Tough times? It’s IR as usual

Insider: David Garofalo

David Garofalo, president and CEO HudBay Minerals: In tough times, IR should stay the course

Who David Garofalo, president and CEO HudBay Minerals Inc. (TSX:HBM), one of Canada’s few mid-tier mining companies, producing gold, copper, zinc and silver, with projects in development in North and South America.

Involvement Garofalo, who was appointed CEO at HudBay in July 2010, is among the first CEOs who comes to mind when investor relations and mining are on the agenda. In 2011, he received the IR Magazine award for best IR by a CEO; he also won for best investor relations by a CFO in 2009 and 2010, for his work at Agnico Eagle Mines Ltd. (TSX:AEM). With financing for miners now so hard to come by, Listed asked Garofalo for his views on IR’s role in today’s market, both at HudBay and for the sector overall.

Listed Does the focus of investor relations change when the sector is weak and investor interest is elsewhere?

David Garofalo I can’t say that we vary it significantly given the market conditions. There’s really nothing you can do about the macroeconomic environment. Sometimes the capital cycles in, sometimes it cycles out. [So for us,] I see IR as strategic. It’s not something we’re doing to juice the stock price. It’s meant to provide us the air cover we need to execute our strategy. What I mean by that is, we’re out there articulating the strategy and trying to do so consistently so that our steadfast shareholders who are buying for the long-term stay for the long-term—because we have a very long-term vision of how we build the business, necessarily so, given the capital intensity and the lead times in our business.

Listed Does the substance of your messaging change?

David Garofalo I think that if you change message too frequently that can be extremely dangerous. Because then investors don’t know what you are. I think if you articulate a clear message and it doesn’t vary even through the cycles, that’s very important. Because when the capital does come back, then they’re more willing to invest in you because…the story sounds pretty much the same. I think that’s important. Investors need to know what they’re buying.

Listed How much of that tone is set at the top?

David Garofalo Before I was hired in 2010, HudBay had been, quite frankly, a bit of a volatile story, with a lot of executive turnover. What that did is it kind of opened the door up for very short-term money, a lot of fast money. When I came in, I started talking about five-year investment horizons. That short-term money ran for the exits and we had to very methodically cultivate a shareholder base that shared a longer-term investment horizon with us. And that shareholder base has been by and large with us the first four years of that five-year plan.

Listed Who makes up the bulk of this base?

David Garofalo By and large, they’re general equity funds. They can stay in five or 10 years if it suits them, whereas resource funds are subject to redemptions at the bottom of the cycle. So a lot of those resource funds exited the sector generally, and us as well, over the last couple of years. But those general equity funds that we invited in back in 2010 with our longer-term vision stayed the course, and they actually starting buying on the dips and weighted up.

Those investors at the margins, [meanwhile,] they start to call you when it looks like the capital is starting to cycle back in. And we’re seeing that somewhat now. I’m not saying that’s something we’re doing deliberately. Those calls almost come in and we react to them as opposed to anticipate them.

Listed Do you see other mining companies doing anything particularly smart or questionable in terms of IR?

David Garofalo The seniors, by and large, I think they’re suffering from a bit of collective insanity. Because they’re not building anything, they’re trying to harvest their business, high-grading their mines, to satisfy an investor base that needs capital. A lot of resource funds were in those seniors and resource funds are facing significant redemption pressures, so they’re in turn putting pressure on the companies to pay bigger dividends, buy back stock and discouraging them from investing back into new mines. Which, for mining companies, is suicidal. I understand why it’s happening. I understand the dynamic. But I think the seniors by and large are sort of suffering from short-termism right now.

Listed What about internal impacts of a slump? Do IR teams suffer?

David Garofalo I haven’t seen any evidence of any significant cutbacks in investor relations, at least in terms of established producers. Certainly in the junior sector, where they’re capital-starved, they’re making wholesale cuts not just in terms of investing in the ground, but also at head office, just because they’re trying to survive. But established producers are still out there doing all the conferences and engaging with investors that want to be engaged with.

Interview by Listed staff

Photography: HudBay Minerals Inc.

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