Fragile finances imperil Constellation Copper (March 18, 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,” Constellation Copper declared in its year-end financial results released today.

As of Dec. 31, the Denver, Colorado-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$116.01 million, or $0.65 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 2008. The decision cost the company asset impairments of US$102.2 million last year.

Moreover, Constellation Copper said it is unable to spend any significant sums on its San Javier (copper oxide) and Terrazas (zinc-copper) development projects.

Both projects have property payments due this year and management is trying to renegotiate the payment schedules, obtain 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, Mexico 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 operation. 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.

In Toronto, the news sent company’s stock down 4.5 to close at 3.5 per share. More than 9.3 million shares traded hands.

Constellation has a 52-week trading range of 5.5 to $1.57 per share and has 179 million shares outstanding.