due diligence sends url back to drawing board

Source: www.miningnews.net

Copper price, due diligence sends Universal back to drawing board

Paul Garvey
Friday, 16 March 2007

UNIVERSAL Resources shares have been battered in morning trade after the company announced it was set to reduce the scale of any future operation at its flagship Roseby copper project in Queensland.

Universal blamed a falling copper price for the decision to concentrate on the smaller, higher grade portions of Roseby, instead of the larger, longer life project considered in Roseby's 2006 feasibility study.

Universal managing director Michael Hulmes said recent declines in the copper price and the project as envisaged were unlikely to obtain debt finance.

He also said an external review of the project by Snowden Consultants as part of due diligence by financial institutions had identified a number of technical issues that needed to be addressed.

As a result, Hulmes said the company would look into developing a smaller, high-grade operation with lower operating and capital costs and potentially improved economics.

While the price of copper has retreated from $US3.49 per pound at the time of the feasibility study to $US2.97 in trade overnight, the current price is still comfortably in excess of the $US2.00/lb price used in the feasibility study's base case. That base case indicated the project was viable, and had a payback period of 3.6 years.

The feasibility study found Roseby could support a 34,000 tonne per annum copper and 14,700oz per annum gold operation. Using a copper price of $US3.50/lb, the project had a net present value of $980.7 million and an internal rate of return of 61.9%.

Operating costs for Roseby were initially expected to be in the range of $1.14-1.19/lb.

Hulmes said the company was already carrying out technical work to address the risks identified by the Snowden due diligence, which primarily related to the amount of metallurgical test work.

"More comminution test work will also be undertaken in order to enable detailed design work to take place on the milling circuit," Hulmes said.

"Some issues were also identified with the classification of the mineral resources but these have been largely addressed by the drilling campaigns that have taken place subsequent to the results of the feasibility study being announced."

He added that Snowden had raised a number of "other less significant issues" that should not impact on the overall timeline for the project.

The final due diligence report on the revised development strategy, including a proposed development strategy, is not expected before September, Hulmes said.

Universal had originally aimed to have finance secured by the end of last year, and was aiming for first copper production by the December quarter of next year.

Shares in Universal had shed 3.5c or 22.6% to sit at 12c in morning trade today.


End.

Cheers, Pie