Centenario Copper Corporation

Centenario Copper Corporation

February 21, 2008 16:01 ET

Centenario Announces Update on Franke Development Program; Project Remains on Schedule to Produce First Cathode by 2008 Yearend

TORONTO, ONTARIO--(Marketwire - Feb. 21, 2008) - Centenario Copper Corporation ("Centenario", or the "Company") (TSX:CCT) announces an update on recent progress at the Franke project which is currently under construction.

Summary of recent developments:

- Contracts covering 85% of capital cost have been let, of which 71% on Fixed Price EPC basis.

- Construction well advanced, with all major items procured and contractors mobilized to field.

- Project remains on schedule for producing first cathode by the end of 2008

- Operating contracts covering 77% of projected operating costs have been finalized, including mine contract to contract miner and acid contracts covering over 80% of projected acid requirements over initial 4 years.

- Recent AMEC review increases capital cost estimate by $9.3 million (5.7%) to $171.7 million, including $4.8 million (3.0%) over-run to date and $4.5 million (3.0%) escalation allowance for potential future capital cost creep.

- Recent steep devaluation of US$ against Chilean Peso to current 470 peso level results in potential $14.1 million (8.2%) further capital cost increase arising from foreign exchange losses yet to be realized.

- Centenario intends to protect capital cost from further currency fluctuations by implementing currency hedge. Implementation expected in early March, with collateral provided by initial drawdown under existing $110 million project debt facility.

- Centenario commits additional $22.5 million equity to project within 75 days of initial debt drawdown (subject to +/- $0.9 million adjustment for each 1% in further foreign exchange fluctuation prior to hedge implementation).

- Centenario considering subordinated debt and equity funding alternatives to fund additional Franke contribution

- Management believes Franke is a very robust project that will generate outstanding returns to shareholders.

Richard Colterjohn, President and CEO of Centenario commented: "The US dollar has recently weakened against most currencies, but none more so than against the Chilean peso. The speed and magnitude of this adjustment has been surprising but we believe we have responded rapidly with a responsible solution. We do not consider it prudent to leave the project exposed to ongoing currency fluctuations and have accordingly decided to implement a currency hedge as soon as is practical. This will obviously crystallize the foreign exchange loss, which at current exchange rates will add a further cost to the project. It is a particular disappointment to experience this foreign exchange related over-run because our project team has done a remarkable job to date in executing on an aggressive development timetable while containing the rampant capital cost inflation that is impacting all projects in the mining sector. Excluding the currency exposure, the project is currently over budget by some 3%, compared to the control budget."

"We believe that our chosen course is prudent. By committing a further $22.5 million in equity to the project, we will fund not only the potential foreign exchange loss but also provide an additional $10 million fire wall against potential future capital cost creep. In the context of having already committed 85% of the project's capital cost, mostly under fixed price contracts, management is highly confident that this additional funding will see the project through to a successful startup."

"Development is proceeding rapidly and the project remains on track for producing first cathode by the end of year, in keeping with our earlier commitment to our shareholders. In addition, we continue to reduce project risk as we enter into operating contracts covering the majority of our projected costs. Franke is one of the few copper projects currently in development and it is poised to shortly take advantage of the current high copper price environment. We continue to believe that Franke remains a very robust project."

Franke project Funding status:

As reported separately, (see News Release 08-01, dated February 21, 2008), the revised capital cost estimate for Franke has increased to $171.7 million, or an increase of $9.3 million (5.7%) compared to the Control Budget. This revised estimate includes an actual Control Budget over-run to date of $4.8 million (3.0%) and a escalation allowance of $4.5 million (3.0% of plant capex or 2.7% of overall budget) to cover potential capital cost creep over the remaining construction period.

In addition, the project faces the potential for an additional cost over-run due to a current mismatch between its currency of funding (principally US$) and the currencies of expenditure (30% US$, 70% Chilean peso). The US$ has declined significantly against the Chilean peso in the last several months, from a level of close to 520 pesos in early December to a current level of around 470 pesos, or a decline of about 9% over this period). Based on a rate of 470 pesos to the US$, this depreciation has created a potential unrealized foreign exchange loss of $14.1 million (8.2% of revised capital cost), which will vary by around $0.9 million (0.5%) for each 5 peso move in the exchange rate. Any actual realized foreign exchange loss will depend ultimately on the exchange rates in effect over the course of the project.

