March 6, 2013 / 7:17 PM / in 5 years

UPDATE 1-PDAC-HudBay eyes prospects with majors on sidelines

* Senior miners avoid M&A after unpopular deals

* Juniors struggling to survive, seek to be taken over

* Mid-tiers positioned to get first pick

* HudBay seeks next generation of projects

* HudBay shares up 2.1 percent at C$9.68 on TSX

By Julie Gordon

TORONTO, March 6 (Reuters) - Most of the world’s top miners are shying away from takeovers this year, clearing the way for mid-tier producers like HudBay Minerals Inc to bid for assets coming up for sale, the company’s CEO told Reuters at a Toronto mining convention.

Burned by costly deals made during the boom, most major metals companies have pledged to rein in costs or perhaps divest non-core assets.

That’s a big shift from just two years ago, when soaring metal prices had the majors elbowing out the smaller guys to get their hands on the best projects, David Garofalo, chief executive of HudBay, said on the sidelines of the Prospectors and Developers Association of Canada (PDAC) convention in Toronto.

“As long as I’ve been in the business the seniors have been buying, buying, buying - trying to fill out an increasingly large pipeline,” he said. “Now they’re selling.”

Toronto-based HudBay, which has been operating in Canada for 85 years, has developed 26 base-metals mines over the years in northern Manitoba. The company has a market cap of C$1.6 billion ($1.55 billion), compared with the C$17.8 billion market cap of top Canadian diversified miner Teck Resources Ltd.

Small base metal miners, whose numbers have shrunk after a string of tie-ups such as the KGHM Polska Miedz takeover of Quadra FNX last year, are now the ones looking for deals.

For those able to finance a deal in the current market, producing assets and development-stage projects are both available for the taking.

HudBay, which produces copper, zinc and precious metals, is eyeing only smaller deals for now as it already has two major projects under construction: the Lalor mine in Manitoba and the Constancia project in Peru.

“We’re looking at a lot of things,” Garofolo told Reuters. “We’re better off picking up something in the pre-feasibility or scoping stage that we could bring into construction once Lalor and Constancia are built out.”

The idea is to buy within a year, complete development work, and have projects ready to go when current builds are completed.

“To introduce that next-generation growth you have to be thinking about picking up something today,” Garofolo said.

HudBay’s shares were up 2.1 percent at C$9.68 on Wednesday afternoon on the Toronto Stock Exchange.

ARMS IN THE AIR

While many juniors hope one day to be swallowed up by a larger player, the need to secure a deal is desperate for smaller companies struggling to find the cash to stay afloat, let alone to complete exploration work.

“There’s a lot of arm-waving involved,” Garofolo said. “Particularly in this market where they’re capital starved, they’re waving their arms more vigorously than they otherwise would.”

Capital has dried up across the sector, and equity financing is so dilutive at current share prices that almost no one is pursuing it. With valuations low and the situation dire for many of the juniors, there are opportunities to be had on the floor at the PDAC convention.

While Garofolo declined to comment on specific companies, he reiterated that HudBay’s focus is on base metal projects in the Americas.

HudBay had about C$1.34 billion in cash and cash equivalents as of Dec. 31, along with $485 million in other committed funding. The company is planning some C$1.24 billion in capital spending in 2013, with the bulk earmarked for the Constancia development in Peru.

The company plans to hit peak construction at the $1.5 billion project around mid-year, with first ore expected by the end of 2014.

While wages remain high in the South American country, a slowdown of other development activities has left a decent labor supply for the bulk of the construction, Garofolo said.

“This is a great time to be building,” he said. “As a smaller producer you don’t want to be building when everyone else is - you’ll get trampled to death.”

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