CORRECTING and REPLACING Waterton Sends Letter to Hudbay Shareholders Highlighting Entrenchment and Track Record of Poor Strategic Decision-Making of Hudbay’s Board

Hudbay’s Recent Disappointing Actions and Desperate Unprofessional
Tactics Show that Adult Supervision is Urgently Needed

Current Board Ignored Settlement Proposal Supported by Approximately
30% of Shareholders, Demonstrating Deep Entrenchment

Hudbay is at a Strategic Inflection Point and Desperately Requires
Effective Strategic Thinking and Fresh Perspectives on the Board to
Create Real Value for Shareholders

Company’s Attempts to Mislead Shareholders and then Cover Up
Falsehoods Reveals Crisis of Judgment at the Board Level

Shareholders are urged to Elect Five Independent, Highly-Qualified
Director Candidates to the Board: A.E. Michael Anglin, Peter Kukielski,
Richard Nesbitt, Daniel Muñiz Quintanilla and David Smith

Vote on the BLUE Proxy and Submit
Prior to 5:00 p.m. (Eastern time) on Thursday May 2, 2019

TORONTO–(BUSINESS WIRE)–Second subheadline of the release should read Current Board Ignored
Settlement Proposal Supported by Approximately 30%
Shareholders, Demonstrating Deep Entrenchment
(instead of 35%).

The corrected release reads:


Hudbay’s Recent Disappointing Actions and Desperate Unprofessional
Tactics Show that Adult Supervision is Urgently Needed

Current Board Ignored Settlement Proposal Supported by Approximately
30% of Shareholders, Demonstrating Deep Entrenchment

Hudbay is at a Strategic Inflection Point and Desperately Requires
Effective Strategic Thinking and Fresh Perspectives on the Board to
Create Real Value for Shareholders

Company’s Attempts to Mislead Shareholders and then Cover Up
Falsehoods Reveals Crisis of Judgment at the Board Level

Shareholders are urged to Elect Five Independent, Highly-Qualified
Director Candidates to the Board: A.E. Michael Anglin, Peter Kukielski,
Richard Nesbitt, Daniel Muñiz Quintanilla and David Smith

Vote on the BLUE Proxy and Submit
Prior to 5:00 p.m. (Eastern time) on Thursday May 2, 2019

Waterton Precious Metals Fund II Cayman, LP (“Waterton Mining LP“)
and Waterton Mining Parallel Fund Offshore Master, LP (“Waterton
Fund II
“), each of which are managed by Waterton Global Resource
Management, Inc. (“WGRM“, and collectively with Waterton
Mining LP and Waterton Fund II, “Waterton“), owning in the
aggregate 12.09% of the issued and outstanding common shares (the “Shares“)
of Hudbay Minerals Inc. (“Hudbay” or the “Company“)
(TSX: HBM) (NYSE: HBM), today filed an information circular (the “Waterton
“) and issued a letter to shareholders of the Company (the “Shareholders”)
in connection with its nomination of independent, highly-qualified
director candidates for election to the Company’s Board of Directors
(the “Board“) at the Annual and Special Meeting of
Shareholders scheduled for Tuesday, May 7, 2019 at 10:00 a.m. (Eastern
time) (the “Meeting“).

Waterton’s slate of director candidates now includes five individuals,
who, if elected, would constitute a minority of the post- Meeting Board:
A.E. Michael Anglin, Peter Kukielski, Richard Nesbitt, Daniel Muñiz
Quintanilla and David Smith.

The full text of Waterton’s open letter to Shareholders follows:

April 15, 2019

Dear Hudbay Shareholders,

Waterton Global Resource Management, Inc. on behalf of itself and each
of Waterton Mining Parallel Fund Offshore Master, LP and Waterton
Precious Metals Fund II Cayman, LP (collectively, “Waterton”, “we
or “our”), owns 12.09% of the issued and outstanding common
shares of Hudbay Minerals Inc. (“Hudbay” or the “Company”)
(TSX: HBM) (NYSE: HBM), making us the Company’s second largest
shareholder. Waterton is seeking your support to elect a minority slate
of five highly-qualified and experienced independent director candidates
(the “Waterton Nominees”) to the Company’s board of directors
(the “Board”) at the Company’s Annual and Special Meeting of
Shareholders to be held on Tuesday, May 7, 2019 at 10:00 a.m. (the “Meeting”).