The Company wishes to protect the project capex from any further movement in the US$/peso exchange rate, by means of implementing a currency hedge. Centenario intends to implement the hedge as soon as it makes an initial drawdown under the project debt facility, which will provide the collateral for the hedge. Initial drawdown requires Centenario to meet certain industry standard conditions precedent, which management is highly confident it will meet by no later than early March.

To ensure that the project remains fully funded, Centenario has agreed with its project debt lenders to commit $22.5 million of additional equity to the project, subject to further adjustment if the hedged exchange rate varies from 470 pesos to the US$. This additional contribution will fund the foreign exchange loss and also provide for a further increase in the escalation allowance for future project capital cost creep, to $10.0 million, up from $4.5 million in the revised capital cost estimate. The Company believes that this funding is prudent, as it will provide an even higher degree of confidence that the project will remain fully funded. Centenario and the lenders have agreed that this additional equity contribution will be provided within 75 days of first draw-down of the project debt.

The Company plans to fund this incremental equity contribution either by means of raising additional equity or from the placement of debt at the parent company level, or some combination thereof. The Company plans to make a determination as to the optimal funding strategy and execute it well before the end of the 75 day period above.

Major capital expenditure contracts:

Contracts covering approximately 85% of the capital costs have been let, including 71% contracted on a fixed price EPC basis. Key agreements include the following:

- Wet Area (SX-EW and tank farm): Fixed price EPC contract with Outotec Chile Ltda. ("Outotec").

- Dry Area (Crushers, agglomeration, conveyors): Fixed Price EPC contract with FLSmidth Minerals S.A. ("FLSmidth").

- Power Line: Fixed price EPC contract with Cical Construccion E Ingeneria Ltda. ("Cical").

- Water Pipeline: Fixed Price EPC contact with Ingeneria Y Construcciones Incolur ("Incolur").

- Mass Earthworks: Unit prices contract with Cical.

- EM Services: Unit prices contract with AMEC International (Chile) S.A. ("AMEC").

- Heap Engineering: Fixed price contract with Vector Engineering Ltda. ("Vector").

- Temporary Camp: Tecno Fast ATCO S.A. ("Tecno Fast")

- Temporary Catering and services: Sodexho Chile S.A. ("Sodexho").

AMEC has been retained to assist Centenario as part of an integrated project execution team, providing general project management services, co-ordination with the various EPC contractors and their subcontractors and engineering and procurement services for the balance of project (BOP). The principal remaining contracts to be let include the Leach Pad and pond construction and various remaining infrastructure items, all of which are planned to be let in the next 60 days.

Development Status and schedule:

Progress with construction is well advanced. About 315 personnel are currently at site and the number is expected to peak at 650 by June. CICAL initiated massive earthworks activities in November and has now completed excavation work on the wet and dry areas, which have been handed off to Outotec and FLSmidth subcontractors who have mobilized to site. Cical continues mass earthworks on the leach pad and pond areas, with this work scheduled for finalization in April, at which time the leach pad construction will commence. Vector has completed the heap engineering and the leach pad contract will be let shortly.

FL Smidth has completed fabrication of the primary, secondary and tertiary crushers. They were shipped on January 30th, with arrival at site expected for March 20th. Outotec is finalizing detailed engineering and procurement and equipment is expected to arrive on site by late July. Their respective subcontractors have mobilized to site and have commenced preparing foundations in advance of erection activities which are expected to commence in April. The 66 km of steel pipe for the water pipeline has been fabricated and is in transit from China, and expected to arrive on site in mid March, a month ahead of schedule. Incolur has started platform preparation in the field for the water pipeline. Power line aluminum cable and poles have been procured and are on-site and Cical has commenced construction of the power line. Power line insulators have been procured and will start arriving on site in March.

The temporary camp facilities are in place. Sodexho and Tecno Fast have both mobilized, and an initial 240 person camp is in place, with a further 240 person capacity to be available by the end of February, to meet the projected ramp up of on-site personnel.

The current development schedule remains on track for on site electrification and water availability during the third quarter and mechanical completion of the dry area and wet area in mid October and mid November respectively. Mining activity will begin in mid October and first cathode remains on track for the end of the year.

In addition, a pilot pad has been assembled on site and is expected to be operational by early March. CCT will use this pad for pre-production metallurgical test work directed at optimizing acid consumption in ore processing.

