Canadians Tussle Over Peruvian Property

Century Mining president and CEO (CMM-V, CMNZF-O) Margaret Kent believes her company will build a gold mine at the contentious Shahuindo property in Peru. But first, Century will have to win a long-festering court battle against concession-holder Sulliden Exploration (SUE-T, EXSDF-O).

Sulliden president and CEO John Kearney says he was shocked to learn of Century’s plans for Shahuindo, about 70 km south of Newmont Mining’s (NMC-T, NEM-N) Yanacocha gold mine.

“I’m very surprised that a Canadian company would get itself involved in an extremely complex and hostile litigation,” Kearney says.

Sulliden purchased the property in 2002 from Compania Minera Algamarca S.A. for US$4.13 million, but when an outside party bought Algamarca soon after, the company launched a suit claiming the contract for the property transfer was invalid.

In May, Century purchased Algamarca and three other companies that together claim ownership of Shahuindo for US$31 million. The price was based on Sulliden’s market capitalization and will be financed over the next two years.

Kent says Century wants to focus on properties in Peru and that Shahuindo is a world-class property that’s worth the trouble.

Before making the purchase, Century hired legal counsel in Peru and financial advisors in Toronto to go over the case that was last ruled in Sulliden’s favour.

In a 3-year battle that ended last July, a Peruvian arbitration tribunal declared Sulliden had fully met the terms and obligations of a 2002 transfer agreement with Algamarca.

At the same time, the 55th Civil Court in Lima ordered Algamarca, or any third party that could have acquired rights from Algamarca, to return the property to Sulliden. Algamarca is also prohibited from impeding Sulliden in its mining activities. Algamarca is appealing the ruling.

An analysis of the case by Century’s advisors led the company to its purchase decision, Kent says.

“We thought, ‘Wow, we don’t think Sulliden’s going to win this litigation and, if they do, it’s going to be ten years from now,'” Kent says. “We came to the conclusion that if we wanted Shahuindo at this point in time, the deal to do was to buy Algamarca, not Sulliden.”

Century already has big plans for the property — the company wants to produce 125,000 to 150,000 oz. gold per year by the fourth quarter of 2009.

As of 2005, Shahuindo had an indicated resource of 38 million tonnes grading 0.95 gram gold per tonne and 22.99 grams silver and an inferred resource of 17 million tonnes averaging 0.62 gram gold and 12.83 grams silver.

Kearney says Sulliden has spent “millions” on litigation, but the company is not ready to give up the fight yet.

“It’s not us that keeps going to court. . . the Algamarca shareholders approved it, the money was paid and we’ve conducted two major drilling programs,” Kearney says. “You can’t wipe all that out.”

Algamarca applied for a mining permit for the property in fall 2006, but was rejected by the Ministry of Energy and Mines.

The selling companies will continue to manage the litigation and Century can walk away from the project at any time.

But Kent hints that while Century’s intention is to prevail through the courts, the company is also open to reaching an agreement with Sulliden.

“All they have done for their shareholders is sit in court. Why didn’t they go settle it?” Kent asks. “My phone lines are open.”

The case needs to be heard by three judges who have not previously been involved with the case, which both Kent and Kearney say is proving difficult.