Vulcan's Finland project hit by rising costs

West Perth-based Vulcan Resources Ltd has been hammered by investors after disclosing that planning for its flagship Kylylahti project in Finland has been adversely affected by higher than expected costs and an unfavourable exchange rate.

Vulcan's shares tumbed today by 11 cents, or nearly 20 per cent, to close at 48.5 cents, after falling as low as 39.5 cents in intra-day trade.

This followed big gains in its share price from as little as 20 cents early in 2007.

The company announced that it was extending the timetable for its Kylylahti project until the first quarter of 2008 to incorporate a review of costs and an optimisation of the project.

"The current configuration of the project, although generating substantial cashflow, will not give an acceptable return at long term metal prices," the company said in a statement.

The full text of a company announcement is pasted below

Vulcan Resources Limited ('Vulcan") (ASX: VCN, FSE: VUA, WKN: A0HHEF, Norwegian OTC: VCNR) today announced an extension of the Definitive Feasibility Study ("Study") for the Kylylahti Copper Cobalt Project in Finland. The Study is managed by SNC-Lavalin Australia Pty Ltd ("SNC").

The Study envisages a 550,000-650,000 tpa mine and concentrator at Kylylahti which produces copper-gold concentrate for sale to smelters and nickel-cobalt-zinc concentrate for further processing at the site of the Kemira GrowHow chemical plant at Siilinjärvi, 100km from the mine site.

The concentrate processing facility to be constructed at Siilinjärvi comprises a roaster, autoclave and hydrometallurgical plant which employ mature and established technologies. This facility would process nickel-cobalt-zinc concentrate to produce a number of high value products for sale: nickel-cobalt hydroxide, copper sulphate, zinc sulphate, iron ore fines and sulphur dioxide gas.

To date the Study indicates that the project is technically feasible and economically positive, however initial capital and operating costs at the Siilinjärvi site in particular, have been much higher than expected. In conjunction with unfavourable movements in the USD/EUR exchange rate, these costs suggest that the current configuration of the project, although generating substantial cashflow, will not give an acceptable return at long term metal prices. Therefore the company has extended the timetable for completion of the Study until the first quarter of 2008 to incorporate a review of costs and an optimisation of the project.

Vulcan Managing Director Alistair Cowden commented "There are numerous opportunities to add value through cost reduction and project enhancement that we will be pursuing. SNC and Vulcan have identified opportunities such as increasing the throughput at Siilinjärvi and modifications to the flowsheet. Work has already commenced on optimisation of various areas of the project".

Drilling is underway at the deposit to infill and extend high grade zones within the deposit and to test for extensions to the lower limit of the deposit down plunge.