Mr. Scott Perry reports
CENTERRA GOLD FAVOURABLY REVISES 2016 GUIDANCE AND REPORTS SECOND QUARTER RESULTS
Centerra Gold Inc. had net earnings of $2.9-million or one cent per common share (basic) in the second quarter of 2016, compared with net earnings of $21.9-million or nine cents per common share (basic) for the same period in 2015, reflecting the processing and sale in the second quarter of 2016 of lower-grade material from stockpiles and ore from the initial benches of cutback 17 at Kumtor, partially offset by higher average realized gold prices and lower share-based compensation expense.
(This news release should be read in conjunction with the company's unaudited interim condensed consolidated financial statements and notes for the three and six months ended June 30, 2016, and the associated management's discussion and analysis. The condensed interim consolidated financial statements of Centerra are prepared in accordance with international financial reporting standards as issued by the International Accounting Standards Board. All figures are in U.S. dollars unless otherwise stated.)
For the first six months of 2016, the company recorded net earnings of $21.0-million or nine cents per common share (basic), compared with net earnings of $62.6-million or 26 cents per common share (basic) in the comparative period of 2015, reflecting a 36-per-cent decrease in gold ounces sold in the first half of 2016.
Second quarter 2016 highlights:
-
Favourably revised gold production guidance range to 500,000 to 530,000 ounces and lowered all-in sustaining cost
(1)
guidance for Kumtor to $717 to $759 per ounce and companywide to $776 to $824 per ounce;
- Received the maximum allowable emissions (MAE) and the maximum allowable discharge (MAD) permits at Kumtor for 2016, followed by the environmental expertise (approval) of Kumtor's 2016 mine plan, which was received on June 27, 2016; with the issuance of the MAE and MAD permits and the receipt of the environmental expertise, Kumtor has the necessary permits and approvals in place for continuous operations throughout the second half of 2016;
- Produced 97,724 ounces of gold at Kumtor at all-in sustaining costs
(1)
of $768 per ounce sold and gold production was in line with the company's forecast, while all-in sustaining costs
(1)
(AISC) were lower than forecast;
- Sold 127,909 ounces of gold in the quarter, which includes sales of 33,165 ounces of accumulated gold dore inventory at Kumtor as a result of delays in shipping dore in the first quarter of 2016;
- Companywide all-in sustaining costs per ounce sold
(1)
for the second quarter were $822 due in part to more ounces sold;
- Continued discussions with the Mongolian government regarding finalizing definitive agreements relating to the Gatsuurt project; discussions are expected to continue in the third quarter of 2016;
- Following the quarter-end, the company announced on July 5, 2016, that it had entered into a definitive arrangement agreement with Thompson Creek Metals Company Inc. (TCM) to acquire all of the issued and outstanding common shares of TCM and redeem all of TCM's secured and unsecured notes at their call price plus accrued and unpaid interest in accordance with their terms. The total transaction value is approximately $1.1-billion. Centerra has also entered into a binding commitment letter with Royal Gold Inc. whereby, upon the closing of the arrangement, Royal Gold's 52.25-per-cent gold streaming interest at Mount Milligan will be amended to a 35.00-per-cent gold stream and an 18.75-per-cent copper stream. Centerra expects to finance the acquisition through a combination of a new $325-million (U.S.) senior secured revolver and term loan facility provided by Bank of Nova Scotia and a recently completed bought deal offering of subscription receipts of $170-million (Canadian), with total gross proceeds of $195.5-million (Canadian), including the underwriters' fully exercised overallotment. Net proceeds after fees were $185.7-million (Canadian). Refer to the company's July 20, 2016, news release for further details. The acquisition is subject to the approval of TCM shareholders and other applicable regulatory approvals, and satisfaction of other customary conditions. If approved, the transaction is expected to close in the fall of 2016.
Centerra's cash, cash equivalents and short-term investments at the end of the second quarter of 2016 increased $25.6-million to $527.4-million compared with the March 31, 2016. During the second quarter of 2016, the company drew $24-million from its $150-million corporate revolving credit facility provided by European Bank for Reconstruction and Development to bring its current principal amount outstanding to $100-million at June 30, 2016. The funds are available to be redrawn on a semi-annual basis, and at the company's discretion, repayment of the loaned funds may be extended until 2021.
Chief executive officer commentary
Scott Perry, chief executive officer of Centerra Gold, stated: "Kumtor delivered strong gold production in the quarter producing 97,724 ounces, which was in line with our expectations and plans. Kumtor's all-in sustaining costs were a competitive $768 per ounce sold
(1),
well below our original guidance for the year. With mining activities at Kumtor slightly ahead of plan and the business improvement opportunities achieved so far this year combined with the favourable diesel fuel costs and currency exchange rate environment, we have decided to favourably revise our guidance for gold production, AISC
(1)
and capital expenditures.
"With our second quarter [results] released today, the company favourably revised its guidance for the year, narrowing expected gold production to 500,000 to 530,000 ounces, lowered our expected all-in sustaining costs
(1)
by 14 per cent at Kumtor to $738 per ounce sold and 14 per cent companywide to $800 per ounce sold, based on the midpoint of the ranges, and lowered our overall expected capital expenditures for the year to $140-million, a 48-per-cent decrease, excluding capitalized stripping. We are well positioned to achieve our revised gold production and cost guidance for the year, since mining at Kumtor recently intersected the higher-grade ore in the SB zone in cutback 17.
"Following the quarter-end, we announced a transformational $1.1-billion business combination of Centerra and Thompson Creek that diversifies Centerra's operating platform and adds low-risk production and cash flow from a very high-quality, long-lived asset in Mount Milligan. This business combination is complementary in nature, combining Centerra's robust balance sheet with Thompson Creek's high-quality asset base. We expect the transaction to close in the fall of 2016 and will create a geographically and operationally diversified gold producer with a high-quality producing platform and a strong fully funded growth pipeline."
CONSOLIDATED FINANCIAL AND OPERATING SUMMARY
($ millions, except as noted)
Three months ended June 30 (7),
2016 2015
Financial highlights
Revenue $161.6 $146.8
Cost of sales 118.0 81.0
Standby costs (0.6) 1.1
Regional office administration 3.7 5.0
Earnings from mine operations 40.5 59.7
Revenue-based taxes 22.6 19.8
Other operating expenses 0.7 0.8
Predevelopment project costs 4.0 4.9
Exploration and business development (1) 5.1 2.1
Corporate administration 6.8 10.8
Earnings from operations 1.3 21.3
Other (income) and expenses (0.4) (1.7)
Finance costs 1.4 1.1
Earnings before income taxes 0.3 21.8
Income tax expense (benefit) (2.6) (0.1)
Net earnings 2.9 21.9
Earnings per common share -- $ basic (2) 0.01 0.09
Earnings per common share -- $ diluted (2) - 0.09
Cash provided by operations 57.2 114.6
Average gold spot price -- $/oz (3) 1,260 1,192
Average realized gold price -- $/oz (4) 1,264 1,192
Capital expenditures (5) 53.6 86.7
Operating highlights
Gold produced -- ounces 97,724 125,088
Gold sold -- ounces 127,909 123,079
Operating costs (on a sales basis) (6) 61.6 36.0
Adjusted operating costs (4) 65.5 42.7
All-in sustaining costs (4) 105.2 115.3
All-in costs, excluding development
projects (4) 114.4 121.3
All-in costs, excluding development projects
(including revenue-based taxes and tax) (4) 137.2 141.2
Unit costs
Cost of sales -- $/oz sold (4) $923 $658
Adjusted operating costs -- $/oz sold (4) 512 347
All-in sustaining costs -- $/oz sold (4) 822 937
All-in costs, excluding development projects --
$/oz sold (4) 894 986
All-in costs, excluding development projects
(including revenue-based taxes and income
tax) -- $/oz sold (4) 1,072 1,147
Six months ended June 30 (7),
2016 2015
Financial highlights
Revenue $234.8 $359.4
Cost of sales 149.5 195.0
Standby costs (0.7) 3.8
Regional office administration 7.0 10.3
Earnings from mine operations 79.0 150.3
Revenue-based taxes 32.9 48.5
Other operating expenses 1.3 0.6
Predevelopment project costs 5.3 8.2
Exploration and business development (1) 7.2 4.9
Corporate administration 12.5 20.2
Earnings from operations 19.8 67.9
Other (income) and expenses (1.7) 2.6
Finance costs 2.7 2.2
Earnings before income taxes 18.9 63.2
Income tax expense (benefit) (2.1) 0.6
Net earnings 21.0 62.6
Earnings per common share -- $ basic (2) 0.09 0.26
Earnings per common share -- $ diluted (2) 0.08 0.26
Cash provided by operations 66.7 245.0
Average gold spot price -- $/oz (3) 1,223 1,206
Average realized gold price -- $/oz (4) 1,238 1,205
Capital expenditures (5) 100.7 242.2
Operating highlights
Gold produced -- ounces 185,316 295,771
Gold sold -- ounces 189,653 298,311
Operating costs (on a sales basis) (6) 80.7 79.5
Adjusted operating costs (4) 88.5 94.5
All-in sustaining costs (4) 167.9 241.2
All-in costs, excluding development
projects (4) 185.1 256.4
All-in costs, excluding development projects
(including revenue-based taxes and tax) (4) 218.2 305.1
Unit costs
Cost of sales -- $/oz sold (4) 788 654
Adjusted operating costs -- $/oz sold (4) 467 317
All-in sustaining costs -- $/oz sold (4) 885 808
All-in costs, excluding development projects --
$/oz sold (4) 976 859
All-in costs, excluding development projects
(including revenue-based taxes and income
tax) -- $/oz sold (4) 1,151 1,022
(1) Includes business development of $2.1-million for the
three and six months ended June 30, 2016 ($800,000 and
$1.9-million for the three and six months ended June 30,
2015, respectively).
