July 30, 2009
CENTURY MINING SECURES TERM SHEET FOR A US$25 MILLION PREPAID GOLD FACILITY AND APPOINTS UNION SECURITIES LTD. TO RAISE C$20 MILLION EQUITY
- Century chooses gold-based alternative to previously announced financing for Lamaque -
Blaine, WA: Century Mining Corporation (CMM: TSX-V) announced today that the Company is in receipt of a financing term sheet for a US$25 million prepaid gold forward facility from a major international bank with a large gold trading business. The prepaid gold facility is a forward contract to deliver 49,868 ounces of gold over a five-year term. The debt facility has other price participation terms whereby the Company will receive an additional cash payment for gold pricing above US$800 per ounce, up to a maximum of US$950 per ounce. There are no upfront fees, warrants or interest payable to the bank during the term of the facility. The facility is subject to normal course due diligence and standard conditions to closing. Simultaneously, Century has appointed Union Securities as the lead agent to undertake a C$20 million equity issue. The combination of the two financings will provide the necessary cash for the Lamaque Mine to restart in September 2009. It is expected that both facilities will close by early September.
In connection with the gold facility the Company is paying a third party finder’s fee of US$200,000 and 2,000,000 shares of the Company. In connection with the equity issue, the Company has arranged to pay Union Securities Ltd. a 6% cash fee and 6% in broker warrants.
The Company further announced that after extended negotiations and consultations with its legal counsel and investment bankers, Century’s Board of Directors decided not to proceed with the proposed $65 million project financing that was originally announced on March 24, 2009. The Board’s decision was based on the conclusion that completing this transaction would have subjected the Company and its shareholders to an unacceptable level of risk with regard to the Lamaque project.
The Lamaque project is an exceptional gold asset with 1.1 million ounces of gold reserves (7,736,181 tonnes at 4.56 g/t), 1.3 million additional ounces of measured and indicated resources (8,310,074 tonnes at 4.81 g/t), and an additional 3.1 million ounces of inferred resources (19,633,148 tonnes at 4.96 g/t). The deposit hosts potential for several million more ounces. The project is ready to restart upon closing of the financing and will reach full production of approximately 105,000 ounces of gold production per year, at a cash cost of approximately US$423 per ounce of gold produced.
The Company also has existing gold production of approximately 18,000 ounces per year at Century’s San Juan Gold Mine (Peru), and expects to increase production at this mine over the next three years to about 30,000 ounces of gold per year.
The Company has chosen a gold based facility after reviewing several alternatives primarily to eliminate financing risk. Century can service the commitments under this facility from either its Peruvian or Canadian operations. Furthermore, the commitment of only 49,868 ounces of gold production from the more than 2.4 million ounces of reserves and measured and indicated resources and 3.1 million ounces of inferred resources will allow Century’s shareholders significant upside in a bull market for gold.
The banking institution is very experienced in lending to and trading with international gold mining companies and has conducted project due diligence over the preceding month. After review of the Company’s assets the bank has proceeded to issue the term sheet to the Company. Union Securities Ltd. has also completed technical due diligence on the project with an outside consultant and is prepared to broker the equity transaction.
The resource evaluations in this press release were prepared by Mr. Ross Burns, P Geo., LG, Vice President of Exploration. This press release was prepared under the guidance of Mr. Burns, who is designated as a Qualified Person under National Instrument 43-101, with the ability and authority to verify the authenticity and validity of the data presented herein.
Margaret Kent, President and CEO of Century commented, “In the end, the attractive debt facility the Company was previously offered was a facility that put the Company’s key asset at risk. After several months of working on this loan it became evident that we could not modify the lender’s loan structure to fit our needs. We will proceed to close and draw down the prepaid forward facility with this very reputable lender and complete the equity raise.
Our potential long-term relationship with a bank well established in the gold business will allow the Company to capitalize upon various opportunities that will present themselves in the gold market. This has been a long process, but during this time the Company has continued to work on the Lamaque project and enhance the value of the project. Unfortunately, this has not been reflected in the Company’s share price. This mine is shaping up to contain an exceptionally large resource. This financing package will afford our shareholders a tremendous amount of upside and we will start up the mine in September with gold production by January. This is why I recently converted my debenture and exercised my warrants.”
Investor conference call
Management will host a conference call on Tuesday, August 4 at 9:00 a.m. Pacific time (12:00 p.m. Eastern time) to discuss the details of this press release. Mining analysts, investors and the media are invited to phone 1-888-730-9135, or 1-517-308-9062 if outside Canada and the U.S.A., followed by the pass code 5655722 approximately 5 minutes before the start of management’s presentation. The presentation will be followed by a question and answer period. A replay of the conference call can be heard through Friday, August 14 by dialing 1-800-704-0516, or from outside North America 1-203-369-3323.
4 comments:
Any comments on this deal? Is this good for us?
Not exactly what I was hoping for with
huge dilution probably @ .15 is
my guess. On the other hand,
if these clowns can finally
start producing and MEETING targets
we should all be happy, especially
those with average prices at or below todays close.
