The SANTA RITA Mountains surrounding Augusta’s Rosemont copper project. HudBay’s bid for the asset has pitched David Garofalo’s ambitions for HudBay against Augusta’s Gil Clausen, yet to formally respond to the offer.

The SANTA RITA Mountains surrounding Augusta’s Rosemont copper project. HudBay’s bid for the asset has pitched David Garofalo’s ambitions for HudBay against Augusta’s Gil Clausen, yet to formally respond to the offer.

HudBay Drifts on $428m Hostile Bid for Augusta

Issue 73, February 2014

HudBay Minerals has dropped 7 per cent since announcing an all-paper bid for Augusta Resource Corp. on Sunday, owner of the giant Rosemont copper project, Arizona.

The news marks HudBay’s intent to rapidly grow into a leading copper producer. Chief executive David Garofalo bought an 11 per cent stake in Augusta only two months after joining HudBay from Agnico Eagle in 2010.

HudBay has since built three new mines, including the $1.7bn Constancia project in Peru, whilst increasing its stake in Augusta to 16 per cent. Output of 30,000 tonnes in 2013 is due to rise sixfold on production from Constancia, due later this year. If its bid for Augusta is successful, Rosemont, expected to become the US’s third largest copper mine, would nearly double production again by 2018.

Augusta has been repeatedly frustrated by permitting delays at Rosemont, now in its final stages, facing sometimes farcical setbacks including a tiff over bighorn sheep.

The delays have attracted intense scrutiny for Augusta’s board, led by chief executive Gil Clausen, previously a director at Jaguar Mining, which rebuffed a cash bid for the company in 2011 allegedly because it fell short of levels that would have triggered payouts to Jaguar’s board.

The offer was not raised, Jaguar’s share price collapsed and shareholder Bristol Partners drove Clausen and two others from the company’s board due to “gross failures of judgement.”

According to HudBay, Augusta has “few remaining financing options,” having already sold a silver stream to Silver Wheaton, an off-take agreement to copper trader Red Kite and a 20 per cent stake in Rosemont to a Korean consortium. Augusta has also wracked up loans from Red Kite and the company’s shareholders, including chairman Richard Warke.

The offer values Augusta at C$2.96 per share, vs. over C$6 in 2011. “HudBay realizes that final permits are imminent,” Clausen said. “Our shareholders deserve to be paid full value and we are confident they will accept no less.” In anticipation of an added cash component, shares last traded at C$3.40.

HudBay, which has drifted since the bid was announced from C$9.40 to C$8.76, is due to issue 38m shares under its current bid, equal to 20 per cent of its market cap. 

“Our shareholders deserve to be paid full value and we are confident they will accept no less.”

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