(2) As at June 30, 2016, the company had 242,164,285 common
shares issued and outstanding.
(3) Average for the period as reported by the London Bullion
Market Association (U.S.-dollar gold PM fix rate).
(4) Adjusted operating costs, all-in sustaining costs, all-in
costs, excluding development projects and all-in costs,
excluding development projects (including taxes) ($ millions
and per ounce sold), as well as average realized gold price
per ounce and cost of sales per ounce sold, are non-generally
accepted accounting principle measures.
(5) Includes capitalized stripping of $25.6-million and
$39.7-million in the three and six months ended June 30,
2016, respectively ($66-million and $133.5-million of
capitalized stripping in the three and six months ended June
30, 2015, respectively).
(6) Operating costs (on a sales basis) are composed of mine
operating costs, such as mining, processing, regional office
administration, royalties and production taxes (except at
Kumtor, where revenue-based taxes are excluded), but exclude
reclamation costs and depreciation, depletion, and
amortization. Operating costs (on a sales basis) represent
the cash component of cost of sales associated with the
ounces sold in the period.
(7) Results may not add due to rounding.
Second quarter 2016 compared with second quarter 2015
Gold production for the second quarter of 2016 totalled 97,724 ounces compared with 125,088 ounces in the comparative quarter of 2015. The 22-per-cent decrease in ounces poured at Kumtor reflects processing of lower-grade ore mined from the upper benches of cutback 17, blended with low-grade stockpiled ore, as well as lower recoveries. In contrast, in the comparative quarter of 2015, Kumtor mined and processed the final benches from cutback 16 that contained higher-grade ore.
Operating costs (on a sales basis) increased 71 per cent to $61.6-million in the second quarter of 2016 from $36.0-million in the same period of 2015 and reflect more ounces sold and higher unit costs in the second quarter of 2016. The increase in costs in the second quarter of 2016 was due to processing ounces at Kumtor from cutback 17, which is a larger cutback, requiring more waste to be moved and resulting in higher mining unit costs as compared with cutback 16. Capitalization of mining costs in cutback 17 ceased when ore was uncovered in September, 2015. In the comparative period of 2015, the mining costs were capitalized as mining was focused on the initial development of cutback 17 before accessing ore.
All-in sustaining costs per ounce sold
(1)
for the second quarter decreased to $822 from $937 in the comparative period of 2015. The decrease in the second quarter of 2016 results primarily from more ounces sold and less spending on capitalized stripping.
All-in costs per ounce sold
(1) (excluding development project costs) were $894 compared with $986 in the comparative quarter of 2015 and include all cash costs related to gold production, excluding revenue-based taxes and income tax. The decrease reflects the additional ounces sold, partially offset by additional spending in the second quarter of 2016 for exploration and business development.
Revenue in the second quarter of 2016 increased 10 per cent to $161.6-million, as a result of 4 per cent more ounces sold (127,909 ounces compared with 123,079 ounces in the second quarter of 2015), as well as a 4-per-cent-higher average realized gold price
(1)
($1,240 per ounce compared with $1,192 per ounce in the same quarter of 2015). The buildup of gold bullion inventory at Kumtor at the end of March, 2016, of 33,165 ounces was sold in April, 2016, once Kyrgyzaltyn completed contractual negotiations with its offtake bank.
In the second quarter of 2016, 4 per cent more ounces were sold while cost of sales increased by 46 per cent to $118-million compared with the same period of 2015. This reflects higher costs for mining and stripping in both the stockpiled ore and in the lower-grade ore mined and processed at Kumtor from cutback 17 in the second quarter of 2016. The cost of sales in the second quarter of 2015 benefited from the processing of ore from the final benches of cutback 16, which contained higher grades and higher recoveries, resulting in lower unit operating costs, and reduced waste stripping as compared with cutback 17 ore that was processed in the second quarter of 2016. Depreciation, depletion and amortization (DD&A) associated with production were $57.1-million in the second quarter of 2016 as compared with $46.5-million in the same quarter of 2015, reflecting more ounces sold in 2016 and higher equipment charges for the longer mining campaign of cutback 17.
Regional office administration costs in the second quarter of 2016 decreased by 26 per cent to $3.7-million, reflecting lower labour costs at Kumtor from favourable currency movements of the Kyrgyzstani som and lower staffing levels in Mongolia.
In the second quarter of 2016, predevelopment projects costs decreased by $900,000 to $4.0-million, compared with the same quarter in 2015. The decrease was due to the company starting to capitalize development costs at the Oksut project following the approval of the feasibility study in July, 2015, partially offset by higher spending at the Greenstone property.
Exploration expenditures in the second quarter totalled $3.0-million compared with $1.3-million in the same period of 2015. The increase in the second quarter of 2016 reflects higher exploration activity at the company's various projects, including the Gatsuurt property.
Corporate administration costs decreased to $6.8-million in the second quarter of 2016 from $10.8-million in the same period of 2015. The decrease was primarily due to lower share-based compensation, the impact of currency movements and lower general spending. Share-based compensation expense in the second quarter of 2016 was $100,000 compared with $5.1-million in the same period of 2015, reflecting the relative performance of the company's share price as compared with the S&P/TSX Global Gold Index.
Cash provided by operations decreased by $57.4-million to $57.2-million in the second quarter of 2016 mainly from the sale of the higher-cost ounces from the initial benches of cutback 17 and higher working capital levels for amounts receivable due to the timing of gold shipments in the second quarter of 2016.
Total capital expenditures in the second quarter of 2016 were $53.7-million, which included sustaining capital
(1)
of $13.7-million, growth capital
(1)
of $8.4-million, $1.6-million of Oksut project development costs, $4.4-million of Greenstone gold property capital and $25.6-million of capitalized stripping costs ($18.9-million cash). Capital expenditures were 38 per cent lower in the second quarter of 2016 as a result of lower capitalized stripping at Kumtor (a decrease of 61 per cent), partially offset by increased sustaining capital
(1)
(an increase of 14 per cent), increased growth capital
(1)
(an increase of 91 per cent) and 2 per cent more Greenstone gold property costs. Capital expenditures in the same quarter of 2015 were $86.7-million, which included $12.0-million for sustaining capital
(1), $4.4-million for growth capital
(1), $4.3-million of Greenstone gold property capital and capitalized stripping of $66.0-million ($49.5-million cash).
