Mr. John Pearson reports
CENTERRA GOLD 2015 SECOND QUARTER RESULTS
Centerra Gold Inc. had net earnings of $21.9-million or nine cents per common share (basic) in the second quarter of 2015, compared with a net loss of $31.7-million or 13 cents per common share (basic) for the same period in 2014. The increase in earnings reflects a 32-per-cent increase in gold ounces sold and lower operating costs, partially offset by a lower average realized gold price, in the second quarter of 2015. For the first six months of 2015, the company recorded net earnings of $62.6-million or 26 cents per common share (basic), compared with a net loss of $29.6-million or 13 cents per common share (basic) in the comparative period of 2014. The increase in earnings reflects a 44-per-cent increase in gold ounces sold and lower operating costs, partially offset by a 7-per-cent-lower average realized gold price in 2015.
Second quarter 2015 highlights:
- The company produced 125,088 ounces of gold in the second quarter, which include 122,111 ounces at Kumtor and 2,977 ounces at Boroo.
- All-in sustaining costs per ounce sold for the second quarter were $937, excluding revenue-based tax in the Kyrgyz Republic and income tax.
- All-in costs per ounce sold, which exclude revenue-based tax in the Kyrgyz Republic and income tax, were $1,029 for the second quarter.
- Cash provided by operations in the second quarter totalled $114.6-million.
- Immediately following the quarter-end, Kumtor received extensions, to year-end, of its permits for emissions into the atmosphere and waste disposal into the tailings management facility.
- On July 28, 2015, the company announced the positive feasibility study results and the planned development of the 100-per-cent-owned Oksut gold project, subject to final approval of the Turkish environmental impact assessment and receipt of all required permits.
- The company converted an estimated 1.2 million ounces of gold (26.1 million tonnes at an average grade of 1.4 grams per tonne gold using a cut-off grade of 0.3 g/t gold) of measured and indicated resources to probable reserves at the Oksut project.
Centerra's cash, cash equivalents and short-term investments at the end of the second quarter of 2015 increased to $581.7-million after investing $70.5-million in its properties and paying $7.6-million (includes $2.4-million transferred to restricted cash, in trust -- see other corporate developments section) in dividends in the quarter compared with $562.0-million at Dec. 31, 2014. As at June 30, 2015, the company had drawn $76-million on its $150-million revolving credit facility with European Bank for Reconstruction and Development, leaving a balance of $74-million undrawn. The amount drawn is due to be repaid in February, 2016. Centerra believes, based on its current forecast, that it has sufficient cash and short-term investments to carry out its business plan in 2015 (see outlook for 2015 section).
Commentary
Ian Atkinson, president and chief executive officer of Centerra Gold, stated: "Kumtor performed well during the quarter, producing 122,111 ounces of gold, keeping us on track to achieve our production and cost guidance for the year. Financially, the company is in good shape with cash, cash equivalents and short-term investments of approximately $582-million or $505-million, net of debt, at June 30, 2015. During the second quarter, cash provided by operations was $114.3-million.
"At the Oksut project in Turkey, we are forecasting an additional $17.7-million of spending in 2015 for detailed engineering and long-lead items after the board approved the development of the Oksut project, subject to final approval of the Turkish EIA and receipt of all required permits, based on the positive feasibility study for the project. We have revised our all-in cost guidance to reflect the added Oksut spending.
"In the Kyrgyz Republic, on July 3, 2015, Kumtor received extensions to its permits for emissions into the atmosphere and waste disposal into the tailings management facility to the end of the year. The company continues to work toward a resolution of all outstanding matters affecting the Kumtor project. As we have stated previously, any proposed resolution would need to be fair to all shareholders of Centerra.
"At the Trans-Canada property, which is now called the Greenstone gold property, we completed the additional drilling at the Hardrock project during the quarter and are in the process of updating the Hardrock resource estimate. Additionally, the partnership received the notice of approval of the terms of reference for the environmental assessment for the Hardrock project from the Ontario Ministry of the Environment and Climate.
"In Mongolia, although the Gatsuurt project was declared a mineral deposit of strategic importance by the Mongolian parliament earlier this year, parliament has so far declined to approve the level of state ownership in the project. The bill regarding the level of state ownership in the project was returned by parliament to the government for further consideration. It is our understanding that the government intends to submit a revised proposal to parliament later this year," Mr. Atkinson concluded.
Recent developments
The following is a summary of recent events affecting the company. For further information, see the other corporate developments section.
Kumtor operations:
- The company continues to be in discussions with the government of the Kyrgyz Republic relating to the possible restructuring of the Kumtor project. The Kyrgyz Republic parliament passed a resolution on June 29, 2015, to ensure the continued operation of the Kumtor mine and to carry out an examination of the updated Kumtor technical life-of-mine plan, presented in the Kumtor technical report dated March 20, 2015, and its impact on the Kyrgyz Republic.
- Kumtor continues to work with the State Agency for Environmental Protection and Forestry to obtain the necessary approvals of Kumtor's 2015 annual mine plan. The mine plan has been approved by the Kyrgyz Republic State Agency for Geology and Mineral Resources. The failure to obtain the necessary approvals for the annual mine plan may require a suspension of the Kumtor operations.
Mongolian operations:
- In early June, 2015, the government submitted a proposal to the Mongolian parliament proposing that the Mongolian state interest in the Gatsuurt project be either a 34-per-cent state ownership or a special royalty to be applied to the project. On June 18, 2015, the parliament rejected the proposal and returned it to the government for further assessment. The company understands that the government intends to submit a revised proposal to parliament later this year. The company continues to engage in discussions with the Mongolian government regarding the development of the Gatsuurt project.
Corporate:
- Proceedings to enforce arbitral awards against the Kyrgyz Republic continue to be heard before the Ontario courts. On June 10, 2015, a previously issued injunction issued by the Ontario court in the Stans Energy Corp. matter was dissolved on the basis that the underlying arbitral award of the Moscow Chamber of Commerce and Industry was held invalid by the Moscow court. The effect of the dissolution of the injunction is that the restrictions placed on 47 million Centerra shares held by Kyrgyzaltyn have been lifted. However, Centerra continues to be subject to an injunction in favour of Valeri Belokon, which prohibits Centerra from paying dividends to Kyrgyzaltyn on all of its Centerra shares and restricts Kyrgyzaltyn's ability to transfer or deal with 6,500,240 Centerra shares held by Kyrgyzaltyn. In the proceedings involving Sistem Muhendislik Insaat Ve Ticaret Anonim Sirketi, in June, 2015, the Ontario Court of Appeal made a finding that Sistem had not properly served the relevant documents on the Kyrgyz Republic and accordingly allowed Kyrgyzaltyn's appeal of a lower court's decision that the Kyrgyz Republic held an equitable interest in the Centerra shares held by Kyrgyzaltyn.
Subsequent events:
Oksut project:
- On July 28, 2015, the company announced the positive feasibility study results and the planned development of the 100-per-cent-owned Oksut project subject to final approval of the Turkish environmental impact assessment and receipt of all required permits. Based on the positive feasibility study, measured and indicated resource ounces have been converted to probable reserves as described in the company's news release of July 28, 2015, which can be found on SEDAR and the company's website.
