Century announces hostile bid for Sulliden

In the latest twist of a bitter 4-year legal battle over a gold property in Peru, Century Mining (CMM-V, CMNZF-O) plans to make a hostile all-share takeover bid for its court opponent Sulliden Exploration (SUE-T, EXSDF-O).

Century says it will offer Sulliden shareholders 0.72 of a Century common share for each Sulliden share.

The offer values Sulliden at 41 per common share — a premium of 51% based on both companies’ volume-weighted average trading price for the previous 20 trading days.

“If they don’t tender into this bid, where are they going to be in two years,” asks Margaret Kent, chairman, president and chief executive of Century. “They’re still going to be sitting in a court in Peru.”

The saga began when Sulliden purchased the Shahuindo gold property for US$4.13 million in 2002 from Compania Minera Algamarca. Century purchased Algamarca soon afterwards, and launched a suit declaring the contract for the property transfer was invalid.

In the latest court decision in August, the Commercial Chamber of the Superior Court of Lima ruled in favour of Algamarca, declaring that an arbitral agreement granted in Sulliden’s favour in 2006 was invalid. Century says the concessions were to go back in Algamarca’s name by mid-October.

Sulliden is now appealing that decision.

The courts have yet to rule on the actual validity of the transfer agreement. A decision is expected in early 2008.

“We have won the last two rounds and there will be another decision on the (validity of the) transfer agreement in January,” Kent says over the telephone.

“If Sulliden loses that decision, then they will appeal it and they will appeal it back in the same court that we just won in — the superior court,” she adds. “We’re in a no-lose situation.”

Kent emphasizes that Century wants to get on with developing the property and producing gold and doesn’t want to spend the next two years in a court.

“We are extending the olive branch to Sulliden saying: ‘Guys, we want to get on with it, we want to build a gold mine,'” she says. “We want to get on with life and we think that Sulliden shareholders would like to get on with life.”

With Sulliden’s 73 million shares outstanding, Century’s bid at 41 per share would value Sulliden at about US$30 million.

In the past, Century has valued the contested Shahuindo property at US$300-US$400 million.

When asked whether Century was offering too little for Sulliden, Kent says: “Whether Shahuindo is worth US$200 million, US$300 million or US$500 million, remember, Sulliden shareholders will now be Century shareholders so if Century’s shares go up, Sulliden will win too.”

Kent says that Century bought the shares of Algamarca, which it claims is the rightful owner of Shahuindo, for a total of about US$31 million. So to pay Sulliden the same amount is a fair price.

Century is “not buying Shahuindo,” it is “paying this money to settle the litigation,” Kent says.

“We own Shahuindo but we want to build a mine, so to do that, we’re prepared to offer them this ability to grow with us — to experience the upside that Shahuindo gives everybody.”

Kent notes that the deal would give Sulliden shareholders a chance to be part of a highly liquid, mid-tier gold producer and to benefit from “the huge upside” in Century’s stock price.

They will also benefit from Century’s substantial gold resources at its San Juan property and its Rosario de Belen properties in Peru, as well as its Lamaque property in northern Quebec, she says.

John Kearney, Sulliden’s president and chief executive, says the move “didn’t come as a complete surprise,” but declined to comment further.

“They say they have announced their intention to make a bid, but I guess we’ll wait to see the bid — if they make it.”

But Kearney also points out that since purchasing the property, Sulliden had completed extensive drilling and exploration and doubled its resource. He adds that Sulliden has a 3,000-metre drilling program under way with exploration permits from Peru’s Ministry of Mines.

At presstime, Sulliden was expected to release a statement on the proposed hostile takeover within days.

Shahuindo has an indicated resource of 38 million tonnes grading 0.95 gram gold per tonne and 22.99 grams silver, or 1.2 million oz. gold and 28 million oz. silver. The inferred resource is 17.2 million tonnes grading 0.62 gram gold per tonne and 12.83 grams silver, or 342,000 oz. gold and 7 million oz. silver.

The project is situated 25 km north of Barrick Gold’s (ABX-T, ABX-N) Lagunas Norte mine and 70 km south of Newmont Mining’s (NMC-T, NEM-N) Yanacocha operation in northern Peru.