Constellation Copper reports second quarter 2008 financial results



    
    TSX: CCU
    

    DENVER, CO, Aug. 13 /CNW Telbec/ - Constellation Copper Corporation
("Constellation" or the "Company") (TSX: CCU) announced its financial results
for the quarter ended June 30, 2008. All dollar amounts are in US dollars
unless otherwise stated.

    
    Recent developments
    -------------------

    - Lisbon Valley mine second quarter 2008 production was 3,832,000 pounds
      of copper cathode.
    - Copper sales during the second quarter of 2008 were 3,715,000 pounds at
      an average price per pound of $3.77, before the impact of derivative
      instruments put in place primarily as a requirement of the Lisbon
      Valley project financing. During the second quarter of 2008, the
      realized loss on derivative instruments was $5.5 million or $1.47 per
      pound of copper sold.
    - In February 2008, the Company finalized an amendment to its commodity
      swap arrangement, deferring approximately $5.1 million of realized
      losses on settlement of forward sale contracts. In addition, the
      Company has only paid a portion of the losses settled in the first six
      months of 2008 that were not deferred.
    - The Company did not pay $1,861,000 of interest on its convertible
      debentures when it was due on March 31, 2008. Following a prescribed
      cure period ended April 30, 2008; the non-payment of interest was
      considered an event of default requiring the Company to accrete the
      debentures up to their full face value, which is payable on demand and
      classified as a current liability. At June 30, 2008, the outstanding
      principal and accrued interest on the convertible debentures is
      $68,310,000 and $2,820,000, respectively.
    - The Company is currently soliciting proposals for various forms of
      outside financing for the San Javier and Terrazas development
      properties, including sources of funding the $3.0 million Terrazas
      mineral rights payment due in October 2008. If the Company is
      unsuccessful in obtaining financing for the payment, the Company may
      lose its rights and the $12.3 million carrying value of Terrazas may be
      impaired.
    - In July 2008, the Company received notification of pending negotiations
      between a common shareholder and holders of more than two-thirds of the
      Company's convertible debentures regarding a proposed restructuring of
      the Company. The restructuring contemplates a share placement of
      $10 million and exchange of convertible debentures and related accrued
      interest at less than the current carrying values. The restructuring
      would be subject to, among other things, approval by the board of
      directors and shareholders of the Company, all necessary regulatory
      approvals and satisfactory due diligence.
    - In July 2008, the Company was notified by the Toronto Stock Exchange
      ("TSX") that the TSX had further extended their review of the common
      shares of the Company with respect to meeting the continued listing
      requirements until September 1, 2008.
    

    Going concern and liquidity
    ---------------------------

    There is significant doubt about the Company's ability to continue as a
going concern.
    At June 30, 2008, the Company had $1,457,000 of cash. The Company
continues to pursue various near term financing alternatives, including bank
financing, equity investment, mergers, and sale of certain assets or sale of
the entire company. In addition to not paying interest on its convertible
debentures and only paying a portion of forward sales settlements, the Company
has been unable to pay many of its vendor obligations when they were
originally due, which may eventually result in vendors requiring payment
before delivery of goods and services necessary to continue operations. The
Company, however, has made substantial progress in reducing its vendor
payables.
    The Company may consider filing for legal protection from its creditors
in both Canada and the United States if cash liquidity problems can not be
resolved.

    Lisbon Valley
    -------------

    The Company ceased mining and crushing activities at Lisbon Valley at the
end of January 2008. In early July 2008 the Company completed the acid cure of
the ore placed on the leach pad before mining activities were concluded. All
ore on the pads is currently under leach. As a result of lower than expected
temperatures at Lisbon Valley during the first six months of 2008, the
temperature of leach solutions did not reach 60 degrees until late June 2008.
Typically, the bacterium that enhances the leaching characteristics of sulfide
ore becomes active when the temperature of the leach solution exceeds
60 degrees. Copper production in the second quarter of 2008 was
3,832,000 pounds compared to 3,353,000 pounds in the first quarter of 2008.

    Exploration and development projects
    ------------------------------------

    During the quarter ended June 30, 2008, the Company continued evaluation
of financing alternatives for the San Javier project in Sonora, Mexico and the
Terrazas project in Chihuahua, Mexico. The Company is currently soliciting
joint venture and purchase proposals.
    The Company is also evaluating other zinc resources that would be
amenable to agitation leaching to enhance the economics of the Terrazas
project.
    The Company's exploration and development properties are subject to
periodic payments to maintain property positions. If the Company is unable to
obtain sources for funding required payments, the carrying value of mineral
properties, totaling $17.2 million at June 30, 2008, may be impaired.