Greenstone gold property (formerly known as Trans-Canada property):
- Effective July, 2015, Centerra and Premier Gold Mines Ltd. agreed to change the name of its partnership to Greenstone Gold Mines LP (from TCP Limited Partnership) in recognition of the location of the Hardrock project within the Greenstone municipality.
CONSOLIDATED FINANCIAL AND OPERATING SUMMARY
($ millions, except as noted)
Three months ended Six months ended
June 30, June 30,
2015 2014 2015 2014
Financial highlights
Revenue $ 146.8 $ 119.5 $ 359.4 $ 267.5
Cost of sales 81.0 109.4 194.9 218.5
Standby costs 1.1 0.2 3.8 0.2
Regional office
administration 5.0 6.1 10.3 11.8
Earnings from mine
operations 59.7 3.8 150.4 37.0
Revenue-based taxes 19.8 14.0 48.5 32.4
Other operating expenses 0.8 1.8 0.7 2.8
Predevelopment project
costs 4.9 1.2 8.2 2.1
Exploration and business
development 2.1 4.0 4.9 6.6
Corporate administration 10.8 11.8 20.1 18.3
Earnings (loss) from
operations 21.3 (29.0) 68.0 (25.2)
Other (income) and
expenses (1.6) 0.7 2.6 0.5
Finance costs 1.1 1.2 2.2 2.6
Earnings (loss) before
income taxes 21.8 (31.0) 63.2 (28.4)
Income tax expense (0.1) 0.7 0.6 1.3
Net earnings (loss) 21.9 (31.7) 62.6 (29.6)
Earnings (loss) per
common share -- $ basic $ 0.09 $ (0.13) $ 0.26 $ (0.13)
Earnings (loss) per
common share -- $
diluted $ 0.09 $ (0.13) $ 0.26 $ (0.13)
Cash provided by
operations 114.6 71.4 245.0 173.4
Average gold spot price --
$/oz 1,192 1,288 1,206 1,291
Average realized gold
price -- $/oz 1,192 1,285 1,205 1,289
Capital expenditures 86.6 111.5 242.3 210.4
Operating highlights
Gold produced -- ounces 125,088 92,124 295,771 208,794
Gold sold -- ounces 123,079 93,004 298,311 207,497
Operating costs (on a
sales basis) $36.0 $48.5 $79.4 $91.0
Adjusted operating costs 42.7 56.6 94.5 105.6
All-in sustaining
costs 115.3 143.3 241.1 270.2
All-in costs 126.7 160.2 265.0 292.8
All-in costs -- including
taxes 146.6 174.2 313.7 325.3
Unit costs
Cost of sales -- $/oz
sold 658 1,176 653 1,053
Adjusted operating costs --
$/oz sold 347 608 317 509
All-in sustaining costs --
$/oz sold 937 1,540 808 1,302
All-in costs -- $/oz sold 1,029 1,722 888 1,411
All-in costs (including
taxes) -- $/oz sold 1,191 1,873 1,052 1,567
Second quarter 2015 compared with second quarter 2014:
- Gold production for the second quarter of 2015 totalled 125,088 ounces compared with 92,124 ounces in the comparative quarter of 2014. The increase in ounces reflects higher production at Kumtor due to higher grades, recoveries and mill throughput. Boroo's production in the second quarter of 2015 was lower than the comparable period as a result of lower production from the heap-leach operation due to secondary leaching, and there was no mill production.
- All-in sustaining costs per ounce sold, which exclude revenue-based tax and income tax, for the second quarter, decreased to $937 from $1,540 in the comparative period of 2014. The decrease in the second quarter of 2015 results primarily from more ounces sold and lower spending on capitalized stripping and sustaining capital. All-in costs per ounce sold, which exclude revenue-based tax and income tax, were $1,029 compared with $1,722 in the comparative quarter of 2014.
- All-in costs per ounce sold include all cash costs related to gold production, excluding revenue-based tax and income tax. The decrease reflects the additional ounces sold, lower operating costs and lower exploration costs, and lower spending on growth capital at Kumtor, partially offset by additional spending in the second quarter of 2015 for predevelopment activities at the Greenstone gold property and at the Oksut project.
- Revenue in the second quarter of 2015 increased 23 per cent to $146.8-million, as a result of 32-per-cent-more ounces sold (123,079 ounces in the second quarter of 2015 compared with 93,004 ounces in the second quarter of 2014), partially offset by a 7-per-cent-lower average realized gold price ($1,192 per ounce compared with $1,285 per ounce in the same quarter of 2014).
- In the second quarter of 2015, ounces sold increased 32 per cent compared with the second quarter of 2014, and cost of sales decreased by 26 per cent to $81-million compared with the same period of 2014. This reflects the lower costs in both the stockpiled ore and in the ore mined and processed at Kumtor from cutback 16 in the second quarter of 2015. In particular, the cost of sales in the second quarter of 2015 benefited from cutback 16 containing more ounces and from lower operating costs (for diesel, labour and other consumables) and reduced waste stripping as compared with cutback 15 ore that was processed in the second quarter of 2014. Depreciation, depletion and amortization associated with production were $45-million in the second quarter of 2015 (2014: $60.9-million), reflecting lower capitalized stripping charges per ounce from cutback 16 ore, partially offset by the increased ounces sold in 2015.
- Operating costs (on a sales basis) decreased by 26 per cent to $36.0-million in the second quarter of 2015 compared with the same period of 2014, reflecting 32-per-cent-more ounces sold in the second quarter of 2015. The decrease was due to processing lower-cost ounces at Kumtor, which reflect a reduction in costs for diesel, labour and other consumables, as well as favourable movements in the local currency as compared with the same period of 2014. Operating costs at Boroo in the second quarter of 2015 were lower in the second quarter of 2015 as compared with the same period in 2014 as milling activities ceased in late 2014. Leaching costs at Boroo were also lower as secondary leaching commenced in the third quarter of 2014, and site support costs reflected reduced personnel levels.
- During the second quarter of 2015, Boroo incurred standby costs to maintain the mill and operation on care and maintenance totalling $1.1-million, which included spending mainly on labour to maintain equipment in a ready state, as well as fixed costs for administration. There were minimal standby costs incurred in the same period of 2014.
- In the second quarter of 2015, predevelopment projects costs increased by $3.7-million to $4.9-million compared with the comparative quarter in 2014. The increase in the second quarter of 2015 represents spending at the Greenstone gold property and higher spending at the Oksut project.
- Exploration expenditures in the second quarter totalled $1.3-million compared with $3.9-million in the same period of 2014. The decrease in the second quarter reflects reduced spending on the company's projects in Turkey and Mongolia and the closure of its regional offices in China and Russia.
- Other income of $1.6-million was received in the second quarter of 2015, including $1.4-million in settlement proceeds from an insurance claim on the ball mill gear failure at Kumtor that occurred in 2008.
- Corporate administration costs decreased to $10.8-million in the second quarter of 2015 from $11.8-million in the same period of 2014. The decrease was primarily due to the impact of currency movements and lower general spending.
