Hudbay completes aquisition of Augusta Resource to take control of Rosemont copper project

Hudbay Minerals announced this week the completion of its
C$555 million acquisition of Augusta Resource Corporation, triggering a multimillion dollar windfall for Augusta executives and putting Hudbay in control of the controversial Rosemont copper project on the Coronado National Forest southeast of Tucson.

Following Tuesday’s announcement, Augusta Resource was delisted from the New York Stock Exchange, Toronto Stock Exchange and the Frankfort Stock Exchange. Hudbay issued .315 shares of Hudbay stock for each share of Augusta’s 145 million shares of common stock and agreed to issue .17 of a Hudbay warrant for each share of Augusta stock.

Augusta Executive Chairman Richard Warke appears to have earned more than $22 million on the the deal, based on a review of Augusta’s financial reports filed with Canadian securities regulators dating back to 2001.

Records indicate Warke purchased more than 7 million of shares of Augusta stock for between $.05 and $.10 a share between 2004 and 2007.

The key transaction that set up Warke’s windfall occurred in 2004 at a time when Augusta Resource was failing to disclose to regulators and shareholders about Warke‘s personal bankruptcy proposal .

Canadian securities regulations require publicly-traded corporations to disclose personal bankruptcies of officers and directors for 10 years after the date a bankruptcy proposal is  filed. Augusta first reported Warke’s personal bankruptcy in its 2005 Annual Information Form that was released on April 6, 2006.

According to Augusta’s 2004 Management Information Circular (proxy statement), Warke was granted the right to purchase 2.66 million shares at $.05/share and the right to purchase 4.66 million shares in the future for $.10/share.

Subsequent proxy reports show that Warke increased his stock holdings from 2.5 million shares in 2004 to 5.3 million shares in 2005. The increase appears to include the 2.66 million shares for $.05.

In Augusta’s 2007 proxy statement, Warke reported 9.8 million shares, an increase of  4.5 million shares. This would appear to include nearly all of the 4.66 million warrants at $.10 cents a share. Warke acquired the 7.2 million shares for approximately $587,000.

Hudbay placed a value on Augusta’s stock at approximately $3.24/share, making Warke’s 7.2 million shares worth $23.3 million. Subtract the purchase price of approximately $587,000, leaves a $22.7 million windfall.

Warke, according to a U.S. Securities and Exchange Commission filing owned or controlled 10.74 million shares of Augusta stock. In October 2013, Warke transfered 5.3 million shares to his wife, Carlotte Warke, but he maintained voting control over the stock.

In addition, Warke is also expected to earn approximately $1.5 million in salary and stock benefits as a result of the change in control of the company, according to Augusta’s  2014 proxy statement.

Other Augusta Resource officers also will see big payouts. Augusta Resource CEO Gil Clausen will receive $2.6 million, Senior Vice President Joseph Longpre will receive $699,000, Executive Vice President Rodney Pace garners $690,000 and Senior Vice President James Sturgess will pick up $587,000.