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TORONTO (miningweekly.com) – Following US base metals project developer Augusta Resource Corp’s swipe at Canadian miner Hudbay Minerals’ C$540-million unsolicited all-scrip offer to acquire Augusta earlier this week, Hudbay struck back, citing several reasons to believe that Augusta's goal of permitting the Rosemont mine, in Arizona, by mid-2014, is unrealistic.
The two companies this week cranked-up the takeover-related propaganda in the hopes of wooing shareholder loyalty.
Hudbay on Thursday said that after reviewing a circular that Augusta issued on Monday, in which the board unanimously recommended that Augusta shareholders reject the offer, Hudbay had concluded that Augusta had “disclosed no additional information that would warrant the modification by Hudbay of its offer to acquire all of the issued and outstanding common shares of Augusta not already owned by Hudbay."
"More importantly, the Augusta circular fails to address critical permitting and financing risks that cast significant doubt on Augusta's plans to develop the Rosemont project," Hudbay said.
Toronto-based Hudbay pointed out that the Forest Service did not have to make a final decision after the 45- to 75-day period had passed for it to review all objections. It could for instance, decide to hold off on a decision to do additional analysis and/or require more mitigation.
In its news release on Monday, Augusta called Hudbay's hostile takeover effort “low-ball” and "highly opportunistic" given that permitting for the mine was "nearing completion." It said it was confident of getting its final formal permit – the 404 Clean Water Act permit from the Army Corps of Engineers – approved by the second quarter of this year, and starting construction by mid-2014.
Further, Hudbay pointed out that two of the seven critical permits Augusta already had in hand were currently subject to legal challenges, which were unlikely to be resolved in 2014.
“Based on this permitting uncertainty, it is unclear how Rosemont could be fully financed by mid-2014, as asserted in the Augusta circular,” Hudbay said.
Hudbay currently owns 23.06-million shares of Augusta, representing about 16% of Augusta's issued and outstanding shares, but had earlier this month said its offer was contingent on securing two-thirds of Augusta shareholder’s approval.
Augusta’s Rosemont large porphyry copper/molybdenum project is close to advancing through the permitting phase.
When up and running, Rosemont is expected to be the third-largest copper mine in the US, after Kennecott Utah Copper’s Bingham Canyon mine, in Utah, and produce as much as 10% of US copper output.
The project has Canadian National Instrument 43-101-compliant proven and probable reserves of 1.1-billion pounds grading 0.44% copper and 35-million pounds of molybdenum.
The feasibility study pointed to a 21-year mine life, with seven mining phases, with high grades and low strip ratios in the first phase.
Sulphide ore would be processed at an initial rate of 75 000 t/d.
The mine is expected to come into production in 2016, with average production of 110 223 t/y at an average cash cost over the life of the mine of $1.02/lb.
Using an interest rate of 8%, the project has a net present value (NPV) of $1.5-billion and an internal rate of return of 30.9%, based on a long-term copper price of $2.62/lb.
The after-tax NPV is based on an interest rate of 8%.
Augusta’s TSX-listed stock on Friday closed at C$3.58, higher than the implied offer price of C$2.80 a share. Hudbay was offering Augusta shareholders 0.315 a Hudbay share for each Augusta share tendered.