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| | Mon Nov 12, 2007
Frontera Copper Reports Third Quarter 2007 Results And Announces Conference Call
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| | (All dollar amounts are expressed in United States currency unless otherwise noted)
Toronto, ON - November 12, 2007 - Frontera Copper Corporation (FCC: TSX, FCC.NT, FCC. NT.A: TSX) today reports financial and operating results for the quarter ending September 30, 2007.
Third Quarter Highlights
- Earnings of $10.3 million
- Cash flow from operating activities of $23.7 million
- Cash and cash equivalents increased by $10.1 million to $58.8 million
- Copper production of 15.1 million pounds of copper (sales of 15.7 million pounds)
- Repurchase of C$8.9 million of the outstanding notes payable
- Phase II Construction project completed and Phase III leach pad construction initiated
Financial Results
(Millions of dollars, except per share)
|
Quarters |
Year-to-date |
| |
Sept.
2007
|
June
2007
|
March
2007
|
Sept.
2006
|
Sept.
2007
|
Sept.
2006
|
Revenues ¹ |
50.1 |
50.8 |
29.0 |
-- |
129.9 |
-- |
Net earnings |
10.3 |
9.8 |
5.0 |
(5.9) |
25.1 |
(17.2) |
Net earnings per share |
0.16 |
0.15 |
0.08 |
(0.12) |
0.39 |
(0.36) |
Cash flows from operations before working capital changes |
18.0 |
27.1 |
11.7 |
(5.3) |
56.8 |
(12.6) |
Closing cash balances |
58.8 |
48.7 |
24.4 |
6.9 |
58.8 |
6.9 |
¹The Piedras Verdes operations commenced production in October 2006.
Net income for the three months ended September 30, 2007 includes net foreign exchange losses of $4.9 million ($4.9 million after tax or $0.08 per share), a loss on the repurchase of the notes payable of $0.9 million ($0.9 million after tax or $0.01 per share) and unrealized losses on derivative contracts of $0.2 million ($0.1 million after tax or nil per share) compared to net foreign exchange losses of $0.5 million ($0.5 million after tax or $0.01 per share) for the three months ended September 30, 2006.
Net income for the nine months ended September 30, 2007 includes net foreign exchange losses of $11.1 million ($11.1 million after tax or $0.17 per share) ), a loss on the repurchase of the notes payable of $0.9 million ($0.9 million after tax or $0.01 per share) and unrealized losses on derivative contracts of $1.7 million ($1.2 million after tax or $0.02 per share) compared to net foreign exchange losses of $3.1 million ($3.1 million after tax or $0.06 per share) for the nine months ended September 30, 2006.
Capital expenditures for property, plant and equipment totaled $5.4 million in the third quarter of 2007 and $28.4 million year to date in 2007, compared to $21.8 million in the third quarter of 2006 and $73.0 million in year to date 2006.
Alan Edwards, President and Chief Executive Officer said, "With the Piedras Verdes mine in operation, we continue to focus on achieving full production and to look for opportunities to drive down our operating cost structure in order to improve our operating margins. Our cash balances continue to build rapidly and the company is well positioned to quickly pursue growth opportunities as they are identified."
Results from Operations
(dollars in millions, except per pound)
|
Quarters |
Year-to-date |
|
Sept. |
June |
March |
Sept. |
|
2007 |
2007 |
2007 |
2007 |
"LME Grade A" quality copper cathode;
(millions of lbs.) |
|
|
|
|
Produced |
15.1 |
15.9 |
10.4 |
41.4 |
Sold |
15.7 |
15.7 |
10.1 |
41.5 |
Cash costs per pound sold ($): |
|
|
|
|
(Excluding prepaid royalties) |
1.13 |
1.10 |
1.37 |
1.18 |
(Including prepaid royalties) |
1.21 |
1.18 |
1.43 |
1.25 |
|
|
|
|
|
Revenue ($) |
50.1 |
50.8 |
29.0 |
129.9 |
|
|
|
|
|
Average price per pound: |
|
|
|
|
Realized ($) |
3.20 |
3.23 |
2.87 |
3.13 |
COMEX ($) |
3.48 |
3.46 |
2.70 |
3.26 |
For the three months ended September 30, 2007 unit costs were adversely impacted by less than full production, primarily caused by a reduction of sulfuric acid deliveries to the operations due to a strike at the operations of its major sulfuric acid supplier. The Company has been supplementing the acid shortfall, to a limited extent, by obtaining additional supplies of sulfuric acid from other sources. In addition, in early September Hurricane Henriette caused record rain to fall at the Piedras Verdes operations, which negatively impacted leach pad performance by diluting the pregnant leach solution for a number of days. Production was also affected to a lesser extent by poorer than expected equipment availability, which resulted in fewer pounds of recoverable copper being placed on the pad. The operation has taken steps to address the equipment availability issue and by the end of October the operation had made up the ore placement short fall incurred in the third quarter. For the nine months ended September 30, 2007, the higher unit costs are primarily related to less than full production and higher acid consumption in the first four months of the year. Since a portion of the operation's costs do not fluctuate with production volumes, the lower production resulted in higher unit costs.
