HudBay CEO: Augusta must resolve all litigation before it can access funds to build Rosemont mine

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Augusta Resource Corporation cannot access  funds needed to begin construction on its massive Rosemont copper project until all litigation challenging the mine has been concluded, David Garofalo, president and CEO of HudBay Mineral Resources, stated in a March 14 press release.

For the last several years, Vancouver, B.C.-based Augusta has stated in financial disclosure documents filed with securities regulators that all it needs to obtain $336 million in contingent funding was for the U.S. Forest Service to issue a favorable Record of Decision approving the mine and for the company to have received all the major regulatory permits.

Augusta has never disclosed in regulatory filings that litigation challenging the permits and mine construction would have to be resolved before it could obtain the funds it needs to begin construction.

Cash-strapped Augusta must repay a $109 million loan from London-based metals hedge fund RK Mine Finance by July 21 or it could lose its entire investment in its Arizona-based subsidiary Rosemont Copper Company.

Rosemont Copper Company is seeking state and federal regulatory approvals for the mile-wide, half-mile deep open-pit mine planned for the Santa Rita Mountains on the Coronado National Forest 35 miles southeast of Tucson. Augusta has pledged all of Rosemont’s assets as collateral for the RK loan.

Augusta is claiming that the U.S. Army Corps of Engineers will issue a Section 404 Clean Water Act permit soon after the Coronado National Forest releases the Final Record of Decision for the mine. Augusta stated in a March 14 press release that both will be issued in the Second Quarter to allow construction to begin in mid-2014.

“Augusta confirms that its permitting process is progressing as planned with previous guidance remaining unchanged for receipt of both the 404 permit from the Army Corps of Engineers and the Final Record of Decision from the U.S. Forest Service in the second quarter of this year,” Augusta stated in the press release.

Garofalo’s statement, however, indicates that even if Augusta receives the permits, that it will still not have access to $336 million in contingent funding that Augusta needs to begin construction on the mine and repay the looming RK Mine Finance loan because of pending and expected litigation challenging the permits and the mine.

Garofalo made the statement in connection with HudBay’s unsolicited takeover offer for Augusta. HudBay announced Friday that it has extended the deadline for two weeks until 5 p.m., April 2 for Augusta shareholders to tender their shares to HudBay.

Garofalo said Augusta’s repeated claims made in a Feb. 24 press release and a Directors’ Circular urging its shareholders to reject HudBay’s takeover offer that construction will begin on the mine the middle of 2014 are unfounded.

“Contrary to Augusta’s assertion, there is no reasonable prospect that Augusta will be able to commence construction of the Rosemont project in the middle of 2014,” Garofalo stated.

Augusta, Garofalo stated, does not have the financial capability to complete engineering for the mine to begin construction later this year. And, even if Augusta could complete engineering, Garofalo stated that it lacked the funds needed to begin construction.

Augusta “will not have funds available to start construction until all permitting and legal challenges (emphasis added) to the project’s development have been resolved,” Garofalo stated.

HudBay has access to proprietary information about Augusta’s operations not generally known to the public. On March 1, 2010, Augusta and HudBay signed a two-year Confidentiality Agreement where the companies exchanged business information.

Korea-based United Copper & Moly has committed to invest $176 million in the project as Rosemont Copper Company’s joint venture partner. Silver Wheaton Corporation has agreed to invest $230 million in exchange for all the silver and gold produced at the mine at a discounted price.

United Copper & Moly has already invested $70 million to take a 7.95 percent interest in the Rosemont project. United Copper is a 50/50 partnership that includes KORES, the Korean national mining company, and LG International.

“The remaining $106 million for construction will be funded once all the major permits are issued,” Augusta stated in its most recent Management Discussion & Analysis report for the Third Quarter released last Nov. 13.

Augusta stated in the MD&A that United Copper’s funds will be “released on a pro-rata basis with Silver Wheaton Corporation’s $230 million to fund construction once all material permits have been issued.”

Augusta has not reported in regulatory filings that construction funding was contingent on resolving litigation – contrary to what HudBay’s Garofalo is now claiming.

A lawsuit challenging the state of Arizona’s aquifer protection permit for the Rosemont mine has been filed in Maricopa County Superior Court. Additional litigation from mine opponents challenging other permits that have been, or will be issued, is virtually certain.

The Tucson-based Center for Biological Diversity has stated it plans to sue the U.S. Fish & Wildlife Service over the agency’s issuance of an October 2013 biological opinion concluding the Rosemont mine will not adversely impact the endangered jaguar.

The biological opinion appears to conflict with the FWS decision last week to include the Rosemont mine site, where a male jaguar has repeatedly been photographed in the immediate vicinity, as jaguar critical habitat.

Additional litigation is expected if the Forest Service issues a final Record of Decision approving the Rosemont project for violating various provisions of the National Environmental Policy Act. Legal action could also ensue if the U.S. Army Corps of Engineers issues a Clean Water Act permit.

The U.S. Environmental Protection Agency, which has veto authority over the Army Corps permits, last November recommended that the Army Corps reject Augusta’s 404 permit application.

