Source: www.smh.com.au/businessFall in copper price forces...

Source: www.smh.com.au/business

Fall in copper price forces Universal into rethink on Roseby
Jamie Freed
March 17, 2007

UNIVERSAL Resources has demonstrated the pitfalls of basing a mining project on boom-time prices.

The Queensland copper hopeful said it would have to retool its Roseby copper project because it could not obtain debt financing due to the metal's steep price fall since its feasibility study, which was completed six months ago.

At the time, Universal said it could achieve an astounding 62 per cent internal rate of return on its Mt Isa project - albeit only if the copper price remained at the August average of $US3.50 a pound.

It also provided a base case with copper at the more realistic price of $US2 a pound, which it said would provide a 19.5 per cent internal rate of return and would pay back the $337 million capital cost in less than four years.

But with copper prices down 30 per cent since last May and some analysts lowering their 2008 average price forecasts below $US2 a pound, Universal's corporate advisers told the company it was unlikely to obtain the $250 million or so of debt funding it was seeking for the project.

Universal shares tumbled 23 per cent on Friday, to close 3.5c lower at 12c.

Universal managing director Michael Hulmes said his company would examine building a smaller project of unknown size based on its higher-grade resources. It had already once lowered its planned production from 50,000 tonnes of copper a year to 34,000 tonnes.

Mr Hulmes added Universal might be able to open its mine by late 2008 as planned.

"There's a bit of a silver lining out there, in that a smaller plant will be quicker to build," he said.

But Brian Rear, the managing director of CopperCo - which made an unsuccessful bid for Universal two years ago and maintains a 9 per cent stake in the company - said Universal was "grasping at straws".

CopperCo had a smaller market value than Universal at the time of its scrip bid, but has since grown to become six times the size of its rival. CopperCo plans to open a mine, also near Mt Isa, in July.

Fat Prophets analyst Gavin Wendt was sceptical about Universal's prospects.

"They have been beavering away at the thing for so long now," he said. "One has to question whether this project will ever be developed. How much higher do prices have to go before this project is economic?"


End.

Cheers, Pie