The Waterton Nominees are fully independent of Waterton, have impeccable
credentials and possess the relevant, diverse and global experience to
help fix the broken culture of Hudbay’s current Board by providing
much-needed oversight of strategy and capital allocation in order to
create long-term shareholder value at the Company.

Throughout our public engagement with Hudbay, Waterton has sought to
keep the campaign focused on the facts. We have not made things
personal. Consistently, we have backed up our assertions with data and
clearly stated our intentions – which are to drive long-term share price
appreciation for all Hudbay shareholders.

In contrast, the approach taken by the Company in its recent Management
Information Circular dated April 5, 2019 (the “Hudbay Circular”)
clearly falls short of even the most basic standards of
professionalism. Waterton is shocked and disappointed that a Chairman
and Board of a ~$2 billion market capitalization company would conduct
themselves in such a childish manner, including by spending shareholder
money on creating such a document.

The approach taken by the Company in the Hudbay Circular confirms for us
what we previously believed: adult supervision from serious
professionals is required at Hudbay. Evidently, the Company is on the
wrong side of the facts, and so certain factions of the Board have
resorted to desperate measures, vitriol and scattershot arguments to
maintain their entrenchment. We will continue to focus on the facts.

Focus on the Facts: The Coverup is Always Worse
than the Crime

The manner in which Hudbay has elected to conduct itself in this proxy
contest has been increasingly unprofessional and disappointing. However,
there is a stark difference between running an aggressive campaign and
running a deceitful one. It’s a bright line. And it’s a line that Hudbay
has crossed.

The Hudbay Circular and accompanying materials were rife with misleading
statements, inaccuracies and blatant mistruths. But there was one
accusation made against Waterton that stood out, both for its
seriousness and the fact that it was such a galling lie. On page 32 of
the investor presentation Hudbay released concurrently with the Hudbay
Circular, the Company argues that Waterton has had a negative impact on
Hudbay’s share price. The page states that “WATERTON MADE ~60% OF ITS
that a “Bloomberg Article Seeded by Waterton” artificially manipulated
Hudbay’s share price in order for Waterton to purchase shares at a
discount and increase Waterton’s ownership position. The article in
question was the October 4, 2018 Bloomberg article regarding Hudbay’s
deal talks with Mantos Copper.

Just to summarize: Hudbay and its Board accused its second largest
shareholder of market manipulation – a serious allegation against any
institutional investor.

Note that in our description we used the past tense of the word
“accused.” That is because at some point last week Hudbay
surreptitiously updated its presentation. In the new version, the words
“seeded by Waterton” have been removed from the sentence referring to
the Bloomberg report. Even though this alleged action by Waterton had
been positioned in the previous version as the smoking gun for the
entire argument that Waterton had manipulated Hudbay’s share price, the
rest of the page remains unchanged.

It is not surprising that investors would not have been aware of this
highly significant alteration to Hudbay’s materials, as there was no
refiling, noted correction, or any other form of disclosure around the

Clearly Hudbay lied. The fact that the Company and the Board then tried
to sweep their baseless accusation under the rug without any public
disclosure, well after virtually all its investors would have reviewed
Hudbay’s proxy materials, demonstrates an utter lack of integrity or
regard for honest communication with shareholders. In our view, all of
Hudbay’s current directors are responsible for this error in judgement
and the subsequent coverup. Waterton intends to immediately take the
necessary legal steps to ensure that shareholders are given the truth.

In addition to this surreptitious conduct, Hudbay also attempted to
discredit Mr. Nesbitt, Mr. Kukielski and Mr. Muñiz in their proxy
materials through patently false and grossly misleading information.

Focus on the Facts: Hibben, Stowe and Gonzales
are requesting to be in the Boardroom, Waterton is not

In the Hudbay Circular, the Company makes a number of irresponsible and
misleading statements about Waterton’s investment track record and
specific investments. Waterton is a top performing private equity fund
with an institutional, multi-disciplinary, platform and it is widely
accepted in the market that we are one of the most successful investment
firms in the mining sector. To be clear, we are a private investment
firm and the Company does not have visibility into our complete
investment portfolio.

