SOURCE: Frontera Copper Corporation

November 12, 2007 19:04 ET

Frontera Copper Reports Third Quarter 2007 Results and Announces Conference Call

(All Dollar Amounts Are Expressed in United States Currency Unless Otherwise Noted)

TORONTO--(Marketwire - November 12, 2007) - Frontera Copper Corporation (TSX: FCC) (TSX: FCC.NT) (TSX: FCC.NT.A) today reports financial and operating results for the quarter ending September 30, 2007.

Third Quarter Highlights

--  Earnings of $10.3 million
--  Cash flow from operating activities of $23.7 million
--  Cash and cash equivalents increased by $10.1 million to $58.8 million
--  Copper production of 15.1 million pounds of copper (sales of 15.7
    million pounds)
--  Repurchase of C$8.9 million of the outstanding notes payable
--  Phase II Construction project completed and Phase III leach pad
    construction initiated
    

Financial Results

(Millions of dollars, except per share)

                                       Quarters              Year-to-date
                             Sept.   June    March   Sept.   Sept.   Sept.
                             2007    2007    2007    2006    2007    2006
                            ------- ------- ------- ------  ------- ------
Revenues (1)                   50.1    50.8    29.0     --    129.9     --
Net earnings                   10.3     9.8     5.0   (5.9)    25.1  (17.2)
Net earnings per share         0.16    0.15    0.08  (0.12)    0.39  (0.36)
Cash flows from operations
 before working capital
 changes                       18.0    27.1    11.7   (5.3)    56.8  (12.6)
Closing cash balances          58.8    48.7    24.4    6.9     58.8    6.9
                            ------- ------- ------- ------  ------- ------

(1) The Piedras Verdes operations commenced production in October 2006.

Net income for the three months ended September 30, 2007 includes net foreign exchange losses of $4.9 million ($4.9 million after tax or $0.08 per share), a loss on the repurchase of the notes payable of $0.9 million ($0.9 million after tax or $0.01 per share) and unrealized losses on derivative contracts of $0.2 million ($0.1 million after tax or nil per share) compared to net foreign exchange losses of $0.5 million ($0.5 million after tax or $0.01 per share) for the three months ended September 30, 2006.

Net income for the nine months ended September 30, 2007 includes net foreign exchange losses of $11.1 million ($11.1 million after tax or $0.17 per share), a loss on the repurchase of the notes payable of $0.9 million ($0.9 million after tax or $0.01 per share) and unrealized losses on derivative contracts of $1.7 million ($1.2 million after tax or $0.02 per share) compared to net foreign exchange losses of $3.1 million ($3.1 million after tax or $0.06 per share) for the nine months ended September 30, 2006.

Capital expenditures for property, plant and equipment totaled $5.4 million in the third quarter of 2007 and $28.4 million year to date in 2007, compared to $21.8 million in the third quarter of 2006 and $73.0 million in year to date 2006.

Alan Edwards, President and Chief Executive Officer, said, "With the Piedras Verdes mine in operation, we continue to focus on achieving full production and to look for opportunities to drive down our operating cost structure in order to improve our operating margins. Our cash balances continue to build rapidly and the company is well positioned to quickly pursue growth opportunities as they are identified."

Results from Operations
(dollars in millions, except per pound)



                                                                   Year-to-
                                                   Quarters          date
                                             Sept.    June   March   Sept.
                                             2007     2007    2007   2007
                                            ------- ------- ------- -------
"LME Grade A" quality copper
 cathode;
(millions of lbs.)
   Produced                                    15.1    15.9    10.4    41.4
   Sold                                        15.7    15.7    10.1    41.5
Cash costs per pound sold ($):
   (Excluding prepaid royalties)               1.13    1.10    1.37    1.18
   (Including prepaid royalties)               1.21    1.18    1.43    1.25

Revenue ($)                                    50.1    50.8    29.0   129.9

Average price per pound:
   Realized ($)                                3.20    3.23    2.87    3.13
   COMEX ($)                                   3.48    3.46    2.70    3.26
                                            ------- ------- ------- -------

