Conceptual Rosement operation.
Photo by: Augusta Resource Corp
TORONTO (miningweekly.com) – US-focused copper project developer Augusta Resource Corp on Wednesday revealed that it had signed ten confidentiality agreements with potential suitors under its strategic review process, as it sought to maximise shareholder value in dealing with base metals miner Hudbay Minerals’ C$540-million hostile offer.
Toronto-based Augusta said that it had conducted five site tours and that detailed management meetings have been conducted or were scheduled to be completed by the end of the week. Potential bidders were “actively engaged” in due diligence and management discussions, it added.
Augusta, which is developing the Rosemont copper project, near Tucson, Arizona, also affirmed that permitting and project financing were on track for completion in the second and third quarter of this year, respectively, refuting claims by Hudbay of the potential for further project delays that could result in liquidity shortfalls, or dilutive financings, which would “materially impair the value of Augusta shareholders' investments”.
"We are fully committed to maximising value for Augusta shareholders by pursuing and evaluating alternatives to Hudbay's offer," Augusta president and CEO Gil Clausen said.
"Hudbay's tactics and recent statements on our permitting and project financings are self-serving and without merit. Both processes are on track and as guided,” he asserted.
The strategic review process was initiated in response to the unsolicited offer in February, under which Hudbay offered Augusta shareholders 0.315 of a Hudbay share for each Augusta share held, representing about C$2.96 per Augusta share, or a 62% premium to Augusta’s 20-day volume-weighted average share price on the TSX on February 7, or an 18% increase over the stock’s closing price on that date.
Augusta had repeatedly rejected the offer, saying it significantly undervalued the company and the potential near-term value creation at Rosemont.
Last week, Hudbay applied to the British Columbia Securities Commission to cease trade Augusta’s shareholder rights plan, or ‘poison pill’, before its offer expires on May 5.
Hudbay contended that construction of Augusta’s flagship Rosemont copper project was not imminent, and the company’s plan carried “significant risk” given its financial situation and “its history of misleading shareholders by being overly optimistic about its achievement of significant milestones”.
Hudbay believed that Augusta was four years behind schedule on its original permitting guidance and had revised this guidance 11 times, suggesting that there was no basis for any confidence in Augusta's current guidance regarding the timing for receiving permits by midyear, and completing related legal challenges.
Augusta had also previously conceded that it would need to raise capital in the third quarter to continue with the project, and that it could not guarantee obtaining the required funds.
Augusta on Wednesday said that it was in the final stages for two outstanding federal regulatory approvals required to begin construction at Rosemont, including the final record of decision from the US Forest Service and the Clean Water Act Section 404 Permit from the US Army Corps of Engineers.
Earlier this month, in other permitting matters, an administrative law judge issued an order affirming the Air Quality Permit and dismissing the appeal based on over 300 findings of fact and 15 conclusions of law.
Meanwhile, regarding its project financing, Augusta said that following a mandate letter signed last August by a syndicate of banks, lenders’ due diligence was “substantially complete”, adding that the final term sheet was in an “advanced stage of discussion”.
The Rosemont financing package would include a streaming agreement with Silver Wheaton, and payments from joint venture partners LG International and Korea Resources, and was expected to be enough to cover project construction and repay a loan facility with Red Kite.
The company will hold its annual and special shareholder meeting on May 9, when shareholders would vote to continue the shareholder rights plan adopted last April as a deterrent to Hudbay, or to have it terminated. The plan in its current form has a three-year term.
Shares of Augusta were down by 1 penny on Wednesday at C$3.17 in Toronto. The stock has risen some 26% since the last trading day prior to the Hudbay offer, and has more than doubled since the beginning of the year.