An auditor for Rosemont Copper's parent company has put up what outside experts call a red flag indicating significant financial issues that could jeopardize the company's future.

Officials of the accounting firm Ernst & Young wrote last week that they have "substantial doubt" about Augusta Resource Corp.'s ability to continue as a going concern. That's due to a $9.72 million loss in 2012 and the likelihood that Augusta will need to spend more money on the proposed $1.2 billion Rosemont Mine this year than it has in working capital, they said. The warning appeared in Augusta's year-end financial report for 2012.

Augusta officials say they continue to have confidence in their ability to raise capital and have no qualms about the company's future. The company voluntarily put the same statement made by the auditors in its financial reports since the second quarter of 2012, which is why auditors included it in the year-end report, said Letitia Cornacchia, Augusta's vice president for investor relations.

This is the first time the auditors have issued such a warning in an annual report since the mine was proposed in the mid-2000s. The open-pit copper mine would be in the Santa Rita Mountains southeast of Tucson.

The auditors' doubts generally trace back to the delays the mining company has had getting permits to start construction - although the audit itself doesn't discuss permitting issues.

Cornacchia said the report shows that auditors actually agree with the mining company's position, because if they didn't, the report would be "qualified," indicating uncertainties or disagreements with a client. Such statements are common for mining companies in the development stage, she said. Ernst & Young declined to answer questions about its audit.

"We have always been able to fund our Rosemont project in the past. Now is no exception," Cornacchia said. "Rosemont is without question one of the best new copper development projects in the world. We plan to raise over a billion dollars this year to finance its construction. It is precisely that fact that requires us to disclose as we have done."

Chuck Landes, a vice president for the American Institute of Certified Public Accountants, called the auditor's finding of substantial doubt "very significant and very serious." Dan Dhaliwal, head of the University of Arizona's accounting department, called the audit "a very significant warning to the investment community" about the company's financial future if it doesn't get mining permits because Rosemont is Augusta's only major project.

"Think of it as a red flag, an early warning," said Landes, whose institute has nearly 386,000 members in 128 countries.

In the past year, the company has obtained three permits from Arizona government. Two, for air quality and groundwater protection, are under appeal by opponents. But the key federal approval needed, from the U.S. Forest Service, has come more slowly. The service first repeatedly delayed release of the mine's draft environmental impact statement and then, last November, indefinitely delayed a final environmental statement and decision.

The mining company said in its own, year-end analysis last week that it expects final approval from the Forest Service by the end of June.

Christopher Chang, a Toronto analyst who follows Augusta, predicts final approval between July and September.

The Army Corps of Engineers can't make a decision on its separate permit for the mine until the Forest Service issues its final environmental statement.

On Friday, Coronado National Forest Supervisor Jim Upchurch said he still has no timetable for a decision because he's waiting for several key outstanding issues to come together from other parties involved in the mine review: endangered species, tribal concerns and land mitigation. Until he sends a review copy of the final environmental statement to several cooperating government agencies, and gets their comments on it, he also can't say whether he'll prepare a supplemental environmental statement, as the Environmental Protection Agency has requested.

"I have all these outstanding pieces I'm not directly involved in or in control of. I have to wait until they all come together," Upchurch said.

As the permitting has dragged on, the mining company has had to keep raising money to pursue permitting and to pay for other, development-rated expenses, all while earning no revenue because mining hasn't started.

Augusta has lost money every year since 2007 except for 2011, when the company earned a $15.65 million profit. That profit was due mainly to non-cash gains from the sale of a 3.84 percent interest in the mine to its Korean partner United Copper and Moly LLC, Ernst & Young said.

Due to a $40 million loan last year from a British hedge fund, Augusta had $28.77 million in working capital available in December 2012, compared to a $17.63 million working capital deficit a year ago, the auditors said.

The company's plan to spend more than that in cash in 2013 indicates "a material uncertainty" raising doubts about the company's future, Ernst & Young said. Augusta said in its report that it will spend $112 million in 2013.

Augusta's planned expenditures only exceed its working capital today because it hasn't yet obtained its permits and obtained more construction financing, the company's Cornacchia said. She said the company is going to time its completion of financing to the period after it gets all its permits this year, whereas in the past it had said it expected to get financing sooner.

"Once project financing is in place, we will remove this statement in our financial report," Cornacchia said of the "going concern" warning. "Until then we will include this statement in our financials. "

She said that since the audit was released Monday, the company's stock price has been in line with its peers among smaller mining companies, "which demonstrates that this is not a significant event." Augusta's price on the American Stock Exchange dropped four cents to $2.56 a share between Monday and Thursday.

The UA's Dhaliwal, however, said stock investors may have already priced in the audit's warnings in advance of the audit's release by keeping stock prices down - since they likely were aware of many of the financial and permitting issues facing the mine. Since the price is well below that of a couple of years ago when it hit $5, although it's close to $1 above its price of a year ago, the stock price has probably dropped in response to investors' low expectations that permits will be issued soon, he said.

"The investment community has already decided this company is likely to have serious problems if they don't get their permits," Dhaliwal said.

"We have always been able to fund our Rosemont project in the past. Now is no exception."

Letitia Cornacchia,

Augusta's vice president for investor relations

"The investment community has already decided this company is likely to have serious problems if they don't get their permits."

Dan Dhaliwal,

head of the University of Arizona's accounting department

Contact Tony Davis at or 806-7746.