HudBay, Skye reports proposed business combination

HudBay Minerals Inc., a leading Canadian base metals mining company with a focus on the discovery and production of zinc and copper metal, has entered into a definitive agreement with Skye Resources Inc. to combine their respective businesses. Skye’s principal asset is the Fenix Nickel Project in Guatemala, which includes 41.4 million tonnes of reserves.

The transaction will be structured as a Plan of Arrangement under the Business Corporations Act (British Columbia) between HudBay and Skye.

On completion of the Transaction, all Skye common shares will be automatically exchanged on the basis of 0.61 HudBay common shares for each Skye common share.

The consideration to Skye shareholders pursuant to the Plan of Arrangement represents approximately a 35.0% premium over Skye’s 20 day volume weighted average trading price based on HudBay’s 20 day volume weighted average trading price on the TSX and approximately a 17.0% premium over Skye’s closing price as at June 20, 2008.

Upon completion of the Transaction, HudBay will have approximately 160.9 million common shares outstanding, of which current HudBay shareholders will own 79.7% and former Skye shareholders will own 20.3%.

Skye’s Fenix Project will strategically expand HudBay’s base metals portfolio to include nickel and add significantly to HudBay’s development pipeline, with a world class project that is capable of near term production, has a 30 year mine life and contains significant opportunity for expansion.

Skye acquired the rights to the Fenix Project in December 2004 and has completed a feasibility study for a ferro-nickel project using proven conventional smelting technology.

Environmental and construction permits for the project have been received, basic engineering is complete, detailed engineering is over 50% complete and Skye is preparing to initiate construction.

The Fenix Ferro-Nickel Project is located in eastern Guatemala and is 98.2% owned by subsidiaries of Skye and 1.8% by the Government of Guatemala.

The Fenix Project consists of an exploitation license encompassing 248 square kilometres and an exploration license covering 32 square kilometres, together with a pyrometallurgical nickel processing plant and related facilities.

Built at a cost of US$238 million in 1977, the plant operated until it was closed in 1980. Since the plant shutdown, no mining activity has taken place on the property, but the plant has been on care and maintenance. Ferro-nickel production is now estimated to commence in the last quarter of 2010.