the CEO’s
tenure and during the Chairman’s tenure on the Board of Hudbay are
as follows:
Total Shareholder
Return
Hudbay's Total Shareholder Return Performance Period
Ending 10/04/18 1-Year
3-Year 5-Year
CEO Tenure3
Chairman Tenure4
Peer Group Performance
1.1%
106.1%
44.2%
123.8%
146.5%
Hudbay Performance
-36.2%
17.2%
-23.4%
17.4%
13.0%
Hudbay Relative to Peer Group
-37.3%
-88.9%
-67.6%
-106.4%
-133.5%
Source: Bloomberg
The Company’s more recent underperformance is also concerning.
Hudbay currently trades at a material discount to its peer group on
multiple key valuation metrics. Year to date, Hudbay's share price
has declined 41.5%5. We believe the share price would have declined
even more had (i) Waterton not purchased in excess of 26,000,000
million shares of the Company over the exchanges in the past five
months, (ii) Waterton not publicly opposed the potentially value
destructive Mantos Copper transaction, and (iii) Waterton not
initiated the narrative of Board refreshment.
Last quarter, the Company finally announced above consensus
earning numbers, but we find the timing of this quite interesting
given that Waterton has recently publicly scrutinized its
performance. This was only the third time in the past eleven
quarters (since Alan Hair was appointed CEO) that the Company has
not missed earnings consensus; we would further note that the
Company has missed earnings consensus in 74% of quarters during the
Chairman’s tenure.
The bottom line is this: the culture of Board and management
entrenchment and underperformance at Hudbay must end to preserve
shareholder value. We believe this culture change can only be
implemented with a substantial reconstitution of the Hudbay Board
and C-Suite.
As a result, we are pleased to report that
Waterton is finalizing its recruitment of a majority slate of
highly qualified director candidates, including a transformational
potential CEO, to nominate for election at the 2019 Annual
Meeting. As a technical matter, we are
also hereby withdrawing our request to call a Special Meeting
relating to shareholder approvals for certain
transactions.
Our focus will now squarely be on the issue that a number of
shareholders have communicated to us as being absolutely urgent and
integral: ending the nearly decade long malaise, ineptitude and
entrenchment at Hudbay so that the Company can be rebuilt and
substantial value can be created for Hudbay stakeholders.
The Board changes we expect to propose to Hudbay shareholders
will provide fresh perspectives and the objectivity to make
difficult decisions without the burden of attachment to past
practices, decisions or allegiances. With 40% of the current Hudbay
Board having been in place for nearly a decade, including the
Chairman of the Board, who seemingly dominates the boardroom, we
question the degree of real independence on this Board. Our
campaign to refresh the Hudbay Board is certainly driven by this
Board’s questionable decision making and resulting value
destruction; importantly, however, it is also a referendum on
meaningful independence at a public company, a key tenet of good
corporate governance.
We are pleased to report that, subject to the finalization of
our director recruitment process, 100% of our director nominees
will be, rather exceptionally, independent of Waterton. Waterton
has no desire to obtain a Board seat for Waterton itself; as one of
the Company’s largest shareholders, however, we do plan to be
fierce and active advocates for real independence in the boardroom
to ensure that our investment is adequately protected and
substantial value is created for all stakeholders. At the same
time, we are also continuing to carefully and prudently assess the
issue of selective continuity on the Board.
We are confident that once finalized you will be presented with
a team of extremely well-qualified professionals including a
potential CEO candidate possessing the key characteristic that
matters most to shareholders: a proven track record of creating
shareholder value in this sector. Our potential director candidates
are being recruited because they are uniquely positioned to address
the challenges and maximize the opportunities facing the Company.
We believe our nominees will possess the collective experience and
strategic expertise to drive value at Hudbay and restore
shareholder confidence in the Board’s ability to select an
effective leadership team and to hold senior management accountable
through diligent oversight.
We believe that the following are critical attributes that a
refreshed Hudbay Board must possess, and expect that our ultimate
nominees will be strongly positioned in these areas:
- US Permitting expertise
- South American operational and
stakeholder experience
- Real boardroom leadership
experience
- CEO / leadership experience
- Mining technology experience
We expect that Hudbay will duly schedule the 2019 Annual Meeting
in accordance with the early-to-mid May timeframe in which it has
consistently held its annual meetings over the past five years. We
further expect the Hudbay Board to refrain from any material
transaction that may impact the future of the Company until the
2019 Annual Meeting and we can provide comfort to all shareholders
that we will access all available remedies to ensure that the
Company does not engage in any value destructive transactions
before you have the ability to voice your views through your
votes.
We expect to finalize our director nominees within the next few
weeks and we are excited to socialize such nominees with our fellow
shareholders very early in the New Year. We firmly believe that
with the right senior leadership in place, an appropriate alignment
of interests and a robust governance structure, there is a bright
future ahead for Hudbay’s shareholders.
We look forward to engaging with you as we approach the 2019
Annual Meeting.
Sincerely,
Isser Elishis
Chief Investment Officer
About Waterton
Waterton is a leading private equity firm dedicated to
developing high quality resource assets in stable jurisdictions.
Waterton's founding team has a successful track record of
originating, structuring, managing and exiting investments through
acquisitions, joint ventures and partnerships, across a range of
sectors and asset classes. Waterton's core strength is its
cross-functional, fully-integrated, in-house team of professionals
who possess significant mining, financial and legal expertise.
Waterton's team employs a proactive approach to asset management,
leveraging significant sector knowledge and extensive industry
relationships to support the firm's investment activities.
Additional Information:
The information contained in this press release does not and is
not meant to constitute a solicitation of a proxy within the
meaning of applicable corporate or securities laws. Although
Waterton intends to nominate a slate of director candidates at the
Annual Meeting, there is currently no record date or meeting date
set for such meeting, Waterton has not finalized its director
recruitment and shareholders are not being asked to execute a proxy
in favour of the matters set forth in this press release at this
time. Waterton intends to file an information circular in due
course in compliance with applicable law.
1 Total Shareholder Return calculated as of close October 4,
2018, the day before Waterton’s first public comments regarding
Hudbay.
2 We believe an appropriate peer group for Hudbay should only
include companies that (i) have a market capitalization of greater
than US$500 million, (ii) have material exposure to the Americas,
(iii) have copper comprising greater than 50% of reserves, and (iv)
are publicly listed on a major stock exchange, and not the peer
group described in Hudbay’s public disclosure.
3 Period beginning January 1, 2016.
4 Period beginning March 25, 2009.
5 As at December 12, 2018.
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version on businesswire.com: https://www.businesswire.com/news/home/20181213005525/en/
Investor ContactKingsdale AdvisorsToll-Free (within North
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Media ContactSloane & CompanyDan Zacchei / Joe
Germani:
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