Late last night, Hudbay Minerals (HBM:TSX) announced it was making an unsolicited offer for the remaining shares of Augusta Resource Corp (AZC:TSX). Hudbay is offering 0.315 (~$2.96 per Augusta) of its shares for each share of Augusta representing a 62% premium to the 20-day VWAP and an 18% premium to Friday's close. The offer values Augusta at a $540 million enterprise value.
Hudbay was already Augusta's largest shareholder at over 16% or roughly 23.5 million shares. Augusta's board intends to meet this week and will update shareholders afterwards. Augusta shares were trading above the offer at $3.17 (at time of writing) as the market anticipates a white knight or bump in the bid.
The offer appears opportunistic as Augusta is on the brink of receiving its final permits for their Rosemont copper project in Arizona. Rosemont is one of the best undeveloped copper assets in the world, given its access to infrastructure, its cost profile (both capex and operating) and its jurisdiction. Augusta expects they will be granted their final Record of Decision on the Environmental Impact Statement by the end of April. The company is also expected to close a +$1 billion project debt package for the project shortly. Construction of Rosemont is expected by year-end.
Given the quality of Rosemont, we would expect there to be many discussions ongoing with various groups for acquisition. As is standard with confidentiality agreements in these instances, the standstill language becomes void when a takeover is on the table. Therefore, a white knight appears to be possible. Possible white knights could be any number of candidates, including: Lundin, Teck, Freeport, Capstone or even Newmont given they recently announced their intention of acquiring additional copper asset(s).
In addition to copper, Rosemont is expected to produce significant amounts of silver and molybdenum over its 21+ year mine life. Rosemont hosts 2P reserves of 5.9B lbs of copper and 194M lbs of molybdenum and another 1.1B lbs of copper and 35M lbs of molybdenum in Inferred resources. Production is projected to commence in 2016.
Hudbay originally became an 11% shareholder in Augusta in 2011 as part of a strategic private placement. Since then they have quietly acquired another 5% stake. This led Augusta's management to implementing a shareholders rights plan in October 2013. Hudbay just closed a $172 million bought deal which was thought to be used for M&A (highlighted in our January 9th piece 'Hudbay Hits it out of the Park with $150 Million Bought Deal').
The offer is a 30% premium to where Augusta started the year in 2013 but a 47% discount to its 2011 high of $5.97. Here's the 5-year chart:
Read: Hudbay to Make Offer to Acquire Augusta Resource Corporation