Century Mining Digs Up $66M Financing

Century Mining (CMM-V, CMNZF-O) has joined a growing group of mining companies trying to weather the financial storm through alternative financing solutions.

The junior gold producer plans to raise US$66 million in a loan from institutional investors that will be repaid over five years with physical gold produced from its Lamaque mine, in Quebec.

The underground mine is on the eastern edge of the city of Val-d’Or, about 500 km northwest of Montreal.

The financing will eliminate a “significant portion of short-term liabilities” and improve Century’s financial position, the company declared. It will also allow management to raise money by committing “just a small percentage” of the gold that will be mined at Lamaque between 2009 and 2019.

The gold-based portion of the financing also means the company can avoid the significant dilution that is often associated with convertible debt and other conventional financing methods, and allows it to sidestep “excessive interest rates” typical of high-yield debt facilities.

Century maintains that the combination of shares and warrants “will result in less than an additional 15 per cent dilution to current shareholders.”

The junior selected Torontobased Octagon Capital as the lead agent to place the structured financing with qualified institutions. Management expects the financing to close before March.

Under the plan, Century will sell 15,000 units priced at $4,400 apiece.

Each unit will be made up of 600 shares of the company, 1,000 warrants and 5 oz. of gold. Each such ounce is deliverable on Nov. 30 in each of 2011, 2012, 2013, 2014 and 2015.

The lion’s share of the money raised (74%) will be used to develop the Lamaque project. About 19% of it will be used as working capital and to pay down short-and long-term liabilities, and the remaining 7% will be spent on the fees and costs associated with closing the transaction.

“The board of directors and management consulted financial advisers and reviewed numerous alternatives for the Lamaque project, including mergers, joint ventures, high-yield debt and other facilities with senior lending institutions,” Margaret Kent, Century’s president and chief executive, said in a statement.

“Based on these consultations, management determined that in a robust gold market and with a positive outlook for gold, it is in the best interests of Century’s shareholders to minimize dilution with a gold-based financing alternative.”

Century is working to restart Lamaque, which has been on care and maintenance since July 2008 because the company lacked the capital it needed to properly expand the operation and achieve reasonable commercial returns.

But the mine has an 80-year history and has produced 9.4 million oz. gold at a head grade of 5.2 grams gold per tonne.

Currently, Lamaque hosts proven and probable reserves of 7.7 million tonnes grading 4.56 grams gold per tonne for total contained gold of 1.13 million oz.

Measured and indicated resources tally 3.7 million tonnes grad-is ing 5.27 grams gold per tonne for 624,200 oz. gold. In addition, Lamaque has an inferred resource of 17.8 million tonnes grading 4.83 grams gold for 2.83 million oz. gold.

Lamaque’s surface infrastructure is in place and fully serviceable, including a nearly new, state-of-the-art, 1.25-million-tonne-per-year carbon- in-pulp plant, which was upgraded in 2001.

Situated at the eastern end of the historically productive Abitibi greenstone belt, Lamaque is host to massive gold-bearing quartz veins, dykes and shears.

According to a January 2009 due-diligence report, the mine will produce more than 1 million oz. of gold at a cash cost of US$421 per oz. Lamaque has a net present value of US$88.2 million at a 10% discount rate, and over a 10-year mine life, it expected to generate US$168 million in free cash.

According to the report, funds are needed to dewater the mine, refurbish the Sigma No. 2 shaft, widen the existing ramp, develop the North Wall and Bedard dyke zones, drill the western extension of the Bedard dyke and purchase/lease the necessary underground mining equipment.

In addition to the Lamaque mine, Century’s wholly-owned subsidiaries hold an 82.6% interest in the San Juan mine, in southern Peru. San Juan produced 70,400 oz. gold in 2006 and 63,120 oz. gold in 2007.

At presstime in Toronto, Century’s shares were trading at 7¢ apiece.

The Blaine, Wash.-based company has a 52-trading range of 1-38¢ per share and has 169.1 million shares outstanding.