Century Mining opts for US$45M financing

Vancouver – In its latest plan to raise funds for the restart of its Lamaque mine Century Mining (CMM-V) says it is dropping a previously announced US$65 million debt financing in favour of a US$45 million package consisting of a US$25 million prepaid gold facility and a US$20 million equity financing.

Details and terms of the transactions are not fully clear, however, as Century Mining is currently arranging financial terms of the equity financing and says the major international bank with which it has secured a term sheet for US$25 million prefers to remain anonymous until the close of the transaction.

“They’ve asked us not to do that (release its name),” says Century Mining’s manager of investor relations Brent Jones.

Jones explains that the bank wishes to keep its name private until the financing closes for liability reasons. In the past, Jones says, the bank has been sued by investors that had put their money into companies that had reported entering into potential arrangements with the bank, ones which ultimately failed.

When the deals fell through and the companies’ share prices withered, the investors placed blame on the bank, arguing they had relied on the bank’s reputation in making their investment.

Thus the bank prefers its name be withheld until the transaction is complete. The bank is, he says, one with a well-known name.

According to the terms of the transaction so far released, in return for the US$25 million the bank will receive 49,868 oz. gold over a five year schedule. Century Mining will receive additional cash payments so long as the price of gold is above US$800 per oz.

The bank will make the US$25 million available once the US$20 million equity financing comes through, Jones says. He was not sure, however, if one of the bank’s conditions to providing the US$25 million was that Century Mining complete the US$20 million equity financing. At press time Jones had not yet clarified that detail following a request to do so.

Century Mining began its efforts to raise funds to re-start the Lamaque mine, in the Bourlamaque township, Quebec, a little over a year ago.

In May, 2008, it announced that it had appointed Fortis Bank to lead and underwrite a US$70 million financing. However the arrangement fell through eight months later in January, 2009, when Fortis decided not to support the transaction citing, according to Century Mining, depressed financial markets, an uncertain economic environment and an internal change of strategy within the financial organization.

But Century Mining was quick to announce a new funding arrangement: Plans to raise as much as US$66 million through a package of gold-backed debt financing from institutional investors to be arranged by Octagon Capital.

At the time Century Mining said it expected the financing to close by the end of the month.

But about a month and a half later, at the end of March, Century Mining’s plans changed again. It dropped the US$66 million gold-backed debt package and announced it was in favour of a proposal for a straight-up US$65 million loan that it reported receiving from a consortium of international investors. This time Century Mining appointed Union Securities to arrange the financing.

The terms of the seven year loan stipulated an interest rate of 8% in the first year and 6% thereafter. Payments were to be on interest only during the term with lump-sum capital repayment at the end of the seven years.

Those plans appeared to be on track as recently as April when Century Mining reported that it had received conditional underwriting of the US$65 million loan. But at the time it also announced that it had entered into discussions with two other sources of financing and that it might pursue any combination of all three. Ultimately it dropped the US$65 million loan in favour of the now proposed financings totaling US$45 million.

To explain the change of heart Century Mining president and CEO Margarent Kent says in a statement that the US$65 million loan would expose the company to too much risk and that the terms of the loan, which it could not modify, did not fit Century Mining’s needs.

The Lamaque past-producing underground mine has proven and probable reserves of 7.7 million tonnes grading 4.56 grams gold per tonne or about 1.1 million contained oz. gold. With US$45 million in place this September Century Mining says it would have sufficient funds to have Lamaque producing gold by January 2010.

The company’s eleven year mine plan sees Lamaque producing 45,000 oz. gold in its first year and then ramping up to over 100,000 oz. a year in its fourth year of operation. Currently Century Mining also operates the San Juan mine in Peru which last year produced 14,252 oz. gold.

On news of the latest financing proposal Century Mining’s share price gained 1¢ to close at 16¢. The company has just over 169 million shares outstanding.