The clock is running down on Vancouver, B.C.-based Augusta Resource Corporation’s nine-year effort to develop the controversial Rosemont copper project in the Santa Rita Mountains on the Coronado National Forest southeast of Tucson.
But that doesn’t mean the attempt to build what could become the third largest copper mine in the United States is over.
The U.S. Forest Service last week delivered a knockout blow to Augusta’s hope of obtaining the crucial Record of Decision (ROD) for the massive open pit mine by the end of June when it formally stated that the ROD will not be issued until a new round of Endangered Species Act (ESA) consultations are completed.
The ESA discussions between the Forest Service and U.S. Fish & Wildlife Service are expected to take many months and are likely to extend into next year. This is far too late for Augusta, which has no operating income, to meet pending financing obligations and to fend off a hostile takeover bid by Toronto-based Hudbay Minerals.
Augusta had repeatedly told investors in regulatory filings it would obtain the ROD and a Clean Water Act permit issued by the Army Corps of Engineers by the end of the 2nd Quarter on June 30.
Not only will the ROD be delayed for many months, the Army Corps has stated that Augusta’s permit application did not meet regulatory mitigation requirements, raising the possibility the Corps will not issue the crucial permit that is needed to construct the mine.
Obtaining the ROD and the Clean Water Act permit are minimum conditions for Augusta to access $336 million in additional capital from its joint venture partner, United Copper & Moly, and a silver off-take agreement with Silver Wheaton.
Without access to additional capital, Augusta will not be able to repay a $109 million loan that is due on July 21 from RK Mine Finance Trust, a division of Red Kite, a London-based hedge fund that provides high-cost loans to speculative mining companies like Augusta. Augusta can extend the loan an additional 90-days, but its an expensive proposition with a fee of 1.5% of the outstanding principle per month.
Red Kite has extended and modified loan terms for Augusta over the last four years and could once again extend more credit to Augusta that could be sufficient to carry the company through the permitting process now expected to extend into 2015.
But Augusta has even more pressing problems than simply repaying Red Kite.
Unless Augusta finds a white knight in the next few weeks, it increasingly appears that it will not be able to fend off Hudbay’s takeover bid that was launched last February. Augusta’s poison pill that has blocked Hudbay from acquiring additional Augusta stock is set to expire on July 15 if Hudbay elects to extend its takeover offer to July 16.
Hudbay has issued a series of 10-day extensions of its takeover bid with the latest set to expire at 5 p.m. on June 20. Hudbay, which already owns 23 million shares (15.9%) of Augusta’s 145 million shares outstanding, is offering .315 shares of Hudbay stock for one share of Augusta stock.
Presuming that Red Kite extends additional credit to Augusta to carry it through permitting, the question facing Augusta’s shareholders is whether to hold their shares with a severely under-capitalized company with the hope of a bigger pay off in the future if and when Augusta obtains all necessary permits for Rosemont, or to tender their shares to Hudbay at a price lower than hoped but with a company that already has operating mines generating cash flow and a major project in Peru expected to come into operation next year.
Hudbay has stated in regulatory filings that it could finance construction of the $1.23 billion Rosemont project with internal funds. The company has also stated that it anticipates permitting delays will extend into 2015 with construction not beginning until 2016.
Southwest Regional Forester Calvin Joyner stated in a June 13 letter to an environmental group in response to its formal objections to the agency’s Final Environmental Impact Statement (FEIS) that the Rosemont “project is in compliance with (federal) laws, regulations, policies and the Forest Plan.”
While Joyner’s statement appears to signal that the final ROD approving the Rosemont mine plan of operations is imminent, Joyner also issued orders to CNF Supervisor Jim Upchurch “to complete (ESA) consultation with the USFWS” before “signing the Final ROD.”
Joyner also left open the door for further environmental studies prior to approving the ROD depending on whether the ESA consultations require additional public comment to ensure that the FEIS complies with the National Environmental Policy Act.
In addition, Joyner instructed Upchurch to consider whether any news articles submitted by mine opponents in their written objections to the FEIS provide “new information that would require additional NEPA analysis.”
Even when Forest Service finally issues the ROD, that does not mean construction on the Rosemont mine is imminent.
Mine opponents, which have already sued the state of Arizona over its issuance of a clean air permit and aquifer protection permit, will have the option of challenging the ROD and the FEIS in federal court. Any lawsuit would likely seek an injunction that would prevent construction of the project until the case is settled.
Rosemont opponents unflinching opposition to the project was reiterated in a press release Monday blasting the Forest Service for failing to adequately address more than 100 written objections to the FEIS.
“The proposed ROD and FEIS are so bad, it took nearly 300 pages for our scientists, economists and other experts to describe all the problems,” said Gayle Hartmann, President of Save the Scenic Santa Ritas (SSSR). “It is clear, as we detailed in our objections, that the Rosemont mine as proposed will violate numerous federal laws designed to protect public health, public lands, and the environment.
“At a minimum,” Hartmann added, “the completely inadequate FEIS must be revised to address the objections raised by Save the Scenic Santa Ritas and so many others.”