UPDATE 1-HudBay mulls gold spin-off; seeks deals in Peru

* Sees possible annual gold production of 400,000 ounces

* Says could spin off gold assets into new company

* Looking to Peru for more M&A

* Focused on small, single-asset development companies
(Updates with quotes, background)

By Julie Gordon

SANTIAGO, April 5 (Reuters) – HudBay Minerals (HBM.TO: Quote, Profile, Research) will
consider spinning off its gold assets into a separate company
once it completes a drilling program at the Lalor deposit in
central Canada, the company’s chief executive said on Tuesday.

Hot off the heels of its successful takeover of Norsemont
Mining, the company is also looking to buy more projects in
Peru, Chief Executive David Garofalo told Reuters on the
sidelines of the CRU copper conference in Santiago.

The base metal miner plans to boost annual production to
250,000 ounces of gold within five years, but that could go
higher.

“We could have 400,000 ounces of gold production from what
is now a 7 million ounce reserve space, which I think has the
potential to grow to 10 million ounces,” Garofalo said.

“That’s (the equivalent of) a meaningful mid-tier gold
company,” he added.

Garofalo said a spin-off would be an ideal way to gain
value for those gold ounces and added the company has no plans
to hedge or sell off gold.

“Splitting the company in two is something we will consider
once we get an opportunity to really drill Lalor out from
underground,” said Garofalo. “We want to know what we own
before we try to put a value on it.”

DEAL HUNTER

Last week, HudBay announced that it had more than tripled
its copper resources, largely driven by its takeover of
Norsemont. HudBay’s total proven and probable copper equivalent
reserves rose to 3.1 million tonnes as of March 31, from
791,000 tonnes as of Jan. 1, 2010.

HudBay bought junior Norsemont for roughly $400 million in
order to gain access to its Constancia project, located some
100 km (62 miles) south of Cusco, Peru.

“We are looking at further acquisitions in the area,”
Garofalo said, adding he is only interested in deals that “move
the needle”.

Garofalo said he likes single asset, developmental stage
companies and added that HudBay hopes to build in Peru a
similar style of mining district to what it has in Northern
Manitoba, where the company owns three mines, two concentrators
and a zinc plant.

“It is always most economic to try to leverage off the
infrastructure you’ve built by acquiring more deposits to
leverage off those initial fixed costs,” he said.

Garofalo said that he had been approached numerous times
for a so-called “merger of equals”, like the now-defunct $9
billion deal between Inmet Mining (IMN.TO: Quote, Profile, Research) and Lundin Mining
(LUN.TO: Quote, Profile, Research), but that he isn’t interested.

“We’re not looking to large scale M&A. We’re not looking
to merge with like-sized companies,” he said. “Juniors are
exactly our snack bracket in terms of acquisitions.”

(Editing by Simon Gardner and Lisa Shumaker)

UPDATE 1-HudBay mulls gold spin-off; seeks deals in Peru