Centenario Copper Corporation
TSX : CCT

Centenario Copper Corporation

May 14, 2008 16:17 ET

Centenario Reports First Quarter 2008 Results

TORONTO, ONTARIO--(Marketwire - May 14, 2008) - Centenario Copper Corporation ("Centenario" or the "Company") (TSX:CCT) reports its financial results for the quarter ending March 31, 2008. Set out herein are the highlights and a summary of the MD&A for the quarter. The March 31, 2008 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.

Highlights:

- Construction of Franke 30,000 tonnes per year copper cathode plant remains on track for production of first copper cathode at the end of 2008; approximately 90% of project capital costs awarded, mostly under fixed price EPC contracts;

- Completed currency hedging program to protect Franke capital costs from further fluctuations in the US dollar/Chilean peso exchange rate. The projected overall capital cost for the Franke Project is now estimated to be $195 million and is fully funded.

- Fast track evaluation of copper targets at Pelusa continues:

-- 84,443 metres of drilling completed to date (79,993 metres RC drilling; 4,450 metres diamond drilling)

-- 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.

-- An updated mineral resource calculation underway for China, together with initial resource calculations for China Sur, India and SW Japan. Results expected to be released in the 3rd quarter of 2008, as part of an updated NI 43-101 compliant technical report.

-- Metallurgical program underway to define processing and operating cost parameters for pre-feasibility level studies later in 2008.

- Pan de Azucar

-- $7.6 million exploration/evaluation program began in early April 2008, which includes 50,000 metres of drilling. Program to follow up on initial discovery in Carrizalillo Hill area and test other priority targets.

- Ongoing evaluation of "in region" clustering opportunities to increase scale and value of principal properties

- Completed CAD $58.0 million Special Warrant Offering on March 27, 2008 and on May 6, 2008 received final receipt from the Ontario Securities Commission for a short form prospectus in connection with the conversion of the special warrants into freely trading common shares.

- Satisfied Conditions Precedent to drawdown on $110 million dollar Franke Credit Facility and completed $54.3 million initial drawdown.

- Q1 2008 loss of $45.0 million ($1.08 loss per share), or $2.9 million ($0.07 loss per share) excluding non cash items (derivative losses, stock based compensation, amortization).

Extract from the Company's Management Discussion and Analysis:

REVIEW OF PROJECTS

Franke

Construction activities continue towards the development of a SX-EW operation capable of producing 30,000 tonnes per year of copper cathode. There are currently approximately 600 contractors and personnel currently on site. The project remains on track for production of first copper cathode by the end of 2008.

Approximately 70% of the projected capital costs of the Franke project are denominated in Chilean Pesos, with the balance denominated in US dollars. As reported under the "Financing Activities" section, the Company has recently completed a currency hedge program, which has insulated the project capital costs from future exchange rate variations, while increasing the projected capital cost to approximately $195 million (including $9 million of working capital). As of the end of April, approximately 90% of the projected capital costs (excluding working capital) have been contracted, mostly under a fixed price EPC basis.

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. To date, the Company has completed 84,443 metres of drilling (79,993 metres RC ("Reverse Circulation") drilling; 4,450 metres diamond drilling) on the Pelusa property over the last 21 months. An updated mineral resource calculation is underway for China, together with initial resource calculations for China Sur, India and SW Japan. These results are expected to be released in the 3rd quarter of 2008, as part of an updated NI 43-101 compliant technical report.

Metallurgical test work continues, directed at assessing overall leachable copper recoveries and acid consumption parameters across a variety of crush sizes, including run-of-mine material. This information will assist in determining optimum process flow sheets for use in mine planning and capital and operating cost parameters for planned pre-feasibility level studies later in 2008. Various production scenarios will be evaluated, including processing at the Franke plant.

Pan de Azucar

In February 2008, the Company announced an aggressive next phase of exploration at Pan de Azucar, following up on the recent exploration discovery in the Carrizalillo Hill area in late 2007. The proposed budget for 2008 is $7.6 million, which includes 50,000 metres of RC (39,000 metres) and diamond (11,000 metres) drilling. Two RC rigs were mobilized to Pan de Azucar in early April and 2 diamond drills are expected to arrive in early June. The rigs will assess a number of priority drilling targets, including follow-up drilling (depth and strike extension) at the Carrizalillo Hill East and West discovery areas, and initial drilling at the Fabiola target area, where there are extensive historical workings, and at a number of previously identified geochemical targets.

