The Hunter Dickinson (HDI) group is an extremely successful management team.
The more companies that have success in our part of Alaska could only help to make this part of Alaska more attractive for mining. There is no urgency for us to spend any money up there anytime soon, but it`s good to notice all the positive exploration and mining developments in the area.
HDI manages a company called Heatherdale Resources. Heatherdale released some impressive VMS drill results this morning. I don`t follow them so I don`t know what their provious results look like, but they seem to talking mine potential for this property (it must be a somewhat established ore body). It`s great to see HDI working in our part of Alaska (given their track record and all). Heatherdale`s (51 - 70% owned) property is in the same part of Alaska as our properties, but much further down the panhandle. As you know, our properties are closer to the currently in production Kensington (Ceour) and Greens Creek (Hecla) mines - Greens Creek is a polymetallic mine, but is also considered as one of the top 5 silver mines in the world. Here is a map of Heatherdale`s Niblack property along the panhandle, relative to Juneau and the 2 prominent mines:
http://www.heatherdaleresources.com/i/hdr/maps/HTR_ProjectLocationMap_Sept2010.gif
Heatherdale`s VMS results looks impressive. Mineralization in this part of Alaska appears to be rich.
http://www.kitco.com/pr/1738/article_10042010083101.pdf
11 comments:
Hi Prod05
Immensely curious to note that CMM owns sizeable properties in such diversified jurisdictions of Peru, NWT, Alaska and Quebec. Is it possible for U to run tro a brief 'history lessen' as to why, acquisation costs and under what circumstances these properties managed to come under the company's stable? It seems that these properties may not even be 'consumed' in the next 20 to 30 years! and we are seemingly quite eager for further mine acquisation(s)?
Hi Wingfong,
In addition, there is also Carolin (Bristish Columbia) and Goldchild (Ontario). Century still owns a decent portion of Carolin and will continue to have back in rights for 50% will into the future. Goodchild is essentially still a grassroots property, but does have a handful of encouraging drill holes from about 8 years ago.
The NWT, BC (Carolin) and Alaskan properties were acquired when the gold price was much lower (maybe around US$375 - US$450 range) and gold was not as in favour as it is today. The Peru and Quebec properties were available at discounted prices due to bankruptcy situations. The Ontario (Goodchild) property came with the formation of the company. Century was formed when Peggy and company were appointed as the management team for a company called Saxony (I believe that was 2003). The Goodchild property was in Saxony`s property portfolio.
You`re right, it doesn`t seem like we will get to any of these non-core exploration properties for 20 to 30 years into the future. I think Century`s future plans are to focused on advanced stage assets. Once Lamaque is fully ramped up and in great shape, and the share price is much higher, I can see Century partnering up with another company which is either in production or has an advanced stage gold asset.
I also think that exploration opportunities on our Quebec properties alone is sufficient to keep Century busy with exploration efforts for the next 10 years.
I also think that San Juan might be too small to realize full share price value when it is combined with a bigger asset - it gets overshadowed.
These are reasons why I think that Century should look into the possibilities of spinning out San Juan (Peru) and all of its exploration assets (NWT, Alaska, BC and Ontario) into a separate (new) company and give it 100% to shareholders.
San Juan will finally get the market recognition, as the core asset of a company. Profits from San Juan will be able to fund not just exploration in Peru, but also exploration on these other properties. This way, we put all of assets at work for us, in order to create value. Our exploration assets have just been sitting there since the inception of the company - not creating any value for shareholders.
San Juan is currently pledged as collateral for the Lamaque start up guarantee to Deutsche Bank. However, that can easily get eliminated by Lamaque establishing run rate production of 70,000 ounces for 4 consecutive months. A tpd of 1,435, 4.4 g/t grade, 96% recovery, can get it done. The production has to be 100% from Lamaque for this particular achievement. However, it`s based on the average of the sum of the 4 months of production. It means the production can be staggered over the 4 months (i.e. 1200 tpd, 1350, 1600 and 1600), just as long as the average equates to the 70,000 run rate.
Also, the DB agreement states that Century is able to use San Juan ounces to fulfill monthly gold delivery to DB throughout the 5 year period. This sounds optional on Century`s side. I don`t imagine it would prevent Century from doing a transaction with San Juan (after the start up guarantee if fulfilled, but prior to the 5 year gold delivery period is done), but I don`t know.
Anyway, I would like to see Century create shareholder value for shareholders with San Juan and all these other properties, one way or another. If a spin out creates the most value then I think they should at least consider it.
To be perfectly clear, I am not suggesting that Century is consider this or will ever consider this.
Prod05
Read your info/views with interest. It must be great if a superior management, our new CEO included, is able to bundle up these peoperties and put all of them to work enhancing values for shareholders. It must be most impressive too if this is done before the current gold bull cycle draws to a close.
