Hudbay Mineral Resources is stating in U.S. and Canadian regulatory filings that Augusta Resource Corporation is misleading its shareholders in its financial statements concerning the financing, permitting and construction timeline for Augusta’s proposed Rosemont copper project.
“Augusta continues to mislead shareholders,” Hudbay states in an April 14 filing with Canadian regulators and the U.S. Securities and Exchange Commission. There is “no reasonable prospect of Augusta being fully-financed and commencing construction in mid-2014.”
HudBay’s filing comes at the some time the Toronto-based mining company filed a request with the British Columbia Securities Commission to terminate Augusta’s “poison pill” shareholders protection plan designed to thwart Hudbay’s hostile takeover that was launched on February 9.
“The time for Augusta shareholders to support our Offer is now,” said David Garofalo, president and chief executive officer of Hudbay said in a statement. Sixty-four “days have passed since we announced our offer and Augusta has failed to produce any alternative transactions. Meanwhile, Augusta continues to make unachievable promises with respect to permitting, financing and project construction.”
Augusta President Gil Clausen called Hudbay’s statement’s “misleading” and that the Company continues believe permitting and financing are on track with its previous projections.
“Hudbay’s comments on the status of Rosemont’s permitting and project financing are misleading and unfounded, as both have significantly advanced over the last
several months,” Clausen said in an April 15 statement. “We are on track to complete the permitting process this quarter and project financing early next quarter, both of which represent substantial near-term value implications for our shareholders.”
Augusta, Clausen said, will “vigorously defend” its poison pill plan. “We will argue our position forcefully before the B.C. Securities Commission in order to protect the rights
of Augusta shareholders,” Clausen said.
Hudbay’s $407 million (Canadian dollars) offer for all the stock of Augusta that it doesn’t currently own expires on May 5. HudBay is Augusta’s largest shareholder with 23 million of the company’s 145 million shares for an 15.8 percent stake.
Hudbay, which began accumulating Augusta stock in 2010 and had access to Augusta’s material financial information through a confidentiality agreement, provided important new details on Augusta’s $336 million in contingent financing.
Augusta has been claiming in regulatory filings that a $230 million commitment from Silver Wheaton Corporation and an additional $106 million from its joint venture partner, Korea-based United Copper & Moly (UCM), would be available “once all of the material permits have been issued and project financing is in place.”
Augusta has stated that it expects to a “use a portion of the UCM and Silver Wheaton funding to repay a portion” a $109 million loan from RK Mine Finance that is due on July 21, 2014 with a possible one-time 90-day extension. The RK loaned is fully-collateralized by all the assets of Augusta’s Rosemont Copper Company subsidiary.
Hudbay, however, states that the Silver Wheaton funding is not available until “all permits are in place without challenge or appeal” and the permits have been in place for “at least 60 days without challenge or appeal.”
“Contrary to Augusta’s assertions, funds received from Silver Wheaton and the JV partners cannot be used to repay the Red Kit loan that is due in the next 6 months,” Hudbay states.
Hudbay also states that Silver Wheaton’s funds must be used “only to fund project development and construction” unless Augusta can prove it is fully funded. Silver Wheaton, according to Hudbay, is also requiring Augusta to demonstrate that sufficient funding is in place to complete at least 90 percent of construction within 30 months of Silver Wheaton’s initial contribution.
“Augusta continues to mislead shareholder with respect to their ability to fund near-term obligations and secure financing in a timely manner,” Hudbay states.
Hudbay projects that permitting and appeals for the Rosemont project will not be completed until late 2015.
Legal challenges against state permits are already underway and it is virtually certain that additional legal challenges and appeals will be filed under the National Environmental Policy Act and the Clean Water Act if the U.S. Army Corps of Engineers issues a Section 404 permit.
The Corps has raised serious questions about Rosemont Copper’s permit application. The U.S. EPA, which has raised serious concerns about the impact of the proposed massive open-pit mine on sensitive desert riparian resources and has recommended it not be approved, has veto authority over Corps 404 permitting.