News Column

Augusta stocks rise, Hudbay's dip in takeover involving Rosemont mine

June 24, 2014

By Tony Davis, The Arizona Daily Star, Tucson



June 24--Stock prices jumped 6.1 percent Monday for Rosemont Copper's parent company, Augusta Resource Corp., due to an agreement reached for a friendly takeover of Augusta by another Canadian mining firm.

The stock price of that firm, Toronto-based Hudbay Minerals Inc., dropped 3.9 percent. That's not surprising, said David Charles, an analyst who follows Hudbay. The company's price drop of 19 cents per share was close to how much the company raised its takeover bid for Augusta. The raised bid was the equivalent of 20 cents a share higher than Friday's stock price.

The takeover agreement, announced early Monday, boosts Hudbay's original offer to Augusta of the equivalent of $2.96 per share in February to the equivalent of $3.56 per share. Like the first offer, the revised offer gives Augusta shareholders 0.315 of a common share in Hudbay for each Augusta share they own.

This time, however, they'll also get .17 percent of a warrant to acquire another common Hudbay share for each Augusta share owned.

The companies value this offer at about $555 million total equity.

"We strongly believe in the merits of this transaction and its benefits to both companies' shareholders. We look forward to working with the board and management of Augusta to bring this transaction to a conclusion and to advancing the Rosemont Project within Hudbay," said David Garofalo, Hudbay president and CEO.

Echoed Richard Warke, Augusta's executive chairman: "We believe this is a fair transaction for Augusta shareholders. Our agreement with Hudbay provides Augusta shareholders with an attractive premium for their shares and a stake in a growing intermediate base metals mining company with a portfolio of producing mines and development projects, including the world-class Rosemont project."

The proposed Rosemont open-pit copper mine would be built in the Santa Rita Mountains southeast of Tucson.

A ratings team for a web-based financial news service, The-Street.com, gave Hudbay a D or "sell" rating on Monday based on what the service termed its poor overall financial performance.

"This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover," the website quoted TheStreet's ratings team as saying. "The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income, disappointing return on equity and poor profit margins."

But Charles, of Dundee Capital Markets in Toronto -- which has regularly panned Augusta financially in the past -- disagreed. Hudbay deserves a "buy" rating given its prospects with Rosemont and the Constanza copper mine in Peru that it has under construction, Charles said.

"If you measured them as to where they are now, with what copper price was, from that perspective, looking backwards you can have whatever opinion you want," Charles said in a telephone interview. "If you look forward, you would probably come to a different conclusion."

TheStreet.com said Hudbay has reported declining earnings per share over the past two years, and its net income has significantly underperformed that of the S&P 500 and the entire metals-mining industry. Its net income and return on equity have declined sharply in the past year, and its returns on equity and profit margins have also performed more poorly than those of the broader mining industry, the website said.

Hudbay declined to comment on TheStreet's ratings, saying it doesn't comment on a single rating. Recently, Hudbay blamed declining recent financial results on a number of factors , including maintenance at one of its mines and unusually cold winter weather that made rail shipments of much of its product impractical for a time. Hudbay also cited declining copper prices that have plagued the rest of the industry.

Overall, the social sentiment on Hudbay is 81 percent bearish, based on 946 tweets, the separate MarketWatch Web rating service said Monday. Augusta, by contrast, had a 70 percent bullish social sentiment, based on 1,000 tweets, MarketWatch said.

The Analyst Ratings Network, another Web service, said that a consensus rating for HudBay stock was "hold," based on seven analysts' "hold" ratings and five others' "buy" ratings since March 2013. The same network gives Augusta a "buy" rating, based on one analyst's "buy" rating and another's "hold" rating.

Contact reporter Tony Davis at tdavis@azstarnet.com or 806-7746. Follow him on Twitter @ tonydavis987.

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(c)2014 The Arizona Daily Star (Tucson, Ariz.)

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Source: Arizona Daily Star (Tucson)


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