From the NR: “Century awards Fortis Lead Arranger and underwriter mandate for Lamaque expansion financing of up to $70 million”
It’s not every day that a junior company (with a $28M market cap) is able to assign a LT Debt mandate to a company like Fortis (significant European financial institution), in an effort to secure $70M (2.5 times Century’s current market cap). I am not one to believe that a $55 (US) billion market capitalization company like Fortis would put their reputation at stake if they didn’t think Lamaque was the “real deal” at this stage of their DD process. By the way, $55 (US) billion makes Fortis 1,951 times greater in size (than Century) from a market cap standpoint.
From the NR: “Closing on the project loan facility will be subject to completing satisfactory due diligence, credit approvals, and negotiating loan and security documentation. The Company and Fortis anticipate having the facility in place within 4-5 months.”
It is positive to make it to this stage of the process, especially with a financial institution like Fortis. It seems like many of the people that write articles and newsletters have been commenting about how challenging it is for juniors to get financing for their projects (with the credit crunch and all). Century’s management has disappointed us lot IMO (hence our $.175 share price), but this is not one of those times.
On March 25’08, Century first told us about this particular (senior secured) LT Debt initiative. They were able to get interests from 4 banking and equity institutions at that time – during a period when the US economy was in severe turmoil (making the credit crunch even more severe). It is May 18’08 today, and although things are still rough in the US (and worldwide) it appears as if the markets have calmed down a bit. With Fortis not losing interest in Lamaque during those difficult months of economic crisis, it probably bodes well for our partnership with them. They could have easily taken their name out of the hat in March. I mean, even the US fed was in crisis mode – slashing 75 basis points at a time (from the interest rate). It is obvious to me that Fortis accepted the mandate because they see the potential of Lamaque:
* track record of 70 plus years of u/g mining at Lamaque
* 4.6M ounces of gold resource in the ground (43-101 compliant and BSCS approved) with those ounces being located only 0 – 1000 ft from the surface and with a 4.87 g/t grade (excludes West Plug o/p)
* 1.1M ounces of gold reserves established (and counting)
* full processing operation in place
* significant mining infrastructure already in place
* Lamaque in production and possibly being cash flow positive in a few months
* amazing exploration potential both within Lamaque and other Century properties located next to Lamaque
To summarize, if Fortis pulls out of the deal over the next 4-5 months (prior to finalizing) I do not believe that it will be due to the US and global credit crunch situation (given my reasoning above). Also, (although anything is possible) I would be very surprised if Fortis pulls out during the detailed DD process of Lamaque, as Lamaque appears to be very advantageous (also described above). Now, Fortis is the “Lead Arranger and underwriter” of the deal. I suppose it’s possible that Fortis may not get sufficient participation from other lenders. To be honest though, I am not too concerned about that. If Fortis likes Lamaque enough then I can see them underwriting a significant portion of the debt with their own money (be it undersubscribed or oversubscribed). As mentioned above, this is a company with a $55 (US) billion market cap. In addition, Century is only requesting $70M (relatively small potatoes for them), and nothing close to the $240M in LT Debt that Orezone mandated to their own Lead Arrangers and underwriters.
Anyway, while we wait for the LT Debt to close off, our main focus right now should be closing off the PP and secure bridge financing. I have absolutely no idea about what the actual PP amount looks like, but nevertheless I have lowered my expectations, given the length of time it has taken to close off the PP. I will now be pleased if the PP comes in around the $2M ballpark (although it would be nice to see something higher). Hopefully management is aggressively pursuing bridge financing, as I am of the belief that this is a strong possibility (created by the Fortis LT Debt mandate). In the past, I have noticed a number of situations (in the market) where approx. $10M in bridge financing was secured while companies were waiting for $50M type LT Debt amounts to be closed off. I am no expert at this, but it seems like common enough practice to me.
Production05
11 comments:
Oh Please!
Fortis is going to be the Lead Arranger for the loan, not the guy that loans CMM the money. The size of Fortis means nothing, what is critical are the terms of the loan and how quickly CMM gets the money. So there is no "putting the reputation of a $55 Billion company on the line" over some piddly little $70 MM loan. Fortis will collect their BIG fees for arranging the financing and they will have zero at risk once the deal goes through. No reason for Fortis to not take the business, arrange the loan and collect a fee. No skin off Fortis's neck if the loan goes sour when PK under delivers.