For the three months ended September 30, 2007 unit costs were adversely impacted by less than full production, primarily caused by a reduction of sulfuric acid deliveries to the operations due to a strike at the operations of its major sulfuric acid supplier. The Company has been supplementing the acid shortfall, to a limited extent, by obtaining additional supplies of sulfuric acid from other sources. In addition, in early September Hurricane Henriette caused record rain to fall at the Piedras Verdes operations, which negatively impacted leach pad performance by diluting the pregnant leach solution for a number of days. Production was also affected to a lesser extent by poorer than expected equipment availability, which resulted in fewer pounds of recoverable copper being placed on the pad. The operation has taken steps to address the equipment availability issue and by the end of October the operation had made up the ore placement short fall incurred in the third quarter. For the nine months ended September 30, 2007, the higher unit costs are primarily related to less than full production and higher acid consumption in the first four months of the year. Since a portion of the operation's costs do not fluctuate with production volumes, the lower production resulted in higher unit costs.

The Company sells 100% of its copper cathode Free Carrier (FCA) at the mine site to Gerald Metals Inc. The price the Company receives for its copper cathode sales is based on the average COMEX price for the month following the month of shipment ("M+1 Pricing"), minus an adjustment to account for a premium over the COMEX price, and freight, insurance, and financing costs incurred by Gerald Metals. In addition, the Company has entered into a limited hedging program to hedge the revenue from the sale of the first 50% of forecasted monthly copper cathode sales through February 2009 by entering into forward sales contracts. For the three months ended September 30, 2007, the Company's average realized price was $3.20 per pound, compared to the average COMEX price of $3.48 per pound and for the nine months ended September 30, 2007 the Company's average realized price was $3.13 per pound compared to the average COMEX price of $3.26 per pound. Differences in the Company's realized copper prices in comparison to the quoted COMEX prices are due to varying monthly sales levels, the M+1 Pricing arrangement and the results of the Company's hedging program. During the three months and nine months ended September 30, 2007 revenues include 8,763,000 pounds and 17,967,000 pounds of copper cathode sales, which were priced at the average price the Company received under its forward sales hedging program of $3.01 per pound and $3.02 per pound, respectively.

In addition to the realized hedging losses, which have been included in revenue, the Company recorded unrealized losses on derivative contracts of $0.2 million ($0.1 million after tax) for the quarter ending September 30, 2007 and $1.7 million ($1.2 million after tax) for the year to date. The unrealized losses on derivative contracts relate to the ineffective portion of the Company's derivative instruments, which are marked to market at the end of each reporting period.

As at September 30, 2007, the Company has outstanding forward sales contracts with major financial institutions, which are being accounted for as cash flow hedges as follows:

                   Pounds Sold    Average Sales Price  Fair Market Value
        Year        Forward          Per Pound           at Sept 30th
        ----        -------          ---------           ------------
                    ('000s)              $             (in thousands of $)
        2007         5,842             2.97                (4,000)
        2008        34,998             2.81               (25,178)
        2009         8,598             2.62                (6,277)
                   -------          -------               -------
       Total        49,438             2.80               (35,455)

In August 2007, the Company purchased on the open market C$4,490,000 principal amount of the June 2010 Notes and C$4,371,000 principal amount of the March 2011 Notes at a total cost of $8.6 million. The Company recorded a loss on the purchases of $0.9 million relating to acceleration of accretion expense on the portion of the notes purchased. This repurchase will result in annual interest expense savings of approximately $0.9 million. The Company will continue to evaluate additional note repurchases as opportunities arise.

During the three months and nine months ended September 30, 2007, the Company incurred net foreign exchange losses of $4.9 million and $11.1 million compared to net foreign exchange losses of $0.5 million and $3.1 million during the three months and nine months ended September 30, 2006, respectively. The foreign exchange losses primarily relate to the notes payable, which are denominated in Canadian dollars. During both the second and third quarters of 2007 and 2006, the Canadian dollar strengthened significantly against the United States dollar resulting in losses on the notes payable partially offset by gains on the Company's Canadian dollar cash and cash equivalent balances.