- Cash provided by operations increased by $43.2-million to $114.6-million in the second quarter of 2015 compared with $71.4-million in the same period of 2014. The increase is a result of lower costs and more ounces sold.
- Total capital expenditures in the second quarter of 2015 were $86.6-million, which included sustaining capital of $12.0-million, growth capital of $4.3-million, $4.3-million of Greenstone gold property predevelopment costs and $66.0-million of capitalized stripping costs ($49.5-million cash). Capital expenditures in the same quarter of 2014 were $111.5-million, which included $12.9-million for sustaining capital and $11.6-million for growth capital and capitalized stripping of $86.9-million ($61.5-million cash). Capital expenditures were 22 per cent lower in the second quarter of 2015 as a result of lower capitalized stripping at Kumtor (a decrease of 24 per cent), lower sustaining capital (a decrease of 8 per cent) and lower growth capital (a decrease of 62 per cent), partially offset by Greenstone gold property costs.
First-half 2015 compared with first-half 2014:
- Gold production for the first six months of 2015 totalled 295,771 ounces compared with 208,794 ounces in the comparative period of 2014. The increase in production is primarily due to higher mill head grades and higher recoveries at Kumtor.
- All-in sustaining costs per ounce sold, which exclude revenue-based tax and income tax, for the first six months, decreased to $808 from $1,302 in the comparative period of 2014. The decrease in the first six months of 2015 reflects 44-per-cent-more ounces sold, lower operating costs in 2015 mainly for diesel, labour and consumables, and lower spending on capitalized stripping, partially offset by higher spending on sustaining capital as compared with the first six months of 2014.
- All-in costs per ounce sold, which exclude revenue-based tax and income tax, for the first six months, were $888 compared with $1,411 in the comparative period of 2014. The decrease reflects the additional ounces sold, the lower operating costs, lower exploration costs and lower spending for growth capital at Kumtor. These costs were partially offset by higher spending on predevelopment activities at the Greenstone gold property, which was acquired in March, 2015, and the Oksut project in the first half of 2015.
- Revenue in the first six months of 2015 increased 34 per cent to $359.4-million, as a result of 44-per-cent-more ounces sold (298,311 ounces compared with 207,497 ounces in the first six months of 2014), partially offset by a 7-per-cent-lower average realized gold price ($1,205 per ounce compared with $1,289 per ounce in the same period of 2014).
- In the first six months of 2015, cost of sales decreased by 11 per cent to $194.9-million due primarily to lower operating costs and lower DD&A associated with the cutback 16 ore processed and sold in the first six months of 2015. The cost of sales in the first six months of 2015 benefited from cutback 16 containing more ounces and having lower operating costs (for diesel, labour and other consumables) and reduced waste stripping as compared with cutback 15 ore that was processed in the first six months of 2014.
DD&A associated with production decreased to $115.5-million in the first six months of 2015 from $127.5-million in the comparative period of 2014, reflecting lower capitalized stripping charges per ounce from cutback 16 ore, partially offset by the increased ounces sold in 2015.
- Operating costs (on a sales basis) decreased by 13 per cent or $11.5-million to $79.4-million in the first six months of 2015 compared with the same period of 2014, reflecting 44-per-cent-more ounces sold and lower operating costs for fuel, labour and consumables, as well as beneficial currency movements in the Kyrgyz som.
- During the first six months of 2015, Boroo incurred standby costs to place and maintain the mill and operation on care and maintenance totalling $3.8-million, which included spending mainly on labour to clean the circuits and maintain equipment in a ready state, as well as fixed costs for administration. There was $200,000 of standby costs incurred in the same period of 2014.
- In the first six months of 2015, predevelopment projects costs increased by $6.1-million to $8.2-million compared with the same period in 2014. The increase represents spending at the Greenstone gold property and higher spending at the company's Oksut project.
- Exploration expenditures in the first six months totalled $3-million compared with $6.5-million in the same period of 2014. The decrease in the first six months reflects reduced spending on the company's projects in Turkey and Mongolia and the closure of its regional offices in China and Russia.
- Business development spending in the first six months of 2015 totalled $1.9-million, representing consulting and legal charges in connection with the acquisition of the company's 50-per-cent interest in Greenstone Partnership. There was minimal spending on business development activities in the same period of 2014.
- Corporate administration costs increased to $20.1-million from $18.3-million in the first six months of 2014 due primarily to higher legal and consulting costs related to continuing negotiations with the Kyrgyz government and higher share-based compensation resulting from the revaluation of the underlying share-based awards held by employees issued under the company's share-based plans. The share-based compensation charge in the first six months of 2015 was $7.4-million, compared with $6.8-million in the same period in 2014.
- Cash provided by operating activities increased by $71.6-million to $245.0-million in the first six months of 2015 compared with $173.4-million in the same period of 2014. The increase mainly reflects the higher earnings in 2015.
- Total capital expenditures in the first six months of 2015 were $242.3-million, which included sustaining capital of $24.7-million, growth capital of $10.8-million, $73.3-million of Greenstone gold property acquisition costs, including predevelopment costs of $5.9-million, and $133.5-million of capitalized stripping costs ($101.2-million cash) at Kumtor. Capital expenditures in the same period of 2014 were $210.4-million, which included $21.6-million for sustaining capital and $13.8-million for growth capital and capitalized stripping of $175.0-million ($123.9-million cash). Total capital expenditures were 15 per cent higher for the first six months of 2015 as a result of the Greenstone gold property acquisition costs and higher sustaining capital (an increase of 14 per cent) partially offset by lower capitalized stripping at Kumtor (a decrease of 24 per cent) and lower growth capital (a decrease of 21 per cent).
Operations update
Kumtor mine
At the Kumtor mine in the Kyrgyz Republic, mining activities in the second quarter of 2015 focused on development and waste stripping from cutback 17. Total waste rock and ore mined during the second quarter of 2015 were 40.4 million tonnes compared with 49.5 million tonnes in the comparative period of 2014, representing a decrease of 18 per cent, primarily due to a 25-per-cent increase in average haulage distance when compared with the same period of 2014. Other negative factors impacting mining included unfavourable weather conditions, as the mine experienced increased precipitation; higher temperatures than normal, which had an adverse impact on pit productivity; a decrease in haul truck availability of 4 per cent compared with the same period in 2014; and inconsistent broken ore due to the reduced mechanical availability of the blast hole drills during the second quarter compared with the same period of 2014. During the second quarter of 2015, Kumtor mined approximately 200,000 tonnes of ore at an average grade of 1.50 g/t, compared with 500,000 tonnes of ore mined at an average grade of 1.40 g/t in the second quarter of 2014.
Gold production for the second quarter of 2015 was 122,111 ounces compared with 77,860 ounces in the comparative quarter of 2014. The increase in ounces poured during 2015 was due to processing higher-grade mill feed and achieving higher recoveries than in the comparative quarter. During the quarter, Kumtor's mill processed a blend of the higher-grade ore mined during the first quarter and the stockpiled ore mined from cutback 16 during the fourth quarter of 2014. Approximately 1.6 million tonnes were processed in the second quarter of 2015, which was 9 per cent more than the comparative quarter of 2014 due to higher mill availability and higher hourly throughput. Kumtor's average mill head grade was 3.26 g/t with a recovery of 77.5 per cent in the quarter, compared with 2.35 g/t with a recovery of 73.2 per cent for the same period of 2014.
