Augusta Resource Corp. could run out of cash unless it receives federal approvals by the end of September to begin construction on its proposed $1.23 billion Rosemont copper mine, the company states in financial reports released late Tuesday.
Augusta is pinning its short-term financial future on the U.S. Forest Service issuing a Final Environmental Impact Statement and a Record of Decision (ROD) on the mine plan of operations in the 3rd Quarter.
Vancouver, B.C.-based Augusta reported it will also need the U.S. Army Corps of Engineers to issue a Section 404 Clean Water Act permit soon after the ROD is released to avoid running out of cash.
“Any delays in the issuance of the ROD will result in the Company consuming its remaining working capital,” Augusta stated in its Management Discussion & Analysis (MD&A) report for the 1st Quarter released late Tuesday.
“If funding cannot be obtained, this would indicate an existence of a material uncertainty that raises substantial doubt about the Company’s ability to continue as a going concern,” Augusta said, echoing its independent auditor’s assessment of the company’s outlook included in Augusta’s 2012 audited financial statement.
(Augusta’s latest cash squeeze comes at the same time the company has committed to spend $24 million to pay for a water pipeline that would bring Central Arizona Project water from the canal’s terminus in Tucson to Green Valley. The CAP water would be used to offset a portion of Augusta’s planned ground water pumping to supply water for the Rosemont mine.
The mine anticipates using approximately 6,000 acre-feet of water a year, although there are no restrictions on how much water mines can pump from the ground. Augusta has pledged to build the pipeline regardless of whether it receives permits to build the mine.)
Augusta’s financial outlook brightens considerably if it receives the ROD and Army Corps permit sooner than later. Augusta has agreements in place to receive $230 million from Silver Wheaton Corp. and $106 million from its joint venture partner, Korea-based United Copper & Moly, once final permits are in place and construction is set to begin.
Augusta has been in cash flow squeezes before and managed to obtain additional funding to finance its operations to permit the Rosemont copper mine in the Santa Rita Mountains on the Coronado National Forest southeast of Tucson.
When its cash reserves fell below $10 million last year, the company borrowed $40 million from RK Mine Finance Trust I last August. Augusta now owes the London-based copper hedge fund $83 million. The loan is due in July 2014. Augusta has pledged all the assets of its Arizona-based Rosemont Copper Company as collateral for the RK loan.
Augusta states in its MD&A report dated as of May 10, 2013, that the Forest Service is continuing to work “towards completing a draft of the Final Environmental Impact Statement for review by the various cooperating agencies.”
Augusta said, “The review is expected to be completed in the second quarter of 2013.”
There is no independent confirmation from the Forest Service that it intends to issue the Final EIS and ROD in the 3rd Quarter.
The Coronado National Forest announced last November that it no longer had a fixed deadline on when it would decide whether to issue a Final EIS, or whether to require a supplemental EIS to address substantial changes to the Rosemont mining plan of operations that Augusta announced last summer.
Coronado National Forest Supervisor Jim Upchurch said during a November press conference that the Regional Forest headquarters in Albuquerque would review a draft Final EIS before it was publicly released and a ROD was issued.
Issuance of the Army Corps of Engineers Section 404 permit by the end of September is even more problematic for Augusta.
As noted on RosemontMineTruth.com yesterday, the U.S. Environmental Protection Agency has sharply criticized Augusta’s environmental studies and mitigation plans and has repeatedly notified the Corps that Augusta is failing to meet the standards necessary to receive the Section 404 permit.
EPA has also notified the Corps that issuance of the 404 permit could be subject to high-level review by Army Corps and EPA headquarters in Washington. EPA also has veto authority over 404 permits issued by the Corps.
As permitting issues continue to play out, Augusta’s 1st Quarter Financial Statement shows the speculative mining company continues to rack up losses, eroding its cash reserves.
Augusta reported losing $2.21 million in the 1st Quarter ending March 31 compared to $1.5 million losses for the same period in 2012. Augusta reported $16 million cash at the end of the 1st Quarter compared to $29.1 million on Dec. 31, 2012.
Augusta also reported a significant decline in working capital, with $19 million on hand on March 31 compared to $28.8 million at the end of the year.
At the present rate of spending, Augusta will be out of working capital by early in the 4th Quarter, barring new financing or the issuance of the ROD by the Forest Service and receiving the 404 permit from the Army Corps.
THE RESOURCE MARKET IS IN A SERIOUS SLUMP WITH MERGERS AND ACQUISITIONS BECOMING FEWER AND FAR MORE SELECTIVE . MANY MAJOR MINING COMPANIES HAVE ALREADY STRENGTHENED THEIR POSITIONS BY PUTTING TOGETHER PORTFOLIOS OF POTENTIAL COPPER PRODUCING PROPERTIES THAT COVER THE SHORT TO MEDIUM TERM . WHILE THE ROSEMONT PROPERTY COULD BE USED AS COLLATERAL IN ORDER TO BORROW MONEY , ALL OF THE REQUIRED PERMITS , FREE OF LITIGATION , WOULD HAVE TO BE APPROVED AND IN PLACE BEFORE A SERIOUS LENDER WOULD COME FORWARD . AUGUSTA HAS YET TO PRODUCE A FINANCIAL PLAN THAT COVERS THE APPROXIMATELY $1.23 BILLION CAPEX REQUIRED . ITS ATTEMPTS TO RAISE MONEY IN EUROPE APPEARS TO HAVE FAILED . REFERENCE TO HUDBAY WAS INTENDED TO MISLEAD SHAREHOLDERS . IT WOULD BE INTERESTING TO KNOW WHO THE MAJOR SHAREHOLDERS OF AUGUSTA ARE AND WHAT PERCENTAGE IS HELD BY INSTITUTIONS OVERALL , IN COMPARISON TO WHAT IS HELD BY THE GENERAL PUBLIC . EVEN DUNDEE SECURITIES WHO RATED THE AUGUSTA TEAM AS EXCELLENT RECOMMENDED A SELL ODER ON THE SHARES . ONCE AGAIN , KEEP IN MIND THAT AUGUSTA RESOURCES IS NOT AND NEVER HAS BEEN A PRODUCING MINING COMPANY . INTERESTINGLY , ONE OF AUGUSTA’S COMPANIES (WILDCAT SILVER) IS QUIETLY WORKING ON A SILVER PROSPECT NEAR PATAGONIA . IS THERE A FINANCIAL CONNECTION WITH THE ROSEMONT PROPERTY ? PERHAPS , SILVER WHEATON HAS INTERESTS IN AUGUSTA FOR MORE THAN ONE REASON .
Crash and burn, ass wipes!