Century Mining’s drive to restart Lamaque

These are busy days for Century Mining(CMM-V).

The Blaine, Washingtonbased company is on the verge of bringing its Lamaque project, in Val d’Or, Que., back into production after a hiatus that was brought on by the collapse of financial markets.

And while some projects stay on care and maintenance without returning for decades, a big financing closed late in 2009 ensured that Century would have the financial muscle to lift Lamaque off of the bricks.

In December 2009, Century closed a deal that combined equity and gold forward sales that brought it over $60 million in cash — enough to breathe new life into the old mine.

The gold hedge, signed with Deutsche Bank, paid Century US$33 million for 61,183 oz. gold from five years of future production. While the sale price works out to roughly half of gold’s current price, the arrangement does allow for more cash payments to the company when gold is priced between US$900 and US$988 per oz. The amount hedged represents about 6% of the Lamaque’s current reserves.

The rest of the $60 million came through equity placements. Russian investor Maxim Finskiy and American investor Fran Scola took a 35.9% stake in Century but, fully diluted, the number would go up to 44.1%.

According to Century’s director of investor relations, Peter Ball, the new investors were lured by Lamaque’s potential.

“They wanted a gold company that they could participate in the growth with,” Ball says. “They wanted to work with management to develop a mid-tier gold producer.”

The Lamaque project currently has reserves of 7.7 million tonnes grading 4.56 grams gold per tonne for 1.13 million oz gold. The deposit has additional measured and indicated resources of 8.3 million tonnes grading 4.81 grams gold for 1.28 million oz. gold. Inferred resources stand at 19.4 million tonnes grading 5 grams gold for 3.11 million oz.

As for processing all that ore, Century inherited a modernized 5,000-tonne-per-day carbon-in-pulp (CIP) plant when it acquired the project off a bankrupt McWatters Mining in 2004.

McWatters spent $35 million upgrading the plant in 2002 and Ball says minimal capex has gone into the mill since then.

Century’s feasibility study predicts 96% recovery from an average head grade of 4.76 grams gold with 30-50% of gold being recovered from a gravity circuit.

The company estimates that cash costs per oz. gold will fall within the US$450-US$500 range.

With metrics like those, Century is eager to start pouring bars.

“Our number one priority now is to get Lamaque to produce gold in the second quarter,” Ball says. “The first gold pour is expected in 67 days but it may be sooner.”

The plan for this year is to run the mill at 1,200 tonnes per day, while next year the number would be moved up to 2,000 tonnes per day.

While the mine life for the project is currently pegged at 11 years, some serious upside potential could add to that.

Century’s latest results from the drill help make the point.

On March 15, the company released assay results from five of eight recently drilled holes that tested a structure next to Lamaque known as the Bedard Dyke.

Assays were highlighted by 1.69 metres grading 100.5 grams; 5.28 metres grading 9.56 grams gold and 2.67 metres grading 14.17 grams gold. All of those results came from separate holes and the intercepts represent true widths.

Century is testing the dyke with an eye towards working it into its mining plan.

The dyke sits at the west end of the Sigma open pit — which abuts the Lamaque deposit — and currently has a strike length of 210 metres. It outcrops in the open pit.

Century says dyke widths vary from 2 metres thick on the western end, to 10 metres thick on the eastern end, near the open pit.

Word of the drill results sent the company’s shares up 7% or 3¢ to 38¢ on 831,000 shares traded. The company’s shares haven’t closed that high since the end of last year when they hit the 39¢ mark.

And while Lamaque is the focus of Century, it was the neighbouring deposit, Sigma, which drew most of the attention over the last 70 years.

Sigma was mined as an underground project from 1937 to 2000 and produced 4.4 million oz. gold. Those 4.4 million oz. came from a deposit with 25 million tonnes of ore grading 5.5 grams gold per tonne.

Towards the end of its life, however, Sigma’s golden past was somewhat tarnished.

McWatters couldn’t get the economics on the pit to work, and twice had to shut it down. Lower than anticipated grades were the key culprit.

When Century bought the mine out of receivership it believed a new approach was all that was needed. In 2005 the company laid out a plan that would meet the grade control problems at the pit with a more selective approach to mining in the pit, using smaller equipment.

But by 2007 Century announced that deteriorating ore grades in the open pit and increasing costs had left it little choice but to shut the mine down, yet again.

So while Sigma remains open at depth, Lamaque is now Century’s focus.

Besides not sharing in Sigma’s recent economic woes, Lamaque also benefits from having more readily accessible ore. Where miners went down to 1,800 metres at Sigma, Lamaque was only mined down to 975 metres.

The reason for the discrepancy is that the two projects, while basically the same deposit, were operated by separate mining companies for most of their lives.

By looking at the two together, Century is not only able to better understand the geological system that yields the deposits, but can also mine the area between the two projects that was hitherto off limits due to boundary regulations.

Combining also pays off in terms of accessibility as Century is retrieving ore from Lamaque through an adit at Sigma.

What was almost lost

But for all of its mineral richness and mining potential, Lamaque was almost not to be — at least not for Century.

When the bottom fell out of the market in 2008, Century, like many junior miners, was left cash-strapped and fighting to keep its head above water. It was forced to put the project on care and maintenance, and, could have had solvency issues if it wasn’t for a little gold mine called San Juan down in Peru.

“San Juan’s cash flow helped keep the company alive through the worst of times,” Ball says. “And now that things have improved the money the mine generates gets to stay in Peru.”

More money in Peru means a more robust community budget. The miner is now providing electrical power for local communities as well as fresh water, sanitary services, and upgrades to living quarters.

And in a fitting case of things coming full circle, now the mine that helped keep Lamaque alive, is receiving benefits courtesy of Lamaque.

Century is in the process of shipping trucks, jacks and other equipment that is no longer needed at Lamaque to San Juan to help bolster production there. The equipment should arrive in the latter half of 2010.

Century is currently running the mill at San Juan at 300 tonnes per day but plans to ramp that up to 700 tonnes per day over the next few years.

Such a ramp up will merely further the steady increase of production that San Juan has been able to sustain.

The most recently reported results came from the fourth quarter of 2009 and showed production of 4,744 oz. gold — almost 1,500 oz. more than the 3,347 oz. produced for the same period in 2008.

In 2009, the mine turned out 17,036 oz. gold — a record for the mine and a 19.5% increase over 2008.

For all of 2010, Century expects to produce between 18,000 and 20,000 oz. gold at a cash cost of US$550-US$570 per oz.

But it has no plans to stop there. Century wants to drive production up 50% from current levels by 2012.

Of course the equipment from Lamaque will play a part in that drive, but the company is also increasing the capacity of its tailings embankment and defining more gold resources.

If
all goes according to plan, San Juan will produce 24,000 oz. of gold in 2011 before maxing out at the 30,000-ounce-per-year level in 2012 — a long way from the 12,270 oz. gold it produced in 2007.

Of course, getting up to those levels will be helped along by the discovery of new ounces, and while Century hasn’t released any drilling budget for the project yet, Ball says drills will be turning at the gold-rich area.

“There are eight to nine years of reserves left at this point, but we could find much more,” he says. “This area has been mined since Inca times.”

A point that leads to another nice synchronicity between Lamaque and San Juan: While Lamaque sits in the Val d’Or, which in English translates to the “valley of gold,” San Juan also sits in a valley, whose name, coincidentally, means the “valley of gold.”

Just the sort of address miners would like to call home.