Century Mining Corporation (TSX VENTURE:CMM) reports its financial and operating results for the third quarter and nine months ending September 30, 2010.
Third Quarter Ending September 30, 2010 Discussion
The Company reported a net loss of $3.9 million, or $(0.01) per share, in the third quarter of 2010 compared to net earnings of $2.6 million, or $0.01 per share, for the same quarter of 2009. Third quarter results were impacted by lower than anticipated production at the Company's San Juan operation, combined with the delivery, under the Deutsche Bank AG Forward Gold Purchase Agreement, of 2,001 ounces of gold at a price of $561 per ounce, and higher general and administrative expenses.
Earnings from mine operations were down as a result of a lower recovery at the San Juan mine, resulting from campaigning transition ore through the mill, and higher mine cash costs resulting from the CIL plant operating on restricted tonnage.
General and administrative costs in the third quarter of 2010 increased to $4.6 million from $0.3 million in the corresponding period of 2009. Included in the third quarter are a provision of $1.0 million pertaining to the resignation of its previous president and CEO, in July 2010, increased legal and professional fees, increased depreciation, the majority of which related to the depletion of depletable producing properties, and stock-based compensation.
Cash used in operating activities was $5.5 million in the third quarter, compared to cash flow from operating activities of $0.2 million in 2009. In addition to the net loss, the Company repaid $2.8 million of accounts payable during the quarter.
The Company invested $8.7 million during the quarter ended September 30, 2010, of which $5.3 million was used for the purchase of new low profile underground equipment and the completion of the refurbishment of the mill and crusher at the Lamaque project.
In the third quarter 2010, the Company raised $13.1 million in equity, of which $6.2 million was from equity private placements and $6.9 million was from the exercise of warrants. In addition, the Company completed new lease obligations with respect to the equipment of $4.1 million.
As of September 30, 2010 Century has delivered 3,668 ounces under the terms of the agreement and has an obligation to deliver 57,515 ounces in future periods in accordance with the Deutsche Bank AG Forward Gold Purchase Agreement.
Nine Months Ending September 30, 2010 Discussion
The Company reported a net loss of $4.2 million, or a loss per share of $(0.01) for the nine months ended September 30, 2010, as compared to earnings of $5.4 million, or earnings per share of $0.01 for the corresponding period of 2009. Revenues were higher for the period, due in part to increased production on a year-to-date basis for the San Juan operation and higher realized gold prices, offset by the delivery under the Deutsche Bank AG Forward Gold Purchase Agreement of 3,668 ounces of gold at $561 per ounce.
General and administrative expenses for the nine months ended September 30, 2010, were $8.4 million, up from $2.3 million reported for the corresponding period in 2009. In addition to the $1.0 million provision for the resignation of the Company's president and CEO, additional legal and professional fees, increased depreciation, the majority of which related to the depletion of depletable producing properties, and stock-based compensation were recorded.
Cash used in operating activities was $11.4 million, as compared to $0.8 million for the corresponding period in 2009.
In addition to the operating loss, inventories at the two facilities increased by $2.2 million, the bulk of which pertains to the in-process gold at the Lamaque facility during its ramp-up phase, and the repayment of $5.8 million of trade accounts payable.
The Company spent $18.6 million on new equipment, as well as the refurbishment of the mill and crusher at the Lamaque project. The Company also received $5.0 million from Deutsche Bank AG, having successfully achieved Performance Hurdle A in the second quarter of 2010.
For the nine months ended September 30, 2010, the Company raised $13.9 million from the exercise of shareholder warrants and equity private placements. The Company has entered into lease arrangements for the purchase of the low profile underground equipment and the crusher and conveyors, in the amount of $7.5 million, expiring in 2015.
Keith Hulley, Interim CEO of Century commented, "The Lamaque third quarter operational results were below expectations, but the Company is confident that the operational issues will improve as we accelerate development and production, control dilution, and mine underground zones that are more representative of the expected head grade and reserve grades. The recent hiring of key personnel and procurement of key underground equipment have contributed to production increases in the most recent four weeks, bringing the operation to in excess of 1,000 tonnes per day ("TPD"). After enduring significant delays during the commissioning of the mine, the Company anticipates reaching commercial production in the first half of 2011, and has kept its guidance for the Lamaque operation at 80,000 to 90,000 ounces for 2011."