    Results of operations
    ---------------------

    The Company had net income of $1,457,000 ($0.01 per share) for the second
quarter of 2008, compared to a net loss of $8,078,000 ($0.05 per share) for
the second quarter of 2007.
    Revenues during the second quarter of 2008 were $14,019,000 from the sale
of 3,715,000 pounds of cathode copper at an average price of $3.77 per pound.
Revenues during the second quarter of 2007 were $20,301,000 from the sale of
5,919,000 pounds of copper at an average price of $3.43 per pound. Quarterly
revenues exclude a realized loss on derivative instruments of $5,461,000 or
$1.47 per pound sold in 2008 and $5,870,000 or $0.99 per pound sold in 2007.
    Costs of sales, excluding depreciation and amortization costs, were
$9,091,000, or $2.45 per pound of copper sold in the second quarter of 2008.
As a result of the asset impairments in 2007, a majority of non-cash costs
were written-off and the entire $9,000 of depreciation and amortization in the
second quarter of 2008 relates to non-operating equipment. In the second
quarter of 2007, costs of sales, excluding depreciation and amortization, were
$10,879,000, or $1.84 per pound of copper sold. Non-cash costs of $2,123,000,
or $0.36 per pound, were combined with $20,000 of non-operating depreciation
and amortization.
    General and administrative expenses were $1,112,000 for the quarter ended
June 30, 2008, compared to $1,131,000 in the quarter ended June 30, 2007.
Stock based compensation expense was $108,000, net of $13,000 capitalized, and
$360,000, net of $50,000 capitalized, for the quarters ended June 30, 2008 and
2007, respectively. Stock based compensation is recognized over the vesting
period of the options.
    During the second quarter of 2008, the Company expensed $40,000 for
activities related to properties on which mineral resources had not yet been
identified compared to exploration expense of $155,000 in the second quarter
of 2007. Exploration activities have been curtailed to conserve cash and are
generally limited to expenditures required to maintain the Company's ownership
positions in its existing properties.
    Interest and other income was $180,000 in the second quarter of 2008
compared to $271,000 in the second quarter of 2007. Interest and other income
in the second quarter of 2008 include a total of approximately $152,000 from
the sale of exploration data and scrap copper. In addition, cash balances were
significantly higher during the second quarter of 2007.
    In the second quarter of 2008, the Company had interest expense of
$1,152,000 compared to $1,592,000 in the second quarter of 2007. The decrease
relates primarily to not having any accretion on the Company's convertible
debentures and lower cash balances and interest rates in the second quarter of
2008, partially offset by additional interest on deferred forward sales
settlements. The convertible debentures were accreted to their face value at
March 31, 2008, as noted above.
    In the second quarter of 2008, the Company recorded a loss of $809,000 on
foreign exchange compared to a loss of $3,385,000 in the second quarter of
2007. The foreign exchange loss in each quarter relates primarily to the
effect of the strengthening of the Canadian dollar relative to the US dollar
on the convertible debentures.
    In addition to realized losses in the second quarter of 2008 and 2007 of
$5,461,000 and $5,870,000, respectively, the Company had an unrealized gain on
derivative instruments of $5,059,000 in the second quarter of 2008 compared to
an unrealized loss of $3,135,000 in the second quarter of 2007. Unrealized
gains and losses on derivative instruments includes the effect of any change
in copper prices for outstanding forward sales in addition to reversing
previously recorded gains or losses when the contracts are settled.

