Mr. Scott Perry reports
CENTERRA GOLD REPORTS FOURTH QUARTER AND 2016 YEAR-END RESULTS
Centerra Gold Inc. had net earnings of $63.6-million or 23 cents per common share (basic) in the fourth quarter of 2016, compared with a net loss of $2.9-million or one cent per common share (basic) in the fourth quarter of 2015. Results in the fourth quarter of 2015 included a $27.2-million or 11-cent-per-share (basic) inventory impairment at the Kumtor mine.
All figures are in U.S. dollars, and all production figures are on a 100-per-cent basis unless otherwise stated.
For 2016, the company recorded net earnings of $151.5-million or 60 cents per share (basic), compared with $41.6-million or 18 cents per share (basic) in 2015. The increase in earnings in 2016 reflects higher metal prices, additional gold production at Kumtor due to improvements in mill throughput, and lower operating costs as a result of the continued focus on cost reduction and lower cost of consumables, in particular diesel fuel. Results for 2016 also benefited from the reversal of an inventory impairment charge at Kumtor of $27.2-million, which was originally recorded in 2015. Net earnings provided by the Thompson Creek operations, including the Mount Milligan mine, were $11.6-million from Oct. 20, 2016, the date of the acquisition.
Results in 2015 were negatively impacted by a non-cash impairment charge of Kumtor goodwill of $18.7-million (eight cents per share (basic)) recorded in the third quarter of 2015. Excluding the goodwill impairment charge, earnings in 2015 would have been $60.3-million (26 cents per share (basic)).
2016 fourth quarter and full-year highlights:
-
Completed the acquisition of Thompson Creek Metals Company Inc.;
- Exceeded at Kumtor the midpoint of the company's favourably revised gold production guidance and achieved lower unit costs than the company's revised unit cost guidance;
-
Increased Centerra's estimated gold mineral reserves to 16 million contained ounces of gold (673.5 million tonnes at 0.7 gram per tonne (g/t) gold (Au)) at year-end, primarily as a result of the acquisition of Thompson Creek. Estimated copper mineral reserves total 2,049 million pounds of contained copper (496.2 million tonnes at 0.187 per cent copper). Mineral reserves are described in the company's news release of Feb. 23, 2017;
-
Achieved company-wide all-in sustaining costs on a byproduct basis per ounce sold for the fourth quarter of $586 and $682 for the full year;
- Generated at Kumtor $237-million in cash for the year after all capital expenditures and taxes in 2016, after achieving all-in sustaining costs (1) of $640 per ounce sold for the year;
-
Completed the feasibility study on the Hardrock project and filed the technical report on SEDAR;
- Received at Kumtor the necessary permits and approvals for its 2017 mine plan. The approvals and permits are valid for the full year;
- Cash provided by operations totalled $371.4-million for the year;
- Cash, cash equivalents and short-term investments totalled $408.8-million at Dec. 31, 2016, which includes $247.8-million of cash that can only be used for Centerra's Kumtor subsidiary purposes;
- Commenced arbitration against the Kyrgyz Republic and Kyrgyzaltyn in relation with certain continuing disputes relating to the Kumtor project;
- In light of the continued inability of the company to access cash generated by the Kumtor project, including as a result of the denial by the Kyrgyz Republic Supreme Court of Kumtor Gold Company's appeal of the interim order, the company has suspended the payment of dividends.
In 2016, Centerra generated cash of $47.2-million, consisting of cash inflows from the Kumtor operations of $237.0-million and $8.0-million from Mount Milligan, and corporate activity of $166.1-million (redemption of investments net of corporate administration and other costs), partially offset by cash outflows for the acquisition of Thompson Creek of $350.9-million (net of proceeds from debt, equity offering and cash received from Thompson Creek), and exploration and business development of $13.0-million.
Cash and cash equivalents at Dec. 31, 2016, were $160.1-million, excluding cash of $247.8-million required to be retained in Centerra's wholly owned Kumtor subsidiary. The cash and cash equivalents balance comprises $99.8-million held in Centerra Gold, $51.6-million held in Centerra B.C. Holdings and the remaining $8.7-million in other company subsidiaries. Of the funds held in Centerra Gold, $50-million can only be used for Mongolian purposes. The funds held in Centerra B.C. Holdings can only be used for expenditures on Centerra B.C. Holdings subsidiaries, including the Mount Milligan mine. Cash dividends declared by Centerra B.C. Holdings for distribution to Centerra Gold will require a matching early repayment to the lender of the Centerra B.C. Holdings credit facility.
As previously disclosed, Centerra's Kyrgyz Republic subsidiary, Kumtor Gold Company (KGC), is subject to an interim order of a Kyrgyz Republic court prohibiting KGC from taking any actions relating to certain financial transactions, including transferring property or assets, declaring or paying dividends, or making loans to Centerra. While such order does not prohibit KGC from continuing to use its cash resources to operate the Kumtor mine, cash generated from the Kumtor mine continues to be held in KGC and is not being distributed to Centerra.
On Jan. 12, 2017, Centerra filed an application in its international arbitration for partial award or, in the alternative, interim measures against the Kyrgyz Republic. The company is seeking an award ordering that the Kyrgyz Republic withdraw or stay (suspend) its claims relating to previously disclosed environmental, dividend and land use claims, and related decisions and court orders, including the interim court order discussed above. See other corporate developments for further discussion.
At Dec. 31, 2016, the company had fully drawn its revolving and term credit facilities with its syndicate of lenders, in the aggregate amount of $325-million (used for the acquisition of Thompson Creek). In January, 2017, the covenants for this facility in 2017 were amended to reflect the planned 2017 production profile at the Mount Milligan mine. In addition, the company had fully drawn on its corporate revolving credit facility with EBRD in the amount of $150-million. Subsequent to this, in February, 2017, the company repaid $25-million of the corporate revolving credit facility with EBRD. The $150-million credit facility with UniCredit Bank AG and EBRD for the development of the Oksut project remains undrawn, and it is subject to the satisfaction of certain conditions, including the receipt of a pastureland permit.
It is expected that all planned capital and operating expenditures of the company for 2017 can be financed out of cash, short-term investment and cash generated from the Mount Milligan mine, although there can be no assurance of this. Absent access to cash held by KGC due to the Kyrgyz interim court order, the company expects that it will be required to raise financing in order to finance construction and development expenditures on its development properties, or to defer such expenditures. Although KGC's cash is currently restricted due to the Kyrgyz interim court order, such cash can be used to finance Kumtor operations.
Commentary
Scott Perry, chief executive officer of Centerra, stated: "Regrettably, 2016 got off to an unfortunate start when a mill employee at Kumtor was fatally injured. With this tragic event, the company is rolling out a new company-wide safety leadership program called 'Work Safe -- Home Safe.' On the operational front, as we disclosed earlier, Kumtor had another strong year, and we exceeded the midpoint (540,000 ounces) of Centerra's favourably revised gold production guidance for 2016. With the addition of production from Mount Milligan, the company produced 598,677 ounces of gold in 2016 and 10.4 million pounds of copper. I am pleased to report that we also significantly beat our unit cost guidance for the year as our all-in sustaining costs were $682 per ounce sold. Our lower costs reflect Kumtor favourably exceeding its cost guidance with all-in sustaining costs of $639 per ounce sold for the year. Kumtor successfully implemented various continuous improvement initiatives throughout the year, resulting in higher throughput in the mill and lower unit costs. Kumtor once again generated a significant amount of cash; after all capital expenditures and taxes, it generated $237-million in 2016. The company continues its discussions with the government of the Kyrgyz Republic to resolve all outstanding issues affecting the Kumtor project in a manner that is fair to all of its stakeholders.
"At Mount Milligan, construction of the permanent secondary crushing circuit was completed and began operations during the fourth quarter of 2016. Work continues to optimize the crushing and grinding equipment, and to make adjustments in the mill to maximize the value of the new crushing circuit.
"At the Oksut project in Turkey, we received the forestry usage permit and the operation permit for the forestry area last summer, and we are continuing to work with the relevant agencies to obtain the key pasture land permit.
"In Mongolia, the government recently established new working groups to negotiate definitive agreements relating to the Gatsuurt project, and we expect to continue such negotiations in 2017. Concurrent with the negotiations, we are continuing to update the existing technical and economic studies on the project.
"Lastly, with the addition of the Mount Milligan and our share of the Hardrock project gold mineral reserves, the company's gold mineral reserve estimate increased to 16 million ounces of contained gold (673.5 million tonnes at 0.7 g/t gold). In addition, the company has 2.0 billion pounds of contained copper (496.2 million tonnes at 0.187 per cent copper grade)," Mr. Perry concluded.
