Centenario Copper Corporation
TSX : CCT

Centenario Copper Corporation

August 12, 2008 08:13 ET

Centenario Reports Second Quarter 2008 Results

TORONTO, ONTARIO--(Marketwire - Aug. 12, 2008) - Centenario Copper Corporation ("Centenario" or the "Company") (TSX:CCT) reports its financial results for the three and six month period ending June 30, 2008. Set out herein are the highlights and a summary of the MD&A for the quarter. The June 30, 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. All amounts are expressed in US dollars unless otherwise stated.

Highlights:

- Construction of Franke 30,000 tonnes per year copper cathode plant is on track for production of first copper cathode at the end of 2008, and remains fully funded;

-- Projected capital cost for the Franke Project is now estimated to be $210 million (including pre-startup working capital of $3 million and post-startup working capital build up of work in progress inventory to first cathode of $4 million) up 7.7% from the previous estimate of $195 million.

-- 100% of project capital costs awarded, mostly under fixed price EPC contracts; future variability mostly dependent on any incremental change orders and overtime labour requirements.

-- Approximately 1,000 contractors and personnel on site.

- Fast track evaluation of copper targets at Pelusa continues:

-- 92,943 metres of drilling completed to date (80,481 metres RC drilling; 12,462 metres diamond drilling)

-- Completed Phase 4 drilling of the Leachable Copper Target area (China, China Sur, India and SW Japan targets).

-- China updated mineral resource calculation nearing completion and will be released shortly, together with initial metallurgical studies. Various development scenarios under consideration including integrating an early starter pit of China oxide material into the existing Franke mine plan (subject to validation of significantly lower acid consumption profile)

-- Initial resource calculations underway for China Sur, India and SW Japan. Results expected to be released in the 4th quarter of 2008, as part of an updated NI 43-101 compliant technical report. Metallurgical program underway to support pre-feasability level studies later in 2008.

- Pan de Azucar phase II $7.6 million drilling exploration/evaluation program continues

-- 30,000 metre RC program to be completed in August. Final assays expected mid-October; to be followed by revised geological model prior to initiation of follow-up drilling.

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

- Appointed Richard Leclerc as Chief Operating Officer, based in Santiago, Chile. Formerly Vice President of Operations, Chile for Teck Cominco.

- Appointed Rene Oliva as Franke Operations Manager. Formerly Mine Operations Manager at various Codelco operations (Andina, Chuquicamata, and Radomiro Tomic).

- Q2 2008 earnings of $11.9 million ($0.23 earnings per share basic and diluted), or a loss of $4.8 million ($0.09 loss per share) excluding non cash items (derivative income, foreign exchange, stock based compensation, 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

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 1,000 contractors and personnel on site. The project remains on track for production of first copper cathode by the end of 2008. Initiation of crushing, agglomeration and loading of the initial leach pads are projected to commence in late October. Offsite, the construction of the water and power lines are well advanced and the project is expected to be connected to the main power grid by the end of September.

As of the date herein, substantially all of the capital costs have been contracted and the currently projected capital cost is approximately $210,000 (including pre-startup working capital of $3,000 and post-startup working capital build up of work in progress inventory to first cathode of $4,000), compared to a former estimate of $195,000 in May 2008. Of this $15,000 (7.7%) increase, $5,000 (2.6%) is due to higher than anticipated inflation in Chile, which has increased the cost of certain inflation indexed contracts, while the remainder relates to variations between budgeted estimates and actual contract amounts, together with forecast future variations (mostly overtime labour costs in order to keep the project on schedule). 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 entered into a currency hedge program, in order to insulate the project capital costs from exchange rate variations during the balance of the construction period.

The Company is currently developing a detailed 2009 operating mine plan and will release detailed 2009 operating guidance in due course. Of note, the company already has in place acid contracts covering approximately 92% of its 2009 acid requirements, of which approximately 52% of the total acid requirement is priced at a base price subject to adjustment on a copper price based formula, the remainder will be based on the then market price. As discussed in the Pelusa section below, the Company is currently considering a number of mine planning scenarios which includes a scenario where China oxide material may be integrated into the existing Franke mine plan, thereby potentially reducing the 2009 acid requirement.