It is the guy that loans the money to CMM that has all of the risk in the transaction. However, I suspect that once anyone in finance runs CMMs numbers they will require such guarantees for repayment that in the end the banker will own Lamaque. Remember Sinclair's warnings about non-recourse loans? This is what PK and CMM are headed for - a BIG fat non-recourse loan! PK will be forced to hedge maybe 50% of production from Lamaque in order to convince the lender that they can get repaid. What price will those hedges be at? $900? $1,000? PK has been terrible about timing the market and making good hedge trades, the facts are there.
And watch - the lender will be the guy on the other side of those forward sales - shoot he'll be glad to buy production from Lamaque in $900 to $1,000 range especially when gold is selling for 1,200 to 1,600! But what do you think shareholders are going to get when gold is selling north of $1,200/oz and CMM has its production hedged at $900/oz?
This loan will be the one thing that can ultimately lead CMM into bankruptcy. Heretofore the only "debt" CMM has is that soft debt from IQ on Lamaque, equipment lease contracts and all of those "purchase options" on the Peruvian mines. Now, with real debt on the books CMM will have to perform if for no other reason than to make the loan payments. Remember, CMM has had to "renegotiate" the terms of the existing IQ Lamaque loans two or three times since taking over because they have been unable to make the payments. {amd that loan is only $12MM] If CMM does not hit production targets or doesn't generate the cash it needs to make the payments CMM will go the direction of Royal Oak or McWatters. What are the chances of CMM hitting targets as promised? What has materially changed since the Sigma Pit snafu, the San Juan non-ramp up, the Rosairo mess?
But the real question is whether IQ is dumb enough to relax its loan covenants and allow CMM to take out another loan on Lamaque, i.e. a second mortgage. I have to wonder if any lender wants to get into a second place in line behind IQ? How will the lender be able to guarantee repayment if it doesn't have first mortgage on the assets? What is the value of the mine during a forced liquidation - if you say "replacement cost" you are being snookered.
One can cite all of the ounces in the world as being present on a property as resources but that doesn't mean that the ounces are minable at a profit. If this Lamaque property is so grand, why hasn't a company like AEM snapped it up - after all AEM keeps building new mines in the neighborhood of Lamaque, why not pick up this great geology and infrastructure? I think the answer lies in the narrow veins and hard rock of the geology.
Spinning the taking on of debt as a positive by a company that has proven in 4 years of operations that it isn't capable of turning a profit or hitting targets is beyond the pale. Enjoy!
Anonymous, it is virtually impossible to know what the final terms and conditions for the LT debt facility will be - until they are negotiated first, or you're sitting at the table. Until then, everything you wrote is pure speculation and conjecture. However, since your crystal ball has already revealed the future, will you ask it who will win the NHL and NBA playoffs? haha
Btw, my crystal ball shows PK getting the boot at the AGM.
anonymous II
Some companies are overvalued while some are undervalued:going concern? capitalized?
Liquidity and Capital Resources:
Management’s internal cash flow estimates indicate that to fund ongoing 2008 capital expenditures at the
Limon Mine, exploration activities and complete the Orosi Mine - Mill Project by the first quarter of 2009
will require additional funding of approximately $20 - $25 million. Management is currently reviewing
various options to fund this shortfall which, if not raised, would result in the curtailment of activities and
result in project delays. Management expects that additional financing will be available, and will be
sourced in time to allow the Company to continue the normal course of planned activities. However, there
can be no assurances that the Company’s activities will be successful and as a result there is substantial
doubt regarding the “going concern” assumption. The Company’s consolidated financial statements and
management’s discussion and analysis of financial position and operating results do not reflect
adjustments that would be necessary if the “going concern” assumption were not appropriate. If the
“going concern” assumption were not appropriate, then adjustments to the carrying values of assets and
liabilities, reported expenses and balance sheet classifications, which could be material, may be necessary.
Orosi Mine
The Company’s development expenditures were being expensed until the final feasibility study was
obtained indicating the project was economically viable. As at March 31, 2008, $8,618,000 of
expenditures have been capitalized by the Company, including $207,000 of expenditures incurred in 2008,
as it relates to the acquisition cost of the physical asset. For the quarter ended March 31, 2008, the
Company has expensed consulting, engineering and project support costs of $4,216,000. Total project
costs capitalized and expensed to-date is $15,577,000. Effective May 1, 2008, as a feasibility study with a
positive outcome was completed all future expenditures related to the Mill Project will be capitalized, on a
prospective basis.
