Resource Investor - July 14th, 2006
Century Mining Looks to Advance Canadian and Peruvian Plays
By Rod Franklin
14 Jul 2006 at 12:03 PM EDT
DENVER (ResourceInvestor.com) -- The impending delivery of four additional 100-tonne haul trucks to its Quebec-based Sigma-Lamaque gold complex and a flurry of recent acquisitions is poising Century Mining Corp. [TSXv:CMM] of Blaine, Washington as a promising early stage stock play.
The company, incorporated in 2003 from the ashes of the bankrupt McWatters Mining Inc., also has increased its earlier total 2006 production estimates for Sigma-Lamaque and the San Juan Gold Mine of Arequipa Province, Peru. Last year’s forecast of 90,000 ounces has been bolstered by 10,000 ounces, with 5,000 additional ounces estimated for Lemaque and 5,000 for the San Juan property.
With production costs of $325 to $350 per ounce in Canada and even lower prices in Peru, Century is targeting at least two profitable quarters this year, according to Investor Relations Consultant Tom Thomsen, who feels confident that a combination of proven production capability, profit and high liquidity will begin to attract bigger institutional buyers.
The company closed on the TSX-Venture Exchange Thursday at $1.30 per common share. Share prices have remained stagnant for a few months, but Century witnessed a fourfold price increase since bringing the Sigma property online in May of 2005. It has reached a market capitalization of more than $150 million, and on May 17 reported nearly 115 million outstanding and more than 135 million fully diluted shares.
Company analysts insist that share prices have not yet begun to swell to their potential. Moreover, they say, recent share issues for purposes of conserving cash and meeting most of Century’s non-operating financial obligations - specifically those related to acquisitions - has contributed to the dilution of shareholder equity. But for a company with Century’s profit potential, that’s not a bad thing, Thomsen said.
Century is backing up that philosophy with action. In March, it converted the entire $11.35 million principal of its outstanding 10% convertible debentures to common stock, issuing a total of 23,713,034 shares in tranches of 51 cents and 44 cents per share.
“It’s (current share price) because our major asset, which is Sigma-Lemaque, is something we have to prove that we can operate efficiently, and at the costs that we say,” Thomsen said. “You need a lot of cheap paper out there to attract the bigger players. If you want to buy a couple million shares, you want to want to sell a couple million shares, too, right? If we went out and did some more drilling and proved up those (inferred) ounces … we could prove to the public and the institutionals that we can get that gold out of the ground profitably. You get a couple good quarters and the institutionals are all over you.”
There are other factors related to Century’s current trading value. Buying the bankrupt Sigma-Lamaque meant that Century could not avoid inheriting some of the previous owner’s stigma. In addition, the company’s highly leveraged balance sheet has contributed to a significant undervaluing of its stock, compared to industry peers.
Century ran into a few snags after commencing production at Sigma. It blamed aggressive prices for steel, oil, spare parts and consumables for higher-than-budgeted operating costs, and argued that unsatisfied demand for goods, services, parts and consumables during the startup phase resulted in a delay in bringing the property online. The hard reality of a lower-than-budgeted operating performance was made evident when Century ended 2005 significantly short of its 70,000-ounce production forecast.
Judging how much a missed forecast owes to market forces and how much to a management team still finding its legs is always a subjective call, but in Century’s annual report for 2005, President and Chief Executive Officer Peggy Kent intimated that lack of adequate management did play a role in the firm’s initial operational doldrums.
“One of the challenges we have faced over the last year has been to build our management and technical teams, both in the head office and at the Sigma Mine,” she wrote to shareholders. “A high level of business activity in all the resource industries has led to a dearth of well-qualified and experienced professionals. This ‘buyers market’ has resulted in an increase in recruiting and salary costs as we have had to compete aggressively for personnel with other companies.”
Still, high gold prices, as lustrous as they’ve been in a quarter century, buoyed the company, resulting in positive cash flows during the third and fourth quarters of 2005.
Since Sigma started generating cash, Century has “found it easier to recruit people at all levels,” Kent continued. She is confident that recruiting will improve as the company creates new opportunities with its recent acquisitions, which include the Carolin mine in British Columbia; the Treadwell Gold Mine in Juneau, Alaska; eight additional exploration properties in the Juneau Gold Belt, and the Colina Dorada claims in Piura Province, Peru, which are grassroots exploration properties.
For now, Century will focus on its Canadian and Peru plays. Holding costs for the balance of its portfolio are minimal, according to Thomsen.
“The whole concept of those properties is that they were very nice - they had histories and all of them were company-makers,” he said.
Century’s singular large debt of about $8 million is owed to Quebec’s provincial government. The company hopes to earn the 20% discount it can receive if the balance is paid by the end of the year.
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