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 has been followed by a modest diamond drilling campaign, designed to assist in resource estimation work currently underway. As of June 30, 2008, 92,943 metres of drilling have been completed (80,481 of reverse circulation drilling ("RC") and 12,462 metres of diamond drilling). Further diamond drilling is continuing at China and China Sur, designed to better define the sulfide potential in these areas.

At China, an updated mineral resource calculation is nearing completion and will be released shortly, together with initial metallurgical studies, including bottle tests on oxides, mixed and secondary sulfide material and 2 column tests that have been undertaken to date on oxide materials. These results will be used in developing a preliminary mine plan for China, with completion expected in the fourth quarter of 2008. The Company is currently considering various development alternatives for China, which includes a scenario whereby an early starter pit of China oxide material is integrated into the existing Franke mine plan for processing at the Franke plant. The attractiveness of this early starter pit scenario will be dependent on the new resource estimate and metallurgical testing confirming that the China material has a significantly lower acid consumption profile than that of the Franke mineral reserve, as was indicated by the lower carbonate levels contained in the preliminary China mineral resource that was released in May 2007.

Initial resource calculations are also underway for China Sur, India and SW Japan, with completion expected for early in the fourth quarter of 2008, as part of an updated NI 43-101 compliant Resource Stage technical report.

Following completion of resource evaluation activities, the Company plans to complete a pre-feasibility level assessment of the development potential of the leachable resources that may be defined at China, China Sur, India and Japan (and expanding on the starter pit assessment currently underway at China which only focused on the oxide zone of the deposit). Various production scenarios will be evaluated, including processing at the Franke plant. This assessment will be supported by a comprehensive metallurgical test program that is currently underway, directed at assessing overall leachable copper recoveries and acid consumption parameters across a variety of ore types from each deposit (including oxides, mixed and secondary sulphide material) and 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 the planned pre-feasibility level studies.

Pan de Azucar

Following the initial exploration discovery in the Carrizalillo Hill area in late 2007, the Company commenced an aggressive next phase of exploration in April. The proposed budget (to be spent during 2008 and early 2009) was set at $7,600, which includes 50,000 metres of RC (39,000 metres) and diamond (11,000 metres) drilling. Two RC rigs are currently assessing 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. The RC rigs are expected to complete the first phase assessment of these targets by mid August, at which time they will have completed approximately 30,000 metres. Final assays from the RC program are expected to be received early in the fourth quarter of 2008 and will be used to develop a revised geological model by yearend. Follow-up RC and diamond drilling is then expected to commence in early 2009.

The current program at Pan de Azucar also includes initial metallurgical test work on oxide and sulfide material, as well as other early evaluation studies. A flow rate sustainability test is also underway 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.

3. REVIEW OF FINANCIAL RESULTS

Results of Operations -Three months ended June 30, 2008 compared with 2007

The Company had net earnings of $11,872 ($0.23 earnings per share) for the three months ended June 30, 2008 as compared to a net loss of $7,256 ($0.32 loss per share) in the same period in 2007 or a net positive increase of $19,128. The net earnings for the period reflects a non-cash mark-to-market gain of $18,849 with respect to a change in value of derivative instruments as compared to a $2,670 non-cash mark-to-market loss in 2007. The $18,849 derivative gain amount is comprised primarily of a $25,320 non-cash mark-to-market gain on the long-term acid supply contract held by the Company, partially offset by the non-cash $8,111 mark-to-market loss on the copper forward delivery contracts. Note 11(h) to the accompanying interim financial statements for the three-month period ended June 30, 2008 details the components of the various derivative financial instruments held by the Company at June 30, 2008 and December 31, 2007. The value of the copper forward sale contract and the embedded derivative in the long-term water supply contract changed in direct correlation to the change 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 expenses were significantly higher in the second quarter of 2008 ($6,026) as compared to 2007 ($3,557), an increase of $2,469. Approximately $3,787 of the exploration expenses incurred during the second quarter of 2008 were at the Pelusa property, $1,841 was spent at Pan de Azucar and $398 on other properties. In the second quarter of 2007, $2,722 of the exploration expense was incurred on the Franke property whereas no expense was recorded to the Franke property in the second 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 increased by $205, from $969 to $1,174, during the second quarter of 2007 as compared to 2008. This increase is primarily due to increased expenses related to consultants and an increase in stock based compensation costs, partially offset by a decrease in credit facility financing fees.