    Cash flows
    ----------

    Cash used in operating activities was $1,534,000 for the quarter ended
June 30, 2008, compared with cash provided of $717,000 for the second quarter
of 2007. The increase in cash used in operating activities in the second
quarter of 2008 relates primarily to the timing of paying off forward sales
settlements, past due vendors and insurance invoices.
    The $1,316,000 realized loss on settlement of the January 2008 forward
sale contracts was deferred by the lender in connection with an amendment of
the commodity swap arrangement. In addition, at June 30, 2008, the Company has
only paid $7,800,000 toward realized losses of $8,584,000 during 2008 that
were not deferred. During the second quarter of 2008, the Company's cash
payments of forward sales settlements were $6,000,000, compared to $5,396,000
in the second quarter of 2007.
    In the second quarter of 2008, working capital of $1,629,000 was provided
compared to funding of $1,810,000 of working capital in the second quarter of
2007. As a result of the cessation of mining and crushing activities in
January 2008, the Company has completed stacking ore on the leach pad and
began drawing down ore-in-process inventories. Inventory provided $3,568,000
of working capital in the second quarter of 2008 compared to use of $2,015,000
during the second quarter of 2007, when ore-in-process inventory was being
built.
    Cash provided by investing activities was $225,000 in the second quarter
of 2008 compared to cash used of $3,023,000 during the quarter ended June 30,
2007. Expenditures in the quarter ended June 30, 2008 on mineral properties
was $295,000, compared to a total of $2,996,000 spent on mineral properties
and plant, property and equipment in the second quarter of 2007. The increase
in restricted cash was $40,000 and $27,000 in the second quarter of 2008 and
2007, respectively. Also during the second quarter of 2008, the Company
received $560,000 from the sale of excess inventory and equipment.
    There were no cash flows from financing activities in the quarter ended
June 30, 2008, compared to proceeds of $79,000 from a TDA grant in the quarter
ended June 30, 2007.

    Outlook
    -------

    Copper production at Lisbon Valley increased marginally in the second
quarter compared to the first quarter of 2008, as a result of increased PLS
flow rates related primarily to warmer weather in the second quarter. Future
copper production will continue as long as it remains economic, depending on
leach recovery rates, copper prices and operating costs.
    Copper prices increased significantly during the second quarter of 2008,
to an average price per pound of $3.83 in the second quarter of 2008 from a
price of $3.52 in the first quarter of 2008. The copper price was $3.40 per
pound on August 8, 2008. There is no assurance that copper prices will remain
at these levels.
    At June 30, 2008, the Company has forward sales contracts for
7.9 million pounds of copper maturing over the remainder of 2008, at a
contract price of $1.85 per pound. Approximately 3.9 million pounds of the
forward sales will be settled at a previously agreed price of $3.08 per pound
and the remaining 4.0 million pounds will be settled at the monthly average
London Metals Exchange ("LME") copper price.
    In July 2008, the Company received notification of pending negotiations
between a common shareholder and holders of more than two-thirds of the
Company's convertible debentures regarding a proposed restructuring of the
Company. The restructuring contemplates a share placement of $10 million and
exchange of convertible debentures and related accrued interest at less than
the current carrying values. The restructuring would be subject to, among
other things, approval by the board of directors and shareholders of the
Company, all necessary regulatory approvals and satisfactory due diligence.

    Subsequent Event
    ----------------

    On May 2, 2008 the Toronto Stock Exchange ("TSX") reported that it was
reviewing the common shares of the Company with respect to their meeting the
TSX's continued listing requirements and that the Company had been granted
30 days in which to demonstrate compliance with these requirements, pursuant
to the Remedial Review Process. The TSX has advised the Company that the
reason for this review is that it believes the financial condition and
operating results of the Company do not meet the continued listing
requirements under sections 709 and 710(a)(i) of the TSX Company Manual and
the price of the Company's securities have been reduced so as not to warrant
continued listing pursuant to section 711 of the TSX Company Manual.
    The TSX has granted a series of extensions and in July 2008, the Company
was notified the TSX had further extended their review of the common shares of
the Company with respect to meeting the continued listing requirements until
September 1, 2008.
    Attached to this press release are the Company's unaudited consolidated
financial statements for the quarter ended June 30, 2008. For a more complete
discussion, please refer to the Company's second quarter 2008 report and the
Company's audited financial statements and MD&A for the year ended
December 31, 2007 on the SEDAR website at www.sedar.com.

