Toronto, Canada-based HudBay currently operates zinc and copper mines, concentrators and metal production facilities in northern Manitoba and Saskatchewan, a zinc oxide production facility in Ontario, the White Pine Copper Refinery in Michigan, and owns the Fenix nickel project in Guatemala. In addition to its primary products, the company also produces gold, silver and zinc oxide.

Lundin, also based in Toronto, has operations in Portugal, Spain, Sweden and Ireland. As of early November, it had six mines in operation producing copper, nickel, lead and zinc—Neves-Corvo and Aljustrel in Portugal, Zinkgruvan and Storliden in Sweden, Galmoy in Ireland and Aguablanca in Spain.

On completion of the deal, each Lundin common share will be exchanged for 0.3919 HudBay common shares, and Lundin will become a wholly-owned subsidiary of HudBay. For Lundin shareholders, this represents approximately a 32% premium over Lundin’s 30-day volume weighted average trading price on the TSX. Upon completion of the transaction, HudBay will have approximately 306 million common shares outstanding. The boards of directors of both companies unanimously approved the transaction. The CEO of the resulting company will be Allen J. Palmiere, who currently is CEO and a director of HudBay.

According to a statement issued by the companies, the acquisition will transform HudBay into the second largest base metals company in Canada in terms of market capitalization. It will have producing assets in Canada, Portugal, Sweden, Spain and Ireland, along with a growth portfolio that includes Tenke Fungurume in the Democratic Republic of Congo, and the Fenix project.

Following the completion of the acquisition, the resulting company will have a combined 2007 actual metal production of 187,115 mt of copper, 278,289 mt of zinc, 44,560 mt of lead, 3,270 mt of nickel, 102,587 oz of gold and 4,184,536 oz of silver. Additionally, it will have cash on hand of approximately C$900 million and total debt of approximately US$240 million based on reported amounts at September 30, 2008—providing, according to the statement, financial strength to capitalize on opportunities arising from turbulent markets.

In connection with the transaction, HudBay and Lundin entered into a loan agreement in which HudBay will lend Lundin approximately C$135.8 million on a subordinated basis. Lundin will use the proceeds of the loan to fund capital investments and other general corporate purposes. HudBay and Lundin have also entered into a share purchase agreement, pursuant to which HudBay will acquire approximately 97 million common shares of Lundin, representing approximately 19.9% of Lundin’s outstanding common shares, at a price of C$1.40 per share in a private placement for total gross proceeds to Lundin of approximately C$135.8 million. The proceeds of the private placement will be used to repay the loan. Completion of the private placement of the Lundin common shares is subject to the satisfaction of certain regulatory requirements.

Lundin had announced in mid- November that, in view of current low zinc prices, its Aljustrel zinc mine would be put on care and maintenance, and zinc production from the Neves-Corvo copper/zinc mine would be suspended until prices recover.

The Neves-Corvo copper/zinc mine in Portugal extracts polymetallic ores for processing either through the principal copper plant (2 million mt/y) or the smaller zinc facility (500,000 mt/y). The zinc ore processing facility, owing to its flexible configuration, is able to treat any of the polymetallic ores mined at Neves-Corvo at rates of up to 500,000 mt/y. This smaller facility currently treats zinc-rich ores to produce a zinc concentrate of 50% zinc grade.

Lundin said mining and processing of zinc ores will be suspended until suitable value for zinc concentrates has returned to the market. In place of the zinc ore, low grade copper/zinc ore will be mined and treated through the zinc facility to produce copper concentrate containing 24% copper.

The company planned to process all remaining broken zinc ore stocks and then re-align the zinc processing facility to the production of additional copper concentrates once all relevant approvals are obtained. This would allow Neves-Corvo to fully utilize employees and equipment normally associated with zinc production until the zinc market recovers.

With regard to its Aljustrel zinc-lead mine, also in Portugal, the company said that following a detailed study of production alternatives it decided to place the mine on care and maintenance effective immediately. Zinc prices have dropped nearly 70% since the restart of Aljustrel was announced and around 50% since the official opening in May of this year. The status of Aljustrel will be reviewed periodically as metal price expectations change.

The Aljustrel project was conceived primarily as a zinc project with limited copper resources to be extracted at the end of the mine life. Recent exploration drilling and resource upgrades have increased the quantity of copper resources available for mining. This increase, coupled with the current uneconomic status of the zinc resources, has led to the examination of a mining plan that focuses initially on the extraction of copper resources only. While a copper operation is technically possible, detailed studies have indicated that this option is also economically unviable at today’s metal prices.

Aljustrel was planned to produce 80,000 mt/y of contained metal in concentrates, and cost $225 million to build. Pre-production losses and shutdown costs are expected to amount to $80 million. Ongoing care and maintenance costs are estimated to be in the order of €4 million per year.

As a result of this decision, the company said it would incur a charge to earnings of $8 million in the third quarter with a likely further charge to earnings of $10 million to $15 million by the end of the year.