TORONTO (miningweekly.com) – After base metals miner Hudbay Minerals on Friday extended the deadline of its hostile bid for copper project developer Augusta Resources, and removed the minimum tender requirement that at least two-thirds of shares be tendered, Augusta on Monday hit back, saying it was “an ill-considered reaction to an obviously failing offer”.

Augusta, which had formally rejected Hudbay’s C$540-million unsolicited all-scrip offer, said that the offer had received “virtually no support” from Augusta’s shareholders - with less than 0.5% of Augusta's common shares tendered - or from the analysts who cover Augusta.

The company also pointed out that Augusta’s share price had consistently traded at a significant premium to the implied offer price since the offer was announced last month, and that the premium currently stood at more than 27%.

“The early extension of the offer and waiver of the minimum tender condition by Hudbay are a clear acknowledgment that its offer was not going to succeed,” Augusta said.

Augusta, which is advancing through the permitting phase of its world-class Rosemont project, in Arizona, said that pressure was mounting on Hudbay to “dramatically improve its offer or go away”.

Augusta confirmed that its permitting process was progressing as planned with previous guidance remaining unchanged for receiving both the 404 permit from the US Army Corps of Engineers and the ‘final record of decision’ from the US Forest Service in the second quarter of this year.

"Hudbay started this process with a low-ball bid, which the market clearly has rejected. Now, when their bid is failing, Hudbay drops their minimum tender condition in a desperate attempt to give life support to their bid. Their tactics are just appalling,” Augusta executive chairperson Richard Warke said.

Augusta’s president and CEO Gil Clausen added that Hudbay was opting to proceed with plan ‘B’, rather than “making a proper offer that Augusta shareholders would view as fair”.

“That is exactly what our shareholder rights plan is there for – to prevent this sort of highly coercive tactic from being used by Hudbay.  Our strategic process is well under way and we have no doubt that our shareholders will continue to support the efforts of our board to protect their interests,” Clausen said.

As long as Augusta's shareholder rights plan remains in effect, Hudbay cannot take up any shares that might be tendered to its offer without triggering the rights, or ‘poison pill’, as it is often referred to.

SIMILARITIES TO FIRST QUANTUM/INMET DEAL?

Blog writer for financial-services company The Motley Fool Benjamin Sinclair on Monday noted that there were certain similarities to be found between Hudbay’s current offer for Augusta, and the hostile C$5.1-billion hostile takeover bid by First Quantum, in March last year, for rival Inmet Mining, which gave it control of the massive Cobre Panama copper project, in Panama.

He said that late in 2012, Inmet had a market capitalisation of under $4-billion; however, analysts had pegged the true value of the company at $6-billion or more.

Nevertheless, the stock price was depressed owing to Inmet having been busy developing Cobre Panama, which had investors nervous about the company’s ability to fund the project, especially in the event of potential cost overruns – a similar situation to that Augusta faces today.

First Quantum had launched its offer for Inmet in late November 2012, requiring two-thirds of Inmet’s shareholders to approve the transaction. But at first, only 60% of shareholders tendered their shares by the February 14 deadline.

This resulted in First Quantum dropping its minimum tender condition, and also extending the deadline.

“The tactic worked like a charm – after the second deadline passed, more than 85% of Inmet’s shareholders approved the deal. The other 15% had to go along, and today First Quantum owns 100% of Inmet’s shares,” Sinclair said.

Aside from the tactics being used, Sinclair also pointed out another similarity: the lack of competing bids.

He argued that the mining industry was still reeling after a long history of "overaggressive growth and broken promises". Many of the largest companies now have new CEOs, and had promised a more conservative path to growth, with fewer acquisitions.

“No one else put in a bid for Inmet, and likewise it is difficult to imagine a bidding war for Augusta,” he said.

But there is also one conspicuous difference. The First Quantum bid was equal to $72 an Inmet share, but Inmet never traded above $75 a share throughout the process. Today, Augusta trades at more than a 25% premium to Hudbay’s bid, giving Augusta shareholders a lot more optimism than Inmet’s.

“Hudbay is certainly hoping that history will repeat itself, while Augusta is hoping for a different ending. But the mining industry is still struggling, just like it was when First Quantum acquired Inmet.

“It’s very difficult to see why Augusta shares trade at such a premium. Investors thinking about buying shares in Augusta may want to think twice. Although such a gamble could pay off, it’s a very dangerous game to play,” Sinclair said.