Stock-based compensation expense during the three month period ended June 30, 2008 was $491 as compared to $373 in 2007, an increase of $118. 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, directors, 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

The Company recorded a $71 foreign exchange loss during the current period as compared to a $106 loss in 2007. The loss is due to the unrealized mark to market loss of $1,648 on the ineffective hedge portion of the foreign exchange forward contracts partially offset by gains resulting from monetary items in Chile being held in Chilean pesos.

Change in Value of Derivative Instruments

Derivative income was $18,849 in the second quarter of 2008 as compared with a $2,670 loss in the comparable quarter in 2007, an increase of $21,519. As discussed above, $25,320 of the derivative income primarily resulted from the non-cash mark-to-market gain on the long-term acid supply contract held by the Company partially offset by the non-cash $8,111 mark-to-market loss on the copper forward delivery contracts. Note 11(h) to the accompanying interim financial statements for the three-month period ended June 30, 2008 details the components of the various derivative financial instruments held by the Company at June 30, 2008 and December 31, 2007.

Results of Operations -Six months ended June 30, 2008 compared with 2007

The Company incurred a net loss of $33,095 ($0.71 loss per share) in the six months ended June 30, 2008 as compared to a net loss of $12,640 ($0.55 loss per share) in the same period in 2007 or an increased loss of $20,455. The higher loss incurred during 2008 reflects a charge of $22,209 (2007 -$3,150) with respect to a change in value of derivative instruments. The most significant component of the change resulted from the $45,769 non-cash mark-to-market loss on the copper forward delivery contracts held by the Company, partially offset by the non-cash $23,720 mark-to-market gain on the long-term acid supply contract. Note 11(h) to the accompanying interim financial statements for the three-month period ended June 30, 2008 details the components of the various derivative financial instruments held by the Company at June 30, 2008 and December 31, 2007.

Exploration expense

Exploration expenses were $2,064 higher for the six months ended June 30, 2008 ($8,497) as compared to the same period in 2007 ($6,433). The majority of the exploration expenses during 2008 ($5,997) were incurred at the Pelusa property, $2,102 spent at Pan de Azucar and $398 at other properties. During 2007, $3,798 of the total exploration expense of $6,433 was incurred on the Franke property whereas no expense was recorded to the Franke property in 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 $4,232 during the six months ended 2008 as compared with $3,083 during the same period in 2007, an increase of $1,149. This increase is due primarily to the $909 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 six month period ended June 30, 2008 was $1,342 as compared to $1,839 in 2007 or a decrease of $497. 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, directors, 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

The Company recorded a $1,486 foreign exchange gain during the current period as compared to a nominal loss in 2007. The gain is due to the revaluation gain on monetary items in Chile held in Chilean pesos, partially offset by the unrealized mark to market loss of $1,648 on the ineffective hedge portion of the foreign exchange forward contracts.

Change in Value of Derivative Instruments

The derivative loss was $22,209 for the six month period ended June 30, 2008 as compared with a $3,150 loss in the comparable period in 2007, for an increased loss of $19,059. As discussed above, the most significant component of the 2008 loss was the $45,769 non-cash mark-to-market loss on the copper forward delivery contracts held by the Company partially offset by the $23,720 non-cash mark-to-market gain on the long-term acid supply contract. Note 11(h) to the accompanying interim financial statements for the three-month period ended June 30, 2008 details the components of the various derivative financial instruments held by the Company at June 30, 2008 and December 31, 2007.

Capital Expenditures

During the three and six month period ended June 30, 2008 capital expenditures were $43,668 and $65,772, respectively, 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 nominal capital expenditures in the comparative periods in 2007 aside from certain mineral property payments.

Financing Activities

The Company's financing activities during the six month period ended June 30, 2008 consisted primarily of completing an equity financing and the initial drawdown on the Franke Credit Facility, both of which were completed in March 2008.