In addition, the proposed program includes initial metallurgical test work on oxide and sulfide material, as well as other early evaluation studies. A flow rate sustainability test will also be undertaken on 2 water wells located on the Pan de Azucar property. These wells were permitted for a combined flow rate of 55 litres per second. Recent water permitting amendments will require Centenario to demonstrate that these wells can sustain this water flow rate over a test period in order to be able to exploit them.

REVIEW OF FINANCIAL RESULTS

Results of Operations - First Quarter of 2008 compared with 2007

The Company incurred a net loss of $45.0 million ($1.08 loss per share) in the three months ended March 31, 2008 as compared to a net loss of $5.4 million ($0.23 loss per share) in the same period in 2007. The increased loss reflects a charge of $41.1 million (2007 - $0.5 million) with respect to a change in value of derivative instruments. The most significant component of the change ($37.7 million) resulted from the mark to market non-cash loss on the copper forward delivery contracts held by the Company. The Company was required to enter into the copper forward delivery contracts under the Franke Credit Agreement. Note 11(h) to the accompanying interim financial statements for the three-month period ended March 31, 2008 details the components of the various derivative financial instruments held by the Company at March 31, 2008 and December 31, 2007. The value of the contracts changed in direct correlation to an increase in the price of copper during the period. The key factor that will determine the amount of such charge or credit is the price of copper, both spot price and estimated future price.

Exploration expense

Exploration expense was marginally lower in the first quarter of 2008 ($2.5 million) as compared to 2007 ($2.9 million). Substantially all ($2.2 million) of the exploration expense incurred in the first quarter of 2008 was at the Pelusa property, with the remaining amount spent at Pan de Azucar. In the first quarter of 2007, $1.1 million of the exploration expense was incurred on the Franke property whereas no expense was recorded to the Franke property in the first quarter of 2008. Effective July 1, 2007, all development costs related to the Franke property are being capitalized pursuant to the Company's accounting policy.

General and administrative expense

General and administrative expenses were $3.1 million in the first quarter of 2008 as compared with $2.1 million in the same quarter of 2007, an increase of $1.0 million. This increase is due primarily to the $1.1 million increase in credit facility financing fees, which consists of fees, legal costs and stamp taxes incurred with respect to the Franke Credit Facility. Such fees and costs, excluding interest expense, are expected to be minimal in future periods.

Stock-based compensation expense during the three month period ended March 31, 2008 was $0.9 million as compared to $1.5 million in 2007. The stock based compensation in each period is comprised of the expense associated with stock options granted during the period and the value ascribed to shares issued as compensation to various officers, employees and consultants. It is likely that similar charges will be recorded in future periods, however the amount of such charges is dependent on the number of stock options granted or shares issued as compensation, and the assumptions used to value them including share price and volatility.

Foreign Exchange Gain

The Company recorded a $1.6 million foreign exchange gain during the current period as compared to a nominal gain in 2007. This gain arose because of the increase in value of the Chilean peso versus the US dollar from January 1, 2008 (498 peso/US$) to March 31, 2008 (435 peso/US$). The foreign currency monetary assets the Company held at the beginning of the 2008 increased in value throughout the period in terms of their US dollar equivalent.

Change in Value of Derivative Instruments

The derivative expense was $41.1 million in the first quarter of 2008 as compared with $0.5 million in the comparable quarter in 2007. As discussed above, $37.7 million dollars of the increase resulted from the mark to market loss on the copper forward delivery contracts held by the Company. Note 11(h) to the accompanying interim financial statements for the three-month period ended March 31, 2008 details the components of the various derivative financial instruments held by the Company at March 31, 2008 and December 31, 2007. The value of the contracts changed in direct correlation to an increase in the price of copper during the period.

Capital Expenditures

During the first quarter of 2008 substantial capital expenditures occurred ($21.8 million) virtually all related to the construction of the Franke mine. Effective July 1, 2007, the Company began capitalizing development expenditures related to the Franke Property following a decision by the Company's board of directors to place the property into commercial production. Significant capital expenditures will continue to be recorded by the Company throughout 2008.

There were no capital expenditures in the comparative period in 2007 aside from certain mineral property payments.

Financing Activities

The Company's financing activities during the three-month period ended March 31, 2008 consisted primarily of completing an equity financing and the initial drawdown on the Franke Credit Facility.

