Century kicks off hostile bid for Sulliden (December 10, 2007)

Century Mining (CMM-V, CMNZF-O) has formally launched its hostile, all-share takeover bid for Sulliden Exploration (SUE-T, EXSDF-O).

If successful, the takeover would resolve a bitter 4-year legal battle over title to a contested gold property in northern Peru, Century said in a statement. If unsuccessful, litigation over the disputed Shahuindo property “could reasonably continue until 2015.”

“We are still winning in the courts, which makes this deal all the more attractive for Sulliden shareholders,” Brent Jones, Century’s manager of investor relations, told The Northern Miner in an email exchange. “They can take something now, or get nothing later.”

Century is offering 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 20 trading days prior to Oct. 4, when Century first announced its intention to make a takeover bid.

Although puny compared with the flurry of high-profile transactions in the base metals mining sector in the last few years, Century’s bid to acquire Sulliden seems part of a larger restructuring trend in the industry — with large-scale consolidation creating large pools of capital seeking to be redeployed among fewer alternatives.

According to CIBC World Markets data this month, the value of base metals mergers and acquisitions transactions in 2006 exceeded that of the previous 10 years combined, while accounting for 71% of total mining transaction value in 2006 and for the year to date.

From Century’s standpoint, acquiring Sulliden would propel it to the rankings of a mid-tier producer and create a highly liquid and geographically diversified gold company with substantial reserves and resources that trade more than 500,000 shares a day.

“By accepting this offer, Sulliden shareholders will become part of a new Century with a solid foundation of four operating mines, an unparalleled pipeline of ten exploration projects and a leading presence in Canada and Latin America,” Century declared in its statement.

Century holds substantial gold resources at its San Juan and Rosario de Belen properties in Peru, and at its Lamaque property in Quebec.

Of course, Century is also eager to get the disputed Shahuindo property into its stable of properties and start production there by late 2010.

The legal dispute over the gold property began in 2002, when Sulliden bought it for US$4.13 million from Companhia Minera Algamarca.

Century purchased Algamarca soon afterwards and launched a lawsuit declaring the contract for the property transfer invalid.

In a 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. 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.

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.

Sulliden recently released the first set of results from its 2007 drilling program on the Shahuindo property, which was designed to test possible satellite extensions of earlier defined zones in near-surface areas never before drilled and targeting the northwestern extensions of the principal, or San Jose zone.

The existing resource on Shahuindo is principally centred on the San Jose deposit, which extends within the property concession for more than 3 km of strike, up to 876 metres in width and 1,000 metres in depth, and is open in all directions.

The northwestern extension is defined by a succession of soil anomalies extending over an aggregate length of 2.8 km. Drilling of this anomaly has extended the Shahuindo mineralization trend another 1.3 km northwest of the San Jose principal zone.

Highlights of the first 10 holes drilled this year — the first drilled since 2004 — seem promising. Hole 87 intersected 10.45 grams gold per tonne and 140 grams silver over 1.5 metres, within a larger lower-grade mineralized intersection of 38.7 metres at 0.49 gram gold and 55.2 grams silver, including an intersection of 1.09 grams gold and 107.7 grams silver over 15 metres.

Hole 88, meanwhile, reported 19.45 grams gold and 8.4 grams silver over 1.5 metres. Hole 86 intersected 1.07 grams gold and 266.2 grams silver over 3 metres.

Under Sulliden’s 2007 drill program, another five or six holes will be drilled before Christmas, with results due before the end of January 2008.

On the Toronto Stock Exchange, Sulliden’s shares fell 2.5 or 8.8% to close at 26 apiece on a trading volume of 89,000. On the TSX Venture Exchange, Century’s shares rose 1.5 to close at 37 each on a trading volume of 100,000.