Army Corps and Forest Service deliver setbacks to Augusta Resource’s Rosemont copper project on eve of annual meeting

Augusta Resource Corporation on Thursday suffered two major setbacks in its effort to construct the proposed Rosemont copper mine southeast of Tucson.

On the eve of Augusta’s annual meeting with a $500 million hostile takeover bid set to expire Monday, the U.S. Forest Service announced it will not meet an April 30 deadline for responding to the hundreds of objections filed against the agency’s Final Environmental Impact Statement. Southwest Regional Forester Cal Joyner must respond to the objections before the Forest Service can sign the Final Record of Decision (FROD).

In addition, the U.S. Army Corps of Engineers (ACOE) informed Augusta that the company’s application for a Section 404 Clean Water Act permit still falls short of regulatory standards.

The setbacks come at a critical time for Augusta.

Augusta needs the FROD and the Section 404 permit before its Rosemont Copper Company subsidiary can begin construction on the $1.2 billion mine planned for the Santa Rita Mountains on the Coronado National Forest southeast of Tucson. Cash-strapped Augusta is attempting to fend off a hostile takeover bid from Toronto-based HudBay Mineral Resources, whose $500 million offer expires May 5.

In a written statement to more than 100 individuals and groups that filed objections to the FEIS, Joyner stated that he has notified Coronado National Forest Supervisor Jim Upchurch that “he cannot sign the (Final) ROD until I issue my written response to the objections.” Joyner further stated there is no “date certain” when his responses will be completed but he will “strive to issue a response in a timely manner without undue delay.”

The sheer number of objections as well as requests from regulatory agencies for more extensive analysis raises the possibility that it could be many months before the Forest Service has completed its review.

“Due to the complexity of the content of the objections, additional time will be required to thoroughly review and give full and deliberate considerations to the issues raised,” Forest Service attorney Margaret Van Gilder stated.

According to a May 1 Augusta Resource press release, the Forest Service “will provide an update on its progress and the schedule for the ROD by the end of May 2014.”

In what may be an even bigger blow to its Rosemont plans, Augusta also announced in its press release that the Army Corps had notified the company that its latest mitigation plan for the mine does not meet the regulatory standards necessary for the Corps to issue a Section 404 Clean Water Act permit needed to construct the mine.

“Rosemont has been informed by the ACOE that there is a shortfall between the mitigation plan proposed in April and the mitigation needed to fully offset impacts to waters of the U.S. associated with the Project,” Augusta states.

“The process of evaluating other permitting criteria, such as compliance with 404 guidelines, the evaluation of the public benefit, as well as a more detailed analysis of the mitigation plan, remain to be completed,” Augusta states.

The Army Corps warned Augusta last February about problems with Rosemont’s proposed mitigation plan to compensate for the mine’s damage to area streams, wetlands and springs. Augusta, however, has not disclosed the Feb. 28 Army Corps letter in subsequent regulatory filings.

The Corps’ Feb. 28 letter requested Rosemont to “submit a detailed compensatory mitigation plan” that “addresses” specific regulatory issues by April 1. The Corps also notified Rosemont that it intended to “advise the USFS by April 16, 2014, as to whether adequate compensatory mitigation exists to offset the unavoidable impacts to” waters of the United States.

The Arizona Game & Fish Department, Pima County, and U.S. Environmental Protection Agency have requested additional studies on the mine’s potential impact on Davidson Canyon and Cienega Creek, both legally-protected waters that cannot suffer any degradation.

Augusta stated in its release that the Army Corps intends to make a permitting decision by June 30, “provided that the USFS issues its Record of Decision prior to that date.”

“We know the impacts can be mitigated and we will continue to work with the Federal agencies towards a successful conclusion of the 404 and NEPA process without undue delay,” says Katherine Arnold, Augusta’s Vice-President of Environmental and Regulatory Affairs.

Augusta’s board has been urging shareholders to reject HudBay’s bid based on the company’s assessment that it would receive the FROD and Section 404 permit by June 30. Augusta states in regulatory filings that receipt of the FROD and the Section 404 permit would allow it to tap $336 million in contingent funding.

HudBay has repeatedly stated during the acrimonious takeover struggle that began Feb. 9 that Augusta’s management was “misleading” shareholders when it would receive the FROD and 404 permit.

Augusta needs the cash to cover operational expenses and repay a $109 million loan that is due not later than Oct. 21, 2014. The loan from London-based RK Mine Finance is secured by the Rosemont project and default could mean Augusta loses its only material asset.