Augusta Resource Corporation Thursday ratified a “poison pill” plan in the event of an unsolicited take over offer for control of the Vancouver, B.C-based junior mining company whose principle project is the proposed Rosemont copper mine in the Santa Rita Mountains south of Tucson.
In other words, if another company attempts to acquire control of Augusta through open market stock purchases, Augusta would attempt to add a substantial premium to the stock price. The maneuver raises question on whether Augusta Resource or its subsidiary will ever follow through on development of the project beyond permitting.
The company announced its shareholder “rights plan” last April 18 and it went into immediate effect for six months without the need of shareholder approval. Shareholder approval now extends the rights plan until the company’s annual meeting in 2016.
Augusta provides the following explanation for the action: “The Rights Plan is intended to ensure, to the extent possible, that all holders of common shares and the Board have adequate time to consider and evaluate any unsolicited take-over bid for the common shares, provide the Board with adequate time to identify, solicit, develop and negotiate value-enhancing alternatives, as considered appropriate, to any unsolicited take-over bid and encourage the fair treatment of the Corporation’s shareholders in connection with any unsolicited take-over bid.”
Details of how the plan could be executed are provided in a Sept. 16, 2013 proxy statement. Augusta has issued 144 million shares of common stock.
HudBay Minerals Inc. is the largest shareholder with 23 million shares equal to 15.98% of the company’s shares. HudBay has been a major Augusta investor since 2010.
HudBay has stated it intends to purchase a junior mining company with a startup copper mining project in the near future. Augusta is one of several junior mining companies in which HudBay has taken a position.
Dundee Securities projects that HudBay may be in position to purchase a junior in the mid-2014 after construction is completed on its $1.5 billion Constancia copper project in Peru.
“An equity issue might be contemplated in conjunction with the acquisition of a junior developer which would provide the next pipeline project for HBM after Constancia is completed,” Dundee states. “This suggests that a possible acquisition could occur by H2/2014.”
HudBay’s CEO David Garofalo told Reuters in September the company hopes to buy at least one greenfield project in the next year and expects to boost annual copper output nearly fivefold by 2016.
Garofalo told Reuters that higher industry costs and lower metal prices mean medium-sized companies like HudBay are better positioned than ever to buy up small exploration firms.
“We’re interested in a lot of junior opportunities … they’re really living on fumes a lot of them and that’s afforded us a lot of opportunities to look at the next generation of projects,” Garofalo said on the sidelines of a mining conference in Peru.
He declined to mention which firms HudBay is interested in.
“We hope that in the next year or so we’ll be able to tuck in a greenfield opportunity or two,” Garofalo said.
Augusta’s stock closed at $1.85 Friday on the NASDAQ.