Hudbay seemingly spent copious amounts of time on Google gathering
inaccurate, fragmented and largely irrelevant data points in an effort
to mislead shareholders about our investment track record. Hudbay
conveniently forgot to mention that our return on our Hudbay investment
is 61% and that ~$750 million of value has been created for our fellow
shareholders. While we are proud of this performance, we would once
again like to reiterate that Waterton’s track record is not relevant to
this campaign. All of the Waterton Nominees are entirely independent of
Waterton and Waterton will not be in the boardroom.

Chairman Alan R. Hibben, Kenneth G. Stowe and Igor A. Gonzales, however,
are requesting to be in the Boardroom and their judgement and track
record is relevant. Let’s consider each of their performance: Chairman
Hibben and Mr. Stowe have served on the Board in conjunction with the
current CEO, CFO and COO being in senior management roles for nearly a
decade and Mr. Gonzales has done the same for more than half a decade,
during which time an incredible amount of shareholder value has been
destroyed. Total shareholder returns (“TSR”) relative to its
peers (“Peers”)1 during the tenures of Chairman
Hibben, Mr. Stowe, and Mr. Gonzales, prior to our public involvement,
were -131%, -88% and -75%, respectively. There is no hiding or
explaining away this fact. For Board refreshment to be meaningful and
effective, Hudbay’s nomination of three new directors out of an
11-person Board slate is not enough in light of the level of
entrenchment, poor judgement and value destruction that has occurred
under this Board.

Focus on the Facts: This Entrenched Board is
Yet Again Ignoring the Views of Holders of Approximately 30% of Its

On the morning of April 3, 2019, Waterton submitted what was its second
term sheet (the “April Term Sheet”) to Chairman Hibben that set
forth a settlement proposal supported by holders of approximately 30% of
Hudbay’s shares. Waterton and the Company had a meeting scheduled for
April 4, 2019. Our intentions were to discuss the supported settlement
proposal with Chairman Hibben and director Sarah Kavanaugh at the
meeting and progress negotiations on the April Term Sheet in the days
following, as the Company had until mid-April to issue its circular.

During this meeting, once again, we found Chairman Hibben to be
dismissive. Chairman Hibben conveyed that he would discuss the proposal
with the remainder of the Board and revert with feedback. We
took his words at face value

The very next day, Mr. Hibben requested a call with Waterton at 10:45
a.m. and on that call indicated that the Company would be rejecting the
supported settlement. Mr. Hibben did not provide any feedback or a
counter proposal. Less than two hours after the call ended, the Company
issued the Hudbay Circular and other proxy-related materials.

From Waterton’s perspective, we believe the April 4 meeting was merely a
charade on the part of Hudbay to create the optics of engagement. The
fact that the Company had a press release, presentation, and its
circular ready to go – replete with over the top attacks and false
accusations against Waterton and our Waterton Nominees – in our minds
demonstrates that they had no interest in a true negotiation. In fact,
the Board’s bad faith approach to negotiations has been a consistent
theme. In November 2018, when Waterton first engaged in settlement
discussions with the Company and owned approximately 8% of the Company,
Chairman Hibben offered Waterton 2 of 10 Board seats. In April 2019,
despite Waterton now owning approximately 12% of the Company and having
~30% Shareholder support for a settlement proposal, Chairman Hibben
offered us 2 of 11 seats, a nonsensical downgrade from his original
position. Ultimately, the Board, under the
leadership of Chairman Hibben, has shown itself much more adept at
entrenchment maneuvers and gamesmanship than at doing what’s right for

Focus on the Facts: Hudbay is at a Critical
Inflection Point

Hudbay is at a strategic inflection point and the upcoming quarters for
the Company will not be about picking low-hanging operational fruit –
which is the extent of what the Company has done to date. In fact, we
believe that the current Hudbay simply builds for the sake of building –
without regard for the critical issue of how shareholder returns are
impacted by its operational decisions. Put another way, the Company’s
focus on operational issues is tantamount to seeing only the tip of the
iceberg. The Board does not have the experience or the skillset needed
to see the issues which constitute the rest of the iceberg below the
surface – issues which could sink the Company and destroy even more
shareholder value, similar to the Company nearing insolvency and almost
defaulting on debt covenants in 2016 after building Constancia. And this
is the fundamental difference between the “strategy” of the incumbent
Board and the meaningful strategy that the Waterton Nominees would
implement: the incumbent Board just takes the next operational step
because it’s there, the Waterton Nominees would keenly consider
long-term shareholder value before taking any