Operating Contracts:

Centenario has entered into long-term contracts for approximately 77% of its operating costs. Key agreements include:

- Contract mining and spent ore removal (30% of projected operating costs): Centenario has entered into a life of mine contract with Marineer Zona Franca S.A. ("Marineer"), a local Chilean mining contractor. The contract cover all mining activities, including blasting, loading and hauling as well as spent ore removal from the on-off leach pad and haulage to the waste dump. The terms of the contract are highly competitive with the owner operator scenario developed in the 2007 Bankable Feasibility Study. Marineer is using an all new Komatsu mining fleet selected to match the specifications developed by Centenario.

- Acid contracts (37% of projected operating costs): A 150,000 tpy life of mine acid contract was entered into in 2007 with a local smelter, which will cover approximately 46% of the currently projected LOM acid requirements. This contract includes pricing terms which vary with the price of copper. CCT has now entered into a further 5 year contract with BCT Chemtrade Corporation, a leading acid trader for the supply of between 50,000 and 100,000 tonnes a year of acid (at Centenario's option). Pricing under this contract will be according to market conditions. Together, these contracts will meet 100% of the projected acid requirements in 2008, 86% in 2009 and over 80% of the cumulative requirement over the 2008-12 period. Centenario has reached agreement with local smelters for an additional 40,000 tonnes of annual acid supply and expects to execute contracts shortly, bringing its acid supply above 90% of needs over the 2008-12 period. Centenario's strategy is to ensure that it has contracted for 100% of next year's needs over the life of the mine and it remains highly confident in being able to do so.

- Acid and cathode transport: A long-term agreement has been reached with Ferronor S.A. ("Ferronor") relating to rail transport for both cathode and acid. Ferronor owns a rail line that runs by the border of the Franke property and connects to local smelters as well as the Chilean coast at the port of Barquitos.

- Water (2% of projected operating costs): Centenario has entered into a life of mine water contract with Codelco's Salvador Division for the supply of up to 50 lps of water, which is adequate to meet its currently projected average requirement of 47.5 lps. This contract includes pricing terms which vary with the copper price.

- Power (15% of projected operating costs): Centenario has entered into an initial 8 year contract with Hidroelectrica Cachapoal S.A. (a Chilean subsidiary of Pacific Hydro) for the provision of electrical power to the project, on fixed pricing terms.

- Cathode sales: A 2 year agreement has been signed with Trafigura AG ("Trafigura") covering 100% of cathode sales.

The balance of projected operating costs (16%) relates to labour, consumables and maintenance and will be contracted in due course. Approximately 75% of operating costs are denominated in US dollars, with the remainder in Chilean Pesos.


Richard Colterjohn, President and CEO

About Centenario Copper Corporation:

The Company was founded in 2004 with the goal of becoming a mid-tier copper producer and consolidator, active in regions of low sovereign risk. Centenario currently operates exclusively in Regions II and III of Chile. The Company intends to achieve its goal through the acquisition and development of advanced, mid-sized copper projects and then enhancing the scale and value of its principal projects through the roll-up of smaller satellite copper resources which exist regionally around the principal projects.

The Franke Property, located in Region II, is currently in construction and is projected to produce 30,000 tonnes of cathode copper per year, starting in December 2008. On the nearby Pelusa Property, a fast track evaluation of various copper targets is underway. The Company believes that the Pelusa Property is highly prospective for developing additional leachable copper resources and is evaluating possible production scenarios, including processing at the Franke plant. The Pan de Azucar Property, located 45 km. from the Franke Property, is currently being evaluated as a possible nucleus for a second property cluster. The Company continues to evaluate other "in region" clustering opportunities which could reinforce its existing property portfolio.

Copies of NI 43-101 Technical Reports on the Franke Property and the Pelusa Property are posted on SEDAR and on the Company's web site.

CAUTIONARY STATEMENT: No stock exchange, securities commission or other regulatory authority has approved of disapproved the information contained herein. This News Release includes certain "forward-looking statements". All statements other than statements of historical fact, included in this release, including, without limitation, statements regarding future plans and objectives of Centenario Copper Corporation, are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements. Important factors that could cause actual results to differ materially from Centenario's expectations are the risks detailed herein and from time to time in the filings made by Centenario Copper Corporation with securities regulators.

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