Open letter to investors and potential stockholders of Augusta Group, Augusta Resource Corp.

Are you getting a good (or even a fair) deal?

Here in Pima County, Arizona, (near Tucson) we are dealing with a Canadian investment company—
Augusta Group, also known as Augusta Resource Corp., Rosemont Copper—that is proposing to destroy 6,000 acres of our Coronado National Forest. They are seeking loans from banks in South Korea, Europe with promises of copper supplies. The writer of this report is an American citizen; therefore, one of the owners of the public lands. I could not comprehend what kind of people who would destroy 33,000 mature trees—many of them century-old oaks, especially in a national forest. Keep in mind, this is not Canada. Arizona has only 4% of forest cover; it ranks 43 rd in the U.S. Therefore, I set out on a mission to investigate the legitimacy of the company that the American public would be doing business with.

I have compiled some relevant information which is presented below. So the question is: Do you want to be doing business with this type of company? If so, so be it. At least you will have educated yourself concerning the practices of the company.

Breaking News: Environmental Protection Agency (EPA) wants the Army Corps of Engineers to protect the "outstanding waters" of the U.S. from pollution by chemicals and sediment from the Rosemont Copper Project. This action could hold the permitting up for years. It took Phelps Dodge (an Arizona mining company) 10 years to get the permits at their new Safford mine, and there was no opposition and no "outstanding waters."

Here's some history on the company:

Augusta Resource Corp. is first mentioned in Richard W. Warke's 1998 Bankruptcy Records.
At that time, he owned Augusta Capital Corp. that had three subsidiaries:
Augusta Gold Corp.
Augusta Mining Company
Augusta Resource Corp.

In Augusta Resource Corp.'s Annual Information Form (AIF) to stockholders for 2010, dated March 29, 2011 , under the heading of “Risk Factors” (pages 10-17); the company lists twenty-nine reasons why the company can fail financially—even if their one mining property in Arizona were to be permitted. See excerpts from Annual Report. Note that numbers 26 and 27 concern "conflicts of interest" and “indemnity” and “protection” of officers and directors. With some investigation, it became clear why these two stipulations were necessary.

Their annual report (page 8) also outlines loans from Japan and China:

On April 23, 2010, Augusta completed a $43 million senior secured loan agreement and a copper concentrate off-take agreement with Red Kite Explorer Trust (“Red Kite”). now have from China, but are now seeking loans from South Korean and European banks..... Proceeds from the loan were used to retire the outstanding balance payable by Rosemont Copper Company under the Sumitomo Loan Agreement.

Now they are seeking $404 million from South Korean and European banks to start construction on the proposed mine that has not been permitted. In exchange, they are also offering them copper. What about their claim that they will be providing much needed copper in U.S.

A local non-profit environmental group has filed securities complaints with regulators in Canada and the United States . The formal complaints allege that certain Augusta Resource Corporation officers and directors, namely Richard W. Warke and Ronald B. Clark, have failed to disclose required and material information in their securities filings. Thousands of pages of public records and publicly available information supporting the complaint can be found at:

Compilation of excerpts from these reports on mineral and financial holdings of Richard W. Warke and Augusta Board Members records and connections:

You may also want to know that “The Company does not intend to pay dividends.” (Page 18 of AIF)

Augusta has never paid a dividend to its shareholders and intends to retain its cash for the continued development of its business. Augusta does not intend to pay cash dividends on its common stock in the foreseeable future. As a result, an investor's return on investment will be solely determined by his or her ability to sell the Company's common shares in the secondary market.

At the present time, Augusta Resource Corp. is stating that Rosemont in Arizona is its sole property, even though press releases in 2000, 2002, 2004 and 2006 stated they had obtained properties in Guadalupe, Mexico, Nunavut, Canada, White Pine County, Nevada and New Mexico. We have to know what is happening on these properties to get a picture of what could happen here or even if the press releases were based on facts:

Here's some history on the project they are promoting:

In 2005, Augusta Resource purchased Rosemont Ranch property, which included patented mining claims in the Coronado National Forest :

One piece of the complicated Asarco mining company's much litigated lineage has been put to rest as the company announced a settlement deal with Augusta Resources, which purchased the Rosemont Ranch property located in the Santa Rita Mountains . The settlement calls for Augusta to pay $1.25 million this year and another $9 million during the next eight. [Where is this million annual listed in the AIF annual report?]

In 2005, they announced the hiring of Jamie Sturgess, a former Environmental Manager of Cyprus Minerals in Arizona . This company was so stressed with environmental problems that four out of five of its mines in Arizona were under Superfund status [Tohono O'odam, Duval/Sierrita, Bagdad, Pinal Creek], and another violation was pending for air quality for purposely running the molybdenum roasters without the required scrubbers in the middle of the night in their Duval/Sierrita Operation in Green Valley. [Fine was settled in 2003 by the next owner.]