Operating costs (on a sales basis), excluding capitalized stripping, decreased 9 per cent to $32.7-million during the second quarter of 2015 predominantly due to lower diesel costs, labour and from the favourable movements in exchange rates.
Mining costs, including capitalized stripping costs, totalled $51.2-million for the second quarter of 2015, which was $13.3-million lower than the comparative quarter of 2014. The decreased costs for the period include lower diesel costs of ($7.5-million) due to lower global fuel prices (on average 55.6 cents per litre compared with 68.9 cents per litre), blasting costs ($2.5-million) due to lower blasted tonnages and the implementation of an improved wider drill pattern on waste material, lower labour costs ($2.0-million) due to a favourable currency exchange movement on local salaries, and reduced employee head count and lower tire costs ($1.8-million) due to lower tire consumption on the CAT789 trucks. An extension of tire wear life resulted from improved road conditions in the main pit, and an improved tire replacement program.
Milling costs were $16.3-million in the second quarter of 2015 compared with $16.9-million in the same period of 2014. Milling costs in the second quarter of 2015 were lower than the comparative period, due to lower costs for replacement of mill-liners ($900,000) and lower maintenance costs ($500,000), partially offset by higher electricity costs ($500,000) due to an increase in price by the provider.
Site support costs were $12.0-million in the second quarter of 2015 compared with $15.3-million in the same period of 2014. Site support costs decreased primarily due to lower labour costs ($1.3-million) resulting from a favourable currency exchange movement with a weakening of the som against the U.S. dollar and reduced employee support staff, and decreased insurance premiums ($800,000).
DD&A associated with production decreased to $43.5-million in the second quarter of 2015 from $56.9-million in the comparative period of 2014. The comparative period reflects a higher depreciation charge on cutback 15 ore as more waste material was stripped and fewer ounces were mined as compared with cutback 16.
All-in sustaining costs per ounce sold, which exclude revenue-based tax, for the second quarter of 2015, decreased 45 per cent to $835 compared with $1,511 in the comparative period of 2014. The decrease results primarily from higher ounces sold, lower operating costs and lower capitalized stripping costs due to lower waste tonnes mined.
All-in costs per ounce sold, which exclude revenue-based tax, for the second quarter of 2015, were $868 compared with $1,658 in the comparative period of 2014, representing a decrease of 48 per cent. The decrease is mainly due to the reductions described herein and a reduction in growth capital spending for the infrastructure relocation at Kumtor as the company completed the new camp facilities in June, 2015.
Capital expenditures in the second quarter of 2015 totalled $81.7-million, which includes $11.8-million of sustaining capital mainly on equipment rebuilds and overhauls, $3.9-million invested in growth capital, and $66.0-million for capitalized stripping ($49.5-million cash). Capital expenditures in the comparative quarter of 2014 totalled $111.3-million, consisting of $13.0-million for sustaining capital, $11.4-million for growth capital and $86.9-million of capitalized stripping ($61.5-million cash).
Mongolia (Boroo/Gatsuurt)
At the Boroo mine, located in Mongolia, gold production in the second quarter of 2015 was 2,977 ounces as compared with 14,265 ounces of gold in the same period of 2014. The lower gold production in the second quarter of 2015 reflects no mill processing activities, as Boroo milled the last of its stockpiled ore in December, 2014. Fewer ounces were poured from the heap-leach operation as a result of secondary leaching, compared with primary leaching in the comparative quarter of 2014. The company anticipates completing all leaching activities at Boroo by the first quarter of 2016.
Operating costs (on a sales basis) decreased by $9.3-million to $3.2-million in the second quarter of 2015, as a result of lower activity at the project.
All-in sustaining costs per ounce sold and all-in costs per ounce sold, which exclude income tax, increased in the second quarter of 2015 to $1,214 from $915 in the same quarter of 2014. The increase is primarily due to a 72-per-cent decrease in ounces sold, partially offset by lower adjusted operating costs and lower sustaining capital spending.
During the second quarter of 2015, Boroo was cash positive.
Although the Gatsuurt project was designated as a mineral deposit of importance by the Mongolian parliament, the project remained under care and maintenance in the second quarter of 2015. In early June, 2015, the government submitted a proposal to parliament proposing that the Mongolian state interest in the Gatsuurt project be either a 34-per-cent state ownership or a special royalty to be applied to the project. On June 18, 2015, the parliament rejected the proposal and returned it to the government for further assessment. The company understands that the government intends to submit a revised proposal to parliament later this year. The company continues to engage in discussions with the government. Further development of the project is also subject to, among other things, finalizing a deposit development agreement, and receiving all required approvals and regulatory commissioning from the Mongolian government. See the other corporate developments -- Mongolia -- section.
Oksut project
Development
At the Oksut project in Turkey, the company spent $1.8-million and $3.6-million during the three and six months ended June 30, 2015, respectively ($1.2-million and $2.1-million in the three and six months ended June 30, 2014), on development activities to progress the environmental impact assessment and complete the project's feasibility study.
The environmental impact assessment process continues on schedule with formal EIA approval from the Turkish regulatory authorities expected in late third quarter or early fourth quarter 2015. Receipt of permits is contingent on the approval of the EIA, and applications for all required permits will follow immediately upon approval of the EIA. The company has a strong local presence in Turkey through its subsidiary Oksut Madencilik (OMAS) and believes it has good relationships with the local population and local and regional governments.
On July 28, 2015, the company announced a positive feasibility study and the planned development of the Oksut project, subject to final approval of the Turkish EIA and receipt of all required permits (see news release dated July 28, 2015). The company expects to begin development of the Oksut project in the first quarter of 2016 with first gold production anticipated in the second quarter of 2017. Detailed engineering and the ordering of long-lead items are expected to commence in the second half of 2015. Preproduction expenditures and construction capital are estimated to be $221-million, including $25-million in contingency.
The Oksut project is expected to process 26.1 million tonnes of ore at an average grade of 1.4 grams per tonne gold over eight years producing 895,000 ounces of gold at an average all-in sustaining cost per ounce sold of $490. The life-of-mine strip ratio is expected to be 2 to 1. Mining is planned to be conducted by a local contractor using a conventional truck-and-shovel fleet, utilizing small, selective, loading equipment and 36-tonne trucks. The ore will be crushed to 38 millimetres through two stages of crushing and be placed on the heap-leach pad at a rate of 11,000 tonnes per day. Life-of mine gold recovery is expected to be 77 per cent.
Greenstone gold property development (formerly Trans-Canada property)
On July 20, 2015, the board of the general managing partnership (TCP GP Corp.) approved a name change of the partnership and itself to Greenstone Gold Mines LP and Greenstone Gold Mines GP Inc., respectively (collectively to be referred to as Greenstone Gold Mines). This name change was in recognition of the location of the Hardrock project within the Greenstone municipality and in recognition of the support being received from that community and the surrounding first nations communities.
