You should also take a look at Century mining CMM.V which is my biggest holding. It is currently producing around 100,000 oz per year. My expectation is for CMM to hit a production run rate of 200,000 oz per year at around $300 per oz average cost, by year end 2007. Just on that basis alone CMM is cheap at the low $1+ SP level it is at now, when compared to other producers. The production growth from the current 100,000 oz per year level to 200,000 is from bringing online the underground mining at Lamaque and the ramp up to 80,000 from mining the veins at San Juan. Also as you can see there is a lot of blue sky upside at San Juan from the early stage Golden Champune, Erica, and Santa Clarita prospects, any one of which could be a company maker on its own:
Upbeat Prospects for Century Mining Corp.
Submitted by: Andrew K. Burger
Introduction
Prospects are looking decidedly upbeat for Blaine, Washington-based Century Mining Corp (CDNX: CMM.V). Based on its recent acquisition of the San Juan Mine property in the southern Peruvian department of Arequipa and the results of its capital investment and cost cutting efforts at the Sigma-Lamaque gold mine in Quebec, the company expects to report its first net profit later this year, according to Century’s Tom Thomsen.
Century’s financial condition is improving. It forced holders of C$10 million worth of convertible debentures to convert to equity, eliminating interest expenses and significantly reducing its long-term debt, which now stands at C$12 million. Related financing costs were fully expensed at the end of the second quarter, which will improve profitability for the remainder of 2006.
The company’s working and investment capital position is also improved, thanks to a recent, self-arranged C$25 million private placement of equity with non-detachable warrants. Issued at a price of C$1.25, Century plans to use a portion of the money to upgrade the San Juan Mine’s infrastructure, as well as to finance exploration, testing and development of promising prospects. More than 35 mineralized structures have been identified on the property, of which only two have been extensively mined, Century management announced in late June.
South American Gold
Peru and the small community of some 5,000 people living near the San Juan Mine approximately 80 kilometers inland from the mouth of the Ocoña River and the rural city of Camana have a long history of mining, and Century has been encouraging local independent miners to contract with them. Some sixty local miners have agreed to sell all the ore they mine at the company’s on-site mill according to a sliding schedule of payouts based on grade and tonnage.
Having acquired all but four percent ownership of the mine and all mineral rights for the property in late June for the equivalent of around US$7 of gold per ounce, Century management will upgrade and add to the mine’s existing infrastructure and processing capacity.
“We’re currently processing 150 tons, but we’re going begin our upgrade shortly, Thomsen reported. Century expects to invest C$10 million in doing so and has set a goal to process 5-10,000 tons of ore this year, 30,000 next year and 80,000 the year after.
The company is undertaking an extensive surface and underground sampling and drilling project to bring the 18,000 hectare San Juan Mine property’s historical resources of around 1.23 million ounces of gold up to date in accordance with Canada’s National Instrument 43-101 disclosure standard. Announced publicly on June 26, the program is expected to take several months.
Research indicates that ore on the property’s Golden Champune prospect could be processed using heap leaching. “Average recovery and processing costs for heap leaching of gold ore runs in the US$125-$130/oz. range,” Thomsen noted and Century expects that recovery costs at the Peru mine may well come in below that average. “Barrick spent $360 million in northern Peru on a property that’s yielding some 550,000 ounces of gold at a cost of $125/oz. We believe that this [the Golden Champune section of the property] has similar potential,” he added.
Further research into the San Juan Mine’s archives has uncovered historical and more recent indications of recoverable amounts of gold, as well as copper and molybdenum, on other sections of the property.
What management believes to be reliable historical indications are that a second prospect named Santa Clarita has potentially sizable tonnage of recoverable gold in concentrations ranging from 0.5 to 4.0 grams of gold per ton of ore. Indications are that Erica, a third prospect, may hold a sizeable copper-gold porphyry deposit that contains associated, economically recoverable quantities of molybdenum.
Century has purchased a 43-101 compliant report of the Santa Clarita and Erica sections of the property from another mining company that had been bidding against Century for the San Juan Mine.
Purchasing the 43-101 compliant report not only saves Century the time and expense of producing the report itself, it turns these sections of the property into an unexpected asset that could be used to finance further exploration and development,” Thomsen noted. “It’s incredibly valuable.”
Share Prospects
Century’s business strategy is to leverage its mining engineering and business management expertise and its access to capital to identify and purchase existing gold mining properties with proven reserves and a production history that, for any of a variety of reasons, are undervalued.
Developments at the San Juan property are leading it into a growing amount of exploration, as well as production, work, however. “We’re a production-oriented company. We didn’t expect to spend so much money on exploration and drilling, but we’re not averse to doing so if it’s in our interests,” Thomsen explained.
Investing in Century shares at this point in time, he said, “You get the best of both worlds: the potential of greater than expected returns on new discoveries and you’re protected by the number of ounces we have on the books. Our shares should be trading in the $5-$6 range just because of that.”
Why aren’t they? Well, for a number of reasons, according to Thomsen, the main one being that the company has yet to turn a net profit, in large part due to the challenges of turning around operations at the Sigma-Lamaque mine in Quebec.
Century appears to have the situation there well in hand, however. Sigma-Lamaque produced its first operating profit this past quarter. “We’re now running a C$20-$25 million annual profit [operating] and we continue to reduce costs,” Thomsen noted.
Between the San Juan and Sigma-Lamaque properties, Century expects to produce some 100,000 ounces of gold this year at an average cost of between $325 and $350, with the potential for costs in Peru to be considerably lower, Thomsen said.
Another reason for Century’s shares being undervalued has been overhanging supply of shares due to cheap, recently converted warrants. “We forced conversion of C$25 million of convertible debentures with purchase rights of C$0.35-C$0.40/share,” Thomsen said. However, almost all have been converted to equity, which means that they will have no further dilution on Century’s shares, he added.
Century does have private equity and warrants outstanding as a result of its most recent, C$25 million, private placement. The warrants have an exercise price of C$2.00 and a two-year voluntary, as well as a forced, conversion clause, both of which begin September 28. The shares have a mandatory four month holding period, which means that the earliest they might be offered on the secondary market would be September 28.
Century’s share price ran up sharply earlier this year, hitting an all-time high of C$1.89 in March when news of the San Juan acquisition began circulating. The company’s shares have been in something of a holding pattern since, trading in the C$1.35-1.80 range while investors await news of developments in Peru and Quebec,” Thomsen said.
They shouldn’t have long to wait. Century expects to file its 43-101 report for the San Juan Mine in a few months and publicly release updates regarding development plans and progress before the end of the third quarter. And management remains bullish on the company’s and broader gold market’s longer term prospects as well. “We don’t have a hedge position at all; all our production is being sold at spot prices. There are two reasons to hedge production: If you see stagnant or declining market conditions or if you need cash, which we did earlier to finance operations. But we’re not in that position at the moment.”
Andrew Burger is a freelance journalist and writer who also teaches EFL. He is currently living and working in Saudi Arabia. He acquired the formal education he is now thankful for in the New York City public school system and the University of Colorado, Boulder.