On August 21, 2007 the Company entered into the Franke Credit Agreement for up to $110,000 to meet funding requirements to develop the Franke Property. On March 31, 2008, the Company completed initial drawdown under the Franke Credit Facility for $54,262.

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 $58,000 ($57,159). In connection with the offering the Company paid an agents' commission of CAD $2,900 ($2,858) and offering expenses of $406. The net proceeds of the offering were $53,895. On May 6, 2008 the Company received a final receipt from the Ontario Securities Commission for a short form prospectus to qualify the distribution of 10,000,000 common shares upon conversion of the 10,000,000 special warrants which were issued by the Company on March 27, 2008. The special warrants were converted to freely trading common shares 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 $110,000 project debt facility, creating a mismatch between the currency of funding and the currency of expenditures. 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 as well as revised estimates for capital expenditures, the projected overall capital cost for the Franke Project is now estimated to be $210,000 (including pre-startup working capital of $3,000 and post-startup working capital build up of work in progress inventory to first cathode of $4,000).

LIQUIDITY AND CAPITAL RESOURCES

For the three and six months ended June 30, 2008, cash flows used in operations (before working capital items) were $4,788 and $7,656, respectively, compared with $4,197 and $7,450, respectively during the three and six month period ended June 30, 2007. The increase in operational cash requirements for the three month period ended June 30, 2008 compared to 2007 resulted primarily from higher exploration expenses, partially offset by realized foreign exchange gains and interest income. The small increase in operational cash requirements for the six month period ended June 30, 2008 compared to 2007 resulted primarily from higher exploration expenses and higher credit facility fees, partially offset by realized foreign exchange gains and interest income. 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; however, a significant portion of these expenses are being capitalized to the Franke project.

During the three and six month period ended June 30, 2008 capital expenditures related to the Franke mine amounted to $43,468 and $65,310, respectively, as compared with nil during the same periods in 2007.

Cash and cash equivalents were $54,763 at June 30, 2008 as compared to $112,046 as at March 31, 2008 and $31,693 at December 31, 2007. Certain amounts have 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 ($10,000), and with respect to collateral posted for foreign exchange contracts ($14,419) 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 and six months ending June 30, 2008.

LIQUIDITY OUTLOOK

The Company anticipates being cash flow positive at Franke by early in the second quarter of 2009. Accordingly we discuss the Company's funding requirements over the next nine months, through March 31, 2009.

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

In May 2008 we indicated that our capital cost estimate for completing the Franke project was $195,000. We have now contracted out 100% of the Franke capital cost, as a result, we now estimate the projected overall capital cost for the Franke Project to be $210,000 (including pre-startup working capital of $3,000 and post-startup working capital build up of work in progress inventory to first cathode of $4,000). The increase of $15,000 is comprised of $10,000 (5.1%) of increased capital costs relating to change orders and overtime labour, and $5,000 (2.6%) due to higher than anticipated inflation in Chile which impacts certain inflation indexed contracts. Any further variation to capital cost will mostly be dependant upon any increases in change orders and overtime labour requirements.

The Company has fully funded the current capital cost estimate for the Franke project of $210,000. The remaining net capital cost to complete the Franke project is $120,000 as of June 30, 2008. The funding sources available for completing the Franke project consist of approximately $61,000 segregated in the project bank accounts (including restricted cash which includes the overrun facility and collateral for hedges), the remaining approximately $55,700 available under the Franke Credit Facility, and a net inflow from operations of $3,300 which includes projected Q1 2009 EBITDA, partially offset by other related Franke expenditures between July 2008 to March 2009 (interest payments, option payments, and Chile overheads). The Company expects to begin generating positive cashflow at Franke early in the second quarter of 2009, which will allow the Company to fund its operations and exploration activities.

As at June 30, 2008, the Company's available cash balance, excluding the Franke project, is approximately $18,200. Through March 31, 2009, the Company expects to spend approximately $10,500 on exploration activities, and $2,600 on general and administrative costs. The remaining unallocated cash available for other working capital purposes is expected to be approximately $5,100.

The Company, based upon the foregoing analysis, 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.

Other Information

Additional information related to the Company is available for viewing on SEDAR at www.sedar.com and at the Company's website at www.centenariocopper.com.

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 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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