Whether it's December or May, that leopard cannot change its spots. What
a lengthy hunk of conjecture from a source that just might not ave ANY stocks or interest in CMM.
December, I see you finally decided to venture over here to push your bashing agenda. Be advised that you'll be on a short lease. The first rule here is to treat other posters with respect. The first two words of your post "Oh Please!" is disrespectful to one of our most important contributors.
You have no idea how much of the $70 million debt that Fortis will put up themselves and neither do you have any idea of how much production will be hedged and at what price or whether the hedges, if any, will be higher or lower than spot price when they are delivered into.
Obviously one of the purposes for the $70 million loan is pay off other outstanding loans such as the loan to IQ. No one expects Fortis to be second in line behind IQ.
The IQ debt isn't soft debt, it is real debt secured by all of Century's assets. Century couldn't spin out the Caroline mine for that very reason and won't be able to spin out the Peru assets either until the debt is paid off. Neither has it been renegotiated "two or three times two or three times since taking over because they have been unable to make the payments."
If Century can get $50 million or $70 million of debt in this environment it will be a huge positive for a company with a $28 million market cap. It will allow them to spin out the Peru properties which currently have been given zero value by the market. It will also allow Century to gain a TSX listing because they have published all of the required 43-101 reports and will have sufficient working capital to meet the listing requirements.
Oh, and nobody here cares about the Limon and Orosi mines. In future any such off-topic posts will be deleted.
The "soft" debt is a term directly from PK's mouth. It refers to the fact that the Lamaque debt is from a quasi government agency [or the gov't?] that is pro mining in Quebec and as such is a lot more lenient than a bank would be. Would a bank would have renegotiated the terms of the $12MM debt three times in the last 4 years. PK & Brent have specifically stated that the Lamaque debt is "soft" and down played it as not really "debt."
Sure no one knows the exact nature of the loan until it is written and published, but industry "norms" strongly suggest that such a loan to this type of management team would be a "non-recourse loan" which requires hedges. Will hedges be a positive for CMM?
But if the $70 MM loan will pay off the IQ "soft" dept, that puts more pressure on CMM to perform, hit targets and become profitable. The payments will be due and must be paid timely of CMM will be in default. Is it likely a new lender would stick with PK and renegotiate the debt as IQ has if the situation stays the same?
What evidence is there to suggest that CMM plans to spin out the Peruvian properties? Has PK been suggesting such in private conversations?
Production 05
He HAS been here before ACTING nice. But we know that he can't last long in such an unnatural pose.
The Christmas Boy said:"Has PK been suggesting such in private conversations?"
WHY come to this forum to ask US what PK's been saying in her private conversations? How useful is THAT? Ask PK about her private conversations. He should ask PK since he has her email address!
IMO no debt facility would be preferable to one whose terms impose significant hedging requirements. May be in another 12 months time, even the dumbest banker will understand that gold is in a raging bull market and therefore hedging is completely unnecessary. Hopefully the supposedly smarter PK (after the Royal Oak disaster) understands that a non-recourse project loan with significant hedging requirements attached is not really a loan, but the bait to steal Sigma-Lamaque from her shareholders in the same way Kemess was stolen.
Well it is clearly evident that the D3 cancer has spread to this forum. Very unfortunate! Eventually this site will be a ghost site, as the D3 cancer spreads. I have no use to read his long winded scriptures. The preacher must GO, along with PK.
Eventually this site will be a ghost site, as the D3 cancer spreads.
Don't worry Rhump, I won't let that happen. Dec3 bashing posts that aren't supported by reasonable deduction or facts won't be tolerated.
I suspect he has already posted here as SmallStocks "to test the waters". Multi-alias posts won't be allowed either. Therefore in future "anonymous" posts may be deleted. If someone wants to comment, then use a nickname.
Rhump,
Besides Carib's vigilance (as blog host), there is another good antidote to the D3 cancer (i.e. rant & BS): just don't bother to read it, and respond to it. People like him need attention like you & I need oxygen. Once deprived of attention, he'll fold up his tent & go somewhere else.
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