Fragile finances imperil Constellation Copper (March 24, 2008)

Troubled Constellation Copper (CCU-T, CCUDF-O) may have to file for protection from creditors in Canada and the United States if its cash liquidity problems aren’t eased.

“There is significant doubt about the company’s ability to continue as a going concern,” the company declared in its year-end financial results, released in March.

As of Dec. 31, the Denver, Colo.- based company had US$3.18 million in cash. In addition, it had paid only a portion of its February and March forward sales settlements and had been unable to settle many of its vendor obligations.

A C$69-million convertible debenture may be in default as well and payable immediately if the company can’t fork over about US$2 million of interest on the debt when it comes due at the end of this month.

Net losses for the year came in at US$116 million, or US65 per share.

Many of the junior’s problems began at the Lisbon Valley mine, in southeastern Utah, where its leach pad was performing far more slowly than had been expected.

In November, the company decided to shut down mining and convert the mine to a leach-only operation. Mining and crushing activities ceased at the end of January. The decision cost the company asset impairments of US$102.2 million last year.

Constellation Copper said it is unable to spend any significant sums on its San Javier (copper oxide) and Terrazas (zinc-copper) development projects, in Mexico. Both projects have property payments due this year and management is trying to renegotiate the payment schedules, secure outside financing in the form of a joint venture, or sell either or both of the projects.

A preliminary economic assessment for the San Javier property, in Sonora state, has shown that the project is both technically and economically feasible.

About a two-hour drive east of the city of Hermosillo, San Javier would be primarily an open-pit op- eration. Results of a scoping study in December showed that the project could be a significant copper cathode producer.

Overall, revenues for the year tallied US$64.28 million from the sale of 20.31 million lbs. of cathode copper at an average price of US$3.16 per lb., net of settlement adjustments. Costs of sales, excluding depreciation and amortization costs, were US$38.53 million, or $1.90 per lb. copper sold.

The company’s shares are trading at about 3.5 apiece — setting a new low in their 52-week trading range of 3.5-$1.57 per share.