RK (Red Kite) Capital Management, a London-based copper hedge fund, is doubling-down on its stake in Augusta Resource Corp., giving the parent of Rosemont Copper Company a lifeline in the face of sharply declining cash reserves.
Augusta Resource’s 2nd Quarter financial reports just released today show its cash reserves declined to $9.6 million as of June 30, down from $31 million at the end of 2011. Without the RK loan, Augusta was on track to run out of cash by the end of the 3rd quarter.
RK Mine Finance Trust I announced Tuesday it will loan Augusta $40 million, in addition to a $43 million loan it extended to Augusta in April. The $83 million, plus interest, is due on July 14, 2014. The loan carries an approximate 6.5% interest rate that is based on LIBOR plus 4.5%.
Augusta has pledged the assets of Rosemont Copper Company as collateral for the RK loan. If Augusta is unable to repay the loan, RK Capital Management, the largest copper trading concern in the world, could assume control of Rosemont Copper.
The RK loan provides Augusta with sufficient funds to carry it forward into next year at the company’s current rate of spending.
Augusta states in its Management Discussion & Analysis report that was released concurrently with the 2nd quarter financial statement that it spent $19.7 million during the first six months of 2012 on the Rosemont copper project.
Augusta is forecasting it will spend $47 million from July 1, 2012 through March 31, 2013, assuming the U.S. Forest Service will issue a Record of Decision on mine permitting by the end of the year.
Augusta states it plans to spend $5 million for engineering, $8 million for environmental impact studies, $7 million for the purchase of mining equipment, $12 million for mine site preparation and $15 for ongoing support activities.
Augusta’s expectation of receiving a ROD by the end of the year is tempered by its warning to investors in its MD&A report that unforeseen delays could have a serious impact on the company.
“Delays in the permitting process or any unplanned expenditures may require the Company to raise additional funds. Unforeseen market events and conditions could impede access to capital or increase the cost of capital.
“These events could have an adverse effect on Augusta’s ability to fund its working capital and other capital requirements and hence, there is no assurance that these initiatives will be successful.”
By any objective standard, with 144 million shares outstanding and an $83 million loan due in July 2014, Augusta Resource and Rosemont remain a very risky investment with an uncertain future.