First half 2016 compared with first half 2015
Gold production for the first six months of 2016 totalled 185,316 ounces compared with 292,176 ounces in the comparative period of 2015. The decrease in production is primarily due to lower average mill head grades processed and lower recoveries at Kumtor.
Operating costs (on a sales basis)
(1)
increased by $1.2-million to $80.7-million in the first six months of 2016 compared with the same period in 2015, mainly as a result of higher per-unit operating costs for the ounces from cutback 17 processed and sold in the first six months of 2016.
All-in sustaining costs per ounce sold
(1)
for the first six months of 2016 were $885 compared with $808 in the same period of 2015. The increase in the first six months of 2016 reflects the higher per-unit cost for the cutback 17 ounces sold in the first six months of 2016 and higher sustaining capital
(1).
All-in costs per ounce sold
(1) (excluding development project costs), which exclude revenue-based taxes at Kumtor and income tax, for the first six months of 2016, were $976, compared with $859 per ounce sold in the first six months of 2015. The increase reflects the higher all-in sustaining costs described above and higher exploration costs.
Revenue in the first six months of 2016 decreased 35 per cent to $234.8-million, as a result of 36-per-cent-fewer ounces sold (189,653 ounces compared with 298,311 ounces in the first six months of 2015), partially offset by a higher average realized gold price
(1) ($1,217 per ounce compared with $1,205 per ounce in the first six months of 2015).
In the first six months of 2016, cost of sales decreased by 23 per cent to $149.5-million due primarily to fewer ounces sold in the first six months of 2016. DD&A associated with production decreased to $68.8-million in the first six months of 2016 from $115.6-million in the comparative period of 2015, reflecting fewer ounces sold, partially offset by higher per-unit capitalized stripping charges for the cutback 17 ore that was processed in the first six months of 2016.
The idled operation at Boroo incurred minimal net costs in the first six months of 2016 as care and maintenance costs were offset by the sale of residual gold coming from the rinsing of the heap-leach pad. 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 for cleaning circuits and to maintain equipment in a ready state, as well as fixed costs for administration.
In the first six months of 2016, predevelopment projects costs decreased by $2.9-million to $5.3-million, compared with the same period in 2015, mainly reflecting the start of capitalization of development costs at the Oksut project following the approval of the feasibility study in July, 2015.
Exploration expenditures in the first six months totalled $5.1-million compared with $3-million in the same period of 2015. The increase in the first six months of 2016 reflects higher exploration spending at Gatsuurt and on the company's other projects around the world.
Business development spending in the first six months of 2016 totalled $2.1-million compared with $1.9-million.
Corporate administration costs in the first half of 2016 decreased to $12.5-million from $20.2-million in the first six months of 2015 due primarily to a lower charge for share-based compensation. The share-based compensation charge in the first six months of 2016 was $1.0-million, compared with $7.4-million in the same period in 2015.
Cash provided by operating activities decreased to $66.7-million in the first six months of 2016 mainly from lower sales and higher working capital levels for gold inventory and amounts receivable due to the timing of gold shipments.
Total capital expenditures in the first six months of 2016 were $100.6-million, which included sustaining capital
(1) of $36.9-million, growth capital
(1) of $13.6-million, $5.2-million of Greenstone gold property capital costs and $39.7-million of capitalized stripping costs ($29.3-million cash) at Kumtor. Total capital expenditures were 58 per cent lower for the first six months of 2016 as a result of 70-per-cent-lower capitalized stripping costs at Kumtor, partially offset by higher sustaining capital
(1) (an increase of 49 per cent) and a 26-per-cent increase in growth capital
(1). Capital expenditures in the same period of 2015 were $242.3-million, which included $24.7-million for sustaining capital
(1), $10.8-million for growth capital
(1), capitalized stripping of $133.5-million ($101.2-million cash) and $67.4-million of acquisition costs for the Greenstone Partnership.
Second quarter operations update
Kumtor mine
At the Kumtor mine in the Kyrgyzstani Republic, mining activities in the second quarter of 2016 focused on the development and mining of cutback 17. During the quarter, increasingly greater quantities of lower-grade ore were obtained from the upper benches of cutback 17, and Kumtor continued to process ore from cutback 17 and ore stockpiled from the previous year. The company has recently intersected the higher-grade ore from the SB zone from cutback 17, which is anticipated to provide the majority of the ounces processed during the rest of the current year.
Cutback 17 is unlike past cutbacks at Kumtor since it is significantly larger in size, and mining of the ore is spread over a longer period of time. The typical profile of mining a cutback at Kumtor starts with waste removal (capitalized stripping), followed by a short period of mining in significantly higher-grade ore. Cutback 16 followed the typical profile, with the completion of mining higher-grade ore in early 2015. In contrast, cutback 17 required a longer stripping period to uncover low-grade ore in September, 2015 (date when capitalization of stripping stopped), followed by an extended period of mining lower-grade ore until the recent intersection of higher-grade ore at the end of the second quarter of 2016. Due to the extended mining period, the result has been more mining costs being absorbed by the lower-grade ore mined in cutback 17 from September, 2015, until now.
Total waste and ore mined in the second quarter of 2016 decreased 14 per cent to 34.7 million tonnes compared with 40.4 million tonnes in the comparative period of 2015. The decrease was mainly due to 14.6-per-cent-increased average haulage distance compared with the same period of 2015 (4.3 kilometres compared with 3.7 kilometres), as mining in the second quarter of 2016 was at greater depth and longer hauls were required to the Lysii Valley northern dumps as set forth in the life-of-mine plan. During the second quarter of 2016, Kumtor mined approximately 2.9 million tonnes of ore at an average grade of 1.84 grams per tonne, compared with 200,000 tonnes of ore mined at an average grade of 1.50 g/t in the second quarter of 2015.
During the second quarter of 2016, Kumtor continued to process ore from cutback 17 and ore stockpiled from the previous year. Gold production for the second quarter of 2016 was 97,724 ounces of gold compared with 122,111 ounces of gold in the comparative period of 2015. The decrease in ounces poured is due to processing lower-grade ore from stockpiles and from cutback 17. In contrast, during the comparative quarter of 2015, the company processed higher-grade stockpiled ore mined from the lower benches of cutback 16.
During the quarter, Kumtor processed 1.6 million tonnes, 4 per cent more than the second quarter of 2015. Kumtor's average mill head grade was 2.63 g/t with a recovery of 71.9 per cent in the second quarter of 2016, compared with 3.26 g/t with a recovery of 77.5 per cent for the same period of 2015. The mill achieved increased throughput in the second quarter of 2016 averaging 17,700 tonnes per day compared with 17,100 tonnes per day in the comparative quarter. Actions taken to increase the throughput have included blending harder and softer ore, opening screens in the SAG mill, and increasing the grinding media sizes in the SAG and ball mills.
Operating costs (on a sales basis) increased by $28.9-million predominantly due to increased sales and processing ounces in the second quarter of 2016 with greater mining costs as cutback 17 ounces require more waste tonnes to be moved. In the comparative period of 2015, the mining costs were capitalized as they were focused on the initial development stages of cutback 17, before accessing ore.
Mining costs, before capitalization of stripping activity, totalled $47.1-million in 2016, which was $4.1-million lower than the comparative period. Decreased costs for the second quarter of 2016 include lower diesel costs ($4.2-million) due to lower fuel price, and lower blasting costs ($700,000). This was partially offset by higher costs for tires ($900,000) due to the timing of tire replacements during the quarter.
Milling costs of $15.7-million in the second quarter of 2016 compared with $16.4-million in the comparative quarter of 2015. Milling costs in 2016 were lower than the comparative period due mainly to the lower cost of cyanide ($300,000).
Site support costs in the second quarter of 2016 totalled $10.9-million compared with $11.9-million in the second quarter of 2015. The decrease is primarily attributable to lower insurance costs resulting from lower premiums and lower labour costs due to a reduction in manpower.