    This press release contains certain forward-looking statements. In
certain cases, forward-looking statements can be identified by the use of
words such as "plans", "expects" or "does not anticipate", or "believes", or
variations of such words and phrases or statements that certain actions,
events or results "may", "could", "would", "might", "will be taken", "occur"
or "be achieved". Forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
performance or achievements of the Company to be materially different from any
future results, performance or achievements expressed or implied by the
forward-looking statements. Such factors include, among others, risks related
to changes in commodity and power prices, changes in interest and currency
exchange rates, inaccurate geological and metallurgical assumptions (including
with respect to the size, grade and recoverability of mineral reserves and
resources), unanticipated operational difficulties (including failure of
plant, equipment or processes to operate in accordance with specifications,
cost escalation, unavailability of materials and equipment, delays in the
receipt of government approvals, industrial disturbances or other job action,
and unanticipated events related to health, safety and environmental matters),
political risk, social unrest, and changes in general economic conditions or
conditions in the financial markets. Although the Company has attempted to
identify important factors that could cause actual actions, events or results
to differ materially from those described in forward-looking statements, there
may be other factors that cause actions, events or results to differ from
those anticipated, estimated or intended. There can be no assurance that
forward-looking statements will prove to be accurate, as actual results and
future events could differ materially from those anticipated in such
statements. Accordingly, readers should not place undue reliance on
forward-looking statements.

    
    CONSTELLATION COPPER CORPORATION
    CONSOLIDATED BALANCE SHEETS
    (Unaudited) ( in thousands of U.S. Dollars)

                                                              As at
                                                     ------------------------
                                                       June 30, December 31,
                                                          2008         2007
    Assets

    Current assets
    Cash and cash equivalents                            1,457         3,182
    Other current assets                                 2,418         1,779
    Inventories                                         31,911        37,973
                                                     ------------------------
                                                        35,786        42,934

    Property, plant and equipment                        3,805         3,891
    Mineral properties                                  17,167        16,492
    Restricted cash                                      4,483         4,548
                                                     ------------------------
                                                        61,241        67,865
                                                     ------------------------
                                                     ------------------------
    Liabilities

    Current liabilities
    Accounts payable and accrued liabilities             7,595        11,163
    Derivative instruments                              18,550        19,871
    Current portion of long-term debt                   68,310             -
                                                     ------------------------
                                                        94,455        31,034

    Asset retirement obligations                         4,155         3,754
    Long-term debt                                           -        52,037
    Other long-term liabilities                            420         1,722
                                                     ------------------------
                                                        99,030        88,547
                                                     ------------------------
    Shareholders' Deficit

    Capital stock                                      151,131       151,130
    Convertible debentures                              14,796        14,796
    Stock options                                        4,095         3,883
    Warrants                                               322           297
    Deficit                                           (208,133)     (190,788)
                                                     ------------------------
                                                       (37,789)      (20,682)
                                                     ------------------------
                                                        61,241        67,865
                                                     ------------------------
                                                     ------------------------
    

    
    CONSTELLATION COPPER CORPORATION
    CONSOLIDATED STATEMENTS OF INCOME (LOSS), COMPREHENSIVE INCOME (LOSS)
    AND DEFICIT
    (Unaudited)(in thousands of  U.S. Dollars, except for share and per share
    amounts)

                                 Three Months Ended         Six Months Ended
                                       June 30                  June 30
                                  2008         2007        2008         2007

    Revenues                    14,019       20,301      26,474       36,143
                               ----------------------------------------------
    Costs and Expenses
      Cost of sales              9,091       10,879      17,742       22,350
      General and adminis-
       trative                   1,112        1,131       1,925        1,927
      Stock-based
       compensation                108          360         184          746
      Depreciation and
       amortization                  9        2,143         414        4,249
      Exploration                   40          155          89          262
                               ----------------------------------------------
                                10,360       14,668      20,354       29,534
                               ----------------------------------------------

    Other (Income) Expense
      Interest and other
       income                     (180)        (271)       (274)        (380)
      Interest expense           1,152        1,592      17,581        2,470
      Foreign exchange loss        809        3,385         946        4,049
      Gain on sale of  assets        -            -           -         (585)
      Write-off of financing
       costs                        19            -          34        2,605
      Realized loss on
       derivative instruments    5,461        5,870       9,900       10,210
      Unrealized (gain)
       loss on derivative
       instruments              (5,059)       3,135      (4,722)       3,112
                               ----------------------------------------------
                                 2,202       13,711      23,465       21,481
                               ----------------------------------------------

