Financials out. Worthless - no equityYikes. As bad as it gets. Nothing remains for equity holders. CCU is $0.075 over priced.
Can't pay bills. Can't meet interest payments, let alone repay the debt. Can't pay forward settlements. The only thing left is to auction off the remains at pennies on the dollar. The debt holders will be lucky to get $0.30 on the dollar. Frankly, I don't see why management hasn't declared BK already. Paying interest and funding forward sales while stiffing vendors is ludicrous.
OVERVIEW AND CURRENT YEAR DEVELOPMENTS
Overview
The Company is engaged in the evaluation, development and operation of mineral properties in
the United States and Mexico, and holds its properties primarily through three of its whollyowned
subsidiaries, Lisbon Valley Mining Co. LLC (“LVMC”), Minera Terrazas S.A. de C.V.
(“Minera Terrazas”) and San Javier del Cobre S.A. de C.V. (“San Javier”). Since achieving
commercial production at its Lisbon Valley mine effective November 1, 2006, the Company
has a history of operating losses, negative cash flows due to insufficient copper production and
has a shareholders’ deficit of $20,682,000 at December 31, 2007.
Recovery of copper from the heap leach process at Lisbon Valley has been significantly
slower than anticipated in the original feasibility studies and cash flow assumptions, resulting
in continued requirements to fund increases to in-process inventories. Since inception, the
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Lisbon Valley mine experienced operating difficulties and high maintenance costs primarily
relating to its crushing and material handling systems. Operating costs, particularly sulfuric
acid and diesel fuel, have been higher than anticipated. The original acid supply contract
indexed the price of acid to the price of copper, which increased from an estimate of $0.90
per pound in the feasibility study to an average of $3.09 pound for 2006. In 2007, acid prices
were re-negotiated. Extended periods of cold weather and greater than normal precipitation
also resulted in higher costs, delays and inefficiencies.
In addition to funding working capital, the Company has been required to settle forward sales
contracts at copper prices that have been significantly lower than the market price of copper.
The forward sales contracts, which mature through December 2008, were put in place
primarily as a requirement of the Lisbon Valley project financing. Cumulative forward sales
settlements have been $36,699,000 through December 31, 2007, including amounts deferred
of $3,768,000. In addition, in 2005 the Company paid $3,020,000 for $0.90 put contracts
that expired without value during 2006 and 2007.
In connection with an amendment to the Company’s commodity transaction agreement with
Investec Bank (UK) Limited (“Investec”), the bank agreed to defer a total of $5,084,000 of
forward settlements originally due in November and December 2007 and January 2008 until
no later than December 31, 2008. In addition to the scheduled deferrals, the Company has
been unable to pay the $1,424,000 February 2008 and $1,699,000 March 2008 forward sales
settlements when they were originally due. Through March 14, 2008, the Company has paid
$1,300,000 toward these settlements and plans to make additional payments as funds are
available.
The Company is also required to make interest payments of approximately Cdn.$1.9 million
semi-annually at the end of March and September on its outstanding Cdn.$69.0 million 5.5%
senior convertible debentures.
In November 2007, as a result of a comprehensive management evaluation of Lisbon Valley
operations, the Company announced its decision to cease mining and crushing activities and
convert the Lisbon Valley mine to a leach only operation by the end of January 2008. The
evaluation included analyses of various mining plans, waste stripping requirements, contract
mining arrangements, available mining equipment, estimated leach recovery rates, projected
copper prices and extensive operating cost and cash flow projections. In connection with the
evaluation and conversion to a leach only operation, the Company recorded asset
impairments of $102,183,000 during 2007.
The remaining Lisbon Valley asset carrying values will be reviewed in subsequent periods
and adjusted if it is determined that additional significant amounts may not be recoverable.
Circumstances that could lead to additional impairments include, but are not limited to, lower
than expected copper production, lower copper prices, higher than expected operating costs,
and an inability to renegotiate material contracts to terms more favorable to the Company.
Future adjustments could be material.
The Company had a net loss of $116,013,000 or $0.65 per share in 2007 compared to a net loss
of $49,578,000 or $0.30 per share in 2006. The net loss in 2007 included asset impairments of
$102,183,000 and a realized loss of $22,925,000 and an unrealized gain of $11,112,000, related
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to copper forward swaps and other derivative instruments. The Lisbon Valley mine was in
commercial operation the entire year in 2007 compared to two months in 2006.
At December 31, 2007, the Company had $3,182,000 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 only paying a
portion of the February and March 2008 forward sales settlements, the Company has been
unable to pay many of its vendor obligations when they became originally due, which may
eventually result in vendors requiring payment before delivery of goods and services
necessary to continue operations.
If cash liquidity problems continue, the Company may be forced to file for protection from
its creditors in both Canadian and United States jurisdictions. There is significant doubt
about the Company’s ability to continue as a going concern. See “subsequent events”.