At this critical moment, the Company must resolve key strategic issues
and make transformational decisions. These include:

  • The appropriate mix of assets from a portfolio construction
  • The future of its Manitoba Business Unit;
  • The construction of the Rosemont project which Hudbay estimates has a
    capex of $1.9 billion;
  • The appropriate joint venture partner and ownership structure for
  • The appropriate financing strategy for Rosemont; and
  • Land and community matters at Constancia.

Hudbay now requires a significant change at the Board level to ensure
that once the pressure is off, the value that has been created since
Waterton’s involvement continues to grow over the long-term. We believe
if meaningful change is not made immediately, Hudbay will revert to its
characteristic myopic short-term thinking and poor capital allocation
decision-making, something it can ill afford to do at this critical

The Company needs sufficient additional bench-strength in the Boardroom
that will:

  • Make strategic decisions with a view toward creating long-term
    shareholder value;
  • Allocate capital based on predefined hurdles and as a part of a
    holistic strategy; and
  • End the culture of entrenchment and introduce meaningful

Lack of Strategic Thinking and Poor Capital Allocation: The
Constancia Precedent

The Company’s current Board has a terrible track record when it comes to
analyzing and executing on key strategic matters. Note that Constancia
was built under the oversight of a significant proportion of the current
Board. To this day, the Board and C-Suite repeatedly reference building
Constancia as their biggest “win”. Let’s factually review what happened
to this Company when Constancia was built under this Board’s oversight.

Yes, the Company built a mine. But, in the process the Board turned a
company with a market capitalization of close to $2 billion
into a $380 million dollar company, loaded
its balance sheet with debt and took Hudbay to the brink of insolvency,
as it was in jeopardy of breaching its debt covenants. As noted by
sell-side analysts, “Hudbay [faced] potential debt covenant breaches”2
and they were “basically betting their market cap on one mine.” 3

After Hudbay built Constancia, the Company’s debt-to-equity ratio was
approximately three times greater than its Peers.4 It was the
Board’s judgement on when to build, how to finance and other key
strategic factors that took Hudbay to the brink of insolvency. We now
have a strikingly similar situation to that of 2012. In recent months
and weeks, Hudbay has made it abundantly clear to the market that its
intention is to construct Rosemont, and it has initiated preliminary
construction activities. But Hudbay today is in a far worse cash and
debt position relative to April 2012, with a similar market
capitalization and facing a greater capex requirement.

It is time to rein in this Company’s reckless behaviour. The reality is
the Company is in “build for the sake of building” mode and there’s
little long-term strategic foresight dictating the decisions around

Lack of Strategic Thinking and Poor Capital Allocation: The Mantos

On October 4, 2018, Bloomberg reported that Hudbay was in talks to buy
Mantos Copper SA for ~$780 million, a project with a ~$990 million
follow-on capital requirement, according to Bloomberg. Following the
report, Hudbay’s share price fell 7.9% intraday. Waterton vocally
opposed the acquisition because of the Company’s existing capital
requirements, its then discounted valuation and its need to focus on its
own operational issues. To put this into perspective, according to the
Bloomberg article, Hudbay was pursuing a transaction that could have
resulted in ~$4.2 billion of existing debt obligations and potential
capital requirements, while the Company’s market capitalization was only
$1.25 billion.

In the months following the Bloomberg article, Hudbay has been evasive
with respect to its statements on Mantos and has not categorically
denied that it was in the late stages of pursuing the transaction. Was
it one of the last parties left in the process? Was it negotiating with
the seller in late stage exclusive negotiations? Were purchase
agreements going back and forth? Was the proposed purchase price ~$780
million? The Company will not say – and that is problematic in light of
the alarming deterioration of Hudbay’s share price resulting from this
article and the chorus of Shareholder concern about the potential

Never mind the issue of dealing with the Company’s shareholders
truthfully and transparently, the issue of whether the Company was in
the late stages of a Mantos deal is critical because it goes to a key
question: does this Board have the strategic judgement to create
long-term shareholder value? If the Company was indeed pursuing the
Mantos transaction, a deal that would have massively destroyed
shareholder value, shareholders should know that before they cast their
vote at the Meeting.

