Rosemont Copper Company’s new owner Hudbay Minerals Inc. said Thursday it has no definitive timetable for developing its proposed massive open pit mine in the Santa Rita Mountains that still needs to obtain a key federal water permit and approval from the U.S. Forest Service before construction could begin.
The Toronto-based mining company said it must first have four other mines operating smoothly before it can turn its full attention to Rosemont, which it acquired in a C$520 million stock deal last summer from Augusta Resource Corporation.
“We really need to establish a steady state at all four of these mines before we revisit our dividend policy and invest substantial capital in Rosemont or any other opportunities,” an unidentified Hudbay executive told investment analysts Thursday during a conference call to discuss the company’s Third Quarter earnings. “It doesn’t mean we are going to slow progress on permitting at Rosemont. Once we have the permitting there, we will try to move that project forward as quickly as possible.”
The U.S. Army Corps of Engineers must still issue a Section 404 Clean Water Act permit for the mine and the Coronado National Forest must sign off on a Final Record of Decision before the project can proceed. The Army Corps has indicated that a previous application for the 404 permit submitted by Augusta was inadequate. The Forest Service is not expected to issue a Final ROD unless the Army Corps issues a 404 permit.
The U.S. Environmental Protection Agency, which has repeatedly expressed serious concerns over the mine’s potential impact on surface and groundwater resources, has veto authority over the issuance of 404 permits.
Hudbay told investors it expects to receive the crucial 404 permit, but cautioned investors that there could be delays before and after the permit is issued.
“While we believe the permits will be granted, there may be a delay in their
issuance and once the permits are issued they may be challenged which could cause further delays,” the company states in its 3rd Q Management Discussion & Analysis released Thursday.
Hudbay, meanwhile, says it has its plate full with getting three new mines running at full capacity.
Hudbay’s flagship mine, the 777 Mine in Flin Flon, Manitoba, is nearing the end of its life and production is expected to slowly decline in the future. The mine was forced to shutdown for two weeks in October because of an equipment failure.
Earlier this year, Hudbay opened the Reed Mine, a relatively small underground operation producing 1,300 tons of ore a day located in the middle of Grass River Provincial Park in Manitoba.
Hudbay is also nearing completion of construction on the far bigger Lalor Mine near Snow Lake, Manitoba. Hudbay has invested $413 million in the project and expects to spend another $26 million by year’s end. The mine is already producing copper while work continues on additional infrastructure and exploration.
The company’s biggest project, by far, is the $1.7 billion Constancia Mine in Peru. Hudbay states that the open-pit copper mine high in the Andes at 12,000 feet above sea level is 94 percent complete and is on schedule to begin commercial production in the second quarter of 2015.
Hudbay has acquired more than $1 billion in debt since 2012 that carries a junk bond rating to help finance construction of the new mines. The heavy debt led Hudbay to slash its semi-annual dividend of $.10 per share to $.01.
After stating earlier this year it expected to finance its acquisition of Augusta internally, Hudbay once again turned to the bond market to help in the purchase of the Vancouver junior miner. Hudbay issued $170 million in unsecured debt carrying 9.50% in August to repay Augusta’s $117 million debt to RK Mine Finance. The company said the balance of the proceeds will be used for the Rosemont project and corporate expenses.
Hudbay is currently drilling test holes at the Rosemont site. The company stated in a press release the drilling “is intended to gain a better understanding of the geological setting and mineralization, and to collect additional metallurgical, geotechnical and hydrological information.”
The latest debt issuance comes after Hudbay borrowed $750 million through the sale of 9.50% unsecured notes in September 2012, June 2013 and December 2013.
Hudbay also has borrowed $76 million from Catepillar Financial for its fleet of trucks and other heavy equipment to be used at Constancia. In addition, the company has a $150 million standby credit facility for Constancia, which had not been drawn upon as of Sept. 30.
Hudbay is not only relying on debt to finance construction at three mine sites, it has also entered into $885 million in streaming agreements with Silver Wheaton, according Hudbay’s 3rd Quarter Management Discussion & Analysis. The agreement calls for Silver Wheaton to make up front cash contributions to Hudbay in exchange for future sales of gold and silver at a sharply discounted price.
Hudbay has also relied on issuing new stock to raise fund, a move that surprised analysts when the company sold more than 20 million shares of stock in a private placement last January raising $165 million.
The additional issuance raised the amount of shares outstanding to 213 million shares. Hudbay further diluted shareholder equity in June when it purchased Augusta. Hudbay reported 233 million shares outstanding as of Oct. 28.
Hudbay reported $9.287 million in gross profit from operations in the third quarter ending Sept. 30, up from $8.474 million for the same period in 2013, according to its 3rd Quarter Financial Statement.
4 Responses to Hudbay has no timeline for developing Rosemont