The Toronto-based company, in a bid announced on the weekend, is offering to exchange 0.315 of a HudBay share for each Augusta share it doesn't already own — valuing the junior mining company at about $540 million.
Shares of Vancouver-based Augusta (TSX:AZC) soared more than 27 per cent, or 69 cents, to $3.20 on the Toronto Stock Exchange on Monday, well above the implied value of $2.96 when the offer was made.
HubBay (TSX:HBM) stock fell 57 cents, or just over six per cent, to $8.83.
HudBay Minerals Inc. (TSX:HBM) is out to acquire all the shares of Augusta Resources Corp. (TSX:AZC) that it doesn't already own in a cash and stock deal worth about $540 million. August’s prime asset is its Rosemont copper deposit in Arizona. HudBay is offering $2.96 a share. HudBay fell 57 cents to C$28.81 while Augusta shares rocketed more than 27 per cent to $3.20.
HudBay president and CEO David Garofalo told analysts Monday that his company believes Augusta's management has consistently underestimated the time and cost of developing Rosemont.
"We have been patient and supportive shareholders in Augusta since our initial investment in 2010" and remain confident that Rosemont will eventually get the necessary permits, Garofalo said Monday.
But "we believe Augusta's management continues to be overly optimistic about the permitting time and Augusta's ability to complete the necessary engineering and raise the necessary financing to construct the Rosemont project," he said on a conference call.
"At this point, we strongly believe our technical team will be better-positioned to advance this project forward, given our extensive history in bringing projects into production."
"In fact, since our initial investment in Augusta, we've built two new mines and substantially advanced another," Garofalo said.
He said the addition of the Rosemont project would enhance HudBay's position as an intermediate-sized base metals mining company and fit within its own timetable for growth projects.
HudBay would be able to finance its share of Rosemont's future costs from internal cash flow, once the Constancia copper project in Peru is completed, Garofalo said. Constancia is scheduled to begin commercial production next year, according to HudBay's estimates.
HudBay currently owns just over 23 million of Augusta's more than 144.5 million shares — making it the largest shareholder at the time of its takeover offer.
It thinks the deal benefits Augusta shareholders because they'll get a stake in a larger mining company but still have a chance to get some of Rosemont's growth potential.
HudBay has set March 19 as its deadline for Augusta shareholders to tender their shares, although such deadlines are often changed by the bidding company. Among the conditions is that two-thirds of Augusta's shares are tendered to HudBay's offer.