Red Kite signs preliminary agreement to extend an additional $26 million to Augusta — with contingencies

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Red Kite Mine Finance Trust is requiring Augusta Resource Corporation to achieve key regulatory milestones for its proposed Rosemont copper project before it loans Augusta up to $26 million in additional funds.

Augusta already has spent $83 million in previous Red Kite loans as the Vancouver, B.C.-based speculative mining company seeks regulatory approvals to construct the Rosemont open-pit copper mine in the Santa Rita Mountains on the Coronado National Forest south of Tucson.

Both loans must be repaid by July 21, 2014 or extended three months for an undisclosed fee.  If Augusta defaults on these notes, Red Kite assumes all of the assets of Rosemont Copper Company , including the proposed Rosemont Mine. Rosemont Copper is Augusta’s Arizona-based subsidiary.

Augusta announced on Nov. 20 that it has signed a “term sheet”, or preliminary agreement, with Red Kite for the additional $26 million that the company says will be sufficient to “comfortably” see the company through the final permitting stage it says will be completed early next year.

Augusta announced the preliminary Red Kite loan expansion minutes after the market closed on Nov. 20 on a day where the company saw the value of its stock decline 62 percent to close at 63 cents a share in record volume on the NASDAQ.

The stock plummeted in the wake of the release of a Nov. 7 letter from the U.S. Environmental Protection Agency recommending that the U.S. Army Corps of Engineers deny the Clean Water Act permit needed for Augusta to build the $1.23 billion mine.

It is unknown whether Red Kite was aware of EPA’s recommendation to deny the Clean Water Act permit for the mine prior to signing the preliminary loan agreement with Augusta.

The early November EPA letter, which was first made public by Save the Scenic Ritas, was copied to Rosemont Copper Co. Augusta, however, did not mention EPA’s negative recommendation when Augusta released its 3rd Quarter financial statements on Nov. 14.

Unlike previous loans where Red Kite disbursed $43 million in April 2010 and $40 million in October 2012 without contingencies, Red Kite is doling out the money to Augusta on a piecemeal basis. Augusta states that the money will come in four phases, or “tranches”.

The first $3.5 million disbursement will come when Red Kite and Augusta sign the final loan papers. Augusta did not state in its Nov. 20 press release when it expects to close the loan with the London-based metals hedge fund. In 2012, Augusta announced it signed a term sheet for the $40 million Red Kite loan expansion on August 14 and announced it closed the loan on Oct. 5.

If the loan closes, the single largest disbursement — $10 million — will occur after the U.S. Forest Service publishes the Final Environmental Impact Statement and draft Record of Decision concerning Augusta’s mine plan of operations for the mine that would be built high on the northeastern flank of the Santa Rita Mountains.

Augusta states it expects the Forest Service to publish the FEIS and ROD in November with the printed versions of both documents completed by mid-December.

The third release of funds, totaling $7.5 million, is slated to occur late in the 1st Quarter of next year after the Forest Service completes consultation with mine opponents over their concerns with the FEIS and draft ROD and publishes the final ROD.

Red Kite will issue the final $5 million of the loan if and when the Army Corps of Engineers decides to issue the Clean Water Act permit that is required before construction on the mile-wide, half-mile deep pit can begin.

U.S. mining laws controlled primarily by the General Mining Act of 1872 make it virtually certain that the Forest Service will soon issue the FEIS and draft Record of Decision, clearing the way for Augusta to receive the $10 million tranche before the end of this year.

Consultation between the Forest Service and opponents is also limited by regulatory time constraints that will require the Forest Service it issue a final Record of Decision early next year, resulting in Red Kite forwarding an additional $7.5 million to Augusta.

The issuance of the Army Corp of Engineers’ Clean Water Act permit is far less certain because of strong opposition by the EPA.

The EPA recommended that the Army Corps deny Augusta’s clean water permit because the company has not submitted a suitable mitigation plan to compensate for the environmental damage the mine will inflict on National Forest and the nearby Las Cienegas National Conservation Area that includes a rare, shallow desert aquifer managed by the U.S. Bureau of Land Management.

EPA has also suggested that the water permit decision be elevated to the Washington, D.C. headquarters of the EPA and Army Corps before a final decision is made. EPA has veto authority over any clean water act permit issued by the Army Corps.

Augusta has been spending money at a rate of $2.5 million a month. Assuming the company only receives $21 million of the $26 million loan in 2014, it likely will have enough money to sustain operations through next summer.

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2 Responses to Red Kite signs preliminary agreement to extend an additional $26 million to Augusta — with contingencies

  1. On behalf of the Board of Directors for the Empire Ranch Foundation located on the Las Cienegas National Conservation Area I would like to Thank You for all the information, updates and work you are doing to keep this beautiful area natural and safe for future generations.
    The LCNA, the Santa Rita Mountains and the Coronado National Forest need to be and deserve to be protected from harm so that future generations can enjoy, live and work in this diverse ecosystem while conserving the water, natural and cultural resources vital for the survival of each of these areas.

  2. ALAN JOHNSON says:

    POLITICAL LEVERAGE APPEARS TO BE TAKING OVER . ELEVATING THE DECISION MAKING PROCESS TO POLITICIANS AT THE FEDERAL LEVEL IN WASHINGTON WILL FURTHER VICTIMIZE THOSE ARIZONANS WHO CHERISH THE BEAUTY OF THEIR NATURAL ENVIRONMENT . MINING , PAST AND PRESENT , HAS ALREADY LEFT AN UGLY LEGACY FOR ALL TO SEE AND LIVE WITH . BASED ON AN ARCHAIC 1872 MINING ACT , IT IS STILL THE DAYS OF ” THE WILD WEST ” WHEN IT COMES TO MINERAL RESOURCE DEVELOPMENT . HOW CAN THE US GOVERNMENT , WHO STRESSES PROGRESS AS AN ATTRIBUTE , BE SO OUT OF TOUCH WITH REALITY ?

    AUGUSTA’S RELATIONSHIP WITH RED KITE IS LIKE A GAME OF RUSSIAN ROULETTE . AT THIS POINT , RED KITE IS PROVIDING MONEY IN CONTROLLED MEASURES GIVING AUGUSTA ENOUGH ROPE WITH WHICH TO HANG THEMSELVES . AUGUSTA HAS NO COLLATERAL UNTIL THEY RECEIVE THE NECESSARY PERMITS . RED KITE , AS HEDGE FUND OPERATORS , ARE BORN GAMBLERS . THEY OPERATE WITH A LARGE PORTFOLIO OF PROJECTS OF WHICH AUGUSTA IS BUT A VERY SMALL PART AND WHERE THERE ARE ALWAYS LOSSES AND GAINS . AUGUSTA , ON THE OTHER HAND , IS ALREADY DEEPLY IN DEBT TO SEVERAL FINANCIAL FACILITATORS AND WITH NO EARNED INCOME IN SIGHT , THEY ARE SURVIVING ENTIRELY ON BORROWED MONEY . HOW MUCH FULLY PAID FOR EQUIPMENT HAS AUGUSTA ACTUALLY RECEIVED FROM SUPPLIERS ? AT ONE POINT , AUGUSTA APPARENTLY RECEIVED COMPONENTS FOR THE BALL MILLS FOR THE ROSEMONT MINE . WHAT WAS THE VALUE OF THIS EQUIPMENT AND WHERE IS IT CURRENTLY STORED ? IS THERE ANY OTHER EQUIPMENT STORED AWAY THAT COULD BE USED AS COLLATERAL ?