August Resource Corp. is an emerging base
near Tucson, Arizona into production. The
and financing.
disclosure information.
Augusta Resource Corp.
SPEC. BUY
12-Month Total Return: 284.6%
Action Notes
November 22, 2013
48 of 59
Equity Research
Company Profile
August Resource Corp. is an emerging base
metal mining company focused on placing
the 5.9 billion pound Rosemont Cu deposit
near Tucson, Arizona into production. The
company has completed an updated positive
feasibility study, secured important water
rights, and is well advanced with permitting
and financing.
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AZC-T: Price
Please see the final pages of
this document for important
disclosure information.
Augusta Resource Corp.
(AZC-T, AZC-A) C$1.30
Pullback on EPA Letter is a Buying Opportunity
Event
Yesterday, prior to the market close, an environmental organization called
Save the Scenic Santa Rita’s (SSSR) i
ssued a press release with the headline:
“
EPA Recommends Against Federal
Water Permit for Rosemont Mine
.”
Shares of Augusta subsequently plunged 60% from approximately
$1.70/share before the announcement to $0.63/share at the close.
The release was based on a letter issued by the U.S. Environmental Protection
Agency (EPA) to the U.S. Army Corp
of Engineers (ACOE) on November 7
in regards to water mitigation proposals for the Rosemont Mine.
Augusta commented yesterday evening th
at the SSSR press
release distorted
the EPA’s comments and that the lett
er referred to old plans and issues.
Furthermore, the company expects its revised mitigation program to more
than address the issues raised by the EPA in the letter.
Impact – MIXED
In our view, yesterday’s pullback was
a significant overreaction prompted by
misleading statements from a group that is intent on halting the development
of Rosemont and disrupting the market.
We believe the press release from the SSSR was designed to be incendiary
and included a number of excerpts from the letter that were misleading in our
view. For example, the letter sugges
ted that the EPA’s recommendation is
“dramatic and potentially devastating because the EPA has veto authority over
the permit”.
To be clear, the ACOE is the permitting authority for Clean Water Act
Section 404 permits - not the EPA; the EP
A is merely an advisory agency to
the process. While the EPA does have veto authority, we understand that the
Agency has only used this authority 13 times since 1972 and, to our
knowledge, in no instance against a mi
ne. For context, the ACOE processes
approximately 60,000 permits per year
Action Notes
November 22, 2013
Equity Research
49 of 59
According to the company, the 404 Permit is the final ou
t of 8 permits the company needs for the project and,
in our view, it is also the hardest of these permits to se
cure. We believe the EPA had raised a series of issues
and recommended against the permit in its letter to the ACOE dated January 25, 2013. It appears to us the
company had proposed some new measures this past September and the EPA rejected that filing in the
November 7 letter.
We understand the company has subsequently developed a new environmental, social and cultural mitigation
program to address these concerns. Together with the
anticipated release of the final Environmental Impact
Statement (EIS) next week and the draft Record of Deci
sion (ROD) in mid-December, the EPA should then be
in position to work with
the United States Forestry
Service (USFS) and ACOE to finalize mitigation planning
and issue the 404 Permit by mid-2014.