In the second quarter of 2015, the company spent $6.5-million ($9.5-million in the first six months of 2015) on development activities. Work progressed on all fronts with significant advancement being made toward completing the feasibility study on the Hardrock project by late fourth quarter 2015 or early first quarter 2016. During the second quarter of 2015, GGM received the provincial terms of reference for the environmental assessment, with two amendments, and discussions were initiated with Long Lake No. 58 First Nation on the development of an impact benefit agreement (IBA).
The resource block model for the Hardrock project is currently being updated, and a new resource estimate is expected in the third quarter of 2015.
Second quarter exploration update
Turkey
Oksut project
Diamond drilling resumed on the Oksut property in late June. The first phase of this year's planned drill program consists of 11 drill holes for approximately 2,000 metres. Three holes are planned to test the northern margin of the Guneytepe deposit to expand it a further 30 metres to the north. Two drill holes are planned to test the gap between the Guneytepe and Keltepe resource bodies, and the remaining six holes are planned to test the Boztepe West gold target, which lies approximately 1,500 metres west of the Keltepe deposit. Other targets may be tested following the completion of the initial program, but this will be dependent on the receipt of the necessary drill permits.
Portugal
Lagares gold property
Centerra is currently earning an interest in the Lagares gold property, which is located 30 kilometres east of the city of Porto in northern Portugal, by financing a diamond drilling program. Centerra holds an option to earn a 70-per-cent interest in the four-concession property from Medgold Resources Corp. The current program is to drill approximately 3,000 metres, with roughly half the drilling planned for the Castromil gold prospect and the other half to test the Serra da Quinta prospect, which is located 300 metres southeast of Castromil. Drilling commenced at the end of March, and by the end of the second quarter, 13 drill holes had been completed for a total of 1,306 metres. Twelve drill holes tested a 500-metre section of the approximately 700-metre-long Castromil mineralized zone. Some of the better assay results received to date include:
- MLG-001: 10.90 metres of 2.32 g/t gold from surface;
- MLG-003: 19.95 metres of 3.17 g/t gold from surface;
- MLL-004: 17.49 metres of 4.45 g/t gold from 10 metres from surface.
The mineralized intercepts were calculated using a cut-off grade of 0.2 g/t Au and a maximum internal dilution interval of 3.0 metres.
One drill hole was completed in the quarter on the Serra da Quinta target, which is a zone of gold mineralization that follows the same intrusive contact as does the mineralization at Castromil. Fifteen drill holes are planned to test the mineralization at the Serra da Quinta target. Currently, two drills are operating, testing the prospect's approximately 700 metres of strike length.
Canada
Hardrock gold project
In the second quarter, GGM, Centerra's 50/50 joint venture partnership with Premier Gold, completed a diamond drilling program at the Hardrock gold project located in the Geraldton-Beardmore greenstone belt approximately 250 kilometres northeast of Thunder Bay, Ont. The drill program was designed to test specific portions of the resource block model. At the end of the quarter, a total of 16,902 metres of infill drilling had been completed in 62 drill holes at the Hardrock project. Assays have now been received for all 62 drill holes and have been incorporated into the Hardrock drill hole database. Results for the 11 holes not previously released in the June 25, 2015, joint Centerra-Premier Gold news release are now available. Over all, the drill program was successful in continuing to identify gold mineralization within the current optimized pit boundary. The resource block model for the Hardrock project is currently being updated, and a new resource estimate is expected in the third quarter of 2015.
Along with the infill drill program, additional exploration work was initiated on the Greenstone gold property during the quarter, which involved the compilation of historical exploration data to define new drill targets on the Hardrock, Brookbank and Viper claim blocks.
A listing of the drill results, drill hole locations and plan map for the Hardrock project have been filed on the System for Electronic Document Analysis and Retrieval and are available at the companies' websites.
Qualified person and quality assurance/quality control
Exploration information and related scientific and technical information in this news release regarding the Oksut project and the Lagares project were prepared in accordance with the standards of the Canadian Institute of Mining, Metallurgy and Petroleum and National Instrument 43-101 and were prepared, reviewed, verified and compiled by Centerra's geological and mining staff under the supervision of Malcolm Stallman, member of the Australasian Institute of Mining and Metallurgy, Centerra's regional exploration manager -- western Asia and Eastern Europe, who is the qualified person for the purpose of NI 43-101. Sample preparation, analytical techniques, laboratories used and quality assurance -- quality control protocols used during the exploration drilling programs -- are done consistent with industry standards, and independent certified assay labs are used.
Exploration information and related scientific and technical information in this news release regarding the Hardrock deposit were prepared in accordance with the standards of the Canadian Institute of Mining, Metallurgy and Petroleum and NI 43-101 and were prepared, reviewed, verified and compiled by the geological staff of Greenstone Gold Mines GP Inc., the managing partner of the limited partnership, which is a 50/50 partnership between Centerra and Premier, under the supervision of Dyane Marielle Duquette, member of the Association of Professional Geoscientists of Ontario (APGO) and the Ordre des Geologues du Quebec, Greenstone Gold Mines GP Inc.'s director of geology, who is the qualified person for the purpose of NI 43-101. The qualified person has verified the data disclosed, including sampling, analytical and test data underlying the drill results. Sample preparation, analytical techniques, laboratories used and quality assurance/quality control protocols used during the exploration drilling programs are done consistent with industry standards, and independent certified assay labs are used. A description of the quality assurance/quality control protocols is discussed in the Trans-Canada property (now called the Greenstone gold property) technical report dated March 20, 2015.
All production information and other scientific and technical information in this news release were prepared in accordance with the standards of the Canadian Institute of Mining, Metallurgy and Petroleum and NI 43-101 and were prepared, reviewed, verified and compiled by Centerra's geological and mining staff under the supervision of Gordon Reid, professional engineer and Centerra's vice-president and chief operating officer, who is the qualified person for the purpose of NI 43-101. Sample preparation, analytical techniques, laboratories used and quality assurance/quality control protocols used during the exploration drilling programs are done consistent with industry standards and independent certified assay labs.
Other corporate developments
The following is a summary of corporate developments with respect to matters affecting the company and its subsidiaries. Readers are cautioned that there are a number of legal and regulatory matters that are currently affecting the company and that the following is only a brief summary of such matters. For a more complete discussion of these matters, see the company's most recently filed annual information form and other subsequently filed public disclosure documents, all of which are available on SEDAR.
Kyrgyz Republic
Negotiations between Kyrgyz Republic and Centerra
The company continues to be in discussions with the Kyrgyz government to resolve all outstanding matters affecting the Kumtor project, including, among other things: (i) claims made by the general prosecutor relating to a $200-million intercorporate dividend declared and paid by KGC to Centerra in December, 2013; (ii) claims made by the general prosecutor seeking to invalidate Kumtor's land use certificate and to seize certain lands within the Kumtor concession area; and (iii) significant environmental claims made by various Kyrgyz state agencies alleging environmental offences and other matters totalling approximately $476-million (at applicable exchange rates when the claims were commenced).