Hi production, how do you calculate this "70,000 ounces for 4 consecutive months. A tpd of 1,435, 4.4 g/t grade, 96% recovery"? Sorry, I forgot from the last time you showed me.
Also, this is another question that could be raised during the conference call, "I also think that exploration opportunities on our Quebec properties alone is sufficient to keep Century busy with exploration efforts for the next 10 years.
I also think that San Juan might be too small to realize full share price value when it is combined with a bigger asset - it gets overshadowed.
These are reasons why I think that Century should look into the possibilities of spinning out San Juan (Peru) and all of its exploration assets (NWT, Alaska, BC and Ontario) into a separate (new) company and give it 100% to shareholders."
Hi Cynikal,
Here is how it works:
Let`s use the exact example I gave.
The example has the 4 consecutive months average to 1,435 tpd, 4.4 g/t, 96% recovery, all working out to an annualized run rate production ounce total of 70,000.
Month 1 (1,200 tpd):
apply this formula
1,200 tpd * 30 days avg * 4.4 g/t grade * .96 recovery / 31.1 grams in each troy ounce
= 4,890 ounces
Use the same formula for the other 3 consecutive months.
Month 2 (1,350 tpd):
= 5,501 ounces
Month 3 (1,600 tpd):
= 6,519 ounces
Month 4 (1,600 tpd):
= 6,519 ounces
Total ounces produced for the 4 consecutive month period:
4,890 + 5,501 + 6,519 + 6,519
= 23,429 for 4 months
Annualized run rate production based on the 4 consecutive months:
23,429 * 3
= 70,287 annualized run rate ounces (12 months)
Prod05
Just for the sake of discussion.
I see strength in holding Lamaque and San Juan together and spin off the other properties under a new entity. Reasons are:-
1) The joint production of Lamaque and San Juan should give more assurance Co will vault over the 100K oz Production Rate and actual annual productions in the earliest of timing. Per Co web site
Year Lamaque San Juan Total
2011 80K-90K 25K 105K-115K
2012 90K 30K 120k
2013 105k 30k 135k
2) The large to very large exploration potentials in Lamaque and San Juan including the possibility of Erika's 500million ton copper prophyry potential seems large enough in scope for the Co to concentrate its explorations on in the near to mid terms
3) M&A works on gold producer(s) and/or advance stage gold miner(s) to continue
4) Bundle up the remaining properties into a new entity, get some PP done and turn it into a junior explorer to get cracking on the properties. If we have the fortune of some good finds, these properties may even come back to the Co's stable at the right time tro some form of acquisitions.
Thank you very much production05! Very detailed solution.
You are like my wisest professor :) I learn lots from you and hope to learn more in the future. Keep up the good work!
Hi Wingfong,
Good idea. One advantage of your idea is we can probably do the spinout today, if the company was to choose that direction. For San Juan, we have to wait until we eliminate the Deutsche Bank start up pledge agreement at some point in 2011. However, I don`t believe any of our other non-core exploration properties (NWT, BC, Ontario, Alaska) are pledged as security for anything. I believe we can do whatever we choose with them right now.
These properties are available to be given to existing shareholders via a spinout into a new entity and through a one time dividend paid to existing shareholders. The company was not able to do this before due to the previous debt contract with IQ (our previous debt holder). That contact had a stipulation which prevented the company from paying out dividends (spinouts can only be done in the form of a dividend). The IQ debt has since been paid which eliminated that contract.
Although the Deutsche Bank agreement is restrictive of Lamaque (for the 5 yr period or until the debt is paid) and San Juan (only short-term, until start up agreement is fulfilled), off the top of my head I don`t recall seeing anything that prevents the company from doing something for shareholders with our non-core exploration assets.
I wouldn`t mind if they were to spinout and give only the non-core exploration properties to shareholders. The challenge will be raising funds though. Raising funds may be easy or it may be difficult. It`s difficult to know in advance for exploration companies as a lot of it depends on perception coupled with ongoing exploration progress. Then there is cheap dilution, if the exploration company is unable to get the share price up.
This is a key reason I like the idea of San Juan being included. San Juan`s profits essentially provides guarantee funding, without worrying about raising cash. No cheap dilution if share price is low. As a producer, it also puts a share price floor (but maintains blue sky potential), which is unusual for an exploration company. It also provides sufficient funding to work on all exploration properties simultaneously, if so choose.
San Juan`s cash cost per oz was US$702 last quarter mainly due to temporary upgrades. It will likely settle back down to the US$550 area.
