Whole Article found here: http://uk.ibtimes.com/articles/20100804/gold-silver-copper-gold-price-functional-currencies-major-explorers-producers-junior.htm
TGR: You just started covering Century Mining Corporation (TSX.V:CMM). In northwestern Québec, it has the former Sigma-Lamaque mine, which has underground ore that Century is starting to mill. Production is ramping up for 2011. Why did Union decide to focus on Century?
BM: Century is a name that we've been looking at for about a year. I went up to the Lamaque site last July to get the lay of the land and meet some of the technical personnel. I was impressed with what I saw at the mill and some of the other ancillary facilities, underground, as well as the fact that it's in Val-d'Or, Quebec, a mature mining center, where you have lots of labor, the supplies you need, the infrastructure and a cooperative government.
I also felt very comfortable with the technical team's plan to bring this mine back into operation. I thought the focus on underground production was key. We know the history of the open pit and some of the trouble the previous operators had with them.
The engineers described how they wanted to proceed. All they needed was money, which they finally got at the end of December. In January they started to roll and I kept an eye on it. Were they hitting the milestones that they set for themselves? Yes, they were doing exactly what they said they would do. I have confidence in the team's ability at Lamaque to bring the operation online.
TGR: What about its production profile?
BM: Century has the ability to ramp up from its target of 40,000 ounces this year to 90,000 next year and eventually 100,000 ounces by 2013. I like that. I'm quite confident that Century will be able to execute the plan to ramp up to 100,000 ounces in the next three years.
There is additional exploration potential at Lamaque based on their historic database, as well as other exploration targets within the complex.
TGR: What about some of their other properties? They've got a significant project in Peru.
BM: Yes, San Juan in Peru. It's a small, narrow-vein, high-grade system. It had been capital- starved when they purchased it, and then they got things rolling. They're producing about 19,000 ounces a year from San Juan now. There are plans to expand to about 30,000 ounces by 2012, through mill expansion as well as by modernizing and mechanizing the underground mining methods using refurbished equipment from Lamaque.
They also want to use different mining methods to increase throughput and ultimately produce more gold and silver out of San Juan. That's the plan, over the next two or three years. In terms of reserves, they've got six years on the books; that's what I've modeled right now. But the mine has run for 30 years and there's still significant exploration potential on the zone where they're mining, as well as the different vein structures within their property. There is also a porphyry target. I think six years is conservative in terms of mine life. Over the next couple of years we'll see what the exploration efforts bring.
TGR: What about cash flow?
BM: Cash flow is going to be basically flat this year as they ramp up Lamaque. Then into next year, we're looking at $0.10 per share in cash flow. In absolute dollars, that's about $36 million. This declines to $0.09 per share as a result of the reductions in my gold price assumptions for 2012.
TGR: Will that be enough to service debt and make reinvestments?
BM: Yes. This year is the critical year. I've assumed that they'll need another $5 million in financing to basically complete development through 2010. Then they'll start to become cash-flow positive next year, probably in Q2, then they're home free. They'll be able to repay the capital leases from cash flow. Right now they're delivering gold into that prepaid gold forward. I don't foresee any issues with Century not being able to deliver the gold to meet their obligations.
TGR: They're hedged?
BM: The $33 million prepaid forward agreement they entered into with Deutsche Bank is a five-year facility, so they're partially hedged until 2014; it covers 61,183 ounces or 17% of the forecast production during that period. After that, they experience the full gold price.
TGR: What's your 12-month target on Century?
BM: It's $0.90.
10 comments:
That's a pretty conservative analysis from Union although I don't disagree with the gold production forecasts for 2010 and 2011. It's the gold price assumptions that I have a hard time with.
I've done my own spreadsheet analysis and published it via Google Groups. You can access it from the top link on the Information Links and download it to Excel if you have the program. Then you can change my assumptions for production rates, gold price, cash cost and cash flow multiple to anything you think is more appropriate to come up with your own share price forecast.
Brian Mok is distinctly conservative in his approach and deductions. However, it is precisely due to this sense of conservatism permeating tro the passages that I find his observations and deductions of value.
First of all, he said that he had been looking at CMM for about a year and these expressed observations were penned only after he had VISITED the Lamaque mine in July and had TALKED to the peoples there and he was:-
Quotes:-
Q1) "Impressed with what I saw at the mill and some of the other ancillary facilities"
Q2) "I also felt very comfortable with the technical team's plan to bring this mine back to operation"
Q3) "Yes, they were doing exactly what they said they would do. I have confidence in the team's ability at Lamaque to bring the operation on line"
Q4) "I am quite confident that Century will be able to execute the plan to ramp up to 100000 oz in the next 3 years"
Q5)There is additional exploration potential at Lamaque based on their historical database, as well as other exploration targets within the complex"
Folks, these observations are worded in no uncertain terms. There is no yes, no, if, maybe, on condition, perhaps etc. Incidentally, several of these observations are consistent with what Prod05 and other members had been highlighting in the past.. ..cont
cont..
I kind of take his comments, which were made only after a mine visit as important confirmation of the production/ramping/technical positives our blog members had been putting forth tirelessly!
As for his cash flow figure, expected price of gold in the coming 2 years and his 12- month target share price, well, this is where I find him most cautious! And what harm does it make? I just take them as some floor figures cos deep in, I believe something much bigger is more than likely to happen. Afterall, we have 6 million oz R/R and considering only just the Lamaque contribution, 8 million is within grasp and 10 million oz is not inconceivable (unless all the under explored land parcels in Lamaque are barren!) How many near production and producing mines can we expect to even come close?
As for the near, mid and longer term gold price and the big picture influencing the price of gold, there are literally countless
comments, analyses, forecasts, guesstimates on the subject of which it is not difficult at all to find equally countless attempts pointing to a future price ranging from $1500 to $3000 and even much higher tks to trillions of newly printed US dollars, sovereign debts of the US and several European countries, deflation & inflation, central banks buying, chinese and indian and mid-easterners buying, dwindling production, dwindling discoveries etc etc. In this context, Brian Mok is obviously in the minority camp.
The thing I most disagree with in Brian's assessment is his target price. Looking at peer group companies, I see a great many with share prices well in excess of ours, who have no current or near-term production, similar outstanding share counts, less M&I's & P&P's and a lot more infrastructural challenges. If we didn't have the baggage, my guess is that we ought to be in the 1.50-1.80 range about now, even after the hammering juniors have taken this summer.
It's good to see someone examining fundamentals, though. I look forward to management sorting us forward from here, and hope that some program to incentivize the miners will go into effect shortly. That, as much as anything else, will go far towards bringing our production numbers up. From his performance at Gabriel, I'm willing to wager that Mr. Hulley can improve our cash flow beyond any current expectations - which is our nut, after all.
Suggest one should read Brian's complete interview report carried in the "The Gold Report" dd 08/04/10. Thk within the lines, you can read his mind better
Yes indeed- he's not one to stick his neck out, is he? He almost contradicts himself (by inference) in his discussion of Crocodile.
Ya, I have the same impression too. Perhaps he is mindful of too many mines that he had failed to keep his consistency on all the mines covered. unfortunately the details on croc is sketchy.
I keep an eye on them - suffering the goldrums, too! Interesting operation, but just watching for now.
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