CONSOLIDATED FINANCIAL AND OPERATING SUMMARY
(in millions of dollars, except as noted) (9)
(7) Quarters ended Dec. 31, (7) Years ended Dec. 31,
2016 2015 2016 2015
Financial highlights
Revenue $ 305.7 $ 148.3 $ 760.8 $ 624.0
Cost of sales 167.2 113.4 414.6 384.5
Standby costs 2.5 0.9 0.3 5.7
Regional office administration 4.0 4.6 14.7 19.1
Earnings from mine operations 132.0 29.4 331.2 214.7
Revenue-based taxes 32.6 20.2 96.3 84.6
Care and maintenance costs 1.8 1.8 -
Other operating expenses 1.3 0.8 2.7 1.9
Predevelopment project costs 3.1 1.8 10.7 13.2
Impairment of goodwill - - - 18.7
Thompson Creek Metals acquisition expenses 7.4 - 12.0 -
Exploration and business development (1) 4.4 2.6 13.0 10.6
Corporate administration 9.3 7.7 27.6 35.8
Earnings (loss) from operations 72.1 (3.6) 167.1 49.9
Other expenses (income) 0.8 (1.5) - 3.4
Finance costs 6.7 1.1 11.1 4.4
Earnings (loss) before income taxes 64.6 (3.2) 156.0 42.1
Income tax expense (recovery) 1.0 (0.4) 4.5 0.4
Net earnings (loss) 63.6 (2.9) 151.5 41.6
Earnings (loss) per common share, basic ($) (2) $ 0.23 $ (0.01) $ 0.60 $ 0.18
Earnings (loss) per common share, diluted ($) (2) $ 0.23 $ (0.01) $ 0.60 $ 0.18
Total assets 2,654.8 1,660.6 2,654.8 1,660.6
Long-term debt and lease obligation 422.8 - 422.8
Long-term provision for reclamation, dividends
payable and deferred income taxes 181.1 76.9 181.1 76.9
Cash provided by operations 170.4 47.5 371.4 333.6
Average realized gold price (third party) ($/oz) (4) 1,170 1,098 1,241 1,162
Average realized gold price (combined) ($/oz) (4) 1,154 1,098 1,233 1,162
Average gold spot price ($/oz) (3) 1,222 1,106 1,248 1,160
Capital expenditures (5) $ 83.6 $ 33.6 $ 247.7 $ 370.5
Operating highlights
Gold produced (ounces poured) 248,479 133,664 598,677 536,920
Gold sold (ounces sold) 225,996 135,064 580,496 536,842
Payable copper produced (000s lb) 10,399 - 10,399 -
Copper sold (000s lb) 9,467 - 9,467
Operating costs (on a sales basis) (6) $ 84.0 $ 48.6 $ 211.5 $ 163.4
Adjusted operating costs (4) $ 64.9 $ 54.7 $ 201.1 $ 189.8
All-in sustaining costs(4) $ 132.7 $ 83.3 $ 395.8 $ 437.0
All-in costs, excluding development projects (4) $ 149.0 $ 88.4 $ 438.7 $ 461.8
All-in costs, excluding development projects,
including taxes (4) $ 182.6 $ 108.6 $ 539.5 $ 546.6
Unit costs
Cost of sales ($/oz sold) (4) $ 740 $ 840 $ 714 $ 716
Adjusted operating costs ($/oz sold) (4) $ 287 $ 405 $ 346 $ 354
All-in sustaining costs on a byproduct basis
($/oz sold) (4) $ 586 $ 617 $ 682 $ 814
All-in costs excluding development projects on
a byproduct basis ($/oz sold) (4) $ 659 $ 654 $ 756 $ 861
All-in costs excluding development projects on
a byproduct basis (including taxes)
($/oz sold) (4) $ 808 $ 804 $ 929 $ 1,018
(1) Includes business development of $500,000 and $500,000 for the three months and year ended Dec. 31, 2016,
respectively ($300,000 and $2.2-million for the three months and year ended Dec. 31, 2015, respectively).
(2) As at Dec. 31, 2016, the company had 291,276,068 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 on a byproduct basis, all-in costs excluding development
projects on a byproduct basis and all-in costs excluding development projects on a byproduct basis, including
taxes (millions of dollars and per ounce sold), as well as average realized gold price (third party and
combined) per ounce and cost of sales per ounce sold, are non-GAAP (generally accepted accounting principles)
measures and are discussed under non-GAAP measures.
(5) Includes capitalized stripping of $58.3-million and $136.7-million in the three months and year ended Dec.
31, 2016, respectively ($12.2-million and $210.6-million in the three months and year ended Dec. 31, 2015,
respectively), and $75.7-million relating to implementation of the Greenstone partnership in 2016.
(6) Operating costs (on a sales basis) comprise 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 (DD&A). Operating costs (on a sales
basis) represent the cash component of cost of sales associated with the ounces sold in the period. See non-GAAP
measures.
(7) Figures for 2016 include results from Thompson Creek operations beginning Oct. 20, 2016, the date of
acquisition. Mount Milligan payable production and ounces sold are presented on a 100-per-cent basis (Royal Gold
streaming agreement entitles it to 35 per cent and 18.75 per cent of gold and copper sales, respectively). Under
the stream arrangement, Royal Gold will pay $435 per ounce of gold delivered and 15 per cent of the spot price
per metric tonne of copper delivered. No comparative results presented prior to acquisition.
(8) Payable production for copper and gold reflects estimated metallurgical losses resulting from handling of
the concentrate and payable metal deductions, subject to metal content, levied by smelters. The current payable
percentage applied is approximately 95.0 per cent for copper and 96.5 per cent for gold, which may be revised
on a prospective basis after sufficient history of payable amounts is determined.
(9) Results may not add due to rounding.
Fourth quarter of 2016, compared with fourth quarter of 2015:
-
Gold production for the fourth quarter of 2016 increased 86 per cent to 248,479 ounces poured, including 200,762 ounces from Kumtor and 47,717 ounces from Mount Milligan. In the fourth quarter of 2016, Kumtor processed the higher-grade ore obtained from cutback 17 of the SB zone.
- Mount Milligan produced 23,022 dry metric tonnes of concentrate, containing 47,717 ounces of gold and 10.4 million pounds of copper, since the closing of the acquisition of Thompson Creek on Oct. 20, 2016. Mill throughput was negatively affected by the secondary crusher commissioning activities and harder-than-average ore. Mine production was lower than budgeted due to unexpected harsher winter conditions.
-
Cost of sales per ounce sold in the fourth quarter was $740 in 2016, compared with $840 in 2015, a 12-per-cent decrease year over year. The 2016 result includes Kumtor and the Thompson Creek operations, with Kumtor representing $537 per ounce sold. The comparative 2015 year represents only Kumtor and includes a charge of $27.2-million to operating costs due to an inventory impairment recorded at the end of the year. Excluding this impairment charge from the 2015 results, cost of sales per ounce in the prior year would have been $645 per ounce sold. The reduction at Kumtor year over year is a result of lower operating costs, the processing of material with higher grades and recoveries, and process improvements in the mill achieved in the fourth quarter of 2016.
-
All-in sustaining costs (on a byproduct basis) per ounce sold, which exclude revenue-based tax and income tax, for the fourth quarter of 2016 decreased to $586, compared with $617 in the same period of 2015. The consolidated measure includes a contribution from Kumtor of $538 per ounce sold, reflecting higher volumes, grades, recoveries and lower operating costs. Mount Milligan contributed $509 per ounce sold, while corporate costs and exploration added $17.6-million and $3.8-million, respectively, of costs to the measure.
- All-in costs, excluding development project costs (on a byproduct basis) per ounce sold, which exclude revenue-based tax and income tax, were $659 in the fourth quarter of 2016, compared with $654 in the same quarter of 2015. The consolidated measure includes a contribution from Kumtor of $545 per ounce sold, while Mount Milligan contributed $605 per ounce sold. The decrease at Kumtor reflects more ounces sold, lower operating costs and lower spending on capital expenditures. The fourth quarter of 2016 includes acquisition costs for Thompson Creek of $7.4-million, and increased exploration and business developments costs of $1.6-million, as compared with the comparative period.
- Revenues in the fourth quarter of 2016 increased 106 per cent to $305.7-million, as a result of selling 67 per cent more ounces and a 5 per cent higher average realized gold price. The higher ounces sold are a reflection of 53 per cent more production at Kumtor and the contribution from Mount Milligan (34,154 ounces sold) in the fourth quarter of 2016.
- Cost of sales for the fourth quarter of 2016 increased 47 per cent to $167.2-million, compared with the same quarter of 2015. The increase reflects more gold ounces sold at Kumtor, and sales of gold and copper at Mount Milligan, starting Oct. 20, 2016.
- Exploration expenditures in the fourth quarter totalled $3.9-million, compared with $2.3-million in the same period of 2015. The increase in the fourth quarter of 2016 reflects increased activity and spending at the company's projects and joint ventures in Mexico, Mongolia, Nicaragua and Portugal.
- Regional administration costs decreased 12 per cent in the fourth quarter of 2016, primarily as a result of company-wide cost cutting measures initiated in 2015, in addition to the weakening of the Kyrgyz som in relation to the U.S. dollar. Corporate administration costs increased by $1.6-million, as compared with the same period of 2015, as a result of $1.6-million of new costs incurred in 2016 for administration costs at the new administration office in Denver. Lastly, share-based compensation in the fourth quarter of 2016 was higher by 31.7 per cent, as compared with the same period in 2015, driven by Centerra's underlying share price performance, offset by reduced spending at the corporate office in Toronto.