The Company sells 100% of its copper cathode Free Carrier (FCA) at the mine site to Gerald Metals Inc. The price the Company receives for its copper cathode sales is based on the average COMEX price for the month following the month of shipment ("M+1 Pricing"), minus an adjustment to account for a premium over the COMEX price, and freight, insurance, and financing costs incurred by Gerald Metals. In addition, the Company has entered into a limited hedging program to hedge the revenue from the sale of the first 50% of forecasted monthly copper cathode sales through February 2009 by entering into forward sales contracts. For the three months ended September 30, 2007, the Company's average realized price was $3.20 per pound, compared to the average COMEX price of $3.48 per pound and for the nine months ended September 30, 2007 the Company's average realized price was $3.13 per pound compared to the average COMEX price of $3.26 per pound. Differences in the Company's realized copper prices in comparison to the quoted COMEX prices are due to varying monthly sales levels, the M+1 Pricing arrangement and the results of the Company's hedging program. During the three months and nine months ended September 30, 2007 revenues include 8,763,000 pounds and 17,967,000 pounds of copper cathode sales, which were priced at the average price the Company received under its forward sales hedging program of $3.01 per pound and $3.02 per pound, respectively.
In addition to the realized hedging losses, which have been included in revenue, the Company recorded unrealized losses on derivative contracts of $0.2 million ($0.1 million after tax) for the quarter ending September 30, 2007 and $1.7 million ($1.2 million after tax) for the year to date. The unrealized losses on derivative contracts relate to the ineffective portion of the Company's derivative instruments, which are marked to market at the end of each reporting period.
As at September 30, 2007, the Company has outstanding forward sales contracts with major financial institutions, which are being accounted for as cash flow hedges as follows:
| Year |
Pounds Sold
Forward
('000s) |
Average Sales
Price Per Pound
$ |
Fair Market Value
at Sept 30th
(in thousands of $) |
| 2007 |
5,842 |
2.97 |
(4,000) |
| 2008 |
34,998 |
2.81 |
(25,178) |
| 2009 |
8,598 |
2.62 |
(6,277) |
| Total |
49,438 |
2.80 |
(35,455) |
In August 2007, the Company purchased on the open market C$4,490,000 principal amount of the June 2010 Notes and C$4,371,000 principal amount of the March 2011 Notes at a total cost of $8.6 million. The Company recorded a loss on the purchases of $0.9 million relating to acceleration of accretion expense on the portion of the notes purchased. This repurchase will result in annual interest expense savings of approximately $0.9 million. The Company will continue to evaluate additional note repurchases as opportunities arise.
During the three months and nine months ended September 30, 2007, the Company incurred net foreign exchange losses of $4.9 million and $11.1 million compared to net foreign exchange losses of $0.5 million and $3.1 million during the three months and nine months ended September 30, 2006, respectively. The foreign exchange losses primarily relate to the notes payable, which are denominated in Canadian dollars. During both the second and third quarters of 2007 and 2006, the Canadian dollar strengthened significantly against the United States dollar resulting in losses on the notes payable partially offset by gains on the Company's Canadian dollar cash and cash equivalent balances.
