Augusta takes Rosemont to the next level

It only took a letter from a non-governmental organization (NGO) to cut deep into the equity value of Augusta Resource (TSX: AZC; NYSE-MKT: AZC) late last year, but since then the company has been building back value while securing the permits it needs to build America’s next big copper mine. 

It was late November when Save the Scenic Santa Ritas (SSSR) — an NGO vehemently opposed to the development of Augusta’s flagship Rosemont copper project — released an inter-governmental correspondence saying that the U.S. Environmental Protection Agency (EPA) would strike down future mine development.

The news sent Augusta’s stock down 63% as investors feared the worst, but since then less has been heard from SSSR, and the permitting process is coming to an end. Just prior to Hudbay Minerals’ bid (see story, page 11),  Augusta shares had attained $2.01, compared to when SSSR’s letter sent the stock to a 52-week low of 62¢.

The pre-bid positive momentum was due to Augusta expecting the issuance of a Final Record of Decision — a milestone in the process — by the end of April, which would be followed by a 404 Clean Water Act permit in late May. With the developments, Scotiabank analyst Orest Wowkodaw said in a pre-bid note the chances of an EPA veto were remote.

It all means that the permitting ordeal could be coming to an end, with Rosemont reaching fully permitted status by as early as June.

But permitting is only half of the story.

Augusta still has to fund the mine’s $1.2-billion construction. There has been progress on that front as well, however, as the company said before Hudbay’s bid it was close to sealing the deal on $1 billion in debt financing, perhaps by June.

With permits and capital getting lined up, Rosemont, which is located 50 km southeast of Tucson, could see construction start in October. That three- to four-month gap between permitting and construction would be filled by more detailed engineering.

Whoever gets it there, Wowkodaw believes it will be the construction of one of the world’s best new copper mines due to its size, low operating costs, low capital, low political risk and great infrastructure.

Rosemont has proven and probable reserves of 667.2 million tonnes grading 0.44% copper, 0.015% molybdenum and 0.12 oz. silver for 5.9 billion lb. copper, 193 million lb. moly and 80.1 million oz. silver.

A future mine is expected to turn out 243 million lb. copper, 5.4 million lb. moly and 2.9 million oz. silver annually over a 21-year life.

And while Augusta’s US$1.2-billion price tag may seem high in today’s low cost-obsessed environment, on a per-pound basis, the mine would classify as a low-cost producer.

A feasibility study completed in 2012 estimates that the capex would work out to just over US$4 per equivalent lb. copper produced. That is far below the industry average for greenfield copper mine capex on a per-pound basis, as that figure comes in at US$7.61 per lb. copper equivalent.

Anticipated average cash costs over the mine’s life are also low by industry standards, at just US87¢ per lb. 

Pre-bid, Scotiabank’s Wowkodaw rated the stock as an “sector outperform,” with a $4.25 target.