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By Dennis Boyko
Created on: March 18, 2010
Current version 0.14 : March 19, 2010 -- working draft
Metrics have been updated with closing prices available on 2012-May-17.
Projected fair market stock price for , based on the current NI 43-101 resource disclosures, is C$0.00. The actual closing stock price was C$. The details behind this projected fair market price estimate are detailed in Century Mining Valuation.
This blog evaluates a standard check list in the Century Mining context to determine possible explanations for huge delta between current stock price and projected fair market stock price.
Gold Explorer-Producer Valuation Exceptions provides a set of Valuation Factors for assessing a gold or silver mining company. Evaluating the check list for Century Mining yields:
Ability to mine: Not an issue at Lamaque or San Juan. Both are mining friendly regions dependent on the mining industry.
Mining Feasibiliy: San Juan is an established operation and Lamaque production is scheduled to restart in Q2 2010. However, until the private placments at the end of 2009 were completed, the necessary funds were not available to complete a Lamaque start-up and the operation of San Juan was in jeopardy due to under capitalization.
Parts of Lamaque are coming out of long term care and maintenance. It is reasonable that until the first dore bar is poured (scheduled for April 2010) and the traditional analyst site tour (scheduled for May 2010) happens, a certain degree of wait and see will remain and hold back valuation potential [date source was slide 17 of Century March 2010 presentation]. This is especially reasonable given past false starts at Lamaque [reference and quote to be added...].
Management team: I believe that the current management team performed extremely well to lead the company out of the bad situation the financial crisis of 2008 caused. The timing of the melt down was not anything that any management team could have predicted. The management team found a major investor in Maxim Finskiy to purchase 78M shares at C$0.20 and 38M warrants at C$0.30 in the same year when the stock traded under C$0.02. Well done!!!
However, there have been past delays in bring Lamaque out of long term care and maintenance and into production. Hints of schedule delays are likely to result in downward stock price pressure.
On the other hand, as of the 2009 Management Information Circular, the CEO and VP of Exploration hold a significant number of company shares.
Land Holdings: land holdings are a potential plus for which may one day yield a pricing premium beyond the projected fair market stock price. 21.5 sq km claim in the highly productive Abitibi Greenstone Belt. Potential for further resource expansion is excellent.
Century holds several gold properties in Alaska, Canada and Peru that have excellent exploration potential. Many of these properties were acquired when gold prices were significantly lower. The potential is exciting.
Share holdings: Not applicable.
Geopolitical risks: Not a factor. Canada and Quebec especially are mining friendly regions. Peru has a well established mining industry and derivies over 50% of its exports from mining. Company land holdings are in brown field areas where mining is well established.
Precious metal premium: since Century is 100% gold and given Century's outstanding ore grades, this factor is a potential valuation positive.
Hedging: Century has some forward sales made to cover start-up expenses. The extent of any long term hedges is to be determined (but is believed to be not an issue).
Companies with multiple deposits: not a factor. All deposits with defined resources will be in production in 2010.
Cash flow failures: this was a huge issue at the end of 2008. Investors are no doubt looking for major cash flow improvements going into 2011 from the start of Lamaque production.
Anticipated Financing: not an issue as of March 2010. Until further updates from management, the private placements and subsequent exercise of warrants are assumed to have provided sufficient cash to launch Lamaque and upgrade San Juan. Further dilution in 2010 is not expected.
Market Anticipation: this may be a positive factor as Century has recently reported excellent drill results that presumably are outside of the scope of the current NI 43-101 reports.
NSR Royalties: nothing unusal noted.
Market conditions: not an issue.
Excessive promotion: no known issue.
Option and Warrant expiration approach: not an issue since Mr. Finskiy has already exercised his C$0.30 warrants. Remaining warrants are in the money and will build the company cash reserves for Lamaque and San Juan development.
Interpretation errors: always a risk but I am not aware of any mistakes in GoldMinerPulse translation of Century reserves and resource counts. If errors are spotted they are noted and corrected immediately.
Disputes: the company has had a number of past disputes and has proceed to settlements. No major issues are known.
Quantiy of ore: Lamaque is a world class gold mine in terms of known resources.
NI 43-101 classification: a discount factor was applied, in calcuating the projected fair market stock price,
to account for the high percentage of resources in the Inferred category. However, given the proximity of significant gold mines,
and the potential for resource expansion, the discount factor I used may be overly conservative.
It is important to remember that even Proven + Probable reserves were at one stage of their development Inferred resources.
Given the geology of the area were Lamaque is located, I believe it is a reasonable gamble to bet on much of the Inferred resources
will be developed into future Proven + Probable reserves and the large land package surrounding Lamaque will support replacement
and expansion of the resources.
However, I am leaving as an open research question the reason as to why Century and not a gold major in the region were able to acquire
Lamaque. Did Agnico-Eagle or other gold majors at one time pass on acquiring Lamaque? If so why?
Recovery and metallurgy factors: no known issues
Infrastructure factors: further research required to determine if perhaps some legacy environment issue prevented other majors from acquiring Lamaque in the past.