US$550 cash cost
US$1,345 current gold price
US$795 future op profit per oz
1.03 exch
5,100 quarterly ounces
5,100 * US$795 * 1.03
= C$4.2 million in quarterly operating profits for San Juan (only at 20,400 annual production, nevermind at 30,000 ounces)
We probably have to reduce the amount for quarterly development costs and Corp G&A for a small expl company.
Let`s say we end up with C$3.0 million per month in adjusted op profits. That`s quite a bit of quarterly cash for an expl company. We could go heavy on all of our current expl properties, especially San Juan and NWT (which already has 175,000 historical ounces delineated, with at least 1, potentially both, deposits open in all directions, and many other gold showings on the property, in a 15 km strike length area)
The SJ profits can even go towards purchasing additional high potential exploration properties.
As you mentioned, the spinout company can act as a farm team for Century. Eventually, Century can bring everything back in-house once all of the assets are more advanced (and then use the assets to build new mines). It`s a win win situation (increased shareholder value nearer term and advancement of otherwise dormant assets).
To be continued.....
.....continued
Here are some other reasons for the SJ inclusion:
1) I think Lamaque has 150,000 ounce potential long-term (the mill can currently handle that level). I think many people now consider mid-tier to start at 150,000. San Juan`s 30,000 would bring the long-term potential for the combined company up to 180,000. Although SJ`s amount contributes to the total, perception wise, it wouldn`t be viewed as a game changer.
2) I think mid-term is where SJ adds the most value to Century. If Lamaque can get to 110,000 ounces (current mine plan) then SJ`s ounces can bring the total company to 140,000 ounces. That is significant, and would justify leaving SJ as part of the main company. However, if Century plans to merge with or acquire another company with substantial producing or late stage assets (which has always been the plan) then SJ`s value becomes diminished among the big trees, as part of the main company. It`s better to allow SJ to become a core asset in a spinout company.
3) As a continuation of the previous point, mines generally begin to attract heavy instituational attention when they reach the 80,000 - 100,000 size. Sometimes 60,000 - 80,000 gets some attention also. SJ will eventually get attention, especially with the huge profits in this gold price period. However, it will be difficult to reach full value as part of a bigger company. Analysts and instituations will always discount it. If Century can acquire a nearby Peru mine of similar size and then bundle it with SJ, as a 60,000 ounce regional Peru operation, then it will definitely increase the perceptional (scale) value. Failing that, I think SJ may achieve higher value as a core asset of a separate company, especially if it is exponentially increasing shareholder value by allow many exploration properties to simultaneously move forward.
The bottom line is: I can see the benefits of both, SJ staying with the main company and SJ being part of a spinout. Though, once Lamaque fully ramps up successfully and if an M&A occurs that bring in a large asset (s), down the road, then I see SJ`s value being maximized as a core asset for a smaller company.
Hi Wingfong,
I have developed the idea a bit further. Perhaps they can do a 2 phase spinout, with the 2nd phase being optional (depending with what transpires over time with both mainco and the newco):
Phase 1 - Spinout non-core explo assets only (NWT, BC, Alaska and Ontario). They can do a 6 for 1 into the newco. This will put the newco shares at 70M on an fully diluted basis. As initial (kick start) capital, the newco can then try to raise $1M in PP @ $.20 per consolidated newco share. This would add 5M shares + warrants. The gold price is US$1,350 (and going higher). There may be an opportunity to attract investments, especially flow-through investments from investors looking for tax breaks. If newco cannot raise the full $1M then maybe Finskiy, Scola and friends can contribute a bit to the initial newco PP.
Phase 2 - They can monitor the progress of the newco over time. If Lamaque is ramped up and in good shape then maybe Lamaque can make the 2nd $1M investment into the newco, which would also allow the mainco to maintain a direct investment in the newco.
At that point (down the road) San Juan should be free from the Deutsche Bank chains. Depending on how the newco is progressing, and how well Lamaque has ramped up, and if anything is on the table for M&A, they can decide what to do with San Juan - whether to leave it in the mainco or do a phase 2 spinout, by spinning it out into the newco. If the second phase spinout - San Juan - occurs, it would provide additional shares in the newco for existing mainco shareholders at that point in time.
Hi Prod05
Most interesting and educational going tro your 'spin off plan'. I like your 2-stage approach as I really do not think it is prudent to yank out San Juan prematurely. Sustaining the critical mass cum vaulting over the 100K oz Production Rate and actually producing 100K oz within the year 2011 for the Co is most appealing and my gut feel is it will trully fire up investors's imagination and attract vast attention. On the other hand, should Lamaque has the fortune to team up with another gold producer whereby gaining a solid critical mass (meaning produce over 100K oz or better) then the in or out for San Juan may be reconsidered then. If $1 million is the starting seed money required to kick start such a game plan, it really doesn't sound daunting at all especially with gold price at us$1300/- per oz . It is certainly doable.
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