DD&A associated with sales increased to $56.4-million in the second quarter of 2016, from $43.5-million in the comparative quarter of 2015. The increase in DD&A is mainly due to the increased depreciation charges relating to the ounces processed from cutback 17 compared with the ounces processed in the comparative period and the higher ounces sold in the second quarter of 2016.
All-in sustaining costs per ounce sold
(1), which exclude revenue-based taxes, for the second quarter of 2016, decreased 8 per cent to $768 compared with $835 in the comparative period of 2015. The decrease results primarily from the higher ounces sold, as the company sold the 33,165 ounces that were delayed at the end of March, 2016, due to the contractual negotiations between Kyrgyzaltyn and its offtake bank.
All-in costs per ounce sold
(1), which exclude revenue-based taxes, for the second quarter of 2016, were $810 compared with $867 in the comparative period of 2015, representing a decrease of 7 per cent. The decrease is a result of lower all-in sustaining costs
(1), as explained above.
Capital expenditures in the second quarter of 2016 totalled $44.6-million, which includes $13.6-million of sustaining capital
(1) mainly on equipment rebuilds and overhauls, $5.4-million invested in growth capital
(1), and $25.6-million for capitalized stripping ($18.9-million cash). Capital expenditures in the comparative quarter of 2015 totalled $81.7-million, consisting of $11.8-million for sustaining capital
(1), $3.9-million for growth capital
(1) and $66.0-million of capitalized stripping ($49.5-million cash).
Development projects
Oksut project
At the Oksut project in Turkey, the company spent $1.6-million and $5.2-million during the three and six months ended June 30, 2016, respectively ($1.8-million and $3.6-million in the three and six months ended June 30, 2015), on development activities to progress the social and environmental impact assessment, access and site preparation, and detailed engineering works. With the approval of the feasibility study in July, 2015, development costs at the Oksut project are now being capitalized.
Following approval of the business opening permit from local authorities in December, 2015, applications were submitted for the land usage permits (forestry and pastureland). On July 14, 2016, the company's wholly owned Turkish subsidiary Oksut Madencilik Sanayi ve Ticaret AS (OMAS) received the forestry usage permit for the project. The pastureland permit is currently outstanding, and the company is working with the relevant agencies to obtain the permit, which is expected shortly. There are no assurances that the approval of the pastureland permit or other permits will be obtained by the company in the anticipated time frame, or at all.
The company now expects to commence development of the Oksut project in the fourth quarter of 2016 due to delays in receiving operating permits, with first gold production anticipated in mid-2018. On Sept. 3, 2015, a technical report for the Oksut project was filed on SEDAR.
On April 5, 2016, OMAS entered into a $150-million credit facility agreement with UniCredit Bank AG to assist in financing the construction of the company's Oksut project. The interest rate on the Oksut facility is London interbank offered rate plus 2.65 per cent to 2.95 per cent (dependent on project completion status). It is secured by Oksut assets and is non-recourse to the company. Availability of the Oksut facility is subject to customary conditions precedent, including receipt of all necessary approvals.
The company's operations in Turkey have not been affected by recent political developments; however, no assurances can be provided in this regard.
Gatsuurt project
The company continued to engage in discussions with the Mongolian government regarding the definitive agreements relating to the Gatsuurt project, during the quarter. The company is currently drilling on the property and is carrying out resource definition, metallurgical, exploration, geotechnical and hydrogeological drilling in support of eventual project development. See other corporate developments -- Mongolia.
Greenstone gold property
In the second quarter of 2016, the company financed $7.3-million ($10.9-million in the first six months of 2016) on project development activities ($28.2-million, cumulative to date) at Greenstone Gold Mine Limited Partnership (GGM). During the second quarter, work continued on advancing the feasibility study for the Hardrock project, including completing peer reviews with third party engineers, with results to be incorporated into the final bankable feasibility study. GGM has decided to optimize certain aspects of the study to improve the economics and has delayed the completion of the feasibility study to the end of October, 2016. During the second quarter of 2016, GGM exercised purchase options totalling $5.4-million to acquire houses and land surrounding the project area.
GGM submitted a draft environmental impact study/environmental assessment (EIS/EA) in February, 2016, and received comments from the various provincial and federal regulatory agencies, as well as from all other stakeholders. GGM, along with their consultants, has been reviewing and evaluating these comments, consulted with the regulators, and amendments will be addressed in the final EIS/EA submission, which is expected to occur a few months after the completion of the bankable feasibility study.
GGM continues to engage and consult with local communities of interest regarding mutually beneficial impact benefit agreements.
Second quarter exploration update
During the second quarter of 2016, exploration expenditures totalled $2.8-million, compared with expenditures of $1.1-million in the second quarter of 2015. Exploration activities during the quarter included: drilling, trenching, geological mapping, soil/chip and channel sampling, and ground geophysics.
Mongolia
Gatsuurt
During the quarter, significant drilling activities resumed at the Gatsuurt project, including:
- Infill drilling: 32 drill holes for 3,763 metres, sampling and assaying completed;
- Metallurgical drilling: 13 drill holes for 1,628 metres, sampling, assaying and compositing completed, and shipment permitting process initiated;
- Geotechnical drilling: 12 drill holes for 2,256 metres with most of the lab tests completed;
- Exploration drilling: 17 drill holes for 2,648 metres, sampling and assaying completed.
The infill drill program mostly returned the expected geological interpretations and mineralized intervals. The metallurgical drill program, designed to twin previously drilled holes, again returned the expected assay results.
Exploration drilling was conducted in the northeast extension of the Central zone, South Slope and SW Main zones.
Best results from the drilling at the NE extension of the Central zone include:
- GT-549: 3.09 grams per tonne gold over 11.5 metres (13 to 24.5 metres);
1.98 g/t Au over 11.7 metres (124.8 to 136.55 metres);
1.31 g/t Au over 14.9 metres (154.9 to 169.8 metres);
- GT-551: 1.31 g/t Au over 12.2 metres (146.6 to 158.8 metres);
- GT-552: 26.70 g/t Au over 1.5 metres (148.1 to 149.6 metres);
2.27 g/t Au over 24.3 metres (197 to 221.35 metres);
- GT-554: 1.60 g/t Au over 8.75 metres (166.15 to 174.9 metres).
Drilling at the South Slope southeast extension with the best result was:
- GT-563: 2.73 g/t Au over 11.9 metres (71.9 to 83.8 metres).
The results from drilling in the Main zone southwest extension indicate that high-grade and new mineralization occurs almost 500 metres southwest of the Main zone and 500 metres northeast of the 49 zone. Best results are the following:
- GT-567: 15.63 g/t Au over 4.3 metres (110.7 to 115 metres).
Exploration drilling will continue during the third quarter of 2016 with evaluation of new targets at the NE extension of the Central zone, South Slope, SW Main zone and 49 zones.
The above mineralized intercepts were calculated using a cut-off grade of one g/t Au and a maximum internal dilution interval of 4.0 metres.
The drill results, drill hole locations and plan map for the Gatsuurt project have been filed on the System for Electronic Document Analysis and Retrieval and are available at the company's website.
Other projects
Centerra continues to advance other projects in Armenia, Canada, Mexico, Nicaragua, Portugal and Turkey.
Qualified person and quality assurance/quality control
Exploration information and related scientific and technical information in this news release regarding the Gatsuurt project were prepared in accordance with the standards of the Canadian Institute of Mining, Metallurgy and Petroleum and NI 43-101 standards of disclosure for mineral projects and were prepared, reviewed, verified and compiled by Centerra's geological and mining staff under the supervision of Boris Kotlyar, a certified professional geologist, Centerra's director, exploration, North America and Central America, 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.
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 available on SEDAR.