Focus on the Facts: More Change is Needed

Hudbay is speaking out of both sides of its mouth. On the one hand it is impugning
Waterton’s motives, judgment and slate of nominees, while on the other
hand effectively endorsing our judgment by selecting two of our
nominees to add to its slate of director candidates. As we have stated
all along, A.E. Michael Anglin and David Smith would be remarkable
additions to the Hudbay Boardroom.

The reality is, however, that changing over two director seats,
mitigated by the expansion of the Board to 11 members and the addition
of another Hudbay-selected director, does not constitute the level of
change that is desperately needed. This amount of change is dangerously
insufficient for three reasons: (1) the entrenchment in the Hudbay
Boardroom and C-Suite goes back nearly a decade, (2) the Board would
still be lacking key skills and expertise that are necessary to create
long-term shareholder value, and (3) there is a systemic lack of
accountability at the Board, as evidenced by, among other things,
Hudbay’s 2018 Corporate Scorecard where the Board awarded management a
score of 93.5/100 despite Shareholders having lost 42% on their

Waterton believes that substantial changes must still be made to the
Hudbay Board to give shareholders the comfort that the change and proper
oversight needed at Hudbay can be effective. That is why we continue to
advocate for the election of three additional director nominees, beyond
Mr. Anglin and Mr. Smith. We believe that the addition – in total – of
five of our nominees will effect a marked change in the dynamics in the
Boardroom at the Company and help drive improvements in strategy and to
end the current culture of entrenchment. By refreshing the Board with
five Waterton Nominees, we believe the Company will have the necessary
strategic oversight, capital allocation discipline, accountability to
hold management to account and, importantly, institutional-grade
professionalism. In these specific circumstances, we are willing to
provide the current CEO with a full and fair opportunity to demonstrate
his capabilities. We also note that five directors would constitute a minority
of what will be an 11-member Board. To be clear, we are no longer asking
for control of the Board.

Hudbay’s shareholders should not be deprived of this unique opportunity
to materially upgrade its Boardroom with institutional-grade talent. In
addition to our nominees A.E. Michael Anglin and David Smith who have
been included on Hudbay’s Board slate, our nominees Richard Nesbitt,
Peter Kukielski and Daniel Muñiz Quintanilla, on objective measure of
merit and experience, are just that – a material upgrade. Why shouldn’t
our Company have the best of the best in the Boardroom, particularly now
that each of these professionals are ready and willing to engage?

Waterton’s Highly-Qualified, Independent
Nominees – Upgraded and Needed Oversight

The Waterton Nominees have the required skills, fresh perspectives, and
expertise the Company’s Board and management team sorely need. As
highlighted below, each Waterton Nominee fulfills the immediate
experience sorely needed at the current, flawed and entrenched Board.
The Waterton Nominees’ backgrounds and credentials can be found in
Waterton’s information circular accompanying this letter under “Matters
to be Acted Upon at the Meeting – Waterton Nominee Profiles” and on our
website at

Director     Proposed Role     Expertise Requirement
A.E. Michael Anglin     Independent Director    
  • Construction & Operation of Large-Scale Copper Projects
Peter Kukielski     Independent Director    
  • Proven Leadership & Relevant Track Record with Strategic
Richard Nesbitt     Independent Director    
  • Corporate Governance & Accountability
Daniel Muñiz Quintanilla     Independent Director    
  • Board & C-Suite Experience at South America’s largest mining
David Smith     Independent Director    
  • Capital Allocation & Project Finance Expertise

The Waterton Nominees not only have the experience to move Hudbay
forward, they also have a strategy to deliver long-term shareholder
value. If elected, the Waterton Nominees are in a position to help
execute this strategy starting immediately after the Meeting, including:

  • Accountability: Ensure management is held
    to account and fully aligned with shareholders.
  • Corporate Governance: Implement best
    governance standards and practices based on a culture of transparency
    and professionalism.


Kingsdale Advisors
Toll-Free (within North America):
Call Collect (outside North America): 1-416-867-2272

& Company
Dan Zacchei / Joe Germani: 1-212-486-9500
E-mail: /

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