No More Broken Promises: Constellation Copper

Hoping to address the repeated production shortfalls that have left it red-faced in the past, Constellation Copper (CCU-T, CCUDF-O) is making improvements at its Lisbon Valley mine, in Utah, to increase the amount of ore it can process.

While a feasibility study put full production at the project at 4.5 million lbs. cathode copper per month, the company has not been able to meet that goal since production began in 2005, due to material handling and leaching problems.

“The planning we did based on the info we had led us into promising things we couldn’t deliver,” says Patrick James, Constellation president. “We’ve been embarrassed by that and we just can’t do that anymore.”

In hindsight, James says, “it’s not unusual that heap leaching doesn’t occur as fast in the real world as in the lab.”

To improve the situation, Constellation has commissioned a fleet of three 100-ton trucks so it can haul and stack at least 6 million lbs. of primary crushed ore onto an 800,000-ton-capacity section of the leach pad instead of passing all the ore through a secondary crushing system first.

“It’s a fine-grained sandstone and it tends to plug the chutes in the system, particularly when it’s wet,” James says. “So we’ve increased the tonnage as much as we can and we’ve added the truck material.”

The company has also started construction of an intermediate leach solution (ILS) system, which won’t be ready until next spring. Once the ILS system is in place, Constellation will know what could be considered “full production” at Lisbon Valley.

But a Sept. 18 news release highlighting the production enhancements didn’t help the company’s share price that day — it plunged nearly 22% in Toronto, or 18, to 65 on a trading volume of 1.6 million shares.

James says the release doesn’t make any future projections and focuses more on the things the company is doing now.

Production shortfalls are costing the company. Settling its forward sales contracts has been setting Constellation back an average of US$1.8 million per month at current market prices. The average settlement price has been US$1.90 per lb.

Over the first half of the year, Constellation had delivered about 7 million lbs. copper out of a total 16 million lbs. in hedging contracts for the entire year.

While the company’s capital costs for the improvements have been in line with estimates, they have put a dent in the cash balance, which was US$15.2 million at the end of August, compared with US$25.8 million two months earlier.

But things have been improving. About 13 million contained pounds copper were placed on the leach pad in July and August; the monthly average of 6.5 million lbs. has doubled from the average during the first the half of the year.

Now the company is mining higher-grade ore, but with a higher percentage of sulphide ore, which is harder to leach.

“Even though there’s more sulphides on a percentage basis, there’s also more oxides as well,” James says.

The ore is 27% sulphide compared with 7% of last year’s ore. That percentage is expected to increase for the duration of the mine life, which could end in 2012 or 2013, depending on whether the company can expand reserves.

To save cash, exploration work is being delayed for the time being at Lisbon Valley, but continues at the company’s Mexican projects.