TORONTO, ONTARIO -- (Marketwire) -- 11/14/08 -- Centenario Copper Corporation ("Centenario" or the "Company") (TSX: CCT) reports its financial results for the three and nine month period ending September 30, 2008. Set out herein are the highlights and an excerpt from the MD&A for the three and nine month period ended September 30, 2008. The interim Financial Statements and Management Discussion and Analysis of the Company are available on the Company's web site at www.centenariocopper.com and on SEDAR at www.sedar.com. All amounts are expressed in US dollars unless otherwise stated.
Highlights:
- Franke SX-EW copper project nearing start-up - first cathode projected for early February, 2009
-- Construction stage substantially complete and pre-commission activities underway. One month delay in start-up expected, due to late interconnection with Chilean power grid.
-- Projected Franke Project capital cost now $234 million, up 11% from $210 million previously. Increase due to cost inflation, change orders, scope changes, in part to accommodate the anticipated integration of nearby China deposit into the mine plan.
- Franke Project funding status and partial re-purchase of copper hedge book
-- Projected Franke Project funding requirements, up to final payments in April 2009, exceed currently committed funding sources by $26 million. Funding shortfall driven by capital cost increase and severe fall in copper price, which has significantly reduced expected initial operating cash flow. Starting in May 2009, positive operating cash flow expected, supported by copper forward sales program.
-- Company's copper hedge book has mark-to-market value of $77 million, as of November 13, 2008. Lender consent received for partial hedge repurchase to generate $26 million in proceeds, subject to final documentation, and maximum close-out price of $1.90/lb. Release of proceeds to Company subject to satisfactory completion of Lender due diligence and Company's ability to continue to meet the terms of the Franke Credit Agreement, or such amendments as the Lenders may require.
- Fast track evaluation of copper targets continued at near-by Pelusa Property
-- Updated mineral resource released for China deposit - Measured & Indicated leachable mineral resources increased to 29.0 million tonnes at 0.55% CuT.
-- Evaluation substantially completed for combining China oxide starter pit into the existing Franke mine plan, which would reduce near-term acid requirements. NI 43-101 compliant Technical Report currently in progress and expected. Metallurgical test work to commence shortly on China mixed and secondary sulphide resources, for potential inclusion in future revision to mine plan.
-- Diamond drill program undertaken at China Sur target, to test underlying primary sulphide zone. Assays anticipated for release in December, together with results of in-fill RC drill program of the leachable zone.
- Pan de Azucar second drilling exploration program completed
-- Final assays expected in November, followed by revised geological model and resource evaluation.
-- Satisfactory results from recently completed flow rate sustainability tests on two water wells.
- Reassessment of discretionary spending underway, in light of current industry environment: Management reviewing all future discretionary expenditures for potential deferral, pending improved conditions and/or availability of free cash flow from operations.
- Earnings: Q3 2008 earnings of $44.4 million ($0.87 earnings per share basic and $0.86 fully diluted), or a loss of $9.2 million ($0.18 loss per share) excluding derivative income, foreign exchange, stock based compensation, and amortization.
CENTENARIO COPPER CORPORATION
(Expressed in thousands of US dollars, unless otherwise stated)
Extract from the Company's Management Discussion and Analysis:
REVIEW OF PROJECTS
Franke
The construction stage at the Franke Project is now substantially complete. Final electrical, piping and instrumentation activities are underway and the project pre-commissioning stage has begun. Mining activities have commenced and ore is being stockpiled in preparation for the start-up of the process plant. The water pipeline is undergoing final inspection and water is available on site. The local plant area 23kv power grid is operational, drawing from diesel generator sets on site, which provides sufficient power for most pre-commissioning activities. Due to delays in finalizing and documenting contractual arrangements with the owner of the local electrical sub-station, the Company now anticipates that the completion of the interconnection to the Chilean power grid will be delayed until mid-December, at which time ore processing can commence. Based on the achievement of this interconnection schedule, the Company currently projects first cathode production will occur in early February, 2009.
In August 2008, Centenario indicated that the capital cost for completing the Franke Project was $210,000 including owner costs and pre-startup plant and work-in-progress working capital. Based on most recent information, the forecasted cost to completion of the Franke Project is now estimated at $234,000. The increase projected cost is due to changes in each of the plant capital cost, owner costs and working capital areas. Capital cost changes relate principally to overtime labour costs, other change orders and to scope changes for the Franke plant, in part to accommodate the anticipated integration of a portion of the nearby China deposit (a location at Pelusa) into the mine plan. It also includes allowances for certain capital items where the final cost may still be at risk, and a global contingency. Owner Cost changes relate principally to an accelerated ramp-up in operational labour force, prior to the completion of the plant. Working Capital changes relate principally to the inclusion of leach-pad overliner material that will continue to be placed on the leach pad into the first quarter of 2009, but is part of the overall plant cost, as well as the posting of a cash guarantee on a key operating contract, which was previously anticipated to be settled by way of a letter of credit. Remaining capital payments are projected to be paid over the period up to April 2009.
As discussed in more detail in the "Financing" and "Liquidity Outlook" Sections below, the Company currently projects (in the absence of the additional funding discussed below) that the Franke project would face a net funding shortfall of about $26,000, through to the end of April 2009. The Company expects to begin generating positive cash flow at Franke in May 2009, when it will start to benefit from its Copper Hedge (see below), which will allow the Company to fund the Franke operations. Company management is assessing all areas of capital expenditures and operating costs, in an ongoing effort to reduce the funding requirements of the Franke Project, both prior to, and after, the point at which it achieves positive operating cash flow.