HudBay is ramping up its pressure on Augusta’s management to accept its takeover offer. HudBay has withdrawn an earlier requirement that it obtain at least 66 percent of Augusta’s stock as a takeover condition. HudBay already owns slightly more than 15 percent of Augusta’s stock and would only need 35 percent of Augusta’s shareholders to tender their shares to HudBay to take over majority control of the company.

“The waiver of the minimum tender condition affords all Augusta shareholders the opportunity to accept the Offer, which would not otherwise have been possible if, as Augusta asserts, directors, officers and a small group of unnamed shareholders intended to frustrate the Offer to the detriment of other shareholders by not tendering their shares and preventing the minimum tender condition from being met,” HudBay stated in the release.

HudBay also announced it will ask the British Columbia Securities Commission to take action to invalidate Augusta’s shareholder rights plan adopted last fall that is intended to thwart a hostile takeover.

“Hudbay plans to submit an application to the British Columbia Securities Commission to cease trade the Augusta shareholder rights plan in due course,” the company stated.

HudBay said it “intends to acquire all of the outstanding Augusta shares, including, as necessary, through a compulsory acquisition or subsequent acquisition transaction and, in any event, to exercise all of its rights as an Augusta shareholder to help realize the full potential of the Rosemont project.”

Augusta is continuing to urge its shareholders to reject HudBay’s offer and is describing HudBay’s latest overture as “coercive”, “appalling” and “unprecedented”.

“HudBay’s unprecedented coercive tactic of dropping its minimum tender condition part way through its initial bid period is an ill-considered reaction to an obviously failing offer,” Augusta stated.

Augusta said the HudBay offer has received “virtually no support from Augusta’s shareholders (at less than one half of one percent of Augusta’s common shares tendered), or from the analysts who cover Augusta.”

“Their tactics are just appalling,” Augusta Executive Chairman Richard Warke stated.

Augusta’s board will meet this week to discuss HudBay’s latest proposal and discuss its “strategic” options.

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4 Responses to HudBay CEO: Augusta must resolve all litigation before it can access funds to build Rosemont mine

  1. Carol Shinsky says:

    Too many communities have too much to lose for this project to begin construction. If you want to sell your home in order to avoid the water and air pollution this mine would create, good luck! Once a potential buyer finds out about the threat of an open pit mine in the neighborhood, they quickly withdraw the offer. Why would you want to move somewhere where the traffic gets more dangerous, the air gets toxic, the dark skies are a distant memory, the peacefulness is disturbed by blasting and 24 hour industrial noise, and pure water becomes impossible to imagine? This project will be fought until we secure Rosemont Ranch. Our lives depend on it!!!

  2. Thomas Stewart says:

    Good Golly Miss Carol Shinsky What Planet Do You Come From?? Not Green Valley Az Because We Have A Copper Mine And Carol The Skies Are Clear And The Water Is Safe!! You Green People Must Try Maybe China Or Pakistan, Not Az We Need Jobs And More People, Rosemont Mines Are 21st Centaury Safe. God Bless America And Rosemont Mines.

  3. ALAN JOHNSON says:

    THE PARTIES CONCERNED HAVE NOW MOVED TO A HIGH STAKES POKER TABLE . HUDBAY’S OFFER APPEARS TO HAVE FALTERED SOMEWHAT , THUS THE EXTENSION OF THE DEADLINE FOR SUBMITTING SHARES . HUDBAY MUST FEEL VERY CONFIDENT THAT IT WILL OBTAIN ALL OF THE NECESSARY PERMITTING ONCE IT HAS CONTROL . HOWEVER . THE OPPOSITION FORCES , AS THEY STAND , ARE FULLY AGAINST THE PROPOSED MINE REGARDLESS AS TO WHO HAS THE CONTROLLING INTEREST . HAS HUDBAY WON THE HEARTS AND SOULS OF THE MANY , MANY PEOPLE AND AGENCIES THAT HAVE EXPRESSED THEIR ” NO ” TO THE MINE ? AUGUSTA IS PLAYING A GAME OF BLUFF AND HAVE YET TO PLAY THEIR FULL HAND . THEY WANT A BETTER DEAL BEFORE THEY WALK AWAY . HUDBAY IS A MINING COMPANY , THEY OWN AND OPERATE MINES AND THEIR INTENTION IS TO MINE THE ROSEMONT COPPER DEPOSIT . WE ALL KNOW HOW AUGUSTA OPERATES . DO WE KNOW HOW HUDBAY WOULD OPERATE SHOULD THEY TAKE OVER ROSEMONT ? HUDBAY , AS A CANADIAN COMPANY , HAS ALREADY BEEN CHARGED OVER HUMAN RIGHTS VIOLATIONS IN GUATEMALA . HOWEVER , THE STRONGEST PLAYERS AT THE POKER TABLE ARE THE GOVERNMENT AGENCIES RESPONSIBLE FOR THE ISSUING OF PERMITS . IT ALL BOILS DOWN TO – ” NO PERMITS , NO MINE ” . THIS IS THE MESSAGE THAT MUST BE THE FOCUS OF THE OPPOSITION .

  4. John Dorris says:

    It is another tired ass dry river bed, cactus , snakes, and One old tired ass black panther moping around. And now the opposition has their head stuck up Hudbays ass. I just do not get it. Go Rosemont!!!