Kyrgyzstani Republic
Notice of arbitration
On May 30, 2016, Centerra delivered a notice of arbitration to the Kyrgyzstani Republic government and Kyrgyzaltyn in connection with certain continuing disputes relating to the Kumtor project. These include, among other things: (i) each of the environmental claims brought by the Kyrgyzstani Republic State Inspectorate for Environment and Technical Safety (SIETS) and the Kyrgyzstani Republic State Agency for Environment Protection and Forestry (SAEPF) and the decisions of the Kyrgyzstani Republic courts related thereto; and (ii) the previously announced claims of the Kyrgyzstani Republic General Prosecutor's Office (GPO) seeking to unwind a $200-million (U.S.) intercorporate dividend paid by KGC to Centerra in December, 2013, and the related search of KGC's Bishkek office conducted on April 28, 2016. On July 12, 2016, the company delivered an amended notice of arbitration to the Kyrgyzstani Republic government and Kyrgyzaltyn to include, among other things, subsequent decisions of the Kyrgyzstani Republic courts in relation to the claims of SIETS and SAEPF and actions by Kyrgyzstani Republic instrumentalities, including the GPO, which interfere with KGC's operations. Under Centerra's restated investment agreement with the Kyrgyzstani Republic dated as of June 6, 2009, the arbitration will be determined by a single arbitrator. After failing to agree on the name of an arbitrator, Centerra has applied to the Permanent Court of Arbitration in The Hague, the Netherlands, to appoint an arbitrator. The arbitration will be conducted under Uncitral arbitration rules in Stockholm, Sweden, and disputes arising out of the 2009 restated investment agreement will be governed by the law of the State of New York, United States, and the conduct and operations of the parties will be governed by the 2009 restated investment agreement, the 2009 restated concession agreement and the laws of the Kyrgyzstani Republic.
Even if the company is successful in convincing the arbitrator to reduce the amounts claimed or overturn the claims brought by SIETS, SAEPF or other matters which the company believes are subject to the notice of arbitration, there are no assurances that such an arbitration award would be recognized and enforced by courts in the Kyrgyzstani Republic, as the courts of the Kyrgyzstani Republic have held that certain environmental claims brought by SIETS and SAEPF are not within the scope of the arbitration provision of the 2009 restated investment agreement. Accordingly, the company may be obligated to pay part of or the full amounts of, among others, the SIETS and SAEPF claims regardless of the action taken by the arbitrator. The company may not have sufficient insurance to cover these costs, and there are no litigation reserves for such amounts. If the company were obligated to pay these amounts, it would have a material adverse impact on the company's future cash flows, earnings, results of operations and financial condition.
Kyrgyzstani permitting and regulatory matters
On June 23, 2016, the company received its 2016 maximum allowable emissions permit for its Kumtor project from SAEPF, which permit is valid until Dec. 31, 2016. In addition, Kumtor project also received approval from SAEPF for its 2016 maximum allowable discharge permit, which allows for discharge of treated effluent. On June 27, 2016, SAEPF issued its official environmental expertise (approval) on the 2016 mine plan for the Kumtor project. Centerra now has all the necessary permits and approvals in place for continuous operations at the Kumtor project throughout the second half of 2016.
However, KGC notes that on July 11, 2016, SAEPF again expressed concerns to KGC about approving Kumtor's ecological passport due to the application of the 2005 Kyrgyzstani Republic Water Code and would not provide the renewed ecological passport. As previously noted, the ecological passport identifies some of the permits and approvals required by Kumtor for its operations. KGC continues to be in discussions with SAEPF; however, the company does not believe that the absence of the ecological passport will have a material effect on the Kumtor project operations.
While KGC management will continue to work closely with SAEPF and the Kyrgyzstani State Agency for Geology and Mineral Resources to obtain all necessary permits and approvals for continued operation of the Kumtor project beyond Dec. 31, 2016, Centerra can provide no assurance that such permits and approvals will be granted in a timely fashion or at all. Failure to obtain the necessary permits and approvals in a timely fashion could lead to suspension of Kumtor project operations until such permits and approvals are obtained.
KGC continues to operate fully in compliance with permits as granted. The company understands the delay in obtaining the necessary approvals and permits related to, among other things, concerns regarding the mining of ice at Kumtor. With regard to the mining of ice, regulatory authorities referenced the 2005 Water Code of the Kyrgyzstani Republic (Water Code) and its prohibition regarding the mining of ice. Centerra has repeatedly disputed the interpretation of the Water Code by the regulatory agencies based on the rights provided to Centerra and KGC under the Kumtor project agreements.
Should Kumtor be prohibited from moving ice (as a result of the purported application of the Water Code) or if any required permits are withdrawn or not renewed, the entire Dec. 31, 2015, 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 disagreements with respect to the foregoing would be subject to international arbitration under the Kumtor project agreements.
Draft bill on nationalization
On June 28, 2016, the Kyrgyzstani Republic parliament posted a draft bill, for public comment, of the Law on Nationalization of Kumtor Gold Company CJSC's property, which was proposed by deputies of the Ata-Meken political party, a ruling coalition party in the Kyrgyzstani Republic parliament. The Draft Nationalization Bill proposes the nationalization of all assets of KGC and the suspension of the effect of the 2009 restated investment agreement, among other laws and agreements relating to the Kumtor project.
As previously disclosed, the Kumtor project has in recent years been threatened with proposed parliamentary decrees and draft laws that would have the effect of nationalization. While the company believes that it is unlikely that the Draft Nationalization Bill will be adopted, it cannot predict with certainty the likelihood of adoption. If the Draft Nationalization Bill were passed, it would have a material adverse impact on the company's interest in the Kumtor project, future cash flows, earnings, results of operations and financial condition.
SIETS and SAEPF claims
As previously disclosed, the Kumtor project is subject to a number of claims made by, among others, Kyrgyzstani Republic state environmental agencies. The company believes that such claims are, in substance, an attempt by the Kyrgyzstani Republic to impose additional taxes and payments on the Kumtor project, which are prohibited by the terms of the 2009 restated investment agreement and are not based on improper environmental practices or conduct.
On May 25, 2016, the Bishkek Inter-District Court in the Kyrgyzstani Republic ruled against Kumtor Operating Company (KOC), Centerra's wholly owned subsidiary, on two claims made by SIETS in relation to the placement of waste rock at the Kumtor waste dumps and unrecorded wastes from Kumtor's effluent and sewage treatment plants. The Inter-District Court awarded damages of 6,698,878,290 Kyrgyzstani soms (approximately $99.4-million (U.S.), based on an exchange rate of 67.4 Kyrgyzstani soms per $1 (U.S.)) and 663,839 Kyrgyzstani soms (approximately $10,000 (U.S.)), respectively. On June 1, 2016, the Inter-District Court ruled against KOC on two other claims made by SIETS in relation to alleged land damage and failure to pay for water use. The Inter-District Court awarded damages of 161,840,109 Kyrgyzstani soms (approximately $2.4-million (U.S.)) and 188,533,730 Kyrgyzstani soms (approximately $2.8-million (U.S.)), respectively. Centerra and KOC strongly dispute the SIETS claims and have appealed the decisions to the Bishkek City Court and will, if necessary, appeal to the Kyrgyzstani Republic Supreme Court.
On June 3, 2016, the Inter-District Court held a hearing in respect of the claim made by SAEPF alleging that Kumtor owes additional environmental pollution fees in the amount of approximately $220-million (U.S.). The court did not issue a decision on the merits of the claim itself. However, at the request of SAEPF, the court granted an interim order against KGC, to secure SAEPF's claim. The interim order prohibits KGC from taking any actions relating to certain financial transactions, including, transferring property or assets, declaring or paying dividends, or making loans. The injunction was effective immediately. KGC's appeal of the Inter-District Court's order to Bishkek City Court was dismissed on July 19, 2016, and the company intends to appeal that decision to the Kyrgyzstani Republic Supreme Court. As a result of the appeal by KGC, the proceedings on the merits of the SAEPF claim at the Bishkek Inter-District Court to be held on June 21, 2016, were suspended pending resolution of the appeal.
As a result, cash generated from the Kumtor project must continue to be held in KGC and is not available for distribution to Centerra. As at June 30, 2016, KGC's cash balance is $15.6-million.