Why would August Resource Corp. hire such an “experienced” environmental manager? ( It is interesting that the notice mentions his permitting expertise. At the local Cyprus Sierrita mine, Cyprus avoided an aquifer protection permit for years—even after it was finalized in 1997, Cyprus continued to fail to sign and comply with the permit. Again, the next owner had to deal with the pollution problems. So Sturgess' permitting experience could be the type that Augusta Resource wants, but not what the public wants.

In 2007, Augusta Resource bought up three plots of land in Sahuarita, Arizona for their water supply wells. They used three different names, Kanarco, SanRita Properties, and Dawson Properties for the purchases, so that the sellers would not know they were selling to a mining company—or that a mining company was buying up land in the region. Their first air violation was on the Kanarco property. When PDEQ sent them a notice of the violation, it was returned marked incorrect address.

Grounds for potential law suits:

1) The highway safety issues are extremely grave. The state highway where the trucks hauling ore and chemicals will be on a scenic two-lane highway, near an urban area. The people who live in this region have to use this highway to Tucson to get groceries. The safety analysis would have stopped any decent corporation short. Nevertheless, since the notice for the highway accidents and deaths are known and publicly posted, the accidents will occur with “foresight,” so they will not be considered an accident in a law suit.

Safety analysis from the Draft Environmental Impact Statement: Executive Summary, page xxv

Public Health and Safety
When combined with increases in traffic on State Route 83 resulting from population growth, the proposed action would result in traffic increases up to 10 to 88 percent during year 1 of the construction phase (under a 75 percent commuter carpool scenario), 128 to 290 percent during year 5 of the operation phase (no carpool scenario), and 204 to 356 percent by the end of mine life (no carpool scenario). A corresponding decrease in traffic safety would occur that may result in 61 to 107 accidents per year (from current rate of roughly 30 accidents per year), with a fatality occurring between one and two times per year (from a current rate of roughly one fatality every 3 years). By applying the mitigation measure of a partial carpool during the operation phase (75 percent of worker commutes in 5-person vans), the traffic increase from mine related traffic and population growth would be 67 to 135 percent at year 5 of operations and 137 to 201 percent during year 20 of operations. Direct impacts to public health and safety associated with traffic would remain after mitigation.

2) The Arizona Constitution has a “takings” clause, as the property value in the region of the mine will definitely be lowered: 17.  Eminent domain: just compensation for private property taken; public use as judicial question.

Section 17.  Private property shall not be taken for private use, except for private ways of necessity, and for drains, flumes, or ditches, on or across the lands of others for mining, agricultural, domestic, or sanitary purposes.  No private property shall be taken or damaged for public or private use without just compensation having first been made, paid into court for the owner, secured by bond as may be fixed by the court, or paid into the state treasury for the owner on such terms and conditions as the legislature may provide, and no right of way shall be appropriated to the use of any corporation other than municipal, until full compensation therefore be first made in money, or ascertained and paid into court for the owner, irrespective of any benefit from any improvement proposed by such corporation, which compensation shall be ascertained by a jury, unless a jury be waived as in other civil cased in courts of record, in the manner prescribed by law.  Whenever an attempt is made to take private property for a use alleged to be public, the question whether the contemplated use be really public shall be a judicial question, and determined as such without regard to any legislative assertion that the use is public.

Potential Technical Problems

The Cyprus Bagdad mine received EPA violation and was listed as a CERCLIS site because of constructing a tailings impoundment over a wash. The impoundment was built before Sturgess' employment; however, he was the environmental manager who received the notice of violation. With this experience, one would have thought he would have warned of the dangers of putting tailings over washes on the Rosemont project.

In Arizona, when it rains it pours. Flood waters off the mountains are horrific. Through the centuries, washes have developed to carry the water down and around the mountains. When one messes with these washes, bad things happen. I have seen homes a foot deep in water and streets impassible because a developer put in some 20 houses with wide easements near a wash. I have seen headcuts up coming up from a wash to the back-door of a newly contructed $200,000 home. It won't work.

The groundwater that goes downstream to Tucson will be polluted by mining operations. It happens at all Arizona copper mines. Not only will the heavy metals from the milling soak into ground, spills of liquid chemicals and gas and oil products is common, especially spills of sulfuric acid from pipe breaks, etc. This problem will cause untold hardship to the community downstream, and also to the mining company for the fines they will have to pay. Data from local mine in Green Valley. It will be necessary to have an evacuation plan on the highway and near residents (who wanted to get away from it all).