The company continues to have discussions with the Kyrgyz government regarding the non-binding heads of agreement dated Jan. 18, 2014, with the government of the Kyrgyz Republic and Kyrgyzaltyn, which contemplates the restructuring of Kyrgyzaltyn's interest in Centerra and the ownership of the Kumtor project. Centerra notes that any proposed resolution would need to be fair to all shareholders of Centerra and to receive all necessary legal and regulatory approvals under Kyrgyz Republic and Canadian laws. Currently, in connection with an arbitration award of approximately $16.5-million held by Valeri Belokon, 6,500,240 shares of Centerra held by Kyrgyzaltyn (out of 77,401,766 shares owned by Kyrgyzaltyn) are subject to an Ontario court order (injunction), which places restrictions on Kyrgyzaltyn's ability to transfer, and its ability to exercise its rights as a registered shareholder of Centerra in a manner that is inconsistent with or would undermine the terms of the applicable court order. The completion of any transaction pursuant to the heads of agreement is subject to the resolution of the Belokon claim against the Kyrgyz Republic or the dissolution of the injunction granted by the Ontario court in respect thereof. Further details regarding the court order can be found under the section entitled corporate -- Ontario court proceedings involving the Kyrgyz Republic and Kyrgyzaltyn.
Kyrgyz permitting and regulatory matters
In the normal course of operations at Kumtor, KGC prepares annual mine plans and other documents for approval for the Kumtor project, which are considered and approved by, among others, the State Agency for Environmental and Forestry under the government of the Kyrgyz Republic and the State Agency for Geology and Mineral Resources.
KGC has received approval from SAGMR for its 2015 annual mine plan.
SAEPF continues to review the 2015 annual mine plan and, according to Kyrgyz Republic regulations, has until Sept. 3, 2015, to complete its review. SAEPF has expressed concern that the mine plan is inconsistent with the Kyrgyz Republic water code. Centerra and KGC dispute SAEPF's interpretation and do not believe that the water code applies to the Kumtor operations. The Kyrgyz Republic parliament considered draft amendments to the water code in June/July, 2015, and such amendments received second reading. The company understands that further consideration of the amendments by parliament will occur in September. Kumtor will continue to work with the SAEPF to obtain the necessary annual mine plan approval. There can be no assurances that the annual mine plan approval will be received.
Furthermore, should Kumtor be prohibited from moving ice (as a result of the water code), the entire Dec. 31, 2014, mineral reserves at Kumtor, and Kumtor's current life-of-mine plan would be at risk, leading to an early closure of the operation. Centerra believes that any disagreement in relation to the application of the water code to Kumtor would be subject international arbitration under the 2009 agreements governing the Kumtor project.
Eurasian Economic Union
The recent accession of the Kyrgyz Republic into the Eurasian Economic Union is expected to result in changes to the application of certain customs, tax and other laws in the Kyrgyz Republic. The company believes that the 2009 Kumtor project agreements protect Kumtor from any adverse changes to such laws because the provisions of the 2009 Kumtor project agreements govern in the event of conflict with future changes to Kyrgyz laws or treaty provisions. However, there is a potential for inconsistency between the 2009 Kumtor project agreement and the provisions of certain Kyrgyz customs, tax and other laws as a result of the Kyrgyz Republic's accession to the EEU, and there can be no assurance that Kyrgyz authorities will not seek to enforce such laws on the activities of the Kumtor project.
The company has benefited from a close and constructive dialogue with Kyrgyz authorities during project operations and remains committed to working with them to resolve these issues in accordance with the Kumtor project agreements, which provide for all disputes to be resolved by international arbitration, if necessary. However, there are no assurances that the company will be able to resolve any or all of the outstanding matters affecting the Kumtor project. The inability to resolve all such matters would have a material adverse impact on the company's future cash flows, earnings, results of operations and financial condition.
Mongolia
Gatsuurt
Following the designation of the company's Gatsuurt project as a mineral deposit of importance by the Mongolian parliament, the company has been in discussions with the government of Mongolia and its working groups to determine the economic terms of the future development of the Gatsuurt project. Such terms are subject to continued discussions between the company and the Mongolian government and may include up to a 34-per-cent Mongolian ownership in the project or a special royalty in lieu of such ownership. The company expects that parliament will consider a proposal for the level of state ownership in or special royalty on the project this year.
Further development of the Gatsuurt project will be subject to, among other things, receiving parliamentary approval of Mongolia's state ownership or special royalty, as well as all required approvals and regulatory commissioning from the Mongolian government. There are no assurances that the company and the Mongolian government will be able to finalize and agree upon the terms of the government's involvement in the project, that the Mongolian parliament will agree upon and approve a level of ownership or special royalty for the Gatsuurt project, and that applicable approvals and regulatory commissions from the Mongolian government are received (in a timely fashion or at all). The inability to resolve all such matters would have a material adverse impact on the company's future cash flows, earnings, results of operations and financial condition.
Corporate
Ontario court proceedings involving the Kyrgyz Republic and Kyrgyzaltyn
Starting in 2011, there have been three Ontario court cases commenced by different plaintiffs against the Kyrgyz Republic and Kyrgyzaltyn, each seeking to enforce in Ontario international arbitral awards against the Kyrgyz Republic. None of such disputes relates directly to Centerra or the Kumtor project. In each of these cases, the plaintiffs have argued that the Kyrgyz Republic has an interest in the shares of Centerra held by Kyrgyzaltyn, a state controlled entity, and therefore the plaintiffs can seize such number of Centerra shares and/or such amount of dividends as necessary to satisfy their respective arbitral awards against the Kyrgyz Republic. The three plaintiffs and the amount of their arbitral awards are as follows:
- Sistem Muhendislik Insaat Ve Ticaret Anonim Sirketi commenced its claim in Ontario in March, 2011, to enforce an arbitral award in the amount of approximately $9-million.
- Stans Energy Corp. commenced its claim in Ontario in October, 2014, to enforce its arbitral award for approximately $118-million.
- Valeri Belokon commenced his claim in Ontario in February, 2015, to enforce his arbitral award for approximately $16.5-million.
In the Sistem case, on June 19, 2015, the Ontario Court of Appeal made a finding that the Kyrgyz Republic was not properly served in the previous proceedings and, accordingly, allowed Kyrgyzaltyn's appeal of a previous court's decision, which determined that the Kyrgyz Republic had an equitable interest in the shares of Centerra held by Kyrgyzaltyn. The company understands that Sistem plans to continue its enforcement proceedings in Ontario, which may involve the refiling of the enforcement proceeding and/or an appeal of the Court of Appeal's decision.
On June 10, 2015, the Ontario Superior Court of Justice Divisional Court issued its decision in the case involving Stans. The effect of this decision was to cancel a previously issued court order (injunction), which (among other things) restricted Kyrgyzaltyn's ability to deal with 47 million Centerra shares and prevented the payment of dividends on all Centerra shares held by Kyrgyzaltyn. The court made its decision based on the existence of new evidence put forward by Kyrgyzaltyn, in particular the Moscow State Court decision dated May 15, 2015, which determined that the Moscow Chamber of Commerce and Industry, the arbitral body which granted the Stan's arbitral award for $118-million, did not have jurisdiction to make an award. The company understands that Stan's request to appeal this decision was denied, and it intends to begin other legal proceedings to have the MCCI arbitral award recognized in Ontario despite the Moscow State Court decision, and to begin a new arbitration against the Kyrgyz Republic.
