Takeover of Augusta would heighten concern over Rosemont's promises

2014-03-16T00:00:00Z 2014-03-17T09:24:50Z Takeover of Augusta would heighten concern over Rosemont's promisesBy Tony Davis Arizona Daily Star Arizona Daily Star

If Hudbay Minerals Inc. takes over Augusta Resource Corp., it will inherit far more than a massive copper mine site outside Tucson, a potential for huge production and profits, and an equally massive controversy.

It will face a truckload of legal obligations and commitments to mitigate and compensate for the mine’s environmental impacts. It will also face questions and concerns from the community about how real those commitments are — questions that don’t always have simple answers.

Over the past seven years, Rosemont Copper and its Canadian parent Augusta have promised verbally and in writing to carry out dozens if not hundreds of mitigation measures for the planned Rosemont Mine in the Santa Rita Mountains. Those commitments have mushroomed in number and scale as the mine has inched closer to final federal permitting decisions, which Augusta expects by June but which Hudbay has predicted will take much longer.

Toronto-based Hudbay is nearing the final stages of its Augusta takeover effort. On Friday, it extended the deadline for Augusta shareholders from Wednesday to April 2 to decide whether to accept the takeover bid. Augusta’s board of directors has recommended rejecting what it calls Hudbay’s “grossly inadequate” and “opportunistic” offer and says it’s already negotiating with other potential suitors.

If either Hudbay or another company buy Augusta, will Rosemont Copper’s promise to pay for a 7-mile-long Central Arizona Project pipeline hold up? Among other examples, what about its plan to use dry-stack mine tailings, which use less water than traditional tailings; or its agreement with residents to compensate them if their wells go dry from mine pumping?

Hudbay has promised in emails to the Star and to the Sahuarita Sun to continue Rosemont’s commitments.

The U.S. Forest Service says it will have a staff hired at company expense to make sure that 100-plus pages worth of mitigation measures it required of Rosemont Copper are carried out on the ground, regardless of who owns it.

One Forest Service staffer would work full-time coordinating the monitoring and enforcement of the requirements. A monitoring team representing other federal agencies will evaluate whether the mine’s impacts live up to what was predicted by the final Rosemont environmental impact statement, said Coronado National Forest Supervisor Jim Upchurch.

The Forest Service, the Arizona Game and Fish Department, the Arizona Department of Environmental Quality and the town of Sahuarita also have various kinds of “successor clauses” in permits and agreements involving the mine, aiming to bind future companies to measures imposed on Augusta and Rosemont Copper. Such clauses are in general legally binding and enforceable in court by the agencies, although it may not be easy for average citizens to take such cases to court if they’re not parties to the agreements, says William Sjostrom, a University of Arizona law professor who specializes in contract law and the field of mergers and acquisitions.

“Measures that are a condition of permits are requirements of the project and would not be affected by a change in ownership,” Hudbay spokesman Scott Brubacher wrote in a recent email to the Star. “We value the relationships we have with the people who live around our mines, we engage and we listen. Hudbay wants to play its part in strong, sustainable communities. Should the Rosemont project advance under Hudbay, that is what can be expected from us.”

The project’s opponents are skeptical that these commitments will hold up, even as they also say these measures are inadequate.

For one, some of the mitigation measures have come as verbal commitments only, with no formal, contractual arrangements to carry them out. Second, they’ve seen other mining companies promise to protect the environment in the past. A Washington, D.C.-based Rosemont opposition group, Earthworks, commissioned a study showing that 70 percent of mines they looked at failed to meet such promises when it comes to protecting water quality, even in cases where there weren’t corporate takeovers.

Third, the opponents point to past cases in which other takeover companies have failed to follow predecessors’ commitments to mitigation measures.

“Our view is that mitigation is never assured till it’s actually done,” observed Pima County Administrator Chuck Huckelberry, a longtime outspoken Rosemont opponent.

“Until you get the party that is going to do it agree to it and put it into a contract, there will always be questions and potential loopholes. There will be a misunderstanding,” Huckelberry said. “Companies get sold again and go bankrupt.”

Pipeline commitment

On Rosemont, the mitigation promise that has drawn the most attention in light of the takeover efforts is the proposed $25 million pipeline that would take CAP water south to the Green Valley-Sahuarita area to be unloaded into basins to recharge the aquifer. That recharge is supposed to compensate for Rosemont Copper’s pumping of groundwater nearby to service the mine, lying over the Santa Ritas along Arizona 83.

Rosemont and Augusta have promised to build this pipeline in meetings, news releases and media interviews. Augusta has signed a letter of intent with Community Water Co. to build the line. It has paid $2 million to cover all costs incurred to date for permitting, right-of-way acquisition, design, engineering and a small amount of construction work.

And, it has bought and recharged 45,000 acre-feet of CAP water in Marana which it hopes to trade with some other entity for the rights to other CAP water that eventually could be shipped through the main project canal to the new pipeline for recharge near Green Valley.

Virgil Davis, the Community Water Co.’s board chairman, says the water company has a contract with Augusta in which the mining company commits to pay for the pipeline. But he said the water company doesn’t want to release the contract publicly because of the criticism it expects would be voiced by mine opponents. Augusta has not put money in escrow to cover future construction costs.

If a takeover should occur, however, Davis said he has no doubts that a successor company would build the pipeline, which the water company dubs Project Renews.

“The commitment and integrity of the Augusta people has been excellent,” Davis wrote in an email to the Star. “Community Water and Augusta negotiated in good faith to develop an implementation plan for Project Renews that accommodated possible changes in the ownership of either party. That being said, we are committed to seeing Project Renews through to completion.”

Among those who question whether the pipeline will survive a takeover are Tucson City Councilmen Kozachik and Richard Fimbres, utility watchdog Magruder, Rosemont opposition group Save the Scenic Santa Ritas, and Peter Davis, a Green Valley resident who recently filed an objection to Community Water’s application to the state for a permit to build the recharge basins.

“In the event this takeover does occur, what assurance do affected parties such as (Community Water’s) ratepayers or owners have that Hudbay will fulfill Augusta’s commitments?” Davis wrote the state last month. “To date, I have seen none.”

In a recent email to the Sahuarita Sun, Hudbay Vice President David Clarry said the company is familiar with permitting projects in various jurisdictions and that what is most needed is “respect for the process and stakeholders.”

Clarry said that Hudbay intends to fulfill Augusta’s promises to use dry stack tailings at the mine and to honor Augusta’s agreement with well owners in neighboring Sahuarita Heights to compensate them if their wells are drawn down by Rosemont’s pumping.

But UA law professor Sjostrom said that while he can’t say for sure without seeing the relevant documents involving Rosemont mitigation, he believes that emails such as Clarry’s probably aren’t legally binding enough by themselves to stand up in court. He added, however, that the company wouldn’t have to sign a formal agreement to make it enforceable.

“In other words, emails can be enough,” he said, although they generally need to be supported by some form of consideration, which he explained as “‘I promise to do something in exchange for your promise to do something and vice versa.’”

When the Star asked Hudbay if it would be willing to put Clarry’s comments into a legally enforceable form, company spokesman Brubacher said, “A change of ownership would not change the requirements of any permits issued or any contracts signed. Discussion of new binding agreements regarding Rosemont prior to (Hudbay) becoming owners is premature.”

Contact reporter Tony Davis at tdavis@azstarnet.com or 806-7746.

Copyright 2014 Arizona Daily Star. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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