Centenario Copper Corporation

Centenario Copper Corporation

November 14, 2008 07:30 ET

Centenario Copper Reports on Development Progress at Franke SX-EW Copper Project and Proposed Partial Monetization of Current $77 Million Copper Hedge Value

TORONTO, ONTARIO--(Marketwire - Nov. 13, 2008) - Centenario Copper Corporation ("Centenario" or the "Company") (TSX:CCT) reports on progress at the Franke SX-EW copper project, located in Region II of Chile and the proposed repurchase of a portion of its outstanding copper hedge contracts. Key highlights are as follows:

- Franke construction stage substantially complete and pre-commission activities are underway. One month delay in start-up expected, due to late interconnection with Chilean power grid. First cathode now projected for early February, 2009.

- $26 million funding shortfall (before Copper Hedge Repurchase) projected up to final project payments in April 2009. Funding shortfall driven by combination of increase in capital costs and recent severe fall in copper price, which has significantly reduced expected initial operating cash flow. Starting in May 2009, project expected to generate positive operating cash flow, supported by copper forward sales program.

- Company's existing copper hedge has mark-to-market value of $77 million, as of November 13, 2008. Lender consent received to allow for partial repurchase of 2010 copper hedge to generate $26 million in proceeds, subject to final documentation and achieving a maximum average close-out price of approximately $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.

Richard Colterjohn, President and CEO of Centenario commented: "Despite facing considerable cost inflation pressures and a one month delay in start-up, we continue to believe that Franke remains a robust project. As we face this difficult industry environment, our copper hedge provides us with a valuable asset, as it allows us to address our current funding shortfall, subject to our compliance with the terms of the Copper Hedge Repurchase. It will also continue to offer attractive copper price protection for a significant portion of Franke's production during its early phase of operations. Further guidance on our near-term operating outlook will be provided shortly, upon completion of our revised mine plan, which will incorporate a China oxide starter pit into the Franke mine plan, thereby increasing reserves, reducing near-term acid consumption and adding operational flexibility. Longer term, as the industry environment improves, we remain confident that Franke will form the cornerstone of our strategy to roll-up various other existing regional leachable copper deposits."

Franke Project Update:

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. Recent photographs of construction progress have been posted on the Company website at www.centenariocopper.com.

In August 2008, Centenario indicated that the capital cost for completing the Franke Project was $210 million, including owner costs and pre-startup plant and work-in-progress working capital. Based on the most recent information, the forecasted cost to completion of the Franke Project is now estimated at $234 million. The increase in 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 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 the 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 capex payments are projected to be paid over the period up to April 2009.

As of the end of September, the projected net cost of completing the project is now estimated at $96 million, including payables of $25 million. The funding sources available to meet these payments total $75 million, consisting of $70 million segregated in the project bank accounts, including restricted cash (which includes the cost overrun facility and collateral for currency hedges) and a remaining $5 million available under the Franke Credit Facility. Based on the latest projections, the projected cost of completing the Franke project now exceeds the currently available funding sources by $22 million. In addition, the Company projects that the Franke project will incur an additional $4 million of project related cash outflows in the period up to April 2009, including property payments, interest, operating working capital and overheads, which results in a total outstanding Franke Project funding requirement of $26 million.

The Company had previously projected that a portion of the Franke Project funding requirement would be met by positive operating cash flow between start-up and the final payment of capital cost payables in April 2009. In previous guidance (see Q2 2008 news release 08-14 dated August 12, 2008), the Company had assumed an average realized copper price of $2.75/lb during the start-up period, which resulted in a projected EBITDA contribution of $18 million during January-April 2009. However, in light of the recent precipitous decline in the copper price, the Company has revised the assumed copper price to $1.75/lb, for purposes of projecting operating cash flow. Based on the currently anticipated production ramp-up schedule, this would result in EBITDA of about $2 million from start-up through April 2009 period, or a $16 million decrease, as compared to the earlier projection. The recent severe fall in the copper price has significantly reduced the expected initial operating cash flow and its funding contribution to cost of the Franke Project.

In light of the current volatility in the copper price, the Company considers it prudent to now exclude any assumed funding contribution from operating profit to the projected cost of the Franke Project. Accordingly, the Company currently projects that, in the absence of the additional funding discussed below (see Copper Hedge Repurchase), the Franke Project would face a net funding shortfall of about $26 million, 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 its operations and exploration activities. 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.

Copper Hedge Repurchase:

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 about $77 million (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 million in net proceeds, subject to documentation which is anticipated to be finalized shortly and achieving a maximum average hedge close-out 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 discussed above 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 a NI 43-101 compliant Technical Report currently underway. The release of the Hedge Proceeds and drawing of the remaining $5 million 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 agreements 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.

Other Information

Additional information related to the Company, including risk factors as set out in the Company's Annual Information Form, is available for viewing on SEDAR at www.sedar.com and at the Company's website at www.centenariocopper.com.


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. It then plans to enhance 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 early 2009. The Company believes that the contiguous 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 are posted on SEDAR and on the Company's web site. For more information, please visit the Company's website at www.centenariocopper.com.

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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