Operating costs: no known issues. However, Agnico-Eagle have achived significantly lower per ounce costs than those projected for Lamaque in 2010. Will Century be able to get their per ounce costs down to the levels achived at La Ronde? [More discussion to be added.]
Environmental risks: many of the Century exploration properties have historical mines. Alaska is getting tougher on mining. [More discussion to be added.]
Expected extraction methods: further research required to determine if there are potential underground issues (although none are expected). It is also t.b.d. if depth of operations are a potential issue for Lamaque compared to La Ronde.
Quality of the independent NI 43-101 reports: not an issue
Non NI 43-101 reports: not applicable
From the MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 filing (current as of November 30, 2009) at Sedar:
In July 2008 due to a lack of working capital to transition the operation into full scale production,
the Lamaque project was put on temporary hold. A funding package has been procured and is expected to close by mid-December 2009.
Once this funding is closed the Lamaque gold project will start up and the expansion at the San Juan mine will be completed.
The Company has been caught up in the world wide credit crisis. Fortis Bank (Belgium) was to be the lead underwriter for a long-term senior secured
financing facility to fund the Lamaque development. In January 2009, the Company was informed that Fortis Bank could not proceed with the financing
for reasons attributable to the worldwide credit crisis which has included depressed financial markets, uncertainty in the overall economic environment
and strategic changes within Fortis.
Management worked diligently to obtain a replacement financing package and had a number of alternative financing proposals not materialize.
On July 30, 2009 the Company announced the signing of a term sheet for a US$25 million prepaid gold forward sale to a major international bank
with a significant gold trading business. This term sheet was conditional on a $20 million dollar equity offering.
On September 9, 2009, the Company signed a non binding term sheet with Gravity/Kirkland for a $20 million dollar private placement.
Subsequent to this an arrangement has been made to buy out the Investissement Québec Note for $8.75 million dollars and 5 million shares of Century,
and that the prepaid gold forward would be raised to US$33 million. In total the new financing will be providing the Company with $56 million dollars
of new money to start up the Lamaque project.
Management have failed to meet past projections. Consider the following from p. 15 of 68 of the 2004 Annual Report:
We anticipate gold production of approximately 70,000 ounces in 2005, rising to approximately 110,000 ounces a year thereafter at a cash cost under US$300 an ounce.
Now consider, March 2010 Presentation:
2010 guidance: 55,000 to 65,000 oz of gold production at cash cost of $550 to $570 per oz (Lamaque production to be capitalized in 2010)
Production growth with Lamaque ramping up to full production of 100,000 to 110,000 oz/yr (LOM average cash cost of $450 to $500/oz)
According the 2009 Management Information Circular, management were significant stakeholders in the company (May 2009 data):
Ross F. Burns Vice President, Exploration and Director: 7,227,707 shares
Margaret M. Kent Chairman, President, CEO and Director: 7,318,207 shares
The issued and outstanding stock options were less than 7M shares as of May 29, 2009.
Slice 15 of a March 2010 presentation states:
Century controls 21.5 sq km of contiguous claims that provides significant potential for future resource development programs.
The following map of mines in the region of Lamaque are shown in the following image, taken from Century Mining Corporation - "An Emerging Mid-Tier Gold Producer"
Century also holds several other gold properties for future development in Canada, Alaska and Peru for future development.
Perhaps the most important factor in the valuation of a gold mining company are the assumptions made for the future price of gold. The GoldMinerPulse valuation methodology, which values companies based on their average ore value per tonne, makes use of the prices the market sets for widely followed companies such as Agnico-Eagle and Kinross Gold. That is, take a company's average ore value per tonne, and determine the current market driven Market Capitalization per ounce of gold equivalent from the Gold Producer Valuation Line.
The future price of gold is already implicitly built into the Gold Producer Valuation Line and does not need to be explicitly estimated.
GoldMinerPulse projected fair market stock prices are based on market data (i.e. stock prices, spot market metal prices, fully diluted share counts) and deposit fundamentals (NI 43-101 reserve and resource disclosures). Cash flows and P/E are not considered. As a result, it may take many years for the a mispriced company's stock price to approach the projected fair market price reported by GoldMinerPulse. Short term and medium term prices may not reflect the projected fair market price and the time for markets to correct can not be predicted with the GoldMinerPulse methodology.
If you look at the past P/E history of Agnico-Eagle, and compare it to its current market capitalization per ounce of gold equivalent, you will find that Agnico-Eagle has trades at extremely high P/E ratios while its market capitalization per ounce of gold is relatively low compared to the current spot price of gold. That is, Agnico-Eagle, with its relatively high average ore value per tonne is trading more like gold in the ground than as P/E driven business.
Given the strong equivalence that exists between Lamaque and La Ronde, a top Agnico-Eagle mine, and having considered and applied other factors to ensure all things are equal, I do believe the rojected fair market stock price for , based on the current NI 43-101 resource disclosures, of C$0.00 is indeed reasonable. Timing of when the price is reached is unfortunately an open question.