During 2007, the Company has applied approximately $28 million of non-capital losses (future tax benefit of $7.8 million) and accrued current income taxes payable of $9.1 million both relating to the earnings generated by its wholly owned Mexican subsidiary Cobre del Mayo, S.A. de C.V. ("CDM"), the owner and operator of the Piedras Verdes operations. The Company's effective tax rate on earnings generated by CDM is 28%. In addition, the Company has accrued current income taxes payable of $1.0 million related to withholding taxes on intercompany interest charges. The Company is not recognizing any tax benefit on the losses generated in Canada.
Cash and cash equivalents were $58.8 million at September 30, 2007. During the three months and nine months ended September 30, 2007, cash and cash equivalents increased by $10.1 million and $25.3, respectively, compared to decreases of $15.8 million and $27.9 million during the three months and nine months ended September 30, 2006, respectively, when the mine was under construction. At November 9, 2007, the Company's cash and cash equivalents were approximately $65 million.
During the three months ended September 30, 2007, cash flows from operating activities were $23.7 million compared to a negative $8.0 million during the three months ended September 30, 2006. Cash flows from operating activities during the three months ended September 30, 2007 include a decrease in working capital balances (excluding cash) of $5.7 million, primarily reflecting increases in income taxes payable of $7.6 million, an increase in other accounts payable of $3.4 million, partially offset by increases in current inventory of $1.7 million, commodity taxes recoverable of $1.2 million and accounts receivable of $0.6 million. The Company expects income taxes payable to continue to increase into the first part of 2008 at which time income taxes related to 2007 earnings of the Piedras Verdes operations will become due. In addition, the Company expects that it will make provisional tax installments throughout 2008 related to the 2008 earnings generated by the Piedras Verdes operations. The Company expects inventory balances to continue to increase throughout the next few years, as the rate of placing ore on the leach pads outpaces the production rate.
Operations Status
On November 3, 2007 the Piedras Verdes operations completed their first consecutive one million man hours without a time lost accident.
Leaching of copper to date is progressing slower than originally expected, but the operation still forecasts achieving the 62.5% final recovery indicated in the 2005 Technical Report.
Ore continues to be placed on the heap leach pad in lifts of five meters (previously ten meter lifts). In addition, approximately two-thirds of the ultimate acid requirement is being applied by pre-soaking the ore with a strong acid solution (approximately 100 grams of acid per liter), prior to rinsing with normal raffinate solutions (approximately 7 grams of acid per liter). The top-down acid cure is expected to increase the amount of recovered copper during the first leach cycle by providing most of the acid up front. With the five meter lifts, each leach cycle is reduced from approximately 120 days to 60 days and additional leach cycles are required to recover the copper in inventory. Under current conditions, the estimate of the percentage of copper in inventory, which will not be recovered during the next twelve months, increased from 6% to 18%. Accordingly, the Company has classified $4.8 million of the heap leach inventory as long term as at September 30, 2007.
During the 2007 third quarter, SX plant solution flows were increased to nearly 2,500 cubic meters per hour as additional leach area became available with the newly completed Phase 2 leach pad. The increased solution flows have increased power and reagent costs. The additional area created by the Phase 2 leach pad will provide the operation with the flexibility to extend leaching cycles and vary solution application rates.
The Phase 2 capital project managed by M3 Engineering & Technology, which started in late 2006, was completed during the third quarter of 2007 at a total cost of approximately $26 million versus the earlier estimate of $28 million. The Company has started construction of the Phase 3 leach pad expansion in the third quarter of 2007 at an estimated cost of $16.8 million, to provide the operation greater flexibility in its leaching operations and solution flow management. Total capital expenditures for 2007 are now forecast at approximately $35 million and include $22 million for completing the Phase 2 capital project, $6 million for the Phase 3 leach pad expansion, and $7 million for the purchase of certain land and other projects at the Piedras Verdes operations. The remainder of the expenditure for the Phase 3 leach pad will be made in the first half of 2008.
As at the end of September, more than 21.8 million tonnes of ore containing over 107 million pounds of recoverable copper had been placed on the leach pads since commencing mining operations last year.
