Ross Beaty a big winner in Hudbay/Augusta offer

There are many interesting things about Hudbay’s takeover offer for the 84% of Augusta Resource that it doesn’t already own – an offer that has breathed a bit more life into a moribund mining M&A scene that is slowly reviving. Augusta is developing the advanced-stage Rosemont copper deposit southeast of Tucson, Arizona, which is projected to be the third largest copper mine in the U.S. once it’s operating.

Probably the most interesting thing is this:

Ross Beaty is Augusta’s second-largest shareholder

Vancouver resource entrepreneur Ross Beaty is the second-largest shareholder of Augusta, with more than 9% of outstanding shares. He owns 12,200,500 shares indirectly through his Kestrel Holdings company, and 1,235,000 shares directly, according to our friends at INK Research. That’s a total of 13,435,500 shares, or 9.3% of outstanding shares, as well as 5 million convertible notes. According to SEDI records, Beaty filed opening balances for most of the shares on Oct. 25, when Augusta was trading at about $2.15. He picked up 100,000 more shares on Nov. 21 at $1.26, according to a Nov. 22 filing.

The fascinating thing about Beaty’s shareholding in Augusta is that he also has a “For Sale” sign on a giant copper deposit his Lumina Copper has developed, called Taca Taca. The plan was for Taca Taca to have been sold already, but the copper-gold deposit is located in Argentina, which complicates things.

Taca Taca deposit in Salta, Argentina (Lumina Copper photo)

Beaty has an outstanding record of creating shareholder value, even if a sluggish mining sector and geopolitical risk has delayed the sale of Taca Taca. Beaty’s position in Augusta Resource shows that he also recognizes a good bargain when he sees one. Lumina Copper was one of the first stocks I wrote up on World of Mining; for more, check out related links at the bottom.

Taca Taca remains an impressive deposit that shows a net present value of $2.1 billion according to Lumina’s PEA, which was done using more conservative metal prices ($2.75/lb copper) than its Rosemont counterpart ($3.50/lb). Taca Taca also has significant amounts of gold. It’s not a direct comparable and Taca Taca would be more expensive to build, but with Hudbay’s offer valuing Rosemont at more than $500 million, shares of Lumina Copper look cheap by comparison. Lumina’s market capitalization at the time of writing is about $240 million, and Beaty owns about 22% of outstanding shares. Rosemont is further along the development curve, with much of the permitting already completed, but let’s compare some numbers:

Rosemont
After-tax NPV: $2.5B (at $3.50 Cu)
5.9B lbs Cu, proven and probable
7.5B lbs Cu, measured and indicated
1.1B lbs, inferred

Taca Taca
After-tax NPV: $2.1B (at $2.75 Cu)
21B lbs Cu/5.5 oz Au, indicated
7.5B lbs Cu, inferred

There was considerable leakage before the bid: Augusta’s share price shot up from $2 to $2.50 in the two trading sessions BEFORE the all-share deal – at $2.96 – was announced. The two-day bump was so striking that Hudbay actually included the detail in its news release announcing the offer (see below). Augusta shares have traded substantially higher ever since the offer was announced, and are on the move today as well, up 2.5% to $3.28 at the time of writing. That suggests competing bids or a higher offer (and, possibly, a regulatory investigation).

“Under the terms of the Offer, Augusta shareholders will be entitled to receive 0.315 of a Hudbay common share for each Augusta common share held, representing approximately C$2.96 per Augusta common share (based on Hudbay’s closing share price on the TSX on February 7, 2014). The Offer represents a premium of 62% to Augusta’s 20-day volume-weighted average price on the TSX for the period ending February 7, 2014, and a premium of 18% to Augusta’s closing share price on the TSX on February 7, 2014 in addition to Augusta’s 26% share price increase during the two trading days preceding the Offer. The Offer values Augusta at an enterprise value of approximately C$540 million on a fully diluted in-the-money basis.”