Criminal proceedings against unnamed KGC managers
On May 30, 3016, a new criminal case was opened by the GPO against unnamed KGC managers alleging that such managers engaged in transactions that deprived KGC of its assets or otherwise abused their authority, causing damage to the Kyrgyzstani Republic. Specifically, the case appears to be focused on the commercial reasonableness of certain of KGC's commercial transactions and, in particular, the purchase of goods and supplies in the normal course of its business operations, and the expenses relating to the relocation of the Kumtor project's camp in 2014 and 2015. Further to such investigation, the GPO has carried out searches of KGC's offices and seized documents and records. The company and KGC strongly dispute the allegation that any such commercial transactions or the actions of KGC managers were in any way improper. The company and KGC will challenge the actions of the GPO in the courts of the Kyrgyzstani Republic as well as in international arbitration.
The 2013 KGC dividend civil and criminal proceeding
On June 3, 2016, the Inter-District Court also renewed a claim previously commenced by the GPO seeking to unwind the $200-million dividend paid by KGC to Centerra in December, 2013. The company also understands that the GPO has initiated a criminal proceeding against executives of the company and KGC in respect of the 2013 dividend and that Kyrgyzstani Republic State National Security Committee is investigating in relation to that proceeding.
KGC employee movement restrictions
In connection with the foregoing criminal investigations, restrictions have been imposed on certain KGC managers and employees, which prohibit them from leaving the Kyrgyzstani Republic.
GPO review of Kumtor project agreements
On June 14, 2016, according to reports in the Kyrgyzstani Republic, the Kyrgyzstani Republic President instructed the GPO to investigate the legality of the agreements relating to the Kumtor project, which were entered into in 2003, 2004 and 2009. The 2009 restated investment agreement governing the Kumtor project, which was entered into in 2009 superseded entirely the 2003 and 2004 agreements. The 2009 restated investment agreement was negotiated with the Kyrgyzstani Republic government, Kyrgyzaltyn JSC and their international advisers, and was approved by all relevant Kyrgyzstani Republic state authorities, including the Kyrgyzstani Republic Parliament, and any disputes under the 2009 restated investment agreement are subject to resolution by international arbitration.
Criminal charges regarding 2016 casualty at Kumtor mill
On June 16, 2016, the investigator of the Jety-Oguz District Department of Interior Affairs initiated criminal proceedings against two KGC managers in relation to the previously disclosed death of a KGC employee due to an industrial accident, which occurred in January, 2016.
Management assessment of claims
The company remains committed to working with Kyrgyzstani Republic authorities to resolve these issues in accordance with the agreements governing the Kumtor project, which provide for all disputes to be resolved by international arbitration, if necessary. Although the company has reviewed the various claims discussed above and believes that all disputes related to the 2009 restated investment agreement should be determined in arbitration, there is a risk that the arbitrator may reject the company's claims. There are also risks that an arbitrator will determine it does not have jurisdiction and/or may stay the arbitration pending determination of certain issues by the Kyrgyzstani Republic courts. These claims include, but are not limited to: (i) the validity or enforceability of the 2009 restated investment agreement itself, (ii) criminal claims, and (iii) any claims that a non-party to the 2009 restated investment agreement has brought in Kyrgyzstani Republic courts. There is also risk that a Kyrgyzstani Republic court would not confirm and/or enforce an arbitration award issued by the arbitrator. There are also no assurances that: (i) the company will be able to successfully resolve any or all of the outstanding matters affecting the Kumtor project; (ii) any discussions between the Kyrgyzstani Republic government and Centerra will result in a mutually acceptable solution regarding the Kumtor project agreements; (iii) Centerra will receive the necessary legal and regulatory approvals under Kyrgyzstani law and/or Canadian law; or (iv) the Kyrgyzstani Republic government and/or parliament will not take actions that are inconsistent with the government's obligations under the Kumtor project agreements, including adopting a law denouncing or purporting to cancel or invalidate the Kumtor project agreements or laws enacted in relation thereto, including the Draft Nationalization Bill. The inability to successfully resolve all such matters could lead to suspension of operations of the Kumtor project and would have a material adverse impact on the company's future cash flows, earnings, results of operations and financial condition.
Mongolia
Gatsuurt -- development
Throughout the first half of 2016, the company held discussions with the Mongolian government to implement the previously disclosed 3-per-cent special royalty in lieu of the government's 34-per-cent direct interest in the Gatsuurt project. Various working groups have been established by the Mongolian government to negotiate with Centerra and its wholly owned subsidiary, Centerra Gold Mongolia (CGM), the definitive agreements relating to the Gatsuurt project.
Concurrent with the negotiations of such agreements, the company is undertaking economic and technical studies to update the existing studies on the project, which were initially completed and published in May, 2006. As part of such work, the company is conducting a program of exploration drilling, and geotechnical, metallurgical and additional hydrogeological drilling.
There are no assurances that Centerra will be able to negotiate definitive agreements with the Mongolian government (in a timely fashion or at all) or that such economic and technical studies and drilling programs will have positive results. The inability to resolve all such matters could have a material impact on the company's future cash flows, earnings, results of operations and financial condition.
Gatsuurt -- illegal mining
CGM and Centerra continue to work with appropriate Mongolian federal and aimag (local) governments, relevant state bodies, and police to clear the Gatsuurt site from artisanal miners and to restrict their access to the site. Centerra does not support any violence or excessive use of force in encounters between Mongolian authorities and artisanal miners and has made this explicitly clear to the Mongolian authorities. In early April, 2016, the company resumed limited drilling activity at the Gatsuurt site. The presence of artisanal miners on the Gatsuurt site has decreased significantly since drilling activity resumed.
Claim against the Mongolian Mineral Resources Authority (MRAM) to revoke Gatsuurt mining licences
In the first quarter of 2016, a non-governmental organization called Movement to Save Mount Noyon filed a claim against the Mongolian Mineral Resources Authority (MRAM) requesting that MRAM revoke the two principal mining licences underlying the Gatsuurt project. CGM, the holder of these two mining licences, is involved in the claim as a third party. The company and CGM will continue to monitor the proceedings.
Corporate
Ontario Court proceedings involving the Kyrgyzstani Republic and Kyrgyzaltyn
Since 2011, there have been four applications commenced in the Ontario courts by different applicants against the Kyrgyzstani Republic and Kyrgyzaltyn JSC, each seeking to enforce in Ontario international arbitral awards against the Kyrgyzstani Republic. None of these disputes relate directly to Centerra or the Kumtor project. In each of these cases, the applicants have argued that the Kyrgyzstani Republic has an interest in the common shares held by Kyrgyzaltyn JSC, a state-controlled entity, and therefore that such applicants are entitled to seize such number of common shares and/or such amount of dividends as necessary to satisfy their respective arbitral awards against the Kyrgyzstani Republic. On July 11, 2016, the Ontario Superior Court of Justice released a decision on the common issue in these four applications as to whether the Kyrgyzstani Republic has an exigible ownership interest in the common shares held by Kyrgyzaltyn JSC. The Ontario Superior Court of Justice held that the Kyrgyzstani Republic does not have any equitable or other right, property, interest, or equity of redemption in the common shares held by Kyrgyzaltyn JSC. As a result, on July 20, 2016, the Ontario Superior Court of Justice set aside previous injunctions, which prevented Centerra from, among other things, paying any dividends to Kyrgyzaltyn. Accordingly, Centerra has now released to Kyrgyzaltyn approximately $18.9-million (Canadian), which was previously held in trust for the benefit of two Ontario court proceedings.
Outlook for 2016
Centerra's 2016 gold production is expected to be between 500,000 to 530,000 ounces, which narrow the range from the previous guidance of 480,000 to 530,000 ounces as disclosed in the company's news release of May 3, 2016. All of Centerra's 2016 production is expected to come from the Kumtor mine and is consistent with the 2016 production outlined in the life-of-mine plan set out in the Kumtor NI 43-101 technical report dated March 20, 2015, filed on SEDAR. According to the 2016 mine plan at Kumtor, more than half of the annual gold production will come in the second half of 2016.