At least the drama of funding is finally behind us.
Lets see what happens when all
those f/t shares come free trading
next week. I'll be holding on to
mine....for now
Here is my analytical perspective of the deal:
For me, the most appealing part about this deal is that there is very little financing risk. The previously proposed $65M deal would have carried significant start up risks. Based on the explanations in the NR, I gather that the terms of the debt covenants did not favour Century and its shareholders. For example, in a straight debt situation, if the Lamaque start up is delayed (even for basic mechanical problems that can eventually be fixed) then the lenders would immediately be able to take foreclosure actions (if the debt covenants were not flexible enough). Again, based on the NR, it sounds like Century’s BOD felt that the debt covenants were structured in a matter which seriously put shareholders at risk of losing Lamaque.
With this new deal, it sounds like most of those risks have been eliminated or minimized. Obviously, there are debt commitments with equity issuance. And, in my view, the 18,000 ounces per year being produced at San Juan almost entirely reduces the risks of 10,000 ounces per year delivery for the Prepaid Debt Facility. It says in the NR that the ounces can be delivered from either Lamaque or San Juan. This suggests to me that the debt covenants will likely not penalize us for any possible delays in starting up Lamaque, just as long as the lenders receive their 10,000 ounces (even if it’s all from San Juan).
I can only speak for me, but this significantly reduces my #1 concern with financing for Lamaque (assuming the deal closes in early September). A start up delay is much less likely to invoke significant risk, as long as we are able to deliver the 10,000 prepaid ounces out of San Juan and are able to service the basic IQ debt (IQ / Gov’t of Quebec has been extremely supportive partners so far, and are very interested in getting the mine up and running again, thus creating jobs for the province).
The low selling price is not ideal, but it’s the price we have to pay if we want financing in this credit crisis environment and if we want to reduce the start up risks at Lamaque. It sounds like we might be able to get a (maximum) of US$7.5M additional cash from the deal over the next 5 years (if the gold price is above US$800).
On the surface the price doesn’t look great, but one needs to make adjustments to gain a more complete picture.
US$25M / 50,000 ounces = US$500 per oz
No interest payments - lets say we save 10% interest for an average period of 2.5 yrs on the $25M.
Interest savings = US$25M * 10% * 2.5 yrs = US$6.25M
Let’s assume we get the entire max amount of extra cash – US$7.5M
US$25M + US$6.25M + US$7.5M = US$38.75M
Adjusted value of the Prepaid Debt Facility = US$38.75M
Adjusted value per oz = US$775 (US$38.75M / 50,000 ounces)
I don’t have a problem with an adjusted value of US$775 per oz, especially if it means substantially reducing the start up risks of losing Lamaque entirely.
Also, the 50,000 ounces represent only 3.8% of Reserves (Lamaque and San Juan), 1.9% of M&I (including Reserves, Lamaque and San Juan) and .8% of Total 43-101 company wide Resource.
To be continued with next post.
This is positive:
“The banking institution is very experienced in lending to and trading with international gold mining companies and has conducted project due diligence over the preceding month. After review of the Company's assets the bank has proceeded to issue the term sheet to the Company. Union Securities Ltd. has also completed technical due diligence on the project with an outside consultant and is prepared to broker the equity transaction.”
For me personally, this is always the most important step. The fact that the lender has done all that DD work and has continued to this point is extremely encouraging.
The share dilution will be heavy, but it will be heavy under any other possible alternatives also, now that the $65M straight debt deal is no longer on the table. The key is to minimize the dilution as much as possible. It would be ideal if they could abstain from issuing any warrants. If we must issue warrants then they should issue only 1 warrant for every 4 shares subscribed. There is precedence here, as it was done in the Wega financing.
If they can use a price of $.20 then it would represent 100M new shares plus 2M shares (commission). Century’s new share count would be 300M. If they use 1 for 4 for the warrants then they will only have to issue 25M common share warrants, plus the 6% to Union.
If they use a price of $.16 (today’s price) then it would represent 125M new shares plus 2M shares (commission). Century’s new share count would be 325M. If they use 1 for 4 for the warrants then they will have to issue 31.250M common share warrants, plus the 6% to Union.
If all goes well, Century (company wide) will likely have 60,000 ounces of production near-term and 135,000 longer term. This is with either 300M or 325M share outstanding, with hopefully a reasonable warrants total. This is with no rollbacks!
Eldorado Gold has 371,379,000 shares outstanding. Their market cap is $3.8 billion. Their share price is $10.23. Although they are hoping to produce 800,000 starting in 2013 (which will likely require funding), they only expect to produce 300,000 in 2009.
Let’s say we use 10% of Eldorado’s market cap and apply it to Century:
$3.8B * 10% = $380M
$380M / 325M shares = $1.17
It represents a share price of $1.17 for Century, with only using 10% of the current value of Eldorado. The nearer term production between the 2 companies is more like 20% (60,000 / 300,000).
Anyway, today’s deal establishes a base for Century. If there are opportunistic companies our there that want Lamaque, today’s deal states that lowball offers will likely not work. Any companies interested will have to pay up.
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