In the Belokon proceedings, the court order issued in February, 2015, continues to be in effect. This order restricts Kyrgyzaltyn's ability to deal with 6,500,240 Centerra shares held by Kyrgyzaltyn and restricts Centerra's ability to pay dividends to Kyrgyzaltyn. Centerra currently holds approximately $16.1-million in dividends in trust for these court proceedings against Kyrgyzaltyn.
Outlook for 2015
Kumtor's forecast 2015 production and unit costs are provided on a 100-per-cent basis, and the forecast does not make any assumptions regarding possible changes in the structure and management of the Kumtor project, including without limitation the level of ownership resulting from continuing discussions with the government of the Kyrgyz Republic and Kyrgyzaltyn, Centerra's largest shareholder.
Centerra's 2015 guidance for production, exploration, corporate administration, community costs and DD&A is unchanged from the previous guidance disclosed in the company's news release of April 30, 2015.
Centerra's 2015 guidance for capital expenditures has been revised to reflect additional capital requirements for the Oksut and Gatsuurt projects, as well as updated capital expenditures forecast for Kumtor.
Centerra's 2015 forecast for unit costs per ounce sold has been revised to reflect the revised capital expenditures guidance.
PRODUCTION FORECAST AND 2015 COSTS
2015 production 2015 all-in sustaining 2015 all-in
forecast costs costs
($ per ounce
(ounces of gold) ($ per ounce sold) sold)
Kumtor 470,000-520,000 $784-$868 $829-$918
Boroo 10,000-15,000 $1,144-$1,717 $1,495-$2,244
Consolidated 480,000-535,000 $865-$959 $1,038-$1,153
All-in unit costs for
2015
Centerra's forecast for 2015 all-in sustaining costs per ounce sold, all-in costs per ounce sold and all-in costs (including taxes) per ounce sold have been revised to reflect the revised capital expenditures guidance.
ALL-IN UNIT COSTS FOR 2015
Kumtor Boroo Consolidated
Ounces sold forecast 470,000-520,000 10,000-15,000 480,000-535,000
U.S. $/gold ounces sold
Operating costs 368-408 364-546 368-411
Changes in inventories (45)-(50) 465-697 (31)-(34)
Operating costs (on a sales
basis) $323-358 $829-1,243 $337-377
Regional office
administration 37-41 241-362 43-48
Social development costs 5-6 24-36 6
Refining costs and by-
product credits 1 (2) 1
Subtotal (adjusted
operating costs) $366-406 $1,092-1,639 $387-432
Corporate general and
administrative costs -- -- 69-77
Accretion expense 2-3 32-48 3-4
Capitalized stripping costs --
cash 311-344 -- 303-333
Capital expenditures
(sustaining) 105-115 20-30 103-113
All-in sustaining costs $784-868 $1,144-1,717 $865-959
Capital expenditures
(growth) 45-50 -- 46-52
Other costs -- 351-527 39-43
Greenstone gold property -- -- 41-46
Oksut project -- -- 47-53
All-in costs $829-918 $1,495-2,244 $1,038-1,153
Revenue-based tax and income
taxes 168 -- 163-165
All-in costs (including
taxes) $997-1,086 $1,495-2,244 $1,201-1,318
Greenstone gold property in 2015
Centerra acquired a 50-per-cent interest in the Greenstone gold property from Premier on March 9, 2015. In partnership with Premier, Centerra revised its estimate for 2015 expenditures in connection with the project to approximately $22-million ($20.3-million in the prior guidance).
Centerra has agreed to finance exploration work and project development work, including completion of the feasibility study (through capital contributions) to the partnership in the aggregate amount of $185-million (Canadian), which obligation is subject to certain feasibility study results and project advancement criteria. The forecasted spending for 2015 will be fully financed by Centerra with 50 per cent of spending accounted for as predevelopment project spending or exploration and expensed through Centerra's income statement, and the remaining 50 per cent of spending accounted for as an acquisition cost of the Greenstone gold property capitalized on Centerra's balance sheet.
Oksut project in 2015
The feasibility study on the company's Oksut project was approved on July 28, 2015. The planned spending in 2015 for technical studies, environmental and social impact assessment, and project support is expected to be approximately $7.9-million (lower than the previous estimate of $10-million). In addition, the company expects to spend $17.7-million on detailed engineering and down payments on long-lead items in the second half of 2015. The company's forecast for spending $1.3-million for exploration at the Oksut property is unchanged from the prior guidance.
Capital expenditures for 2015
Centerra's projected capital expenditures for 2015, excluding capitalized stripping, are estimated to be $97-million ($76-million in the prior guidance), including $55-million ($50-million in the prior guidance) of sustaining capital and $42-million ($26-million in the prior guidance) of growth capital.
Projected capital expenditures (excluding capitalized stripping) include the amounts found in the projected capital expenditures table.
PROJECTED CAPITAL EXPENDITURES
2015 sustaining
Projects 2015 growth capital capital
(millions of (millions of
dollars) dollars)
Kumtor $23 $54
Mongolia (Gatsuurt and Boroo) $1 --
Oksut $18 --
Corporate and other -- $1
Consolidated total $42 $55
Kumtor
At Kumtor, 2015 total capital expenditures, excluding capitalized stripping, are forecast to be $77-million ($75-million in the prior guidance). Forecast for sustaining capital has increased to $54-million from $49-million in the prior guidance due to an unbudgeted purchase of a replacement production drill ($2-million), installation of a fibre optic cable to the mine site ($1-million), higher costs on the major overhaul maintenance of the heavy-duty mine equipment ($1-million) and other items ($1-million).
Growth capital investment at Kumtor for 2015 has been reduced to $23-million ($26-million in the prior guidance), reflecting lower relocation costs of certain infrastructure at Kumtor contemplated in the previous life of mine.
The projected cash component of capitalized stripping costs related to the development of the open pit is expected to decrease to $162-million from $185-million (in the prior guidance), reflecting lower labour and diesel costs. Total capitalized stripping, including DD&A, is forecasted at $212-million ($234-million in the prior guidance) in 2015.
Mongolia (Boroo and Gatsuurt)
At Boroo, 2015 sustaining capital expenditures are expected to be minimal with no growth capital anticipated. In January, 2015, Gatsuurt was designated as a mineral deposit of importance by the Mongolian parliament, which allows the project to move forward within the application of the Mongolian Water and Forest Law. The company is continuing to hold discussions with the Mongolian government regarding the terms and conditions of participation of the Mongolian government in the Gatsuurt project. The company is forecasting to spend $1-million for additional work on an environmental and social impact assessment and on personnel costs to transfer key Boroo staff members to the Gatsuurt project.