The Boroo operation will continue with closure activities mainly focusing on reclamation work. Any revenue from Boroo gold production from the drain down of the heap-leach pad will be offset against mine closure costs. The 2016 production forecast assumes no gold production from Boroo or Gatsuurt, which is unchanged from the previous guidance.
The company has revised its 2016 forecast to reflect lower operating costs, capital expenditures and DD&A expense at Kumtor, and higher exploration and development costs at the Gatsuurt property. The company has also revised its 2016 forecast for capital costs at the Oksut, Greenstone and Gatsuurt development projects as discussed below. Centerra's 2016 guidance for corporate administration and community costs remains unchanged from the previous guidance disclosed in the company's news release of May 3, 2016.
All-in unit costs
(1) for 2016
Centerra has updated its 2016 guidance for all-in sustaining costs per ounce sold
(1) and all-in costs (excluding Oksut, Greenstone and Gatsuurt development projects) per ounce sold
(1).
REVISED GUIDANCE FOR 2016
Consolidated
Kumtor (5)
Ounces sold forecast 500,000- 500,000-
530,000 530,000
U.S.$/gold ounces sold
Operating costs $374-$396 $374-$396
Changes in inventories (39)-(41) (39)-(41)
Operating costs (on a sales basis) 335-355 335-355
Regional office administration 29-30 29-30
Community costs related to current operations 4-5 4-5
Refining costs and byproduct credits (1)
Subtotal (adjusted operating costs) (1) 369-391 369-391
Corporate general and administrative costs - 56-62
Accretion expense 2 3
Capitalized stripping costs -- cash 204-216 204-216
Capital expenditures (sustaining) (1) 142-150 144-152
All-in sustaining costs (1) 717-759 776-824
Capital expenditures (growth) (1) (5) 32-34 32-34
Boroo closure costs (2) - 7-8
Other costs (3) - 36-37
All-in costs (excluding development project
costs) (5) 749-793 851-903
Revenue-based taxes and income taxes (4) 177 177
All-in costs (excluding development project
costs and including revenue-based taxes and
income taxes) (1) (5) 926-970 1,028-1,080
(1) Adjusted operating costs per ounce sold, all-in sustaining costs per
ounce sold, all-in costs (excluding development projects) per ounce sold,
all-in costs (excluding development project costs and including
revenue-based taxes and income taxes) per ounce sold and capital
expenditures (sustaining and growth) are non-generally accepted
accounting principle measures.
(2) Boroo closure costs include maintaining the Boroo mill on care and
maintenance and continuing closure costs, net of gold sales.
(3) Other costs per ounce sold include global exploration expenses,
business development expenses and other costs not related to current
operations.
(4) Includes revenue-based taxes that reflect the actual realized gold
price of $1,238 per ounce sold for the January-to-June period and a
forecasted gold price assumption of $1,275 per ounce sold for the July-
to-December period ($1,200 per ounce sold for the April-to-December
period in the previous guidance).
(5) All-in costs per ounce sold (excluding development project costs)
and all-in costs (excluding development project costs and including
revenue-based and income taxes) per ounce sold and capital expenditures
(sustaining and growth) measures in the table exclude capital
expenditures required to advance the development of the Oksut, Gatsuurt
and Greenstone development projects.
PREVIOUS GUIDANCE AT Q1
Consolidated
Kumtor (5)
Ounces sold forecast 480,000- 480,000-
530,000 530,000
U.S$/gold ounces sold
Operating costs $400-$442 $400-$442
Changes in inventories (8)-(9) (8)-(9)
Operating costs (on a sales basis) 392-433 392-433
Regional office administration 29-32 29-32
Community costs related to current operations 4-5 4-5
Refining costs and byproduct credits (1)
Subtotal (adjusted operating costs) (1) 426-471 426-471
Corporate general and administrative costs - 56-62
Accretion expense 3 4
Capitalized stripping costs -- cash 230-254 230-254
Capital expenditures (sustaining) (1) 158-174 161-177
All-in sustaining costs (1) 817-902 877-968
Capital expenditures (growth) (1) (5) 49-54 49-54
Boroo closure costs (2) - 14-16
Other costs (3) - 25-28
All-in costs (excluding development project
costs) (5) 866-956 965-1,066
Revenue-based taxes and income taxes (4) 168 168
All-in costs (excluding development project
costs and including revenue-based taxes and
income taxes) (1) (5) 1,034-1,124 1,133-1,234
(1) Adjusted operating costs per ounce sold, all-in sustaining costs per
ounce sold, all-in costs (excluding development projects) per ounce sold,
all-in costs (excluding development project costs and including
revenue-based taxes and income taxes) per ounce sold and capital
expenditures (sustaining and growth) are non-generally accepted
accounting principle measures.
(2) Boroo closure costs include maintaining the Boroo mill on care and
maintenance and continuing closure costs, net of gold sales.
(3) Other costs per ounce sold include global exploration expenses,
business development expenses and other costs not related to current
operations.
(4) Includes revenue-based taxes that reflect the actual realized gold
price of $1,238 per ounce sold for the January-to-June period and a
forecasted gold price assumption of $1,275 per ounce sold for the July-
to-December period ($1,200 per ounce sold for the April-to-December
period in the previous guidance).
(5) All-in costs per ounce sold (excluding development project costs)
and all-in costs (excluding development project costs and including
revenue-based and income taxes) per ounce sold and capital expenditures
(sustaining and growth) measures in the table exclude capital
expenditures required to advance the development of the Oksut, Gatsuurt
and Greenstone development projects.
The company has revised its 2016 forecast for operating costs and capitalized stripping costs at the Kumtor mine due to realized and forecasted cost savings from lower diesel fuel and national labour costs. Diesel fuel costs are lower than expected due to lower unit costs, and national labour costs are lower than expected due to favourable exchange rates of the Kyrgyzstani som to the U.S. dollar. The company also revised its forecast for Boroo closure costs due to expected lower labour costs and expected higher offsetting credit from Boroo gold sales. Higher credit for changes in inventories reflects the updated gold production guidance range and movement between the actual gold inventory balance at the beginning of 2016 and an updated estimate for gold inventory at the end of 2016 at Kumtor. Higher forecast for other costs reflects higher exploration costs and higher business development costs due to an increased merger-and-acquisition activity.
Exploration expenditures
for 2016
The 2016 planned exploration expenditures excluding exploration at the Greenstone gold property have been revised to $12.4-million, which is $1.4-million higher than the previous guidance provided in the May 3, 2016, news release primarily due to additional drilling at the Gatsuurt property.
Capital expenditures
for 2016
Centerra's projected capital expenditures for 2016, excluding capitalized stripping, have been revised to $140-million ($269-million in the previous guidance), including $76-million of sustaining capital
(1) ($85-million in the previous guidance) and $64-million of growth capital
(1) ($184-million in the previous guidance). The decrease in capital expenditure forecasts is described below.
Projected capital expenditures (excluding capitalized stripping)
Kumtor
At Kumtor, 2016 total capital expenditures, excluding capitalized stripping, are forecast to be $97-million, which is $13-million lower from the previous guidance. The company decreased its forecast for sustaining capital
(1) from $84-million in the previous guidance to $75-million due to cancellations or deferral of major overhauls and replacements of certain heavy-duty mine equipment ($7-million) and mill equipment ($2-million).
The 2016 forecast for growth capital investment at Kumtor has been reduced to $22-million ($26-million in the previous guidance) reflecting lower-cost estimates for relocation of certain infrastructure at Kumtor relating to the continuing Kumtor pit expansion ($2-million) and other items ($2-million).
The projected cash component of capitalized stripping costs related to the development of the open pit is expected to decrease to $108-million from $122-million in the previous guidance reflecting lower labour and diesel costs. Total capitalized stripping costs, including DD&A, are forecasted at $145-million ($162-million in the previous guidance) for 2016.
Mongolia (Boroo and Gatsuurt)
At Boroo, 2016 sustaining capital
(1) expenditures are expected to be minimal, and no growth capital
(1) is forecast for Boroo, which is unchanged from the previous guidance.