During 2007, the Company has applied approximately $28 million of non-capital losses (future tax benefit of $7.8 million) and accrued current income taxes payable of $9.1 million both relating to the earnings generated by its wholly owned Mexican subsidiary Cobre del Mayo, S.A. de C.V. ("CDM"), the owner and operator of the Piedras Verdes operations. The Company's effective tax rate on earnings generated by CDM is 28%. In addition, the Company has accrued current income taxes payable of $1.0 million related to withholding taxes on intercompany interest charges. The Company is not recognizing any tax benefit on the losses generated in Canada.

Cash and cash equivalents were $58.8 million at September 30, 2007. During the three months and nine months ended September 30, 2007, cash and cash equivalents increased by $10.1 million and $25.3, respectively, compared to decreases of $15.8 million and $27.9 million during the three months and nine months ended September 30, 2006, respectively, when the mine was under construction. At November 9, 2007, the Company's cash and cash equivalents were approximately $65 million.

During the three months ended September 30, 2007, cash flows from operating activities were $23.7 million compared to a negative $8.0 million during the three months ended September 30, 2006. Cash flows from operating activities during the three months ended September 30, 2007 include a decrease in working capital balances (excluding cash) of $5.7 million, primarily reflecting increases in income taxes payable of $7.6 million, an increase in other accounts payable of $3.4 million, partially offset by increases in current inventory of $1.7 million, commodity taxes recoverable of $1.2 million and accounts receivable of $0.6 million. The Company expects income taxes payable to continue to increase into the first part of 2008 at which time income taxes related to 2007 earnings of the Piedras Verdes operations will become due. In addition, the Company expects that it will make provisional tax installments throughout 2008 related to the 2008 earnings generated by the Piedras Verdes operations. The Company expects inventory balances to continue to increase throughout the next few years, as the rate of placing ore on the leach pads outpaces the production rate.

Operations Status

On November 3, 2007 the Piedras Verdes operations completed their first consecutive one million man hours without a time lost accident.

Leaching of copper to date is progressing slower than originally expected, but the operation still forecasts achieving the 62.5% final recovery indicated in the 2005 Technical Report.

Ore continues to be placed on the heap leach pad in lifts of five meters (previously ten meter lifts). In addition, approximately two-thirds of the ultimate acid requirement is being applied by pre-soaking the ore with a strong acid solution (approximately 100 grams of acid per liter), prior to rinsing with normal raffinate solutions (approximately 7 grams of acid per liter). The top-down acid cure is expected to increase the amount of recovered copper during the first leach cycle by providing most of the acid up front. With the five meter lifts, each leach cycle is reduced from approximately 120 days to 60 days and additional leach cycles are required to recover the copper in inventory. Under current conditions, the estimate of the percentage of copper in inventory, which will not be recovered during the next twelve months, increased from 6% to 18%. Accordingly, the Company has classified $4.8 million of the heap leach inventory as long term as at September 30, 2007.

During the 2007 third quarter, SX plant solution flows were increased to nearly 2,500 cubic meters per hour as additional leach area became available with the newly completed Phase 2 leach pad. The increased solution flows have increased power and reagent costs. The additional area created by the Phase 2 leach pad will provide the operation with the flexibility to extend leaching cycles and vary solution application rates.

The Phase 2 capital project managed by M3 Engineering & Technology, which started in late 2006, was completed during the third quarter of 2007 at a total cost of approximately $26 million versus the earlier estimate of $28 million. The Company has started construction of the Phase 3 leach pad expansion in the third quarter of 2007 at an estimated cost of $16.8 million, to provide the operation greater flexibility in its leaching operations and solution flow management. Total capital expenditures for 2007 are now forecast at approximately $35 million and include $22 million for completing the Phase 2 capital project, $6 million for the Phase 3 leach pad expansion, and $7 million for the purchase of certain land and other projects at the Piedras Verdes operations. The remainder of the expenditure for the Phase 3 leach pad will be made in the first half of 2008.

As at the end of September, more than 21.8 million tonnes of ore containing over 107 million pounds of recoverable copper had been placed on the leach pads since commencing mining operations last year.

