Rosemont Copper has signed a letter with a dozen international banks that shows it is close to getting financing to build the $1.22 billion Rosemont Mine project, its Canadian parent company says.
At the same time, in an action that illustrates the delicate balance between the mining company’s short- and long-term finances, the parent company Augusta Resource Corp. has reached agreement with two shareholders to issue a $10 million bond that amounts to the company taking out a loan.
One of the shareholders is Richard Warke, the company’s founder and board chairman. The money means that for the second year in a row, Augusta has averted a cash crunch that was threatened because its available reserves were falling as the mine’s permitting struggles continued.
The new letter with the banks, known as a project financing mandate letter, sets out the required steps for obtaining the construction financing. That includes agreement on final terms and conditions and documentation, procurement of credit approvals and completion of due diligence, said Letitia Cornacchia, Augusta’s vice president for investor relations and corporate communications.
The Vancouver, B.C.-based company expects about $1 billion total in construction financing, including $890 million for construction costs and the rest for fees, interest and cost overruns, Cornacchia said.
The project financing letter names all but one bank involved. Augusta declined to release a copy of the letter, on the grounds that it contains confidential business information.
Augusta expects to secure construction financing for the long-planned, long-debated open-pit mine in the Santa Rita Mountains southeast of Tucson by the end of 2013, assuming it obtains the two major government approvals it needs by then, Cornacchia said. Those are a favorable decision by the U.S. Forest Service and a federal Clean Water Act permit from the U.S. Army Corps of Engineers.
If those approvals are delayed, which is possible, construction financing also would be held up. The company expects the project’s financing arrangements to be wrapped up once permitting is finished, Cornacchia said.
The permits are fiercely contested by mine opponents, including environmental groups, the Farmers Investment Co. pecan growers in Sahuarita, Pima County government and area Indian tribes.
Coronado National Forest Supervisor Jim Upchurch has said he would like to make a Rosemont decision by Sept. 27, the date new Forest Service rules kick in that will delay decisions on pending projects because of a new method of responding to objections. If the decision isn’t made by then, the Forest Service’s Rosemont decision would be put off at least three to four months.
In Augusta’s news release announcing the project financing letter, company President and CEO Gil Clausen said its signing represents a significant step forward.
“The high quality, large scale and strong economics of this project, combined with its favorable location in Arizona, make it an attractive candidate for financing from the international banking community. This step illustrates that progress for finalizing our financing is keeping pace with Rosemont’s permitting process, which is rapidly nearing completion in its final months,” Clausen said.
The banks listed in the news release include BNP Paribas and Credit Agricole Corporate and Investment Bank, of France; Commonwealth Bank of Australia; Export Development Canada; Mizuho Bank Ltd. of Japan; ING Capital LLC of the Netherlands and KfW IPEX-Bank GmbH of Germany. The other institutions listed are the Export-Import Bank of Korea, Korea Development Bank, Korea Finance Corp. and Korea Trade Insurance Corp. The 12th bank doesn’t want its name disclosed, Cornacchia said.
Separately, Augusta announced the $10 million bond in a quarterly financial report filed with Canadian securities regulators Thursday. Cornacchia declined to identify the second shareholder providing the loan, who isn’t an Augusta officeholder or director.
The bond, described as “convertible unsecured notes” in the financial report, provides financing while Augusta awaits its final federal project approvals. The arrangement’s closing date is on or about Sept. 4. The money must be repaid in five years, at 7 percent annual interest, the Augusta report says. The convertible notes amount to a loan that can be repaid in cash or stock at a fixed price. The money is for “corporate expenses,” Cornacchia said
Without the bond, the company would exhaust its remaining cash by the end of the third quarter, on Sept. 30, if its recent rate of spending continued. Augusta had $6.387 million in cash and cash equivalents available at the end of June, down from about $29 million at the end of 2012, Augusta’s financial report shows.
A year ago, Augusta was in a similar tight cash situation. It had $9.6 million cash on hand at the end of the second quarter of 2012, down from $31 million at the start of 2012. It averted a cash crunch that time when RK Mine Finance Trust, a British hedge fund more commonly known as Red Kite, agreed to add $40 million to an existing $43 million loan to Augusta.