The Company has in place a copper hedge which consists of the forward sale of 25.5 million pounds at an average price of $2.80/lb, for delivery between May and December, 2009 and 49.0 million pounds at an average price of $2.75/lb over the course of 2010, for a total of 74.5 million pounds of copper at an average price of $2.77/lb. Due to the recent severe decline in the copper price, this hedge position has become a significant asset, with a mark-to-market value of approximately $77,000 (before close-out costs), as of November 13, 2008.
The Company has sought and received the consent of the lenders under the Franke Credit Facility (the "Lenders"), to repurchase a portion of the 2010 copper hedge book to yield $26,000 in net proceeds, subject to documentation, which is anticipated to be finalized shortly, and achieving a maximum average hedge closeout price of approximately $1.90/lb, (the "Copper Hedge Repurchase"). For reference the July 2010 LME forward price closed at $1.75/lb on November 13, 2008. Subject to market conditions, the Company expects to complete the Copper Hedge Repurchase in the near future.
The proceeds from the Copper Hedge Repurchase (the "Hedge Proceeds") will be placed into an escrow account. The release of the Hedge Proceeds to the Company will be subject to the completion, to the satisfaction of the Lenders, of due diligence activities underway by the Lenders' Technical Agent in relation to an updated Franke Development Plan, which includes the revised capital cost and development schedule and a revised mine plan, which incorporates a China starter pit of oxide material into the previously standalone Franke mine plan. The revised mine plan is progressing, and it will be incorporated into an NI 43-101 compliant Technical Report currently underway. The release of the Hedge Proceeds and drawing of the remaining $5,000 available under the Franke Credit Facility will also be subject to the Company's ability to continue to meet the terms of the existing Franke Credit Facility, or such amendments as the Lenders shall require, which may include, but may not be limited to, revised pricing, covenant terms and loan amortization schedule and additional copper hedging.
The Company currently anticipates that Lenders' Technical Agent will complete its' due diligence review in the next several weeks and that it will be able to finalize a satisfactory agreement with its Lenders shortly thereafter in relation to any modifications that may be required to the Franke Credit Agreement in order to satisfy the conditions of release of the Hedge Proceeds to the Company. However, there can be no assurance that the Company will be able to reach definitive agreement with the Lenders, or will be able to meet the Lenders' conditions for the Copper Hedge Repurchase, or for the release of the Hedge Proceeds to the Company.
Pelusa
On the nearby Pelusa Property, a fast track evaluation of various copper targets continues. In early April, the Company completed Phase 4 drilling of the Leachable Copper Target area, which included infill drilling (to roughly 50 metre centers) at the China, China Sur, India and SW Japan targets. This was followed by a diamond drill program at China Sur, aimed at better defining the mineralized structure and following up on potentially economically interesting primary sulphide potential at depth below the leachable zone. As of September 30, 2008, 99,234 metres of drilling have been completed at the Pelusa Property 85,135 of reverse circulation drilling ("RC") and 14,099 metres of diamond drilling.
At China, an updated mineral resource calculation was released in August (see News Release 08-15, dated August 20, 2008) together with details of metallurgical test work conducted to date. At a cut-off grade of 0.3% total copper, the Measured & Indicated leachable mineral resource increased to 29.0 million tonnes at 0.55% total copper. A further 0.8 million tonnes at 0.48% total copper in included in the Inferred category. This compares the May 2007 Indicated Leachable mineral resource of 9.7 million tonnes at 0.58% CuT and a further 11.6 million tonnes at 0.55% CuT in the Inferred category. The earlier mineral resource also included a classification of primary sulphides, most of which has now been reclassified as secondary sulphides and is included in the updated leachable mineral resource estimate.
Preliminary metallurgical test work has demonstrated that China material is amenable to treatment by a typical leaching, solvent extraction and electro-winning process. Preliminary test work has indicated an average overall recovery estimate for the China leachable mineral resource of approximately 80%, with the oxide zone showing the highest recovery (85%) and the secondary sulphide zone the lowest (73%). The infill drilling has also confirmed the overall carbonate profile of the China resources, a key determinant in projecting acid consumption in the copper extraction process. The average carbonate level in the updated Measured & Indicated leachable mineral resource is 2.0%, as compared to the 4.1% average for the nearby Franke deposit. Metallurgical test work has resulted in a preliminary average acid consumption estimate for the China leachable mineral resource of around 47kg/t (as compared to 83kg/t for Franke reserves), with oxides generally exhibiting the lowest acid consumption (37 kg/t average) and the secondary sulphides the highest (57 kg/t). The metallurgical parameters for the oxide zone were based on the results of 2 column test programs, whereas the parameters for the mixed and sulphide zones were based on more preliminary bottle roll test work.
As a result of the encouraging increase in overall resource and metallurgical test work at China, Centenario announced in August that it was considering integrating a starter pit of China oxide material into the existing Franke mine plan. This evaluation is now substantially complete and will be released following the completion of a 43-101 compliant Technical Report currently in progress. The China deposit is located approximately 5.5km from the Franke Plant and ore would be trucked there for processing. Column test work of the China mixed and secondary sulphide material will start shortly and, assuming the current metallurgical estimates are validated, a further revision to the mine plan will be undertaken in 2009 to include these portions of China also.
The Company has, to date, received partial assay results from the recent China Sur diamond drill program (25 holes for 7,012 metres).