Exploration

During 2006 and 2007, the Company conducted a diamond drilling program at Cerro Chato, which is approximately 1.5 kilometers west of the main Piedras Verdes ore body. A total of 3,377 meters of diamond drilling was completed in 27 holes. Final analytical results for all holes were received in July 2007. The exploration drilling program was successful in discovering approximately 15 million tonnes of oxide mineralization at Cerro Chato; however, the drill hole density is insufficient to allow for estimation of a mineral resource at this time. Additional infill drilling on 50 meter centers will be required in order to delineate 43-101 compliant resources.

The mineralized zones tested at Cerro Chato appear to be similar in grade to the ores currently being mined at the Piedras Verdes operation. In addition, the preliminary metallurgical test results indicate that some of the Cerro Chato mineralization has metallurgical characteristics similar to the ores currently being mined at Piedras Verdes and could therefore potentially add to the life of the operation. More extensive testing is needed to adequately quantify the recovery and acid consumption properties of the Cerro Chato material.

Corporate Development

The Board and management believe there is significant scope for consolidation amongst small to mid-tier copper producers and the Company continues to evaluate opportunities to grow its business through mergers, acquisitions, joint ventures and exploration. The Company is concentrating on opportunities in Canada, United States, Mexico, Peru and Chile with the focus on copper projects, given the highly prospective nature of those regions and the considerable experience which management has in these countries and in the copper industry.

2007 Outlook

The Company continues to focus on achieving its annual production rate of 70 million pounds of copper cathode at the Piedras Verdes operations. The strike at the major supplier of sulfuric acid to the Piedras Verdes operations is continuing longer than previously expected. Therefore, we are now expecting the Piedras Verdes operations to produce at the lower end of our previously announced guidance, and we estimate that the operation will produce approximately 57 million pounds of copper cathode for the full year. However, the Company still continues to estimate that the full year's cash production costs will be in the range of approximately $1.12/lb to $1.20/lb sold ($1.19 to $1.27 per pound including prepaid royalties). The higher cost estimated for 2007 is primarily related to less than full production and the decision taken to increase the total mining rate in order to advance the development of Phase 8 of the mine plan. The development of Phase 8 will provide earlier access to the chalcocite mineralization, which is a lower acid consuming ore with improved percolation characteristics.

Conference Call

Frontera Copper will hold a conference call to report third quarter 2007 results on Tuesday, November 13, 2007 at 11:00 a.m. ET.

The conference call will be chaired by Mr. Alan Edwards, President and Chief Executive Officer. Mr. Edwards will be joined by Mr. Dave Peat, Vice President and Chief Financial Officer and Mr. Tim Swendseid, Vice President of Engineering.

If you wish to participate, please dial 416-641-6125 or Toll-Free 1-866-542-4236.

The call will be available for replay until November 27, 2007. Please dial 416-695-5800 or Toll-Free 1-800-408-3053 and enter Passcode: 3241518.

About Frontera Copper

Frontera Copper is a Canadian mining, development and exploration company whose principal activity is the production of copper cathode from the Piedras Verdes run-of-mine heap-leach copper operation in Sonora, Mexico. Production commenced in October 2006 and at the full annual production rate of 70 million pounds of copper cathode, a total of 942 million pounds of copper is projected to be produced during the 18-year life of the operation. Existing resources and prospective exploration targets adjacent to the main open-pit have the potential to extend the life of the project.

Information in this news release that is not current or historical factual information may constitute forward-looking information or statements within the meaning of applicable securities laws. Implicit in this information, particularly in respect of statements as to future operating results and economic performance of the Company, and resources and reserves at the Piedras Verdes operations, are assumptions regarding projected revenue and expense, copper prices and mining costs. These assumptions, although considered reasonable by the Company at the time of preparation, may prove to be incorrect. Readers are cautioned that actual results are subject to a number of risks and uncertainties, including risks relating to general economic conditions and mining operations, and could differ materially from what is currently expected. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Frontera Copper Corporation
Consolidated Balance Sheet
US$ (in thousands)
(unaudited)
                                                 September 30, December 31,
                                                     2007         2006
                                                  -----------  -----------
                     Assets
Current
     Cash and cash equivalents                         58,844       33,547
     Restricted cash                                        -        1,233
     Accounts receivable                                1,335        1,645
     Commodity taxes recoverable                        4,435        5,817
     Inventory                                         29,932       19,511
     Prepaid expenses and deposits                      4,677        5,741
                                                  -----------  -----------
                                                       99,223       67,494