Rosemont would be a big bite, and a big bet, for Hudbay, which has been talking acquisition and furiously raising capital in recent weeks. On Jan. 30, Hudbay – which runs the Flin Flon polymetallic mine in northern Manitoba and is developing the Constancia copper porphyry project in southern Peru – closed a $173-million share offering, and it also recently increased its line of credit. Hudbay’s market capitalization at the time of writing is about $1.7 billion. It’ll cost almost that much to buy and develop Rosemont.

Disclosure: I own some Lumina shares in an RRSP account. This is not investment advice, and all investors should do their own due diligence. Please read my disclaimer.

Related reading:
Good things come to those who wait – World of Mining
Lumina Copper’s PEA shows a NPV of $2.1 billion – World of Mining
Rebalancing, Part 1 – World of Mining

James Kwantes

James Kwantes is an editor and mining reporter from Vancouver, Canada. He spent the last decade with Vancouver Sun, covering investing, mining and other business topics. James is the founder of the World of Mining blog and is the editor of Resource Opportunities, a subscriber supported investment newsletter covering compelling early stage mining companies. More →

Twitter: @https://twitter.com/jameskwantes

worldofmining@gmail.com

James Kwantes

Twitter: @https://twitter.com/jameskwantes

worldofmining@gmail.com

Disclaimer:

Readers are advised that the material contained herein is solely for information purposes. Readers are encouraged to conduct their own research and due diligence, and/or obtain professional advice. Nothing contained herein constitutes a representation by the publisher, nor a solicitation for the purchase or sale of securities. The information contained herein is based on sources which the publisher believes to be reliable, but is not guaranteed to be accurate, and does not purport to be a complete statement or summary of the available data. Any opinions expressed are subject to change without notice. The owner, editor, writer and publisher and their associates are not responsible for errors or omissions. They may from time to time have a position in the securities of the companies mentioned herein, and may change their positions without notice. (Any significant positions will be disclosed explicitly. This article is not intended to meet your specific individual investment needs and it is not tailored to your personal financial situation. Nothing contained herein constitutes, is intended, or deemed to be — either implied or otherwise — investment advice. Thomas Humphreys, Pacific Website Company Inc., and other entities in which he has an interest, employees, officers, family, and associates may from time to time have positions in the securities or commodities covered in these publications or web site. We reserve the right to buy and sell such securities or commodities without notice to readers. While the information herein is believed to be accurate and reliable it is not guaranteed or implied to be so. The information herein may not be complete or correct; it is provided in good faith but without any legal responsibility or obligation to provide future updates. Neither Thomas Humphreys, nor anyone else, accepts any responsibility, or assumes any liability, whatsoever, for any direct, indirect or consequential loss arising from the use of the information in these publications or web site.

Forward-Looking Statements: This article may include certain "forward-looking information" within the meaning of Canadian securities legislation. Forward-looking statements include predictions, projections and forecasts and are often, but not always, identified by the use of words such as "seek", "anticipate", "believe", "plan", "estimate", "forecast", "expect", "potential", "project", "target", "schedule", budget" and "intend" and statements that an event or result "may", "will", "should", "could" or "might" occur or be achieved and other similar expressions and includes the negatives thereof. All statements other than statements of historical fact included in this release, including, without limitation, statements regarding the potential of the Company's properties are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements. Forward-looking statements are based on a number of material factors and assumptions. Important factors that could cause actual results to differ materially from Company's expectations include actual exploration results, changes in project parameters as plans continue to be refined, future metal prices, availability of capital and financing on acceptable terms, general economic, market or business conditions, uninsured risks, regulatory changes, delays or inability to receive required approvals, and other exploration or other risks detailed herein and from time to time in the filings made by the Company with securities regulators. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ from those described in forward-looking statements, there may be other factors that cause such actions, events or results to differ materially from those anticipated. There can be no assurance that forward-looking statements will prove to be accurate and accordingly readers are cautioned not to place undue reliance on forward-looking statements which speak only as of the date of this article. The Company disclaims any intention or obligation, except to the extent required by law, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Always do your own due diligence. We seek safe harbor.