Lamaque Operational Update and Guidance
In the first quarter of 2010, the Company initiated underground development at the Lamaque gold project to re-open and advance the operation to gold production by the second quarter of 2010. The operation commenced the execution of the underground mine plan by focusing on three separate mining zones, each accessed via the existing open pit. The production zones, named the Lamaque Flats, Bedard Dyke, and North Wall, will contribute the combined production tonnage leading to commercial gold production by the first half of 2011.
During the start-up of the operation, the Lamaque Flats zone commenced production on schedule in the second quarter of 2010, and has produced near its expected rate of production of between 400 – 700 TPD, pouring its first gold in late April 2010. During the commissioning of the Lamaque project, the Company encountered setbacks in the start-up of the operation, including delayed permitting of the Bedard Dyke, late delivery of underground mine equipment, and late hiring of key senior operations management personnel.
The Company continues mining underground in the Lamaque Flats zone utilizing three low profile jumbo drills and three low profile scooptrams, among other mine equipment. Within the Lamaque Flats, the underground development team continues its ramping efforts to reach the North Wall zone in preparation for mining in the first quarter of 2011. At the Bedard Dyke, the contractor's work force continues the underground development of the ramp system and the concurrent completion of the sublevel infrastructure to prepare for long-hole stoping of the mineralized zone in the fourth quarter of 2010. The Company is currently removing ore from the Bedard Dyke through slashing out and sill cutting of the sublevels.
During the months of September and October 2010, the Company was successful in opening up the Bedard Dyke, hiring the senior operations staff, and receiving the necessary underground mine equipment to accelerate development and increase production to approximately 1,000 TPD by November 2010. The Company anticipates reaching 1,500 TPD by the first quarter of 2011 and reaching a steady state production rate in excess of 2,100 TPD by the fourth quarter of 2011.
Mine infrastructure facilities, including the upgrade to the crusher facility, offices, warehouse, mine dry, core logging and sample preparation areas are completed and fully-operational. The current underground workforce includes 170 full time Century Mining employees, along with 25 contract miners. Century's workforce will continue to grow, and will displace the majority of the contract workforce by 2012.
Recent underground definition drilling at the Bedard Dyke continues to confirm the zone of mineralization in the mine plan that will form part of the initial underground production in this second area of the mine development plan. Ongoing underground definition drilling continues and results will be released when modeling and resource confirmation is complete.
The Lamaque mine has produced 8,401 ounces of gold through September 30, 2010, of which 4,457 ounces were produced during the third quarter of 2010. The revenues associated with the sales of these ounces have been offset against the deferred development costs, and this treatment will continue until the project reaches commercial production in 2011. The delays identified earlier have contributed to lower than anticipated production from the Lamaque operation, and the need to lower its 2010 gold production guidance to 18,000 to 20,000 ounces from 40,000 to 45,000 ounces. The guidance remains unchanged for 2011 at 80,000 to 90,000 ounces, and the Lamaque operation is expected to reach an annualized gold production run rate of 100,000 ounces by the end of 2012, with a mine life of 11 years and life of mine cash costs forecast to be within the range of US$450 to US$550 per ounce.
San Juan Operational Update and Guidance
During the first nine months of 2010, San Juan produced 14,526 ounces of gold at an average mine site cash cost of $573 per ounce, with 4,531 ounces of gold in the third quarter at a mine site cash cost of $658 per ounce. The San Juan operation is expected to produce at approximately 4,500 to 5,000 ounces of gold per quarter, and production guidance remains at 18,000 to 20,000 ounces for 2010.
In the first nine months of 2010, cash costs increased due to additional expenses related to the construction of a new cyanide tailings pond facility, and an associated shut down of the mill circuits for a period of time during the past two quarters. The shutdown of one of the San Juan primary 6 x 6 mills was for refurbishing of the mill and installation of a new liner system. The mill continued operating on the smaller standby 5 x 6 mill, however at a lower mill throughput. The CIL plant operated on restricted tonnage in the third quarter and the project was completed in July 2010. Also, transition ore from mining at the Jessica vein system required campaigning through the mill and produced a lower recovery. The average mine site cash cost for the San Juan mine for 2010 has consequently increased from $550-$570 per ounce to $575-$625 per ounce, but is expected to decrease in 2011 back to the $550-$570 range.
The Company plans to make capital investments at the San Juan operation over the next 12 months to increase production up to 24,000 ounces in 2011. The mine is continuing with improvements of the tailings dam to increase tailings storage capacity for the planned future production increases. Gold production at San Juan is expected to reach 30,000 ounces of gold per year by the end of 2012.
Source: Century Mining Corporation