Pollution of the air is impossible to avoid. The diesal truck emissions are only one avenue of pollution. Dust issues will be continue—particularly since the mining company plans to use dry tailings. We get terrible dust, even with wet tailings. Do you think they won't switch to wet tailings that use three times as much water if they need to? It's not clear if the company will use a local roaster for their molybenum, as they do in all other moly operations in Arizona.

We have the previously mentioned violation by Cyprus Minerals with Sturgess as Environmental Manager. The company who bought out Cyprus Minerals had to pay $1.4 million in penalties for the violations commited by Cyprus (another time Cyprus was able to delay the process) Between 1994 and 1999, Cyprus Minerals illegally discharged more than 1,000 tons of the pollutant sulfur dioxide. Air quality violations are taken seriously and fined heavily in Arizona.

National Forest and Wildlife will be devasted

Thousands of beautiful trees, hundreds of century-old oaks, will be covered with 100 ft. of tailings and waste rock. The Forest Service does not count trees, so I took on the task to conduct a count myself. With a large ortho-photo map, I ascertained that 33,000 mature trees would be destroyed on Forest Service land. [See Map] Many of these are century-old oaks.

The Arizona Fish and Game Dept. have been very outspoken about this destruction of habitat for game birds and deer, as well as other wildlife. In preliminary comments, their representatives stated in 2008:

We have reviewed the Mine Plan of Operations. Our preliminary review indicates that despite any and all mitigation measures, this project will result in significant adverse impacts to wildlife, wildlife habitat, and wildlife recreation. We believe that the project will render the northern portion of the Santa Rita Mountains virtually worthless as wildlife habitat and as a fluctioning ecosystem, and thus also worthless for wildlife recreation. Furthermore, the project has great potential to impact wildlife and habitat off the forest. We therefore do not support the development of the Rosemont Mine.

Funds for Reclamation Bonds

The financial records of Augusta Resource Group—the investment company at top of a myriad of mining ventures. Their game is bound to fail sooner or later, so the bonding must reflect the instability of the company and it must be in Certificates of Deposit, as required in New Mexico. The reclamation bond for the Chino and Tyrone mines is $350 million each. With all the unknown factors of “new” technolgies of a company that has never mined… that would be a fair figure. The Arizona Department of Environmental Quality, Forest Service and State Office of Mining require separate bonds. The good ole boys at Rosemont Copper have budgeted $50 million even though they know reclamation is a farce. They can't even get grass seed to grow on their test plots of top soil in four years... Anyway, grass seed is hardly reclamation for century-old oaks.

Is the company worthy of our trust?

At this point, we have no evidence that the company will do what they say they will do. Their duplicity on this project has been overwhelming. They have stated again and again that they bought the Rosemont Ranch, so they have private land to mine on, as if they would be mining on ranch property. On the contrary, the one-mile wide pit will be on patented mining claims in the National Forest—and 25% on unpatented claims.

Further, the managers have said again and again, that they will not be mining on the west side of the Santa Ritas. However, they have registered for all the old Anaconda mining claims in the Helvetia District and, in addition, have bought 3 ranch properties totaling almost 500 acres in that District. All together, they have purchased 186 parcels... To the south of the current proposed project, they have also purchased private properties on the Greaterville Road —surrounded by Forest Service Land. One of the properties was a home with purchase price of $385,000. Wonder who is going to live in that pad? Rosemont's purchase of private lands in region. Further, although they tout all the taxes they will be bringing to the region, I just filed a Report with the County Supervisors and the Tax Assessor as they are using a ranch for industrial purposes, "a hard-hat, construction zone," I was told a year ago when I tried to cross the property to get to the other side of the forest.

The company is spending some tens of thousands dollars weekly in PR and PR schemes and scams to mislead the public. Why would they feel obligated to do so, if they were a legitimate company to willing to do legitimate business? They are buying TV ads, full page newspaper ads ($10,000) and promising innocent young people (who have no qualifications) jobs and a free dinner if they come to public meetings and state that they need jobs. They have been doing this for four years, so they are not telling the truth. There are many mining jobs in Arizona , around 300, about 1/3 of them in the Tucson area. I have been tracking mining jobs in Arizona throughout 2011. The local mining companies can't find qualified workers—or contactors. Even Rosemont had to hire a Utah Company to do its test drilling—and to put up a fence.

What is the price tag of this hype campaign? We only know that it is less than $34 million because the numbers are lumped into the “pre-production expenses” category on their financial statement.

Stay tuned—there is surely more to come!!
And here it is: When Ron Barber, staff of Gabrielle Giffords, who was wounded in the Jan. 8 shooting spoke at the recent Forest Service Sahuarita hearing and has only recently been able to return to work for one-half day, he was booed and jeered by the pro-Rosemont supporters who had been bused in for a free lunch. See for yourself if this is the type of people you want your money riding on.