    Income (loss) and com-
     prehensive income (loss)
     for the period              1,457       (8,078)    (17,345)     (14,872)
                               ----------------------------------------------
    Income (loss) for the
     period                      1,457       (8,078)    (17,345)     (14,872)
    Deficit - Beginning
     of period                 209,590       81,569     190,788       74,775
                               ----------------------------------------------
    Deficit - End of period    208,133       89,647     208,133       89,647
                               ----------------------------------------------
                               ----------------------------------------------
    Basic and diluted
     income (loss) per share      0.01        (0.05)      (0.10)       (0.08)
                               ----------------------------------------------
                               ----------------------------------------------

    Weighted average number
     of shares (000's)         179,428      178,850     179,419      178,780
                               ----------------------------------------------
                               ----------------------------------------------
    

    
    CONSTELLATION COPPER CORPORATION
    CONSOLIDATED STATEMENTS OF CASH FLOW
    (Unaudited)(in thousands of  U.S. Dollars)

                                 Three Months Ended         Six Months Ended
                                      June 30                  June 30
                                  2008         2007        2008         2007
    Cash flows from (used in)
     operating activities
    Income (loss) for the
     period                      1,457       (8,078)    (17,345)     (14,872)
    Items not affecting cash:
      Depreciation and
       amortization                  9        2,143         414        4,249
      Stock-based compensation     108          360         184          746
      Unrealized foreign
       exchange loss               829        3,745         892        4,494
      Financing costs                -            -          25        2,834
      Accretion expense             32          748      15,408          773
      Realized loss on
       derivative instruments     (539)         474       2,100          884
      Unrealized (gain)loss on
       derivative instruments   (5,059)       3,135      (4,722)       3,112
      Gain on sale of assets         -            -           -         (585)
    Change in non-cash working
     capital items:
      Inventories                3,568       (2,015)      5,542       (3,641)
      Prepaid expenses and
       other current assets       (677)         589        (639)          40
      Accounts payable and
       accrued liabilities      (1,262)        (384)     (3,515)      (1,069)
                               ----------------------------------------------
                                (1,534)         717      (1,656)      (3,035)
                               ----------------------------------------------
    Cash flows from (used in)
     investing activities
      Expenditures on
       mineral properties         (295)      (2,481)       (645)      (3,692)
      Expenditures on
       property, plant and
       equipment                     -         (515)          -       (1,939)
      Decrease (increase) in
       restricted cash, net
       of interest                 (40)         (27)         65          131
      Proceeds from sale of
       assets                      560            -         564        1,640
      Deposits and other             -            -           -         (518)
                               ----------------------------------------------
                                   225       (3,023)        (16)      (4,378)
                               ----------------------------------------------

    Cash flows from (used in)
     financing activities
      Proceeds from issuance
       of debt                       -            -           -       60,470
      Repayments of debt             -            -           -      (30,685)
      Proceeds from exercise
       of options                    -            -           -          257
      Financing costs                -            -           -       (2,602)
      Proceeds from TDA grant        -           79           -           79
      ARO settlement                 -            -         (53)           -
                               ----------------------------------------------
                                     -           79         (53)      27,519
                               ----------------------------------------------
    Increase (decrease) in
     cash and cash equivalents  (1,309)      (2,227)     (1,725)      20,106

    Cash and cash equivalents
     - Beginning of period       2,766       28,059       3,182        5,726

    Cash and cash equivalents
     - End of period             1,457       25,832       1,457       25,832
                               ----------------------------------------------
                               ----------------------------------------------

    Non-cash investing and
     financing activities
    In accounts payable at
     period end:
      Expenditures on
       mineral properties           76          841          76          841
      Expenditures on pro-
       perty, plant and
         equipment                   -        2,178           -        2,178
    Cash interest paid               4           12           8        1,208
    Settled by issuance
     of shares                       1           28           1           28
                               ----------------------------------------------
                               ----------------------------------------------
    
    %SEDAR: 00002465E




For further information:

For further information: Constellation Copper Corporation: Patrick
James, Chief Executive Officer; Michelle Hebert, Manager, Corporate Affairs,
(720) 228-0055, 1-877-370-5400, Fax: (303) 863-1736,
info@constellationcopper.com; www.constellationcopper.com; Renmark Financial
Communications Inc.: Neil•Murray-Lyon, nmurraylyon@renmarkfinancial.com;
Barbara Komorowski, bkomorowski@renmarkfinancial.com, (514) 939-3989, Fax:
(514) 939-3717; www.renmarkfinancial.com

Organization Profile

Constellation Copper Corporation

More on this organization


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890