Augusta Resource Corp., the Canadian owner of the proposed Rosemont Mine, faces a takeover bid from a larger Canadian mining company that says it can do a better job than Augusta at finishing the permitting and financing of the long-delayed, $1.2 billion copper project.
Toronto-based Hudbay Minerals Inc., Augusta’s largest single shareholder, would pay $2.96 per share for the Vancouver-based company’s remaining stock — 18 percent higher than Augusta’s closing stock price Friday.
Hudbay values Augusta at $540 million. That compares to a $2.5 billion value Augusta placed on itself in a new investor presentation, assuming copper prices of $3.50 a pound.
Hudbay’s bid was unsolicited. The offer is seen by some analysts as a sign of rising investor interest in the Rosemont Mine southeast of Tucson as it pursues final permits. But a mining analyst who follows Augusta said Hudbay’s bid is too low by nearly a dollar a share.
The offer gave a jolt to Augusta’s stock price, which rose 29.4 percent Monday to $2.95 a share, its highest level since last spring. Hudbay’s stock price dropped 6.1 percent to $7.96 a share.
In a news release, Augusta said its board of directors will meet this week to discuss Hudbay’s offer and update shareholders afterward. Until then, Augusta urged shareholders, who must approve a takeover, to “take no actions in connection with the Hudbay offer.”
The mine’s opponents, however, said it doesn’t matter which company operates Rosemont because they believe the project is environmentally unsound.
If the takeover succeeds, the proposed Rosemont Mine in the Santa Rita Mountains will come under control of a better-heeled company with more mining projects than Augusta, whose only major mining project is Rosemont. Hudbay’s website says it has had one mine in operation for 85 years, has started production at two others, and has a fourth under construction.
In its most recent financial statement of September 2013, Hudbay reported assets of more than $3.6 billion and cash flow of about $792 million. In its most recent financial statement from the same period, Augusta reported $314 million in total assets, and $749,000 of cash and cash equivalents.
Shortly after that, however, Augusta did get a cash boost: a $26 million loan added to an earlier, $83 million loan from the British hedge fund RK Mine Trust.
In a conference call with investors and analysts Monday, Hudbay executives hammered home those points to make their case that they would be best suited to operate this project. Hudbay first bought stock in Augusta in 2010 and has gradually increased its holdings.
Augusta has been wary of Hudbay’s interest for some time. Last year, shareholders ratified a proposal aimed at making hostile takeovers more difficult.
At the conference call, Hudbay President and CEO David Garofalo and other Hudbay officials said their company has far more technical expertise and financial capability than does Augusta. Alan Hair, Hudbay’s chief operating officer, added that his company has believed over the past four years that Augusta’s permitting timelines for the project have been too optimistic.
Hudbay officials declined to say when they believe the hotly contested mine will be permitted, citing competitive reasons. But they said they believe it can be permitted — “it’s just a question of when.” Augusta says it expects final approvals by the Forest Service and the Army Corps of Engineers by the second quarter of this year, to break ground in mid-2014 on federal land and to start production in 2016.
Toronto analyst Christopher Chang, who follows Augusta, said he believes Hudbay’s takeover offer is too low because a favorable permitting decision from the federal government should, by itself, raise Augusta’s stock price by more than the 18 percent increase that Hudbay offered. He said at least $3.89 a share would be required “to adequately reward Augusta shareholders.”
At the same time, however, Chang said he sees only a few other companies with financial capacity to be “white knights” and make a competing offer.
Major companies such as Freeport McMoRan Copper and Gold are looking for ways to reduce their capital expenses, said Chang, who expected that other potential suitors would include Australia-based Oz Minerals and Vancouver-based Teck.
Speaking of Augusta, however, Chang said a prolonged permitting timeline for the mine could put significant pressure on Augusta’s balance sheet. It has about $115 million in debt due before the end of October 2014, and no assets generating cash flow, he wrote.
The environmental group Save the Scenic Santa Ritas said in a statement that HudBay’s hostile bid to take over Augusta Resource does nothing to change to fact that the proposed Rosemont Mine is a bad project that threatens Southern Arizona’s drinking water, air quality, wildlife and mountains.
“Rosemont is a bad project irrespective of who owns it,” said Gayle Hartmann, the group’s president. Serious issues exist with the mine’s final environmental impact statement, and environmental groups “will file extensive and comprehensive objections with the Forest Service later this week to which the Forest Service must respond,” Hartmann said. “Southern Arizonans know this is a bad project,” Hartman said.