the $940 US gold price

Our share price is ugly (as usual), but we can still take advantage of this excellent gold price environment to assist us in 2 other vital areas.

1) Increase in cash via San Juan

While we go through the process to secure capital to get Lamaque operational again, San Juan continues to be our bread and butter. Although we are not seeing the $940 US gold price reflected in our share price, it should be helping us tremendously via sales of our production ounces at San Juan.

We might be getting some really good cash out of San Juan in Q1’09 due to developments in these key areas:

a) High gold prices, as mentioned (we don’t have any hedges).

b) During Q2 and Q3 (and maybe Q4), San Juan’s cash flow went primarily towards addressing emergency situations in Quebec (and company overall). A lot of those situations have been eliminated since those periods in time (i.e. curtailment at Lamaque, which was bleeding heavy cash, until financing is secured). Also, Century has done a good job in cleaning up the balance sheet:

* removed $3.4M from the significant accounts payables total

* eliminated the majority ($4.2M) of Capital Lease Obligations – represents 80% of the total

* made the $2.2M payment to Gerald Metals (for the hedge buyout) – paid with a portion of the 3,200 Lamaque ounces in inventory (some paid down in Q3 and some in Q4)

* paid down the $1.8M Working Capital Gold Facility – also paid with the remaining Lamaque ounces (likely paid in Q4, otherwise the ounces still set aside for future payment – this credit facility, along with another credit facility, is likely available for Century to access emergency cash, if necessary, thus a bridge loan at not necessary at this time)

During those periods, there weren’t a lot of dollars left over to run the San Juan operation. As a result, there were some non-productive days in Q2 and Q3 (and maybe Q4). I don’t know what the actual numbers were, but I’ve estimated roughly the equivalent of 15 non-productive days for Q2 and the equivalent of 16 non-productive days for Q3 (based on available tonnage numbers, etc.). With the company having curtailed Lamaque (until financing gets closed off), and having eliminated all of those balance sheet liabilities (listed above) my guess is that there probably wouldn’t be any (at least not many) non-productive days effective Q1’09 (especially with the strong gold price performance).

A more stable San Juan operation means more production ounces. San Juan produced 3,590 ounces in Q3. With not have to shut down operations due to cash issues in Q1’09, San Juan could produce close to 4,000 ounces based on normal run rates. Also, not having to carry fixed/overhead costs for the 16 unproductive days will likely mean a natural decrease in cash cost per ounce.

c) The Peruvian currency has decreased about 10% relative to the US dollar, from Q3 to Q1’09. Theoretically, this should mean an automatic 10% improvement on cash cost per ounce, prior to factoring in other improvements.

With the gold prices we have seen thus far in Q1’09 (if all is going even semi well at San Juan), the operation should be generating sufficient cash to cover off Corporate costs, while paying for basic (near-term) mine development (capital) requirements at San Juan, while still having some semi-good size cash left over to address other things.


2) Gold-based financing

A $940 US gold price doesn’t hurt in attempting to sell the offer.

I think Peggy has some wiggle room with the price, if take up falls short with the first attempt.

All we need are 11 institutions to purchase $6M US worth of the financing offer (based on the current price). There are a lot of people in the institutional investment world that are very concerned about inflation (expected to become prominent in about 2 - 3 years). This is also the effective time period of Century's offer (gold delivery period). A lot of people are looking to protect themselves from what they are seeing (more and more every day) as unavoidable devaluation of global currencies, by flooding the global system with new money (they are now realizing that it might be the only way of fighting off a 1930s style depression). Institutions are now realizing that governments will create as much money as possible to avoid this situation, regardless of the long-term impact (i.e. monetary inflation or hyperinflation). Actually, institutions welcome the high liquidity, as the lesser of 2 evils – everyone is afraid of a depression. As such, (while accepting there is a price to pay long term – likely monetary inflation) institutions are looking for a hedge. I think many institutional managers believe that the governments of the world will not be able to pull the liquidity out of the system quick enough once the global economy stabilizes – it’s an impossible task, especially with the kind of unprecedented injection of fiat currencies being pumped into the global system. Through the gold-based financing, Century is not only offering that hedge (actual gold ounces, and in the period it will likely be required) but is also providing a bunch of free shares for institutions to realize immediate (significant) returns while they wait for the inflation scenario to materialize. If they wanted to they could even sell their free shares for $.50 - $1.00 (at some point after the normal 4 month freeze – the share price will take off with financing) in order to reduce their purchase price.

I think it's a good strategy for this environment, and I think it's an offer that provides an excellent chance for all parties to win big. The timing is absolutely perfect for this. It would be ideal (a better sell) if the gold price could hold above $900 US throughout February, but it's not necessary. I think institutions are now better understanding what is happening in the bigger picture. This is why the Toronto institutional investment community has been doing bought financing deals (with gold mining companies) left, right and centre over the past month

This is also why buyers are willing to lock into a gold price of $900 US on gold ounces to be delivered 6+ years down the road (as was demonstrated by Peggy’s preliminary hedged deals associated with the Fortis package).

Who knows what the outcome will be, but it is certainly worth a try. The share price sucks. Clearly, very few people believe in this initiative. I don’t think it’s a case of people having inside info as to how the financing is progressing (and then selling), as there were essentially no buyers from the moment the announcement was made – which meant negativity from the beginning. I think it’s a case of the majority of people not believing that anything will come out of this initiative. There are whispers that things are coming along well with the financing, but yet people are selling for 6 cents. I guess you can’t really blame anyone. All the other financings have come apart at the eleventh hour, even after things went well throughout the process. I guess some of this has to do with bad timing and bad luck – all of the situations were unique. Nonetheless, a lot of people have gotten their hopes up in the past, only to get crushed. So, I suppose, the majority of people are saying (talk is cheap) show me the money Peggy!