In a surprise move, Augusta Resource Corporation is not seeking shareholder approval of the company’s proposed poison pill strategy to thwart a possible hostile takeover at its upcoming June 20 annual meeting in Vancouver, B.C., according to a regulatory filing.
On April 19, Augusta, which is seeking state and federal permits for the Rosemont copper project southeast of Tucson, announced the board’s adoption of a shareholder “Rights Plan” designed to greatly increase the cost of a hostile takeover.
Augusta stated the plan would be submitted to shareholders for approval within six months. On the same date, Augusta also adopted an “Advance Notice Policy” revising its rules for electing directors that would also need shareholder approval.
Augusta, however, did not include the Rights Plan for shareholder ratification at its annual meeting, according to Augusta’s Management Proxy Circular.
Shareholders, however, will vote on the Advanced Notice Policy at the annual meeting, according to Augusta’s May 17 proxy. The proxy was not posted on Canada’s regulatory clearinghouse website, SEDAR.com, until May 24.
The Rights Plan will expire six months from its April 19 adoption unless it receives shareholder approval. It is uncertain whether shareholders can bring the Rights Plan to a vote at the annual meeting or whether Augusta intends to bring it to a vote later this year.
Augusta’s decision not to seek shareholder approval for the poison pill could be based on the premise that it is only needed through mid-October to protect the Company from a hostile takeover during a period of low stock prices.
The next four months will be crucial for Augusta. The company has pushed back the date it expects to receive final permitting approvals from the Forest Service and U.S. Army Corps of Engineers for its proposed Rosemont open pit copper mine until the Third Quarter.
Augusta is also facing a cash flow squeeze and will require additional funding if the permits are not issued by the end of September.
If, however, the Company receives the final permits, Augusta has agreements in place to receive $336 million in funds from two sources: United Copper & Moly will invest $106 million and Silver Wheaton will invest $230 million upon permitting.
Augusta announced the poison pill strategy after HudBay Minerals Inc. increased its stake in Augusta to 16% of the company’s 144 million of outstanding shares.
“We are not aware of any pending hostile bid, but in our view it is incumbent on our Board to be prepared,” Augusta chairman Richard Warke stated in an April 19 press release announcing the Rights Plan.
“We are not willing to allow a predatory buyer to take advantage of these market conditions to acquire our world class Rosemont copper project at less than fair value,” Warke stated.
The Toronto Stock Exchange approved Augusta’s shareholder Rights Plan on May 1, Augusta stated in a press release.
“If the Rights Plan is not ratified by the shareholders within six months of the date of its adoption, the Rights Plan and any rights issued pursuant to it will terminate,” the Company said in the release. “If the Rights Plan is ratified, it will continue in effect until the third annual meeting of shareholders thereafter.”
Augusta announced the poison pill plan three days after HudBay’s April 16 purchase of 1.44 million shares at $2.55 a share, and two days after its stock fell 27 cents on the NASDQ to close at $2.22 a share. The stock rallied on April 19, closing at $2.38. Augusta closed at $2.30 on May 31.
Notwithstanding Augusta’s recent PR statements, HudBay has been anything but a predatory buyer of Augusta stock in the past.
In 2010, Augusta turned to HudBay to raise much needed capital to fund exploration, engineering, design and permitting of its proposed Rosemont copper mine in the Santa Rita Mountains on the Coronado National Forest.
On March 1, 2010, Augusta and HudBay signed a two-year Confidentiality Agreement where the companies exchanged proprietary information not generally known to the public. The agreement was made to facilitate a possible transaction, which later took place.
On July 22, 2010, Augusta waived certain provisions of the Confidentiality Agreement that prohibited HudBay from acquiring Augusta stock.
Between July 23, 2010 and Aug. 18, 2010, HudBay purchased 3,883,900 shares of Augusta stock on the open market for $8.37 million. The price of the stock ranged between $1.72 and $2.78 a share.
That was just the beginning of HudBay’s increasing stake in Augusta.
On August 23, 2010, HudBay and Augusta signed a Subscription Agreement, also known as a private placement, where HudBay purchased 10.9 million shares of Augusta stock for $30 million.
The agreement also included warrants to purchase an additional 5.45 million shares of stock for $3.90 a share within 18 months. On March 18, 2011, HudBay exercised the warrants and purchased 5.45 million shares for $21.26 million.
Earlier this year, HudBay made three large trades on the open market worth $7.3 million to further increase its stake in Augusta.
On Feb. 25, HudBay purchased 1,216,300 shares at $2.65; on Feb. 28, HudBay purchased 200,000 shares also at $2.65; and on April 16, HudBay bought another 1.44 million shares at $2.55.
HudBay has now spent $70 million to purchase 23 million shares of Augusta’s 144 million shares of stock outstanding at an average price of $3.04 a share.