VANCOUVER – Augusta Resource Corp. (TSX:AZC) says shareholders and insiders with about one-third of the company’s equity are rejecting an all-stock takeover offer from HudBay Resources Inc. (TSX:HBM).
The Vancouver-based mining company says HudBay’s offer, which originally valued Augusta at roughly $540 million, doesn’t recognize the value of the Rosemont copper project in Arizona.
“Rosemont is a high-quality, world-class asset. We will not let HudBay steal this asset with this low-ball bid,” Augusta chief executive Gil Clausen told analysts Monday in a conference call.
HudBay is offering to exchange 0.315 of a HudBay share for each Augusta share it doesn’t already own.
Based on the Monday afternoon market price for HudBay stock, its offer was worth about $2.75 per share — down from the implied value of $2.96 when the offer was made Feb. 9.
Augusta’s publicly traded shares were at $3.60 at midafternoon Monday while HudBay’s were at $8.71, down from $9.40 before offered to buy all of the Augusta shares it didn’t already own.
Clausen said Augusta will focus on getting the remaining permits and financing required to start construction on the mine but its board, in light of HudBay’s hostile bid, is looking at additional alternatives.
Besides the low valuation, Clausen said Augusta’s shareholders would face increased geopolitical risk, due to HudBay’s operations in Peru, without appropriate compensation.
“Rosemont provides HudBay with substantially more than what our shareholders get in return,” he said.
He noted that the Augusta shares have traded above the value of HudBay’s bid and that several analyst reports have said the offer price undervalues Augusta.
HudBay has said it believes Augusta’s board has been consistently overly optimistic about the Rosemont project and questioned whether the smaller company has the necessary expertise or resources to meet its targets.
But Clausen rejected that criticism Monday and said it’s HudBay that lacks credibility, with no experience with open pit mining in the United States and a stock price that has underperformed its peers.
Clausen also said that the HudBay offer is being rejected by four shareholders, as well as its directors and officers who collectively control 33 per cent of Augusta’s equities.
He said the HudBay offer, which has a condition that it gets at least two-thirds of Augusta’s stock, has no hope of approval.