Augusta shareholders at risk in ‘essentially insolvent’ company: HudBay – by Peter Koven (National Post – February 28, 2014)

The National Post is Canada’s second largest national paper.

TORONTO – Augusta Resource Corp. is “essentially insolvent” and facing severe financial risks in the coming months, according to the company that wants to take it over.

David Garofalo, the chief executive of HudBay Minerals Inc., tore into Augusta’s management in an interview on Thursday as the $428-million hostile takeover battle continues to heat up. His key message was that Augusta shareholders could be in deep trouble if the company does not wrap up permitting for its Arizona-based Rosemont copper project in short order.

The permitting question is at the heart of this takeover battle. This week, Augusta said it expects to receive its final required permit in the first half of this year. After that, it is set to begin construction. HudBay claims the permitting process is likely to be much more prolonged than that. If it is, that means Augusta could face serious liquidity concerns.

Augusta had just US$749,000 in cash at the end of September, leaving it with negative working capital of US$87-million. That is not a problem if the company locks up its permitting soon, because that event would trigger US$336-million of payments to the company from Silver Wheaton Corp. and a joint venture partner.

But if a clean water permit does not arrive promptly, Mr. Garofalo said shareholders could be in trouble because Augusta has a US$109-million loan from Red Kite Mine Finance Fund coming due in July. While Augusta will likely be able to extend that loan, that could have consequences for shareholders.

“They really have no money, they have significant debt and that debt is coming due very soon,” Mr. Garofalo said. “We’re concerned about what they might do to extend that debt and what it might do to destroy value for shareholders.”

Another source of concern is that two of the permits Augusta has obtained are facing legal challenges, which could delay the funding from Silver Wheaton. “That money isn’t coming in the door soon,” Mr. Garofalo said.

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