Oksut project
As noted herein, the company expects to spend $17.7-million on detailed engineering and down payments on long-lead items in the second half of 2015.
Sensitivities
Centerra's revenues, earnings and cash flows for the remaining six months of 2015 are sensitive to changes in certain variables. The company has estimated the impact of any such changes on revenues, net earnings and cash from operations.
SENSITIVITIES
($ millions)
Impact on
Earnings
before
Costs Revenues income
Change Cash flow tax
Gold price $50/oz $1.3-1.6 $9.3-11.8 $8.0-10.2 $8.0-10.2
Diesel fuel 10% 3.0 -- 4.2 3.0
Kyrgyz som 1 som 1.0 -- 1.4 1.0
Mongolian
tugrik 25 tugrik 0.1 -- 0.1 0.1
Canadian
dollar 10 cents 2.0 -- 2.0 2.0
Material assumptions and risks
Material assumptions or factors used to forecast production and costs for the remaining six months of 2015 include the following:
A gold price of $1,200 per ounce (unchanged from the prior guidance):
Exchange rates:
- $1 (U.S.) to $1.25 (Canadian);
- $1 (U.S.) to 60.0 Kyrgyz som;
- $1 (U.S.) to 1,900 Mongolian tugriks;
- $1 (U.S.) to 0.95 euro.
Euro diesel fuel price assumption (unchanged):
- Sixty-two cents per litre at Kumtor;
- $1.10 per litre at Boroo.
The assumed diesel price of 62 cents per litre at Kumtor assumes that no Russian export duty will be paid on the fuel exports from Russia to the Kyrgyz Republic. Diesel fuel is sourced from separate Russian suppliers for both sites and only loosely correlates with world oil prices. The diesel fuel price assumptions were made when the price of oil was approximately $60 per barrel.
Other material assumptions were used in forecasting production and costs for 2015. These material assumptions include the following:
- That current discussions between the government of the Kyrgyz Republic and Centerra regarding the resolution of all outstanding matters affecting the Kumtor mine are satisfactory to Centerra and fair to all of Centerra's shareholders and that any such resolution will receive all necessary legal and regulatory approvals under Kyrgyz law and/or Canadian law;
- That all mine plans and related permits and authorizations at Kumtor receive timely approval from all relevant governmental agencies;
- That the buttress constructed at the bottom of the Davidov glacier continues to function as planned;
- That the pit walls at Kumtor remain stable;
- That the new resource block model for the Kumtor central pit reconciles as expected against production;
- That any recurrence of political or civil unrest in the Kyrgyz Republic will not impact operations, including movement of people, supplies and gold shipments to and from the Kumtor mine, and/or power to the mine site;
- That any actions taken by the Kyrgyz Republic parliament and government do not have a material impact on operations or financial results; this includes any action being taken by the parliament or government to cancel the Kumtor project agreements, or taking any actions which are not consistent with the rights of Centerra and Kumtor Gold Company under the Kumtor project agreements;
- That the previously disclosed environmental claims received from the Kyrgyz regulatory authorities in the aggregate amount of approximately $476-million (at the then-current exchange rates) and the claims of the Kyrgyz Republic's General Prosecutor's Office purporting to invalidate land use rights and/or seize land at Kumtor and to unwind the $200-million intercompany dividend declared and paid by KGC to Centerra in December, 2013, and any further claims, whether alleging environmental allegations or otherwise, are resolved without material impact on Centerra's operations or financial results;
- That the accession of the Kyrgyz Republic into the Eurasian Economic Union and/or any sanctions imposed on Russian entities do not have a negative effect on the costs or availability of inputs or equipment to the Kumtor project;
- That the movement in the Central Valley waste dump at Kumtor, referred to in the 2013 annual information form, does not accelerate and will be managed to ensure continued safe operations, without impact to gold production, including the successful demolition of buildings and relocation of certain other infrastructure as planned;
- That grades and recoveries at Kumtor will remain consistent with the 2015 production plan to achieve the forecast gold production;
- That the company is able to manage the risks associated with the increased height of the pit walls at Kumtor;
- That the dewatering program at Kumtor continues to produce the expected results and that the water management system works as planned;
- That the Kumtor mill continues to operate as expected;
- That the deposit designation of the Gatsuurt deposit will not materially change the capital forecasts for 2015;
- That the special royalty, if approved, will not materially affect the business model for developing Gatsuurt;
- That prices of key consumables, costs of power and water usage fees are not significantly higher than prices assumed in planning;
- That there be no unplanned delays in or interruption of scheduled production from the company's mines, including due to civil unrest, natural phenomena, regulatory or political disputes, equipment breakdown, or other developmental and operational risks;
- That all necessary permits, licences and approvals are received in a timely manner.
The company cannot give any assurances in this regard.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF EARNINGS (LOSS) AND
COMPREHENSIVE INCOME (LOSS)
(expressed in thousands of U.S. dollars except per-share amounts)
Three months ended Six months ended
June 30, June 30,
2015 2014 2015 2014
Revenue from gold sales $ 146,754 $ 119,473 $ 359,392 $ 267,494
Cost of sales 80,966 109,355 194,909 218,469
Standby costs 1,117 184 3,821 184
Regional office administration 5,026 6,106 10,302 11,795
Earnings from mine operations 59,645 3,828 150,360 37,046
Revenue-based taxes 19,823 13,970 48,522 32,402
Other operating expenses 777 1,808 663 2,865
Predevelopment project costs 4,888 1,236 8,170 2,074
Exploration and business
development 2,105 4,034 4,869 6,606
Corporate administration 10,790 11,818 20,155 18,341
Earnings (loss) from operations 21,262 (29,038) 67,981 (25,242)
Other expenses (income) (1,651) 687 2,594 477
Finance costs 1,086 1,243 2,233 2,636
Earnings (loss) before income
taxes 21,827 (30,968) 63,154 (28,355)
Income tax expense (recovery) (95) 725 555 1,277
Net earnings (loss) $ 21,922 $ (31,693) 62,599 (29,632)
Other comprehensive income
Items that may be subsequently
reclassified to earnings
Exchange differences on
translation of foreign
operation 4 -- 18 --
Other comprehensive income 4 -- 18 --
Total comprehensive income
(loss) $ 21,926 $(31,693) $ 62,617 $ (29,632)
Basic earnings (loss) per common
share $ 0.09 $ (0.13) $ 0.26 $ (0.13)
Diluted earnings (loss) per
common share $ 0.09 $ (0.13) $ 0.26 $ (0.13)
Conference call
Centerra invites you to join its second quarter 2015 conference call on July 29, 2015, at 11 a.m. Eastern Time. The call is open to all investors and the media. To join the call, please dial toll-free in North America 800-268-5851 or international callers dial 1-303-223-2680. Alternatively, an audio feed webcast will be broadcast live by Thomson Reuters and can be accessed at Centerra Gold's website. A recording of the call will be available on the Centerra Gold website shortly after the call and by telephone until midnight on Aug. 5, 2015, by calling 416-626-4100 or 800-558-5253 and using passcode 21770467.
Additional information on Centerra is available on the company's website and at SEDAR.
We seek Safe Harbor.
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