- Cash provided by operations was $170.4-million in the fourth quarter of 2016, compared with $47.5-million in the same period of 2015. The increase is primarily driven by significantly higher earnings in the fourth quarter of 2016.
- Cash used in investing activities in the fourth quarter of 2016 totalled $843.7-million, compared with $21.1-million of cash provided by investing activities in the same quarter of 2015. The fourth quarter of 2016 includes the payment to Thompson Creek debtholders of $783-million (net of cash assumed), increased capital expenditures and a net redemptions of $25-million in short-term investment as opposed to a net $58.0-million redeemed in the fourth quarter of 2015.
- Capital expenditures in the fourth quarter of 2016 were $83.6-million, which included sustaining capital of $15.3-million, growth capital (1) of $10.1-million (including $3.1-million at Mount Milligan) and $58.3-million of capitalized stripping costs ($42.9-million cash). Development project spending in the quarter totalled $5.5-million in 2016, with $1.1-million spent at the Greenstone gold property, $2.4-million at Gatsuurt and $2.1-million at the Oksut project. In the fourth quarter of 2016, the mining fleet at Kumtor focused primarily on waste stripping from cutback 18. Capital expenditures in the same quarter of 2015 were $33.6-million, which included $11.7-million for sustaining capital and $9.7-million for growth capital, and capitalized stripping of $12.2-million ($9.1-million cash).
Full-year 2016, compared with full-year 2015:
-
Gold production for 2016 totalled 598,677 ounces, including 47,717 ounces produced by Mount Milligan since Oct. 20, 2016. This compares with 536,920 ounces produced at Kumtor and Boroo in 2015. Kumtor's gold production in 2016 of 550,960 ounces was 30,266 ounces higher than the prior year due primarily to achieving higher throughput as a result of improvements made in the mill, while grades were 4 per cent lower in 2016 and recoveries were slightly better, as compared with 2015. Gold production in 2015 also included 16,226 ounces from Boroo as heap leach operations transitioned from operations to rinse down and eventual shutdown.
- Cost of sales per ounce sold in 2016 was $714, including the Thompson Creek assets (Mount Milligan and Langeloth). Excluding Thompson Creek assets, cost of sales per ounce sold was $641. In comparison, cost of sales per ounce sold in 2015 was $716. The reduction at Kumtor year over year is a result of lower operating costs and process improvements in the mill achieved in 2016 (see discussion in the Kumtor operating section), and the impact of a $27.2-million inventory impairment charge in 2015. The inventory impairment charge was reversed in 2016.
- All-in sustaining costs (on a byproduct basis) per gold ounce sold, which exclude revenue-based tax and income tax, for 2016 decreased to $682, from $814 in the comparative period of 2015. The consolidated measure includes a contribution from Kumtor of $640 per ounce sold, while Mount Milligan contributed $509 per ounce sold. In addition, corporate costs added $36-million of costs to the measure in 2016. The improved result at Kumtor reflects lower operating costs, and increased volumes achieved as a result of lower fuel prices and various continuous improvements projects.
-
All-in costs, excluding development projects costs (on a byproduct basis) per gold ounce sold, in 2016 were $756, compared with $861 in the comparative year, and include all cash costs related to gold production, excluding revenue-based tax and income tax. The consolidated measure includes a contribution from Kumtor of $667 per ounce sold, while Mount Milligan contributed $605 per ounce sold. Exploration and business development activities added $12.5-million and $3.8-million, respectively, of costs to this measure in 2016.
- Revenue for 2016 increased to $760.8-million, compared with $624.0-million in the year ended Dec. 31, 2015. Revenues in 2016 included $74.4-million recorded by Mount Milligan and the molybdenum business unit for the period from Oct. 20, 2016, to Dec. 31, 2016. Kumtor recorded a 14-per-cent increase in revenues with 5 per cent more ounces sold as a result of higher milling throughput, partially offset by 4 per cent lower ore grades. Average realized gold prices were 7 per cent higher than the prior year ($1,241 per ounce, compared with $1,162 per ounce in 2015). Gold sales volumes were 580,496 ounces (including 34,154 ounces from Mount Milligan), compared with 536,842 ounces in 2015. The higher revenue at Kumtor resulted in a 14-per-cent increase in revenue-based taxes in the Kyrgyz Republic in 2016.
- Cost of sales in 2016 was $414.6-million including $64.3-million from Mount Milligan and the molybdenum business unit for the period from Oct. 20, 2016, to Dec. 31, 2016. Cost of sales at Kumtor was $17.5-million or 5 per cent lower than in 2015, benefiting from the reversal of an inventory impairment of $27.2-million, and lower consumable costs such as diesel fuel and other successful cost reduction initiatives at the Kumtor mine. The largest component of cost of sales, DD&A, was $195.3-million, which includes the reversal of $18.4-million of non-cash inventory impairment, in the year ended Dec. 31, 2016, compared with $221.1-million in 2015. The decrease reflects lower capitalized stripping charges per ounce from cutback 17.
- Operating costs (on a sales basis) increased to $211.5-million in 2016, including $41.4-million from Mount Milligan. Excluding Mount Milligan costs, operating costs (on a sales basis) at Kumtor were $170.1-million, compared with $163.4-million in 2015. The increase was due to higher ounces sold and lower capitalized stripping costs in 2016, as compared with the prior year. This was partially offset by processing lower cost ounces at Kumtor, which reflects a reduction in costs for diesel, labour and other consumables.
- Predevelopment project costs decreased to $10.7-million in 2016, compared with $13.2-million in 2015. The decrease in 2016 represents lower spending at the company's Greenstone gold property, as the feasibility study was completed in November, 2016, and issued a technical report in December. The decrease also reflects lower expensed costs at the Oksut project as the company began capitalization of Oksut project costs on Aug. 1, 2015.
- Goodwill at Kumtor was impaired by $18.7-million in 2015 as a result of the annual goodwill impairment test carried out as at Sept. 1, 2015, which brought the goodwill balance to zero.
- During 2016, $300,000 of standby costs at Boroo was incurred to maintain the mill and operation on care and maintenance ($5.7-million in 2015). The spending in 2015 included mainly labour costs associated with the closure of the heap leach facility and placing the operation on standby. The Boroo mill will be kept on standby awaiting the entering into of definitive agreements and receipt of necessary permits with the Mongolian government regarding the development of the Gatsuurt project.
- Exploration expenditures in 2016 totalled $12.5-million, compared with $8.4-million in 2015. The increase in 2016 reflects the company's focus on new regions with several joint ventures commencing in 2016.
- Corporate administration costs, which primarily consist of professional fees, salaries and benefits, and other administrative costs, were $27.6-million in 2016, including $1.7-million spent at Thompson Creek's Denver corporate office since acquisition. This compares with $35.8-million in 2015. Share-based compensation in 2016 decreased to $4.6-million, compared with $12.4-million in the prior year, mainly due to movements in the company's share price.
-
The increase in income tax expense of $4.1-million in 2016 was mainly due to $4.3-million of withholding and income tax expense incurred on the repatriation of earnings by Boroo during the year.
- Cash provided by operations increased to $371.4-million in 2016, from $333.6-million in 2015, primarily from increased earnings and lower levels of working capital.
- Cash used in investing activities totalled $824.2-million in 2016, including a net of $783.0-million spent on the acquisition of Thompson Creek and $212.8-million spent on capital additions. The outflow of cash from investing activities was partially offset by a net redemption of $181.5-million of short-term investments. In 2015, cash outflows from investing activities included spending on capital additions of $243.8-million and $75.7-million in cash contributions to the Greenstone gold property, partially offset by $79.9-million of net redemptions of short-term investments.
- Cash received from financing activities in the year ended Dec. 31, 2016, was $500-million, and included proceeds of $398.4-million from debt issuance and proceeds of $141.4-million from an equity offering related to the Thompson Creek acquisition. This compares with a use of cash of $33.4-million in 2015. Financing activities also include the payment of dividends and interest on borrowings in both years.
- Capital expenditures in 2016 were $247.7-million, which included sustaining capital of $65.2-million, growth capital of $17.9-million, $12.0-million on the Oksut project development, $7.2-million on the Gatsuurt project development, $8.7-million on the Greenstone gold property capital and $136.7-million of capitalized stripping costs ($100.5-million cash). In 2016, lower capital expenditures resulted primarily from lower spending on capitalized stripping and on development projects, partially offset by higher spending on sustaining and growth capital mainly at Kumtor. Development project spending in 2016 included activities at Gatsuurt to update various development studies, while 2015 included $75.7-million spent on the acquisition of the company's 50-per-cent interest in the Greenstone gold property. Capital expenditures in the same period of 2015 were $370.5-million, which included $51.1-million for sustaining capital and $15.7-million for growth capital, $6.1-million on the Oksut project development, $11.3-million on the Greenstone gold property capital, $75.7-million on the Greenstone partnership acquisition, and capitalized stripping of $210.6-million ($159.4-million cash).
