Augusta Resource Corporation’s independent auditing firm Monday alerted investors that the Vancouver-based speculative mining company that is seeking permits to build the Rosemont copper project faces “material uncertainty” about its ability to continue to operate.
The accounting firm of Ernst & Young stated that the combination of a $9.7 million loss in 2012 and projected cash expenditures in 2013 that exceed the company’s reserves, leaves Augusta in a precarious position.
“These conditions…indicate the existence of material uncertainty that raises substantial doubt about the Company’s ability to continue as a going concern,” the firm stated.
Ernst & Young issued the warning under the heading of “Emphasis of matter” in its cover letter accompanying the release of Augusta’s 2012 financial statement.
Augusta nearly ran out of cash last fall but secured a $40 million loan from RK Mine Trust I in October. Augusta now owes RK Mine Trust $87 million that comes due in July 2014.
Even with the $40 million infusion, Augusta reported only $29 million in cash as of Dec. 31, 2012. Augusta spent $37.3 million in 2012 on development costs for the Rosemont copper project through its subsidiary, Rosemont Copper Company. Augusta spent $50 million on the mining project in 2011.
Augusta warns investors that its cash outlook is extremely tight in its Management Discussion & Analysis report that was released with the financial statements.
“Forecasted cash requirements for the next twelve months require significant expenditures on the Rosemont project, which exceeds the working capital after giving effect to the additional loan from Red Kite.
“This factor indicates the existence of a material uncertainty that raises substantial doubt about the Company’s ability to continue as a going concern and the Company’s ability to continue is dependent on the Company raising additional debt or equity financing.
“The Company is currently discussing project financing with a number of lending institutions and believes that such discussions will result in the Company obtaining the project financing required to fund the construction of the Rosemont project.
“However there is no assurance that such financing will be obtained or obtained on commercially favorable terms.
At the current rate of spending, Augusta will run out of cash by early in the fourth quarter.
The company, however, has $336 million from two sources that would become available if, and when, the company obtains final permitting approvals to begin construction. Augusta is seeking state and federal permits to construct the mine located in the Santa Rita Mountains on the Coronado National Forest southeast of Tucson.
Augusta’s joint venture partner in the Rosemont project, Korea-based United Copper and Moly, would invest $106 million in development costs. In addition, Silver Wheaton has pledged $230 million in exchange for the right to purchase silver and gold from the project at a set price.
The company states it expects to receive final approval from the U.S. Forest Service in the second quarter of this year with construction beginning by the end of the year. Augusta states it expects to obtain long-term debt financing at the same time it obtains final permits to move forward with mine construction.
Augusta states in its Annual Information Form, that 65 percent of the $1.25 billion project will be financed by the Silver Wheaton off-take agreement, United Copper’s joint venture investment and still unsecured bank debt financing.
“Any delays in the permitting process or any unplanned expenditures may require the Company to raise additional funds,” the Company states in its MD&A report.
The Forest Service announced last November that it has no set schedule to release a Final Environmental Impact Statement and Record of Decision needed prior to construction of the mine.
In addition, the U.S. Army Corps of Engineers must issue a Clean Water Permit. The Army Corps is not expected to make a decision on the water permit until after the Final EIS is released. The U.S. Environmental Protection Agency, which last year issued two letters sharply criticizing the project, has veto power over any permit issued by the Army Corps.
Coronado National Forest Supervisor Jim Upchurch said last winter that before the Final EIS is released, the document will be reviewed by the regional headquarters in Albuquerque. It is unknown how long such a review could last, or if it has even begun.
AT THIS POINT , AUGUSTA IS FACED WITH TRYING TO ” BUY ” THE PERMITS THAT WILL ALLOW IT TO PROCEED . IT HAS RUN OUT OF TECHNICAL OPTIONS WHICH WOULD ALLOW THE THE ROSEMONT PROSPECT TO DEVELOP ACCORDING TO THE TERMS AND CONDITIONS THAT GO WITH THE PERMITTING PROCESS . TIME IS RUNNING OUT IN ORDER TO ” FLIP ” THE PROSPECT . THE RECENT CANADIAN BUDGET IS NOT VERY ENCOURAGING FOR AUGUSTA WHEN IT COMES TO RAISING FUNDS IN CANADA . NOTE THAT AUGUSTA , AS A CANADIAN COMPANY , DOES NOT APPEAR TO BE AGGRESSIVELY TRYING TO SECURE FUNDING IN CANADA . THE BANKS AND INSTITUTIONAL LENDERS APPEAR TO HAVE SHOWN LITTLE , IF ANY , INTEREST . I WONDER WHY ?
From Craig Moore: We closed on the sale of our property in Green Valley this week which leaves our status for participation in question. However, a couple of weeks prior I wrote a letter to Mr. Upchurch challenging him to answer my question as to how Rosemont and its parent ever was able to start their process in Arizona without any obvious means to completion. The cost to the taxpayers for this long process even under the best of circumstances would seem very high and unjustifiable. I did not receive an answer but I would urge that the Forest Service be forced to give an accounting either now or after the process ends. Further, if the rules allow for frivo-
lous expenditures such as this application, consideration to change the appropriate rules be considered immediately so that these types of debacles not repeat themselves. Lastly, I would purpose that Mr. Upchurch himself be asked to defend his actions in this regard.