Exploration
During 2006 and 2007, the Company conducted a diamond drilling program at Cerro Chato, which is approximately 1.5 kilometers west of the main Piedras Verdes ore body. A total of 3,377 meters of diamond drilling was completed in 27 holes. Final analytical results for all holes were received in July 2007. The exploration drilling program was successful in discovering approximately 15 million tonnes of oxide mineralization at Cerro Chato; however, the drill hole density is insufficient to allow for estimation of a mineral resource at this time. Additional infill drilling on 50 meter centers will be required in order to delineate 43-101 compliant resources.
The mineralized zones tested at Cerro Chato appear to be similar in grade to the ores currently being mined at the Piedras Verdes operation. In addition, the preliminary metallurgical test results indicate that some of the Cerro Chato mineralization has metallurgical characteristics similar to the ores currently being mined at Piedras Verdes and could therefore potentially add to the life of the operation. More extensive testing is needed to adequately quantify the recovery and acid consumption properties of the Cerro Chato material.
Corporate Development
The Board and management believe there is significant scope for consolidation amongst small to mid-tier copper producers and the Company continues to evaluate opportunities to grow its business through mergers, acquisitions, joint ventures and exploration. The Company is concentrating on opportunities in Canada, United States, Mexico, Peru and Chile with the focus on copper projects, given the highly prospective nature of those regions and the considerable experience which management has in these countries and in the copper industry.
2007 Outlook
The Company continues to focus on achieving its annual production rate of 70 million pounds of copper cathode at the Piedras Verdes operations. The strike at the major supplier of sulfuric acid to the Piedras Verdes operations is continuing longer than previously expected. Therefore, we are now expecting the Piedras Verdes operations to produce at the lower end of our previously announced guidance, and we estimate that the operation will produce approximately 57 million pounds of copper cathode for the full year. However, the Company still continues to estimate that the full year's cash production costs will be in the range of approximately $1.12/lb to $1.20/lb sold ($1.19 to $1.27 per pound including prepaid royalties).The higher cost estimated for 2007 is primarily related to less than full production and the decision taken to increase the total mining rate in order to advance the development of Phase 8 of the mine plan. The development of Phase 8 will provide earlier access to the chalcocite mineralization, which is a lower acid consuming ore with improved percolation characteristics.
Conference Call
Frontera Copper will hold a conference call to report third quarter 2007 results on Tuesday, November 13, 2007 at 11:00 a.m. ET.
The conference call will be chaired by Mr. Alan Edwards, President and Chief Executive Officer. Mr. Edwards will be joined by Mr. Dave Peat, Vice President and Chief Financial Officer and Mr. Tim Swendseid, Vice President of Engineering.
If you wish to participate, please dial 416-641-6125 or Toll-Free 1-866-542-4236.
The call will be available for replay until November 27, 2007. Please dial 416-695-5800 or Toll-Free 1-800-408-3053 and enter Passcode: 3241518.
About Frontera Copper
Frontera Copper is a Canadian mining, development and exploration company whose principal activity is the production of copper cathode from the Piedras Verdes run-of-mine heap-leach copper operation in Sonora, Mexico. Production commenced in October 2006 and at the full annual production rate of 70 million pounds of copper cathode, a total of 942 million pounds of copper is projected to be produced during the 18-year life of the operation. Existing resources and prospective exploration targets adjacent to the main open-pit have the potential to extend the life of the project.
For further information, please see Frontera Copper's website at www.fronteracopper.com or contact:
Alan R. Edwards
President and Chief Executive Officer
Tel.: 602-424-5488
Toll-free: 888-323-0973
Email: alan.edwards@fronteracopper.com
Dave Peat
Vice President and Chief Financial Officer
Tel.: 602-424-5484
Toll-free: 888-323-0973
Email: dave.peat@fronteracopper.com
Information in this news release that is not current or historical factual information may constitute forward-looking information or statements within the meaning of applicable securities laws. Implicit in this information, particularly in respect of statements as to future operating results and economic performance of the Company, and resources and reserves at the Piedras Verdes operations, are assumptions regarding projected revenue and expense, copper prices and mining costs. These assumptions, although considered reasonable by the Company at the time of preparation, may prove to be incorrect. Readers are cautioned that actual results are subject to a number of risks and uncertainties, including risks relating to general economic conditions and mining operations, and could differ materially from what is currently expected. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. |
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