Operations update
Kumtor
KUMTOR OPERATING RESULTS
(in millions of dollars, except as noted)
Three months ended Dec. 31, Years ended Dec. 31,
2016 2015 2016 2015
Revenue $ 231.3 $ 144.5 $ 686.4 $ 604.5
Cost of sales -- cash 43.2 46.9 170.4 151.1
Cost of sales -- non-cash 59.9 65.2 180.0 216.8
Cost of sales -- total 103.1 112.1 350.4 367.9
Cost of sales ($/oz sold) (1) 537 852 641 707
Tonnes mined (000s) 35,542 45,418 144,399 169,527
Tonnes ore mined (000s) 223 3,941 8,911 6,583
Average mining grade (g/t) 8.62 2.06 3.45 2.25
Tonnes milled (000s) 1,581 1,504 6,303 5,729
Average mill head grade (g/t) 4.71 3.42 3.44 3.57
Recovery (%) 83.5% 79.9% 79.2% 78.8
Mining costs -- total ($/t mined material) 1.24 1.13 1.27 1.24
Milling costs ($/t milled material) 9.37 9.95 9.87 11.17
Gold produced (ounces) 200,762 130,610 550,960 520,694
Gold sold (ounces) 191,842 131,549 546,342 520,517
Average realized gold price ($/oz) (1) 1,206 1,098 1,256 1,161
Capital expenditures (sustaining) (1) 11.5 11.8 61.0 50.5
Capital expenditures (growth) (1) 1.4 2.5 14.8 14.2
Capital expenditures (stripping) 58.3 12.1 136.7 210.6
Capital expenditures (total) 71.2 26.4 212.5 275.3
Operating costs (on a sales basis) (2) 44.6 46.9 171.8 151.1
Adjusted operating costs (1) 48.5 51.6 186.8 169.5
All-in sustaining costs (1) 103.1 72.7 349.5 380.3
All-in costs(1) 104.6 75.2 364.3 394.5
All-in costs -- including taxes (1) 137.2 95.4 460.6 479.1
Adjusted operating costs ($/oz sold) (1) 253 392 342 326
All-in sustaining costs ($/oz sold) (1) 538 553 640 731
All-in costs ($/oz sold) (1) 545 572 667 758
All-in costs -- including taxes ($/oz sold) (1) 715 725 843 921
(1) Adjusted operating costs, all-in sustaining costs, all-in costs and all-in costs (including
taxes) (in each case, on an aggregate or per-ounce-sold basis), as well as average realized gold
price per ounce sold, cost of sales per ounce sold and capital expenditures (sustaining and
growth), are non-GAAP measures and are discussed under non-GAAP measures.
(2) Operating costs (on a sales basis) comprise mine operating costs such as mining, processing,
regional office administration, but exclude revenue-based taxes, reclamation costs, and
depreciation, depletion and amortization. See non-GAAP measures.
(3) Results may not add due to rounding.
At the Kumtor mine in the Kyrgyz Republic, mining activities in the fourth quarter of 2016 focused on waste stripping of cutback 18 in accordance to the mine development plan, while the mill primarily processed ore from stockpiles. Mining of cutback 17 was completed in early October, 2016. In 2017, Kumtor will continue to process ore stockpiled from cutback 17, while mining focuses on waste stripping from cutback 18 and mining the recently permitted near-surface Sarytor satellite deposit.
The total waste and ore mined in the fourth quarter of 2016 were 35.5 million tonnes, compared with 45.4 million tonnes in the comparative period of 2015. The 22-per-cent decrease in tonnes mined is mainly attributed to a longer average waste haulage distance of 8.9 kilometres in 2016, versus 7.5 kilometres in 2015. During the fourth quarter of 2016, Kumtor mined 200,000 tonnes of ore at an average grade of 8.62 g/t from cutback 17, compared with 3.9 million tonnes of ore mined at an average grade of 2.06 g/t in the fourth quarter of 2015.
Gold production for the fourth quarter of 2016 was 200,762 ounces, compared with 130,610 ounces in the comparative quarter of 2015, due to 38 per cent higher average mill head grade and a 5 per cent higher recovery rate, as a result of mining and processing the high-grade ore from cutback 17 during the quarter. In addition, Kumtor's mill processed approximately 1.6 million tonnes for the fourth quarter of 2016, 5 per cent higher than the comparative quarter of 2015, as a result of actions taken to increase the throughput, including blending harder and softer ore, opening screens in the SAG mill, and increasing the grinding media sizes in the SAG and ball mills. During the fourth quarter of 2016, Kumtor's average mill head grade was 4.71 g/t with a recovery of 83.5 per cent, compared with 3.42 g/t and a recovery of 79.9 per cent for the same quarter in 2015.
Operating costs (on a sales basis), excluding capitalized stripping, decreased 5 per cent to $44.6-million during the fourth quarter of 2016, reflecting the results of Kumtor's continuous improvement program, and a reduction in cost of diesel, reagents and other consumables.
DD&A associated with sales decreased to $59.9-million in the fourth quarter of 2016, from $65.2-million in the comparative period of 2015. DD&A in the fourth quarter of 2015 included a non-cash inventory impairment of $18.4-million. Excluding the impact of this impairment, DD&A at Kumtor increased year over year by $13.1-million, reflecting 46 per cent more ounces sold in the fourth quarter of 2016.
All-in sustaining costs per ounce sold, which exclude revenue-based tax, for the fourth quarter of 2016 decreased to $537, compared with $553 in the comparative period of 2015. The decrease results primarily from a 46-per-cent increase in ounces sold and lower operating costs.
All-in costs per ounce sold, which exclude revenue-based tax, for the fourth quarter of 2016 were $545, compared with $572 in the comparative period of 2015. The 5-per-cent decrease is mainly due to the factors explained above and reduced growth capital spending.
Capital expenditures in the fourth quarter of 2016 were $71.2-million, including $11.5-million of sustaining capital, $1.4-million invested in growth capital and $58.3-million for capitalized stripping ($42.9-million cash). Capital expenditures in the comparative quarter of 2015 totalled $26.4-million, consisting of $11.8-million for sustaining capital, $2.5-million for growth capital and $12.1-million of capitalized stripping ($9.1-million cash).
Mount Milligan
MOUNT MILLIGAN MINE
(in millions of dollars, except as noted)
Period ended
(1) (5) Dec. 31, 2016
Gold sales $ 29.4
Copper sales 26.0
Total revenues 55.4
Cost of sales -- cash 38.8
Cost of sales -- non-cash 5.9
Cost of sales -- total 44.7
Mining/milling
Ore mined (000s t) 3,910
Total mined (000s t) 7,592
Rehandle tonnes 446
Total moved (000s t) 8,038
Tonnes milled 3,904
Mill head grade -- copper (%) 0.19%
Mill head grade -- gold (g/t) 0.58
Copper recovery 75%
Gold recovery 59%
Concentrate produced (dmt) 23,022
Payable copper produced (000s lb) (5) 10,399
Payable gold produced (oz) (5) 47,717
Gold sales (payable oz) 34,154
Copper sales (000s payable lb) 9,467
Average realized price -- gold (combined) ($/oz) (2) (4) 861
Average realized price -- copper (combined) ($/lb) (2) (4) 2.74
Capital expenditures -- sustaining (2) 3.4
Capital expenditures -- growth (2) 3.1
Capital expenditures -- total 6.5
Operating costs (on a sales basis) (3) 39.5
Adjusted operating costs (2) 14.0
All-in sustaining costs on a byproduct basis (2) 17.4
All-in costs on a byproduct basis (2) 20.6
All-in costs on a byproduct basis (including taxes) (2) 21.2
Total adjusted operating costs ($/oz sold) (2) 410
All-in sustaining costs on a byproduct basis ($/oz sold) (2) 509
All-in costs on a byproduct basis ($/oz sold) (2) 602
All-in costs on a byproduct basis -- including taxes ($/oz sold) (2) 621
(1) Figures for 2016 include results beginning Oct. 20, 2016, the date of acquisition. No
comparative results presented prior to acquisition.
(2) Adjusted operating costs, all-in sustaining costs on a byproduct basis, all-in costs on a
byproduct basis and all-in costs on a byproduct basis (including tax) (in each case, on an
aggregate or per-ounce-sold basis), as well as average realized gold price per ounce sold
(gold and copper), cost of sales per ounce sold and capital expenditures (sustaining and
growth), are non-GAAP measures and are discussed under non-GAAP measures.
(3) Operating costs (on a sales basis) comprise mine operating costs such as mining,
processing, regional office administration, royalties and production taxes, but exclude
reclamation costs, and depreciation, depletion and amortization.
(4) The average realized price of gold is a combination of market price paid by third parties
and $435 per ounce paid by Royal Gold, while the average realized price of copper is a
combination of market price paid by third parties and 15 per cent of the spot price per metric
tonne of copper delivered paid by Royal Gold, both under the Royal Gold streaming arrangement.
(5) Mount Milligan payable production and ounces sold are presented on a 100-per-cent basis
(Royal Gold streaming agreement entitles it to 35 per cent and 18.75 per cent of gold and copper
sales, respectively). Under the stream arrangement, Royal Gold will pay $435 per ounce of gold
delivered and 15 per cent of the spot price per metric tonne of copper delivered. Payable
production for copper and gold reflects estimated metallurgical losses resulting from handling
of the concentrate and payable metal deductions, subject to metal content, levied by smelters.
