The Toronto-based company said Friday despite Waterton's "refusal to engage constructively", the board remained committed to "responsible renewal" and recommended shareholders voted for three new directors, including Hudbay's nominee Richard Howes and two Waterton nominees Mike Anglin and David Smith to replace two departing directors.
Directors Warren Holmes and Alan Lenczner will not be standing for re-election during the May 7 special shareholder meeting.
Hudbay argued that Waterton, a relatively recent Hudbay shareholder with 12% interest, was attempting to replace 80% of the board, including the chair and CEO, despite holding such a relatively small portion of the company's shares.
"Waterton and its nominees raise a number of red flags. These unnecessary and ill-timed changes to Hudbay's board and executive leadership would be very disruptive and threaten Hudbay's positive momentum and value," chair Allen Hibben said in an open letter to shareholders.
He continued to state it was Hudbay's strong belief changes to the board beyond its proposed nominees could result in "significant disruption" to the company's positive momentum and placed shareholders' future investment value at risk.
"Incremental refreshment of a board through the regular replacement of directors is sound corporate governance. Replacement of the majority of a competent board with an unqualified slate of directors with no knowledge of a company's assets is dangerous and should be avoided," Hibben said.
Since dropping to a 12-month low of C$4.51 in Toronto in November, the stock (TSX:HBM) has rebounded to $9.90, up nearly 60%. The equity has also gained more than 50% this year.
Hibben said the Hudbay board was successfully executing on its strategy, having delivered one-, three- and five-year total shareholder returns that significantly outperformed its peer group. In fact, more than 80% of the analysts who covered Hudbay had raised their price targets since January 1, he said.
"Waterton lacks a credible mining track record, and the share price of companies in which it makes investments has almost universally declined. Waterton is currently embroiled in a lawsuit in which it is accused of fraud and misrepresentation leading to its acquisition of the mine of a company in which it invested to the detriment of its shareholders," Hibben said.
He also criticised the dissident for not having provided an alternative plan for the company.
The private equity firm has been ratcheting up the pressure on Hudbay, releasing a 74-page presentation in February saying the miner could be worth about C$19 a share if it changed leadership, reviewed its portfolio and improved capital allocation.
"Despite Waterton's refusal to engage constructively on a settlement that would be in the best interests of all shareholders, Hudbay sought a reasonable compromise - right up to the moment Hudbay's proxy materials were issued. In this context, the board is supporting the election of who we believe to be two qualified director nominees from Waterton's slate, in addition to mining industry leader Richard Howes," Hibben said.
Hudbay's largest shareholders backed this approach, he said.