The company is carrying out additional exploration drilling to expand the Gatsuurt resource base, as well as geotechnical and hydrogeological drilling in support of the eventual project development. The company has added to its 2016 forecast $6-million of additional expenditures (excluding $1.4-million for additional exploration) for further development of the Gatsuurt project.
Oksut project
The company has decreased its 2016 forecast for capital construction expenditures at the Oksut property from $157-million in the previous guidance to $25-million in the current guidance due to delays in obtaining permits. The revised forecast assumes a receipt of required permits from the Turkish authorities in the third quarter of 2016 and a commencement of some construction activities at the Oksut property in the fourth quarter of 2016.
Greenstone gold property
The company has revised its guidance for 2016 expenditures in connection with the Greenstone gold property to approximately $37-million ($49-million (Canadian)) compared with $10.8-million ($14.5-million (Canadian)) in the previous guidance, which reflects the assumption of a positive feasibility study leading to board approval of additional spending on detailed engineering and other development costs. The previous guidance included partnership costs only up to midyear 2016, which was expected timing for completion of the feasibility study by the Greenstone Partnership. The Greenstone Partnership now expects to complete the feasibility study early in the fourth quarter of 2016.
The revised 2016 guidance includes $23-million of spending related to work on technical studies, environmental and social impact assessment, house and property acquisition, and project support ($7.6-million in the previous guidance), exploration costs of $3-million ($2.2-million in the previous guidance), and $11-million for capital expenditures ($1-million in the previous guidance). The forecast spending for 2016 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. The remaining 50 per cent of spending will be capitalized on Centerra's balance sheet and be accounted for as an acquisition cost of the Greenstone gold property ($13-million compared with $4.9-million in the previous guidance) in addition to $11-million ($1-million in the previous guidance) to be spent on capital items.
Depreciation, depletion and amortization
for 2016
The forecast for consolidated depreciation, depletion and amortization expense included in costs of sales expense for 2016 has been revised to be between $180-million and $190-million at Kumtor ($194-million and $208-million in the previous guidance).
Use of the company's mining fleet for stripping activities results in a portion of the depreciation related to the mine fleet to be allocated to capitalized stripping costs.
Kumtor
The revised forecast for 2016 DD&A to be expensed as part of costs of sales is between $180-million and $190-million ($194-million to $208-million in the previous guidance). The amortization of capitalized stripping costs is the largest component of depreciation expense in 2016 forecasted to be between $183-million to $197-million ($185-million to $205-million in the previous guidance) reflecting the updated gold production guidance range and lower forecasted mining costs due to lower diesel fuel and labour costs. Capitalized stripping costs include mining operating costs such as labour, diesel and maintenance costs, as well as the depreciation expense for the mine equipment used in the stripping campaign. The capitalized stripping costs are amortized over the ounces contained in the orebody exposed by the stripping campaign.
The mine equipment assets are depreciated on a straight-line basis over their estimated useful lives. The total mine equipment depreciation for 2016 is forecasted at $65-million ($70-million in the previous guidance) due to lower forecasted depreciation on replacement of mining equipment. The depreciation related to mine equipment engaged in a stripping campaign and capitalized as stripping costs is forecasted to be $37-million ($40-million in the previous guidance) in 2016.
Forecast for credit for inventory adjustment (non-cash depreciation) has been revised to be between $62-million and $66-million ($52-million to $58-million in the previous guidance) reflecting movement between non-cash costs in the actual gold inventory balance at the beginning of 2016 and non-cash costs in an updated estimate for gold inventory at the end of 2016 at Kumtor.
Sensitivities
Centerra's revenues, earnings and cash flows for the remaining six months of 2016 are sensitive to changes in certain key inputs or currencies. The company has estimated the impact of any such changes on revenues, net earnings and cash from operations.
Material assumptions and risks
Material assumptions or factors used to forecast production and costs for the remaining six months of 2016 include the following:
- A gold price of $1,275 per ounce ($1,200 per ounce in the previous guidance);
- Exchange rates:
- $1 (U.S.) to $1.31 (Canadian) (from $1.34 (Canadian) in the previous guidance);
- $1 (U.S.) to 71 Kyrgyzstani soms (from 65 Kyrgyzstani soms in the previous guidance);
- $1 (U.S.) to 0.91 euro (from 0.95 euro in the previous guidance);
- Diesel fuel price assumption:
- Forty-three cents per litre at Kumtor (from 55 cents per litre in the previous guidance).
The assumed diesel price of 43 cents per litre at Kumtor assumes that no Russian export duty will be paid on the fuel exports from Russia to the Kyrgyzstani Republic. Diesel fuel is sourced from Russian suppliers and correlates only generally with world oil prices. The diesel fuel price assumptions were made when the price of oil (Brent) was approximately $47 per barrel. During the first half of 2016, diesel prices at Kumtor averaged approximately 39 cents per litre, while the average price of oil (Brent) was about $40 per barrel. During the same period, the average exchange rate of the U.S. dollar to the Kyrgyzstani som was about 71 soms per $1 (U.S.). The lower costs of diesel fuel and favourable exchange for the Kyrgyzstani som have provided some year-to-date costs savings for the Kumtor operations. Centerra's management continues to monitor the prices of diesel and exchange rates affecting the company's operations.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF EARNINGS AND
COMPREHENSIVE INCOME
(expressed in thousands of U.S. dollars, except per-share amounts)
Three months ended Six months ended
June 30, June 30,
2016 2015 2016 2015
Revenue from gold sales $161,624 $146,754 $234,845 $359,392
Cost of sales 118,003 80,966 149,455 194,909
Standby costs, net (639) 1,117 (696) 3,821
Regional office administration 3,706 5,026 7,048 10,302
-------- -------- -------- --------
Earnings from mine operations 40,554 59,645 79,038 150,360
Revenue-based taxes 22,627 19,823 32,878 48,522
Other operating expenses 706 777 1,266 663
Predevelopment project costs 3,987 4,888 5,284 8,170
Exploration and business
development 5,149 2,105 7,190 4,869
Corporate administration 6,785 10,790 12,612 20,155
-------- -------- -------- --------
Earnings from operations 1,300 21,262 19,808 67,981
Other (income) expenses, net (469) (1,651) (1,736) 2,594
Finance costs 1,427 1,086 2,674 2,233
-------- -------- -------- --------
Earnings before income taxes 342 21,827 18,870 63,154
Income tax (recovery) expense (2,570) (95) (2,100) 555
-------- -------- -------- --------
Net earnings 2,912 21,922 20,970 62,599
-------- -------- -------- --------
Other comprehensive income
Items that may be subsequently
reclassified to earnings
Net gain (loss) on translation of
foreign operation 23 4 (219) 18
-------- -------- -------- --------
Other comprehensive (loss) income 23 4 (219) 18
-------- -------- -------- --------
Total comprehensive income 2,935 21,926 20,751 62,617
======== ======== ======== ========
Basic earnings per common share 0.01 0.09 0.09 0.26
======== ======== ======== ========
Diluted earnings per common share 0.00 0.09 0.08 0.26
======== ======== ======== ========
The unaudited condensed consolidated interim financial statements and notes for the three and six months ended June 30, 2016, and management's discussion and analysis for the three and six months ended June 30, 2016, have been filed on the System for Electronic Document Analysis and Retrieval and are available at the company's website.
Conference call
Centerra invites you to join its second quarter 2016 conference call on July 27, 2016, 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 800-708-3128 or international callers dial 1-303-223-2691. The conference call will also be broadcast live and can be accessed at Centerra Gold's website. A slide presentation of the second quarter results will also be accessible on Centerra Gold's website. Alternatively, an audio recording of the call will be available approximately two hours after the call by telephone until midnight Eastern Time on Aug. 3, 2016. The recording can be accessed by calling 416-626-4100 or 800-558-5253 and using the passcode 21812781. In addition, the webcast will be archived on Centerra Gold's website.
Additional information on Centerra is available on the company's website and at SEDAR.
(1) A non-generally accepted accounting principle measure.
We seek Safe Harbor.
© 2024 Canjex Publishing Ltd. All rights reserved.