The current payable percentage applied is approximately 95.0 per cent for copper and 96.5 per
cent for gold, which may be revised on a prospective basis after sufficient history of payable
amounts is determined.
The Mount Milligan mine is an open-pit mine located in north-central British Columbia. The Mount Milligan mine in Canada is subject to a streaming arrangement whereby Royal Gold is entitled to receive 35 per cent of the gold produced and 18.75 per cent of the copper production. Royal Gold will pay Centerra $435 per ounce of gold delivered and will pay 15 per cent of the spot price per metric tonne of copper delivered.
For the period Oct. 20, 2016 (date of acquisition), to Dec. 31, 2016, the mill throughput averaged 53,000 tonnes per day, while mine throughput averaged 110,000 tonnes per day. Total mill throughput was 3.9 million tonnes, and total mine tonnes moved were 8.0 million tonnes. Total payable copper production for the period was 10.4 million pounds, while total payable gold production was 47,717 ounces. Mill throughput was affected by the secondary crusher commissioning activities and harder-than-average ore. Mine production was lower than planned due to harsh winter conditions. Several continuous improvement projects continued throughout the period.
In the processing plant, two collector trials and one frother trial were completed in the quarter. As a result, going forward, the operation expects to achieve a sustainable 1-per-cent improvement for gold recovery and 2-per-cent improvement in copper recovery. The installation of two secondary crushers was completed in the fourth quarter. Also during the fourth quarter, one SAG mill reline was completed and smaller grates were installed to help rebalance the circuit with the addition of smaller feed material to the SAG mill. Throughout the year, high-powder-factor blasting was implemented to improve throughput at the mill with success. A blast monitoring trial commenced with the aim to reduce blast movement and dilution with the objective of improving feed grade to the mill.
During the postacquisition period of Oct. 20, 2016, to Dec. 31, 2016, the average realized price of gold was impacted by final price and metal content adjustments on preacquisition shipments that had not finalized prior to the transaction date. The effect of these open shipments closing posttransaction was a $6-million reduction in the realized price of gold sold. The average realized price of gold was also impacted by the Royal Gold streaming agreement.
Construction of the permanent secondary crushing circuit at Mount Milligan was completed during the fourth quarter of 2016. The crusher processed its first ore in late October and began 24-hour operations in November. Work continues to optimize the crushing and grinding equipment, and to make adjustments in the mill standard operating procedures, to maximize the value of the circuit.
The company plans to complete and file a new technical report on the Mount Milligan mine by the end of March.
MOLYBDENUM BUSINESS
(in millions of dollars, except as noted)
Period ended
(1) Dec. 31, 2016
Molybdenum (Mo) sales $ 16.8
Tolling, calcining and other 2.2
Total revenues and other income 19.0
Cost of sales -- cash 18.0
Cost of sales -- non-cash 1.5
Cost of Sales -- total 19.5
Care and maintenance costs -- molybdenum mines 1.8
Capital expenditures -- Endako -
Capital expenditures -- Langeloth 0.1
Capital expenditures -- Thompson Creek mine 0.2
Total capital expenditures 0.3
Net cash used, before working capital (1.3)
Production
Mo purchased (000s lb) 3,378
Mo oxide roasted (000s lb) 4,198
Mo sold (000s lb) 2,188
Toll roasted and upgraded Mo (000s lb) 1,584
(1) Figures for 2016 include results beginning Oct. 20, 2016,
the date of acquisition. No comparative results presented prior
to acquisition.
A total of 2.2 million pounds of molybdenum were sold and 1.6 million pounds tolled during the period from Oct. 20, 2016, to Dec. 31, 2016, resulting in sales revenue of $19.0-million.
The company's U.S. operations for molybdenum include the Thompson Creek (TC) mine (mine and mill) in Idaho and the Langeloth metallurgical processing facility in Pennsylvania. The Canadian operations for molybdenum consist of a 75-per-cent joint venture interest in the Endako molybdenum mine joint venture (mine, mill and roaster) in British Columbia.
Due to weakness in the molybdenum market, the Endako mine was placed on care and maintenance effective July 1, 2015, while the TC mine was placed on care and maintenance in December, 2014. The TC mine operates a commercial molybdenum beneficiation circuit to treat molybdenum concentrates to supplement the concentrate feed sourced directly for the Langeloth facility. This beneficiation process at the TC mine has allowed the company to process high copper molybdenum concentrate purchased from third parties, which is then transported to Langeloth for processing.
The molybdenum business provides toll roasting services for customers by converting molybdenum concentrates to molybdenum oxide powder and briquettes, and ferromolybdenum products. Additionally, molybdenum concentrates are also purchased from third parties to convert to upgraded products which are then sold into the metallurgical and chemical markets. The company expects the Langeloth facility to generate sufficient cash flow to continue to substantially cover the annual costs of care and maintenance at its two primary molybdenum mines, enabling the company to hold its molybdenum business on a cash-neutral basis and allowing it to retain the option to restart the mines if a more favourable molybdenum market presents itself.
Project development
Oksut
project
At the Oksut project in Turkey, the company spent $2.1-million during the fourth quarter of 2016 and $12.0-million during the year ended Dec. 31, 2016 ($4.0-million and $10.0-million, respectively, in the same periods of 2015), on development activities to progress the environmental and social impact assessment (ESIA), access and site preparation, and detailed engineering work. Since the approval of the Oksut feasibility study in July, 2015, development costs associated with the Oksut project are capitalized.
In November, 2015, the company received approval of its EIA (environmental impact assessment) from the Turkish regulatory authorities, followed by approval of the business operating permit from local authorities in December, 2015. In July, 2016, the project received a forestry land usage permit, and the operation permit for forestry area was obtained in August, 2016. The pastureland permit is currently outstanding, and the company is working with the relevant agencies to obtain the permit. There is no assurance that the approval of the key pastureland or other permits will be obtained by the company in a timely manner or at all. If the pastureland permit is received in the second quarter of 2017, construction activities at the Oksut project are expected to commence in July, 2017. As a result, first gold production would not be expected to occur before the third quarter of 2018.
In April, 2016, the company's wholly owned Turkish subsidiary, Oksut Madencilik Sanayi ve Ticaret A.S. (OMAS), entered into a $150-million project financing term loan facility with UniCredit to assist in financing the construction of its Oksut project. In August, 2016, EBRD became a lender under the facility. The interest rate on the Oksut facility is LIBOR plus 2.65 per cent to 2.95 per cent (dependent on project completion status). The facility is secured by the Oksut assets and is non-recourse to Centerra. Availability of the Oksut facility is subject to customary conditions precedent, including receipt of all necessary permits and approvals. The deadline to satisfy such conditions was extended until June 30, 2017, by the lenders because of the delay in receiving the pastureland permit. The company continues to work on satisfying the conditions precedent by such deadline, however, some conditions, such as the receipt of the pastureland permit for the Oksut project, are beyond Centerra's control.
Gatsuurt project
The Gatsuurt project, located in Mongolia 55 kilometres from the company's Boroo mine, was designated as a mineral deposit of strategic importance by the Mongolian parliament in January, 2015. In mid-October, 2015, the company and the government agreed to a 3-per-cent special royalty in place of the government acquiring a 34-per-cent ownership interest in the project. On Feb. 4, 2016, the Mongolian parliament approved the level of Mongolia state ownership in the project at 34 per cent, which allows the government to substitute the 34-per-cent state ownership with a special royalty. The final ownership in the Gatsuurt project is subject to signing definitive agreements with the Mongolian authorities.
The company continued to engage in discussions with the Mongolian government regarding definitive agreements in relation to the future operations and economics of the Gatsuurt project throughout 2016, and it expects to continue such discussions in 2017. See the section on other corporate developments -- Mongolia.
During 2016, the company financed $7.2-million ($1.3-million in 2015) on development activities for drilling on the property, and carrying out resource definition, metallurgical, geotechnical and hydrogeological drilling, and environment and operational studies, in support of eventual project development at Gatsuurt project. In the fourth quarter of 2016, the company was required to file with local authorities an updated Mongolian feasibility study on the Gatsuurt project for review and approval by the Minerals Professional Council of Mongolia. The feasibility study was filed based on management's best information at the time, and it did not benefit from the work undertaken in 2016 to update various project studies as these are continuing and will be completed by the end of second quarter of 2017.
Greenstone gold property
The company spent $5.6-million in the fourth quarter of 2016 and $19.4-million for the year ended Dec. 31, 2016 ($4.3-million and $17.3-million, respectively, in the same periods of 2015), on project development activities on the Greenstone gold property and advancing the feasibility study for the Hardrock project. During the year, the Greenstone partnership further advanced the environmental impact study/environmental assessment (EIS/EA) on the Greenstone property, including the submission of a draft in February, 2016, to the various provincial and federal agencies, and expects to submit a final version in the second quarter of 2017. The comments received on the draft EIS/EA related primarily to the location and management of the tailings storage facility, the management and location of the waste dumps, and water quality.
On Nov. 16, 2016, the company, along with its joint venture partner, Premier Gold Mines Ltd., announced the feasibility study results on the Hardrock project. A National Instrument 43-101 technical report was filed on SEDAR on Dec. 22, 2016. No development or construction decision has been made yet by the partnership.