On August 21, 2007 the Company entered into the Franke Credit Agreement for up to $110 million to meet funding requirements to develop the Franke Property. On March 31, 2008, the Company completed initial drawdown under the Franke Credit Facility for $54.3 million.

On March 27, 2008, the Company completed an offering of 10,000,000 special warrants at CAD $5.80 per special warrant for gross proceeds of CAD $58.0 million. In connection with the offering the Company paid an agents' commission of CAD $2.9 million and offering expenses of CAD $0.3 million. The net proceeds of the offering were US $53.9 million. Each special warrant is exercisable by the holder thereof at any time into one common share of the Company (each an "Underlying Share") for no additional consideration. On May 6, 2008 the Company received a final receipt from the Ontario Securities Commission for a short form prospectus in connection with the conversion of the 10,000,000 special warrants issued March 27, 2008 into common shares. The resulting common shares will trade freely on the Toronto Stock Exchange effective May 9, 2008.

Approximately 70% of the projected developments costs of the Franke Project are denominated in Chilean pesos with the balance in US dollars. A significant portion of the funding for the Franke Project has been provided by the $110 million project debt facility, creating a mismatch between the currency of funding and the currency of expenditures. The recent decline in the US dollar against the Chilean pesos has resulted in an increase the projected development cost of the project, when denominated in US dollars.

In March and April 2008, the Company entered into a series of forward contracts to sell USD and purchase Chilean pesos intended to protect the Franke property development capital cost from further fluctuations in the US dollar/Chilean peso exchange rate. As a result of the currency hedge program, the projected overall capital cost for the Franke Project is now estimated to be $195 million.

LIQUIDITY AND CAPITAL RESOURCES

For the three months ended March 31, 2008, cash flows used in operations (before working capital items) were $2.9 million compared with $3.3 million for 2007. The decrease in operational cash requirements is primarily due to the decreased exploration expense described previously and the foreign exchange gain recorded in the current period, partially offset by increased credit facility financing fees. Exploration expenses are expected to increase during the remainder of 2008 as compared to 2007 levels, as the Company ramps up exploration activities on its Pelusa and Pan de Azucar properties. General and administrative expenses will also increase during 2008 due to increased staffing levels to support the ramp up to Franke's operating status.

Capital asset acquisitions related to development of the Franke plant used approximately $21.8 million of cash during 2008 as compared with nil during 2007.

Cash and cash equivalents were $112.0 million at March 31, 2008 as compared with $31.7 million at December 31, 2007. In addition, $16.7 million has been segregated as restricted cash for use in the Franke development plan to cover potential overrun expenditures pursuant to the terms of the Franke Credit Facility ($7.5 million), and with respect to collateral posted for foreign exchange contracts ($9.2 million) in place to convert US dollars to Chilean peso.

As the Company has no producing mines at this time, its capital funding requirements have been covered through offerings in the equity and debt markets as detailed elsewhere in this report and in the interim financial statements for the three-month period ending March 31, 2008.

LIQUIDITY OUTLOOK

The Company's principal funding requirements over the next 12 months consists of completing the Franke project, which is currently scheduled to commence production by the end of 2008, and the exploration activities occurring at Pelusa and Pan de Azucar.

The Company has fully funded the current capital cost estimate for the Franke project of $195 million. As of March 31, 2008, the funding sources for completing the Franke project consist of approximately $67 million segregated in the project bank accounts, the remaining $55.7 million available under the Franke Credit Facility, and an additional $27.5 million of equity funding raised from the CAD $58 million Special Warrants offering completed in March 2008, which have been segregated in accounts with the Company's lenders. These funds are in addition to the original $7.5 million of overrun funding for the project, which are also segregated with the Company's lenders.

As of March 31, 2008, the Company's available cash balance, net of amounts segregated for the Franke project is approximately $26 million. During the remainder of 2008, the Company expects to spend $4.0 million on Pelusa exploration activities, $7.6 million on Pan de Azucar exploration activities, and $4.5 million on general and administrative costs. The remaining unallocated cash available for other working capital purposes is approximately $10 million.

The Company currently believes that it has adequate funding to complete the development of the Franke project and fund its proposed exploration and evaluation programs at Pelusa and Pan de Azucar. However, in the event of any unplanned additional expenditures or funding shortfall, the Company has no current source of operating revenues or cash flows and would accordingly be required to seek additional funding from the capital markets. In such an event, there can be no assurance that such funding would be available on terms acceptable to the Company.

CENTENARIO COPPER CORPORATION

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 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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