The U.S. Forest Service is cutting corners on its review of the proposed Rosemont copper mine in order to avoid complying with a new regulation that would delay issuance of the agency’s final decision until public concerns are addressed.
The move appears intended solely to benefit the financially struggling Augusta Resource Corporation.
Augusta is seeking permits through its Arizona-based Rosemont Copper Company subsidiary to blast the massive Rosemont open-pit copper mine in the Santa Rita Mountains on the Coronado National Forest southeast of Tucson.
On July 1, the Forest Service rushed out an incomplete draft of its Final Environmental Impact Statement (FEIS) assessing the proposed Rosemont Mine’s impacts on southern Arizona’s environment and economy. The agency asked about two-dozen county, state and federal cooperating agencies to provide their final comments by August 1 despite the fact that the FEIS is still missing key studies and reviews.
Coronado National Forest Supervisor Jim Upchurch admitted to the Green Valley News the Forest Service is “trying to be expeditious regarding the needs of” Augusta by issuing a FEIS and Record of Decision (ROD) by Sept. 27.
Augusta is pressing the Forest Service to issue the FEIS and the ROD to approve the mine by the end of its Third Quarter on Sept. 30 because the junior mining company has no other operations besides Rosemont, is relying on expensive loans for operating capital, and appears to be running out of cash.
Augusta warned investors in its March 31 Management Discussion & Analysis report released in May that any permitting delays past Sept. 30 could be catastrophic for the company, stating:
“Any delays in the issuance of the ROD will result in the Company consuming its remaining working capital. If funding cannot be obtained, this would indicate an existence of a material uncertainty that raises substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent on the Company raising additional debt or equity financing to support ongoing operating and corporate administrative activities.”
If the Forest Service misses the Sept. 27 deadline to issue the ROD, new regulations would go into effect postponing issuance of the final ROD for approximately 90 days until after the public has a chance to work with the agency to resolve outstanding issues and concerns about the impacts of the copper mine on public health and safety, wildlife, water supplies, and the economy in southern Arizona.
Under the agency’s current appeal process, the ROD could be issued after receiving comments from the cooperating agencies and prior to addressing any public concerns. Once the ROD is issued, the public would then have about three months to file an appeal.
Since the timeline for addressing and resolving public concerns is roughly the same under both sets of rules, it appears that the only reason for the Forest Service to rush out the Record of Decision under the current rules is to help Augusta with its cash-flow problems.
The Vancouver, B.C.-based speculative mining company has been relying on loans from London-based RK Mine Finance Group for operating funds since 2010. Augusta borrowed $43 million in April 2010 and an additional $40 million in August 2012. The $83 million loan is due in July 2014. Augusta has pledged all the assets of Rosemont Copper Company as collateral for the loan.
Augusta has continued to have significant operating expenses averaging about $10 million a quarter. The company had working capital of $19.0 million at March 31, 2013, compared to $28.8 million at Dec. 31, 2012.
Augusta stated the $9.8 million decrease in working capital was due primarily to the ongoing operating and permitting expenditures at the Rosemont project, investment in a proposed pipeline to deliver Central Arizona Project water to Green Valley, and a decrease in the value of Augusta’s short-term investments.
If Augusta is continuing to spend money at the same rate as in the 1st Quarter, it will run out of working capital by late September. The company will issue its 2nd Quarter results in mid-August, providing investors and the public with a more accurate assessment of its financial condition.
Whether or not the Forest Service issues the FEIS and ROD prior to Sept. 27, Augusta will still need a Section 404 Clean Water Act permit from the U.S. Army Corps of Engineers before it could begin construction on the mine and obtain $335 million in pledged funds from two investors.
The Army Corps is not expected to make a decision on whether to issue the Section 404 permit until after the Forest Service issues both the ROD and FEIS, Augusta states in its financial reports.
The U.S. Environmental Protection Agency earlier this year raised serious concerns over Augusta’s Section 404 permit application’s impact on wetlands and failure to address the least environmentally damaging mining alternatives.
In 2012, the EPA stated that Augusta’s 404 permit application is eligible for review by the Washington, D.C. headquarters for the EPA and the Army Corps. The EPA has veto authority if the Corps should issue the 404 permit over its objections.
The EPA also filed significant objections in Feb. 2012 to the Forest Service’s Draft EIS. The EPA said the DEIS allowed Augusta to skirt numerous environmental laws and concluded the project should not “proceed as proposed”. The EPA is expected to file comments on the Forest Service’s proposed Final EIS by August 1.
Korea-based United Copper & Moly has already invested $70 million in the Rosemont project as a joint-venture partner. United Copper has pledged to invest an additional $105 million to assist in construction of the mine.
Silver Wheaton has also signed an “off-take” agreement to purchase silver produced at the mine and invest $230 million for construction.
The United Copper and Silver Wheaton construction funding agreements, however, are contingent on Augusta receiving all major permits for the mine, including the 404 permit, according to Augusta’s financial filings.