Greenstone Gold continues to engage and consult with local communities of interest, including first nations, and negotiations commenced early 2017 on mutually beneficial impact benefit agreements.
Exploration update
Exploration expenditures for the fourth quarter of 2016 totalled $3.9-million, compared with $2.3-million in the same period of 2015. Total exploration spending for 2016 was $12.5-million, compared with $8.4-million in 2015. Exploration activities during the quarter included drilling, trenching, geological mapping, soil/chip and channel sampling, and ground geophysics.
Mongolia
Gatsuurt project
During the fourth quarter, Gatsuurt completed six drill holes for 818 metres with drilling carried out at South Slope in an area northeast and upslope from the Central zone ultimate open-pit limit and at the southwest extension of Main zone.
South Slope oriented drilling indicates complicated, vertical (breccia) and gently dipping, morphology of the gold mineralization. These holes have clarified the structure and morphology of the eastern periphery of the South Slope gold mineralization.
Some of the better results are:
- GT-663: 6.71 g/t Au at 2.2 metres (115.3 to 117.5 metres);
-
GT-664: 2.28 g/t Au at 7.5 metres (19.9 to 27.4 metres);
-
GT-665: 2.92 g/t Au at 4.8 metres (23.9 to 28.7 metres) and
2.33 g/t Au at 8.7 metres (34.6 to 43.2 metres).
The objective of the drilling in Main zone was to connect this zone to the southwest (SW) extension. These holes indicate narrow but high-grade mineralization along the Sujigtei fault, and broad but less-than-one-gram-per-tonne-gold envelope. The latest results indicate that its mineralization continues for another 500 to 700 metres southwest of the ultimate open-pit boundaries and thus requires additional drilling to outline the resource.
One of the better intersections is:
- GT-667: 2.93 g/t Au at 5.8 metres (60.9 to 66.7 metres).
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. Drill collar locations and associated graphics are available on-line.
A listing of the drill results, drill hole locations and plan map for the Gatsuurt project has been filed on SEDAR and is available at the company's website.
Other projects
Centerra continues to advance other exploration projects in Armenia, Canada, Mexico, Nicaragua, Portugal and Turkey.
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.
Kyrgyz Republic
Arbitration
As previously disclosed, Centerra commenced an arbitration against the Kyrgyz Republic and Kyrgyzaltyn on July 12, 2016, in relation with certain continuing disputes relating to the Kumtor project.
On Jan. 12, 2017, Centerra filed with the Permanent Court of Arbitration (PCA) a request for partial award or, in the alternative, interim measures against the Kyrgyz Republic. The company is seeking an award ordering that the Kyrgyz Republic withdraw or stay (suspend) its claims relating to previously disclosed environmental, dividend and land use claims, and related decisions and court orders. The Kyrgyz Republic, Kyrgyzaltyn and Centerra are expected to make submissions by the end of April, 2017, and the company expects that the arbitrator will render a decision on this matter in mid-2017.
In addition to the above application to the PCA, Centerra expects to file with the PCA a full statement of claim on Feb. 23, 2017. Under Centerra's restated investment agreement with the Kyrgyz Republic dated as of June 6, 2009, the arbitration will be determined by a single arbitrator and conducted under UNCITRAL arbitration rules in Stockholm, Sweden. Disputes arising out of the 2009 restated investment agreement will be governed by the law of the State of New York of the 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 Kyrgyz Republic.
Even if the company receives an arbitral award in its favour against the Kyrgyz Republic and/or Kyrgyzaltyn, there are no assurances that it will be recognized or enforced in the Kyrgyz Republic. 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 does not have insurance or litigation reserves to cover these costs. 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.
Kyrgyz permitting and regulatory matters
As previously disclosed, KGC has all key permits and approvals in place for mining operations at the Kumtor project in 2017. Kumtor routinely discharges water from its tailings facility starting in the spring, and expects to apply for and receive, in the ordinary course, the required discharge permit prior to such time.
The withdrawal of any required permit could lead to a suspension of Kumtor operations.
Amendments to the Kyrgyz Republic constitution
In December, 2016, the Kyrgyz Republic constitution was amended. The company understands that the amendments remove the limitation period that would otherwise apply to officials and non-officials charged with abuse of office or abuse of duty in connection with Kumtor development or operations. As previously noted, the company is not aware of any basis for allegations of criminal misconduct in connection with the development of the Kumtor project. Centerra has previously asked the Kyrgyz Republic government for evidence of any such wrongdoing but has never received any such evidence. Centerra is not aware of any criminal proceedings or investigations being undertaken as result of the constitutional amendment.
SIETS and SAEPF claims
As previously disclosed, the Kumtor project is subject to a number of claims made by, among others, Kyrgyz Republic state environmental agencies. The company believes that such claims are, in substance, an attempt by the Kyrgyz Republic to impose additional taxes and payments on the Kumtor project which are prohibited by the terms of the 2009 restated investment agreement. Such claims are not based on allegations of improper environmental practices or damage to the environment.
The latest such claim, originally filed on Aug. 23, 2016, by the Chui-Bishkek-Talas Local Fund of Nature Protection and Forestry Development of SAEPF, seeks compensation for environmental pollution in the amount of 40,340,819.01 Kyrgyz som (approximately $600,000 (U.S.)).
As previously disclosed, on May 25, 2016, the Bishkek Inter-District Court in the Kyrgyz Republic ruled against 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 Kyrgyz som (approximately $96.5-million (U.S.), based on an exchange rate of 69.43 Kyrgyz som per $1 (U.S.)) and 663,839 Kyrgyz som (approximately $9,500 (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 Kyrgyz som (approximately $2.3-million (U.S.)) and 188,533,730 Kyrgyz som (approximately $2.7-million (U.S.)), respectively. Centerra, KOC and KGC (added by the Kyrgyz courts) strongly dispute the SIETS claims, and have appealed the decisions to the Bishkek City Court and will, if necessary, appeal to the Kyrgyz 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 the KR interim court order which prohibits KGC from taking any actions relating to certain financial transactions, including transferring property or assets, declaring or paying dividends, pledging assets, or making loans. The cash generated from the Kumtor project which is held in KGC is, however, available to finance Kumtor's operation. As at Dec. 31, 2016, KGC's cash balance was approximately $248-million. 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 its subsequent appeal to the Kyrgyz Republic Supreme Court was dismissed on Oct. 19, 2016. As a result of the appeal by KGC, the proceedings on the merits of the SAEPF claim were suspended, however, the company now expects such hearings on the merits to resume.
Kyrgyz Republic General Prosecutor's Office (GPO) proceedings
Criminal proceedings against unnamed KGC managers
On May 30, 2016, a 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 Kyrgyz Republic. Specifically, the case appears to be focused on the 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 Kyrgyz Republic as well as in international arbitration.
2013 KGC dividend civil and criminal proceeding
On June 3, 2016, the Inter-District Court 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 understands that the GPO has also initiated a criminal investigation of executives of the company and KGC in respect of the 2013 dividend, but that investigation is currently suspended.
KGC employee movement restrictions
In connection with certain of the foregoing criminal investigations, restrictions have been imposed on certain KGC managers and employees, which prohibit them from leaving the Kyrgyz Republic.
GPO review of Kumtor project agreements
On June 14, 2016, according to reports in the Kyrgyz Republic, the Kyrgyz 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 Kyrgyz Republic government, Kyrgyzaltyn JSC and their international advisers, and approved by all relevant Kyrgyz Republic state authorities, including the Kyrgyz 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.
Land use claim
As previously noted, KGC continues to challenge the purported 2012 cancellation of its land use (surface) rights over the Kumtor concession areas in the Kyrgyz Republic courts as well as in its arbitration claim (described above).
Management assessment of claims
The company remains committed to working with Kyrgyz Republic authorities to resolve these issues in accordance with the 2009 Kumtor project agreement, which provides 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 Kyrgyz Republic courts. As noted above, there is also a risk that the Kyrgyz Republic or a Kyrgyz Republic court would not recognize and/or enforce an arbitration award issued by the arbitrator.
While the company has filed a notice of arbitration in 2016 and undertaken other actions with respect to the arbitration, Centerra continues to be in discussions with the Kyrgyz Republic government with a view to resolving all outstanding matters impacting the Kumtor project. There are 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 Kyrgyz Republic government and Centerra will result in a mutually acceptable resolution; (iii) Centerra will receive the necessary legal and regulatory approvals under Kyrgyzstani law and/or Canadian law for any such resolution; or (iv) the Kyrgyz 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 which have the effect of nationalization of the Kumtor project. 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
Since 2016, the company has been in discussions with the Mongolian government to implement a 3-per-cent special royalty in lieu of the government's 34-per-cent direct interest in the Gatsuurt project. Various working groups were 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. The company expects to continue such negotiation in 2017.
Concurrently 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.
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 will have positive results. The inability to successfully negotiate definitive agreements, and/or the absence of positive results on the additional and technical studies, could have a material impact on the company's future cash flows, earnings, results of operations and financial condition, and the company may be required to write off approximately $48-million related to the investment in Gatsuurt, and approximately $53-million of remaining capitalized costs for the Boroo mill facility, other surface structures and equipment parts.