Restricted cash                                         1,825        1,825
Long term inventory                                     4,813          813
Deferred finance charges                                    -          653
Property, plant and equipment                         136,435      118,927
                                                  -----------  -----------

                                                      242,296      189,712
                                                  ===========  ===========
                      Liabilities
Current
     Accounts payable and accrued liabilities          20,909       21,325
     Income taxes payable                              10,513            -
     Derivative instruments                            22,795            -
     Current portion of notes payable                   6,222        6,704
                                                  -----------  -----------
                                                       60,439       28,029

Accounts payable and accrued liabilities                1,825        1,825
Notes payable                                          73,065       65,663
Asset retirement obligation                             5,591        5,235
Derivative instruments                                 12,660            -
Future income taxes                                     7,894          288
                                                  -----------  -----------
                                                      161,474      101,040
                                                  -----------  -----------
                  Shareholders' Equity

Capital stock                                         102,697      101,412
Contributed surplus                                     1,215        1,734
Accumulated other comprehensive income                (33,727)           -
Retained earnings (deficit)                            10,637      (14,474)
                                                  -----------  -----------
                                                       80,822       88,672
                                                  -----------  -----------

                                                      242,296      189,712
                                                  ===========  ===========




Frontera Copper Corporation
Consolidated Statements of Operations
US$ (in thousands except per share
 amounts)
(unaudited)                               3rd Quarter       Nine Months
                                        ----------------  ----------------
                                          2007     2006     2007     2006
                                        -------  -------  -------  -------

Revenue                                  50,143        -  129,911        -

Cost of sales and expenses
     Cost of sales                       18,943        -   51,942        -
     Depreciation, depletion and
      amortization                        3,452        -    8,255        -
     Exploration                            113        -      359        -
     Administration                       1,407    2,855    4,635    7,837
                                        -------  -------  -------  -------
                                         23,915    2,855   65,191    7,837
                                        -------  -------  -------  -------

Other (income) and expenses
     Interest income                       (683)    (301)  (1,408)  (1,468)
     Long-term interest and accretion     3,025    2,876    9,420    7,706
     Foreign exchange loss                4,869      513   11,146    3,113
     Loss on repurchase of notes
      payable                               944        -      944        -
     Unrealized losses on derivatives
      contracts                             172        -    1,728        -
                                        -------  -------  -------  -------
                                          8,327    3,088   21,830    9,351
                                        -------  -------  -------  -------

Income (loss) before income taxes        17,901   (5,943)  42,890  (17,188)
Income taxes                             (7,554)       -  (17,779)       -
                                        -------  -------  -------  -------

Net income (loss) for the period         10,347   (5,943)  25,111  (17,188)
                                        =======  =======  =======  =======


Income (loss) per share - Basic            0.16    (0.12)    0.39    (0.36)
                        - Diluted          0.16    (0.12)    0.39    (0.36)

Weighted average common shares
 outstanding - Basic                     64,179   48,451   63,888   48,239
             - Diluted                   64,924   48,451   64,587   48,239




Frontera Copper Corporation
Consolidated Statements of Retained
 Earnings (Deficit)
US$ (in thousands)
(unaudited)
                                          3rd Quarter       Nine Months
                                        ----------------  ----------------
                                          2007     2006     2007     2006
                                        -------  -------  -------  -------

Retained earnings (deficit), beginning
 of period                                  290  (23,088) (14,474) (11,843)

Net income (loss) for the period         10,347   (5,943)  25,111  (17,188)
                                        -------  -------  -------  -------

Retained earnings (deficit), end of
 period                                  10,637  (29,031)  10,637  (29,031)
                                        =======  =======  =======  =======





