Augusta boosts resource at Rosemont

Shares of Augusta Resource Corp. (AZC-T, AZC-N) rose 14.6% or 24¢ to $1.88 after the company released an updated resource estimate for its Rosemont copper project in Arizona. The company expects to issue a project update early next week on Rosemont, which it claims will account for about 10% of copper output in the United States when it enters production in 2014.

Augusta reported it had expanded the measured and indicated sulfide resource from its previous 2008 estimate by 34% to 919 million tons grading 0.41% copper and 0.014% molybdenum for 7.5 billion pounds of copper and 256 million pounds of molybdenum.

The inferred sulphide resource of 139 million tonnes represents a 43% decline from the earlier resource estimate with average grades of 0.40% copper and 0.012% molybdenum for a total of 1.1 billion pounds of copper and 35 million pounds of molybdenum.

The resource estimate used a cut-off grade of 0.15% copper equivalent for sulphide ore, 0.10% for oxides and 0.30% for mixed material.

In a brief research note John Hayes of BMO Capital Markets said he “does not anticipate a significant change in the scale of the project, although the resource update may contribute to the mine life of the project” and pointed out that company’s shares are currently trading at a price to net asset value of 0.3 times compared to the sector average for copper producers of 0.6 times, “reflecting a mix of permitting uncertainty and the company’s development stage status.”

“Global copper resources have increased 12%, with molybdenum resources increasing 53% from the 2008 resource estimate,” he noted. “Resource growth was largely driven by a 29% increase in tonnage with a decline in the copper grade of about 11%. Growth in the measured and indicated category appears to have come primarily from the incorporation of additional pounds from the inferred category and additional drilling, albeit at a lower grade.”

Steve Parsons of National Bank Financial who has an outperform rating on the stock and a share price target of $5.10 wrote in a research note that Rosemont’s larger resource and lower grades “open the door for higher mining rates, greater than our 70,000 tonne per day assumption,” which “could push capex above our US$1.2 billion estimate and heighten financing concerns.” But he added the company “remains confident in its ability to finance the project.”

Augusta closed in Toronto at $1.76 per share within a 52-week range of $1.52-$5.28. The company has about 144 million shares outstanding.