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 condone any violence or use of force by Mongolian authorities, and has communicated to Mongolian authorities that matters are to be resolved in a peaceful manner.
Claim against the Mongolian Mineral Resources Authority to revoke Gatsuurt mining licences
In the first quarter of 2016, a non-governmental organization called "Movement to Save Mt. 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. Such proceedings are continuing.
Subsequent to Dec. 31, 2016 -- sale of ATO
On Jan. 31, 2017, CGM entered into definitive agreements to sell the ATO project, located in Eastern Mongolia, to Steppe Gold LLC and Steppe Gold Ltd. for gross proceeds of $19.8-million. CGM has received $800,000 upon signing of the definitive agreements and is to receive $9-million at closing, scheduled for the second quarter of 2017, followed by two additional $5-million cash payments at the first anniversary and second anniversary date of the closing of the transaction. The closing of the transaction is conditional upon Steppe Gold Ltd. executing its financing plans, which the company understands are scheduled to be completed in mid-2017.
Corporate
Ontario court proceedings involving the Kyrgyz Republic and Kyrgyzaltyn
Since 2011, there have been four applications commenced in the Ontario courts by different applicants against the Kyrgyz Republic and Kyrgyzaltyn, each seeking to enforce in Ontario international arbitral awards against the Kyrgyz Republic. None of these disputes relate directly to Centerra or the Kumtor project. In each of these cases, the applicants have argued that the Kyrgyz Republic has an interest in the Centerra common shares held by Kyrgyzaltyn, 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 Kyrgyz Republic. On July 11, 2016, the Ontario Superior Court of Justice released a decision on the common issue in these four applications -- whether the Kyrgyz Republic has an eligible ownership interest in the Centerra common shares held by Kyrgyzaltyn. The Ontario Superior Court of Justice determined that the Kyrgyz Republic does not have any equitable or other right, property, interest or equity of redemption in the common shares held by Kyrgyzaltyn. 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 released to Kyrgyzaltyn approximately $18.9-million (Canadian), which was previously held in trust for the benefit of two Ontario court proceedings.
Three of the applicants appealed the decision to the Ontario Court of Appeal, which heard the case on Dec. 4, 2016. The court issued its decision on Jan. 3, 2017, which upheld the trial judge's decision.
2017 outlook
See material assumption and risks for other material assumptions or factors used to forecast production and costs for 2017.
2017 gold production
Centerra's 2017 gold production is expected to be between 715,000 and 795,000 ounces. Kumtor's production forecast is expected to be in the range of 455,000 ounces to 505,000 ounces, with 30 per cent of the production expected to be in the fourth quarter. At Mount Milligan, the company expects payable gold production to be in the range of 260,000 to 290,000 ounces, with approximately 35 per cent of the ounces expected to be produced in the fourth quarter.
The Mongolian operations will continue with care and maintenance activities at the Boroo mine, mainly focusing on reclamation work. Any revenue from Boroo gold production from the rinsing of the heap leach pad will be offset against care and maintenance costs. The 2017 production forecast assumes no gold production from Boroo, Gatsuurt or Oksut.
2017 copper production
Centerra expects concentrate production from the Mount Milligan mine to be in the range of 125,000 to 135,000 dry tonnes for 2017. Payable copper production is expected to be in the range of 55 million pounds to 65 million pounds.
Centerra's 2017 production is forecast as shown in the attached table.
2017 PRODUCTION GUIDANCE
Kumtor Mount Milligan (1) Centerra
Gold
Unstreamed gold payable production (koz) 455 to 505 169 to 189 624 to 694
Streamed gold payable production (1) (koz) - 91 to 101 91 to 101
Total gold payable production (2) (koz) 455 to 505 260 to 290 715 to 795
Copper
Unstreamed copper payable production (Mlb) - 45 to 53 45 to 53
Streamed copper payable production (1) (Mlb) - 10 to 12 10 to 12
Total copper payable production (3) (Mlb) - 55 to 65 55 to 65
Concentrate production in dry tonnes (kt) - 125 to 135 125 to 135
(1) Royal Gold streaming agreement entitles Royal Gold to 35 per cent and 18.75 per cent of
gold and copper sales, respectively, from the Mount Milligan mine. Under the stream
arrangement, Royal Gold will pay $435 per ounce of gold delivered and 15 per cent of the
spot price per metric tonne of copper delivered. Payable production for copper and gold
reflects estimated metallurgical losses resulting from handling of the concentrate and
payable metal deductions, subject to metal content, levied by smelters. The current payable
percentage applied is approximately 95.0 per cent for copper and 96.5 per cent for gold,
which may be revised on a prospective basis after sufficient history of payable amounts
is determined.
(2) Gold production assumes recovery of 78.8 per cent at Kumtor and recovery of 62.5 per
cent at Mount Milligan.
(3) Copper production assumes recovery of 75.5 per cent for copper at Mount Milligan.
2017 all-in sustaining unit costs
Centerra's 2017 all-in sustaining costs per ounce sold are calculated on a byproduct basis and are forecast as shown in the attached table.
Kumtor (2) Mount Milligan (2) Centerra
Ounces sold forecast 455,000 to 505,000 260,000 to 290,000 715,000 to 795,000
U.S. $/gold ounce sold
Operating costs 288 to 319 748 to 834 456 to 507
Changes in inventory 35 to 39 35 to 39 35 to 39
Operating costs (on a sales basis) (3) $323 to $358 $783 to $873 $491 to $546
Selling and marketing - 18 to 20 6 to 7
Regional office administration 31 to 34 - 20 to 22
Social development costs 5 - 3
Treatment and refining charges 6 to 7 71 to 79 30 to 33
Copper credits (2) - (484) to (540) (177) to (196)
Silver credits (6) to (7) (23) to (26) (12) to (14)
Subtotal (adjusted operating costs) (1) (2) $359 to $397 $365 to $406 $361 to $401
Accretion expense 2 1 2
Capitalized stripping costs (cash) 340 to 377 - 216 to 240
Sustaining capital expenditures (1) 135 to 149 91 to 101 120 to 133
Corporate general and administrative costs - - 44 to 48
All-in sustaining costs on a byproduct
basis (1) (2) $836 to $925 $457 to $508 $743 to $824
Revenue-based tax (4) and taxes (4) 166 to 184 19 to 21 113 to 125
All-in sustaining costs on a byproduct basis
(including taxes) (1) (2) (4) $1,002 to $1,109 $476 to $529 $856 to $949
Gold -- all-in sustaining costs on a co-product
basis ($/ounce) (1) (2) (5) $836 to $925 $575 to $640 $786 to $873
Copper -- all-in sustaining costs on a co-product
basis ($/pound) (1) (2) (5) - $1.63 to $1.93 $1.63 to $1.93
(1) Adjusted operating costs per ounce sold, all-in sustaining costs per ounce sold on a byproduct basis, all-in
sustaining costs per ounce on a byproduct basis plus taxes, all-in sustaining costs per ounce of gold sold or per
pound of copper sold on a co-product basis, and sustaining capital expenditures are non-GAAP measures and are
discussed under non-GAAP measures.
(2) Mount Milligan payable production and ounces sold are presented on a 100-per-cent basis (Royal Gold streaming
agreement entitles it to 35 per cent and 18.75 per cent of gold and copper sales, respectively). Unit costs and
consolidated unit costs include a credit for forecasted copper sales treated as byproduct for all-in sustaining costs
and all-in sustaining costs plus taxes. The copper sales are based on a copper price assumption of $2.50 per pound
sold for Centerra's 81.25-per-cent share of copper production and the remaining 18.75 per cent of copper revenue at
37.5 cents per pound (15 per cent of spot price, assuming spot at $2.50 per pound), representing the Royal Gold
copper stream arrangement. Payable production for copper and gold reflects estimated metallurgical losses resulting
from handling of the concentrate and payable metal deductions, subject to metal content, levied by smelters. The
current payable percentage applied is approximately 95.0 per cent for copper and 96.5 per cent for gold, which may
be revised on a prospective basis after sufficient history of payable amounts is determined.
(3) Operating costs (on a sales basis) comprise 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.
(4) Includes revenue-based tax at Kumtor that reflects a forecast gold price assumption of $1,200 per ounce sold and,
at Mount Milligan, the British Columbia mineral tax.
(5) All-in sustaining costs per ounce of gold sold or per pound of copper sold on a co-product basis are defined in
non-GAAP measures.
Results in chart may not add due to rounding.
2017 exploration expenditures
Planned exploration expenditures for 2017 total $9-million. The 2017 exploration plan includes $6.4-million to finance continuing projects (excluding Greenstone), and $2.6-million for generative and other exploration programs. See the section on the 2017 Greenstone gold property.
2017 capital expenditures
Centerra's projected capital expenditures for 2017, excluding capitalized stripping, are estimated to be $148-million, including $96-million of sustaining capital and $52-million of growth capital.
The attached table shows the projected capital expenditures (excluding capitalized stripping).
