The takeover battle for the Canadian company that owns the Rosemont Mine site hits a climactic moment in Vancouver, British Columbia, today.
Officials of Augusta Resource Corp. and Hudbay Minerals Inc. will argue over whether the British Columbian government should halt to a shareholders-rights plan that Augusta approved a year ago to make it easier for the company to fend off a hostile takeover offer. The discussion will come at a public hearing of the British Columbia Securities Commission, which regulates stock trading by British Columbia-based companies such as Augusta.
The meeting comes three days before Augusta shareholders are scheduled to discuss whether to extend the rights plan. It comes a week before Hudbay’s takeover offer is scheduled to expire on May 5.
Essentially, elimination of the shareholder-rights plan would make it easier for Hudbay, which now controls 15.98 percent of Augusta’s stock, to acquire more of Augusta’s stock, and block other companies and other potential bidders from taking over the Vancouver-based firm. In other words, it would give Hudbay an inside track for a takeover in a process known as a “creeping tender,” in which Hudbay could theoretically induce other shareholders to sell to it, at higher prices but not as high as Augusta directors or board members would want.
For those interested in the outcome of the proposed Rosemont Mine in the Santa Rita Mountains southeast of Tucson, the ongoing conflict over the shareholder plan and the takeover struggle in general has several implications:
- As Hudbay officials see it, the takeover would be a big boost to the Rosemont project’s long-term prospects, because it has far more cash on hand than Augusta Resource and can better withstand a prolonged permitting struggle over the mine.
Hudbay has repeatedly questioned Augusta’s statements that it expects to have federal permitting of the mine finished by the end of June 2014. In its proposal to the provincial securities body, it attached a graphic saying that Augusta has delayed the date at which it expects to get all permits 11 times since 2008.
- For its part, Augusta officials have denounced the Hudbay takeover as opportunistic, grossly inadequate and a “lowball” bid. It notes that the company’s stock price has topped the $2.96-per-share price that Hudbay offered Augusta shareholders in February. On Monday, Augusta dipped 17 cents on the Toronto Stock Exchange to $3.20 a share.
Augusta officials have said repeatedly that they see a strong likelihood of getting all permits by the end of June, capped by a favorable decision from the U.S. Army Corps of Engineers on its Clean Water Act permit. Based on that theory, Rosemont would be better off without a Hudbay takeover because with permits in hand, the company’s stock price would probably if not certainly rise more, and a higher bid could occur.
Augusta also has announced that it has attracted 10 signed confidentiality agreements from potential buyers and had scheduled five site visits through the end of last week.
To that, Hudbay has retorted that by the time its takeover bid expires, Augusta will have had 85 days to find an alternative buyer since the takeover bid started – compared with about 65 normally.
Peter Campbell, a Toronto analyst who follows Augusta and opposes Hudbay’s takeover, said he is aware of at least one or two such companies that are definitely interested, adding, “I have as close to firsthand knowledge of that as I can legally get.”
Campbell, of Jennings Capital Inc., recently wrote a report concluding that a visit to the mine site southeast of Tucson “opens our eyes to just how good this project really is.” He wrote that he was told by Rosemont Copper management that despite the Environmental Protection Agency’s veto power over an Army Corps permit, Rosemont officials believe “there are just not substantive enough issues for this to occur.
“Given the intensive scrutiny and painstaking process that Augusta has been through to get the Rosemont Copper project to this stage, we would agree with the company,” Campbell wrote. (The EPA, which wrote the Corps a letter last November opposing the permit, had no immediate comment on this.)
But another analyst that follows Augusta, Dundee Capital Markets, wrote in a recent report that if Augusta had a serious bidder, it would have publicly surfaced by now.
“If Augusta believed that its strategic review process would result in an alternative transaction, it would not need to rely on its rights plan to preserve the status quo,” wrote the Montreal-based Dundee, which has endorsed Hudbay’s offer.
Augusta’s shareholder-rights plan kicks in when a party acquires more than 15 percent of the company’s total stock. Then, shareholders who are not part of that 15 percent can buy additional Augusta stock at a substantial discount. Hudbay’s current 15.98 percent ownership doesn’t trigger the shareholder rights plan, because of shares that were owned before the plan was approved, but additional Hudbay stock purchases could trigger it.
In a recent report, Glass Lewis Inc., an independent corporate governance analysis firm, recommended that the shareholder-rights plan continue. Generally, the company believes that such plans generally aren’t conducive to good corporate management, because substantially limiting takeovers can reduce management accountability.
But in this case, if the plan isn’t extended, Hudbay could potentially buy a majority stake in the company at a price not in the shareholders’ interests, Glass Lewis wrote. Keeping the plan also will allow Augusta to continue its efforts to find another buyer, the report said.
A second independent corporate analysis firm, ISS, recommended against keeping the shareholder-rights plan, as it did in October 2013 when Augusta’s shareholders first adopted it. This plan doesn’t meet what ISS termed “new generation” terms — adopted by many other Canadian company rights plans — that ensure that in a takeover bid situation, the company’s board of directors has limited discretion to interpret the shareholder plan, and shareholders receive fair and equal treatment, ISS said.