Consolidated Statements of Comprehensive (Loss)
US$ (in thousands)
(unaudited)
                                           3rd Quarter      Nine Months
                                        ----------------  ----------------
                                         2007     2006     2007     2006
                                        -------  -------  -------  -------

Net income (loss) for the period         10,347   (5,943)  25,111  (17,188)

Unrealized losses on derivatives
 designated as cash flow hedges:
   Arising during the period
    (net of tax of $3,149,000, Nil,
     $9,444,000 and Nil, respectively)   (8,095)       -  (24,283)       -
   Less: Tax valuation allowance         (3,149)       -   (9,444)       -
                                        -------  -------  -------  -------
                                        (11,244)       -  (33,727)       -
                                        -------  -------  -------  -------

Comprehensive (loss) for the period        (897)  (5,943)  (8,616) (17,188)
                                        =======  =======  =======  =======





Frontera Copper Corporation
Consolidated Statements of Cash Flows
US$ (in thousands)
(unaudited)                               3rd Quarter       Nine Months
                                        ----------------  ----------------
                                          2007     2006     2007     2006
                                        -------  -------  -------  -------
Cash flows from operating activities
Net income (loss) for the period         10,347   (5,943)  25,111  (17,188)
     Items not involving cash:
          Stock-based compensation            -       30        -       91
          Future income taxes                 -        -    7,606        -
          Unrealized foreign exchange     5,278      161   11,479    2,675
          Depreciation, depletion and
           amortization                   3,975        -   10,913        -
          Accretion                         832      585    2,481    1,602
          Write-off of deferred finance
           costs                              -        -      522        -
          Unrealized losses on
           derivative contracts             172        -    1,728        -
          Long term inventory            (3,561)       -   (4,000)       -
          Loss on note repurchase           944        -      944        -
                                        -------  -------  -------  -------
                                         17,987   (5,167)  56,784  (12,820)

Changes in non-cash working capital
 balances                                 5,665   (2,866)   2,060   (5,310)
                                        -------  -------  -------  -------
Cash flows from operating activities     23,652   (8,033)  58,844  (18,130)
                                        -------  -------  -------  -------

Cash flows from investing activities
     Property, plant and equipment       (5,416) (21,794) (28,421) (72,968)
     Decrease in restricted cash              -    2,878    1,233   29,068

                                        -------  -------  -------  -------
Cash flows from investing activities     (5,416) (18,916) (27,188) (43,900)
                                        -------  -------  -------  -------

Cash flows from financing activities
     Issuance (repurchase) of notes      (8,385)       -   (8,385)  22,085
     Exercise of warrants                     -      868        -    1,377
     Exercise of options                    165      172      766      172
     Loan proceeds                            -   10,281        -   10,281
                                        -------  -------  -------  -------
Cash flows from financing activities     (8,220)  11,321   (7,619)  33,915
                                        -------  -------  -------  -------

Effect of exchange rate changes on cash     101     (153)   1,260      208
                                        -------  -------  -------  -------

Change in cash and cash equivalents
 during the period                       10,117  (15,781)  25,297  (27,907)

Cash and cash equivalents, beginning of
 period                                  48,727   22,682   33,547   34,808
                                        -------  -------  -------  -------

Cash and cash equivalents, end of
 period                                  58,844    6,901   58,844    6,901
                                        =======  =======  =======  =======

Cash and cash equivalents consist of:
     Cash                                 6,789    5,399    6,789    5,399
     Cash equivalents                    52,055    1,502   52,055    1,502
                                        -------  -------  -------  -------

                                         58,844    6,901   58,844    6,901
                                        =======  =======  =======  =======

Supplemental information:
     Interest paid                        1,449    1,353    5,905    4,458
     Income taxes paid                        -        -        -        -

Contact Information

  • For further information, please see Frontera Copper's website at
    www.fronteracopper.com or contact:

    Alan R. Edwards
    President and Chief Executive Officer
    Tel.: 602-424-5488
    Toll-free: 888-323-0973
    Email: Email Contact

    Dave Peat
    Vice President and Chief Financial Officer
    Tel.: 602-424-5484
    Toll-free: 888-323-0973
    Email: Email Contact