Projects 2017 sustaining capital 2017 growth capital
($ millions) ($ millions)
Kumtor mine $68 $28
Mount Milligan mine 26 -
Oksut project - 11
Greenstone gold property - 8
Mongolia - 5
Other (Thompson Creek mine, Endako
mine (75%), Langeloth facility and 2 -
corporate)
Consolidated total 96 52
Kumtor
At Kumtor, 2017 total capital expenditures, excluding capitalized stripping, are forecast to be $96-million. Spending on sustaining capital of $68-million relates primarily to major overhauls and replacements of the heavy-duty mine equipment ($58-million), major overhauls and replacements of mill equipment ($3-million), and other items ($7-million).
Growth capital investment at Kumtor for 2017 is forecast at $28-million, and includes the relocation of certain infrastructure at Kumtor related to the life-of-mine expansion plan amounting to $9-million, tailings dam construction ($11-million), purchase of new mining equipment ($4-million), dewatering projects ($2-million) and other items ($2-million). The tailings dam construction in 2017 is the first such construction required to contain the tailings attributable to the additional 3.6 million ounces of gold reserves that resulted from the KS-13 pit expansion. As such, it is classified as growth capital. This initial raise is the start of a three-year program that will not be completed until 2019 (total estimated cost of $32-million). All tailings dam construction prior to 2017 was related to containing tailings that were generated from the approved ore reserve prior to approval of the KS-13 pit expansion.
The cash component of capitalized stripping costs related to the development of the open pit is expected to be $172-million of the $234-million total capitalized stripping in 2017.
Mount Milligan
At Mount Milligan, 2017 sustaining capital expenditures are forecast to be $26-million. Spending on sustaining capital of $26-million relates primarily to tailing dam construction ($20-million), purchases of the heavy-duty mine equipment ($3-million) and other items ($3-million).
Mongolia (Boroo and Gatsuurt)
In Mongolia, 2017 sustaining capital expenditures are expected to be minimal and growth capital expenditures are estimated at $5-million, which covers costs for additional studies, and capitalized project support and administration costs related to the Gatsuurt project.
Oksut project
The company expects to spend $11-million at the Oksut property in 2017. The total planned spending of $11-million includes detailed engineering, power line construction, and capitalized project support and administration costs. Expected capital expenditures at Oksut in 2017 will be reassessed upon the company obtaining all required permits for construction from local authorities.
Greenstone gold property
Centerra's guidance for 2017 expenditures in connection with the Greenstone gold property is approximately $8-million ($11-million (Canadian)), and represents costs forecast to be spent for capitalized project support and administration costs, and other capital expenditures for the project. During 2017, Greenstone Gold Mines expects to evaluate programs to minimize the risk profile of the Hardrock project, including advancing permitting, first nation discussions, and completing and submitting the environmental assessments based on the feasibility study which would incorporate comments already received from the agencies and impacted stakeholders.
Other sites and corporate
At the Thompson Creek mine, Endako mine (75-per-cent share) and Langeloth metallurgical processing facility, 2017 sustaining capital expenditures are expected to be approximately $1-million. Sustaining capital expenditures for 2017 at the corporate office are expected to be approximately $1-million.
2017 corporate administration and community investment
Corporate and administration expense for 2017 is forecast to be $40-million, which includes $35-million (including $8-million of stock-based compensation expense) for corporate and administration costs, and $5-million for community investment activities.
2017 depreciation, depletion and amortization
Consolidated depreciation, depletion and amortization expense included in costs of sales expense for 2017 is forecasted to be in the range of $201-million to $223-million including Kumtor's DD&A expense of $153-million to $169-million, Mount Milligan's DD&A expense of $40-million to $45-million, and Langeloth's DD&A expense range of $8-million to $9-million.
DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE
(in millions of dollars)
2017 DD&A forecast (unaudited) 2016 DD&A actual
Kumtor
Mine equipment $ 73 $ 65
Less DD&A capitalized to stripping costs (62) (36)
Capital stripping costs amortized 37 to 42 195
Other mining assets 3 3
Mill assets 10 9
Administration assets and other 16 16
Inventory adjustment (non-cash depreciation) 76 to 87 (55)
Subtotal for Kumtor 153 to 169 197
Mount Milligan
Plant and equipment 21 to 22 4
Mineral properties 7 to 8 1
Buildings and other 7 to 8 1
Tailings storage facility 3 to 4 1
Inventory adjustment (non-cash depreciation) 2 to 3 -
Subtotal for Mount Milligan 40 to 45 7
Langeloth
Plant and equipment 6 to 7 1
Buildings and other 2 1
Subtotal for Langeloth 8 to 9 2
Consolidated total 201 to 223 206
Kumtor
At Kumtor, depreciation, depletion and amortization expense included in costs of sales expense for 2016 was $197-million, which is within the guidance for 2016 of $194-million to $208-million disclosed in the 2016 outlook section of the company's 2015 management discussion and analysis (MD&A) filed on SEDAR on Feb. 24, 2016.
The forecast for 2017 DD&A to be expensed as part of costs of sales is between $153-million and $169-million. The mine equipment assets are depreciated on a straight-line basis over their estimated useful lives. The total mine equipment depreciation for 2017 is forecasted at $73-million, reflecting increased depreciation on replacement and expansion of mining equipment. The depreciation related to mine equipment engaged in a stripping campaign and capitalized as stripping costs is forecasted to be $62-million in 2017.
Mount Milligan
At Mount Milligan, depreciation, depletion and amortization expense included in costs of sales expense for 2016 was approximately $7-million, which represents DD&A expense from Oct. 20, 2016, to Dec. 31, 2016. The forecast for 2017 DD&A to be expensed as part of costs of sales is forecasted to be between $40-million and $45-million.
Langeloth
At Langeloth, depreciation, depletion and amortization expense included in costs of sales expense for 2016 was approximately $2-million, which represents DD&A expense from Oct. 20, 2016, to Dec. 31, 2016. The forecast for 2017 DD&A to be expensed as part of costs of sales is forecasted to be between $8-million and $9-million.
2017 taxes
Pursuant to the restated investment agreement, Kumtor's operations are not subject to corporate income taxes. The agreement assesses tax at 13 per cent on gross revenue (plus 1 per cent for the Issyk-Kul Oblast Development Fund).
The Mount Milligan operations are subject to corporate income tax and B.C. mineral tax. Corporate income tax for 2017 is forecast to be nil, while B.C. mineral tax is forecast to be between $3.8-million and $5.4-million.
Sensitivities
Centerra's revenues, earnings and cash flows for 2017 are sensitive to changes in certain key inputs or currencies. The company has estimated the impact of any such changes on revenues, net earnings and cash from operations.
Change Impact on the following ($ millions) Impact on ($ per ounce sold)
Costs Revenues Cash flows Net earnings AISC (2) on byproduct basis
(after tax)
Gold price $50/oz 3.4 to 3.8 31.2 to 34.7 27.7 to 30.7 27.7 to 30.7 1.0
Copper price (3) 10% 0.1 to 0.2 4.6 to 6.7 4.5 to 6.6 4.5 to 6.6 6.3 to 8.3
Diesel fuel 10% 3.5 - 8.3 3.5 10.4 to 11.6
Kyrgyz som (1) one som 0.9 - 1.4 0.9 1.8 to 2.0
Canadian dollar (1) 10 cents 21.0 - 22.7 21.0 28.5 to 31.7
(1) Appreciation of currency against the U.S. dollar will result in higher costs, and lower cash flow and earnings;
depreciation of currency against the U.S. dollar results in decreased costs, and increased cash flow and earnings.
(2) All-in sustaining costs (AISC) per ounce sold on a byproduct basis is a non-GAAP measure and is discussed under
non-GAAP measures.
(3) The company has recalculated the sensitivities for its revenues, earnings and cash flows for 2017 to copper
price changes following a commencement in the first quarter of 2017 of a program to mitigate copper price risk by
purchasing fixed-price forward sales contracts and zero-cost collar.
Material assumptions and risks
Material assumptions or factors used to forecast production and costs for 2017 include the following:
-
A gold price of $1,200 per ounce;
- A copper price of $2.50 per pound;
- A molybdenum price of $7.35 per pound;
- Exchange rates of $1 (U.S.) to $1.32 (Canadian), $1 (U.S.) to 67.0 Kyrgyz som and
$1 (U.S.) to 0.90 euro;
- Diesel fuel price assumption of
50 cents per litre at Kumtor
and 65 cents per litre at Mount Milligan.
The assumed diesel price of 50 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 $45 per barrel. Crude oil is a component of diesel fuel purchased by the company, such that changes in the price of Brent crude oil generally impact diesel fuel prices. The company established a hedging strategy to manage changes in diesel fuel prices on the cost of operations at the Kumtor mine. The diesel fuel hedging program is a 24-month rolling program. The company targets to hedge up to 70 per cent of monthly diesel purchases for the first 12 months and 50 per cent of the 13-through-24-month exposure by entering into hedging arrangements for Brent crude oil.
Other material assumptions were used in forecasting production and costs for 2017. These material assumptions include the following:
- That the company has sufficient cash on hand or available to it in order to finance anticipated operating and development costs;
- The company and its applicable subsidiaries throughout the year continue to meet the terms of the Thompson Creek credit facility, the Oksut facility and the corporate facility in order to maintain current borrowings and compliance with the facilities financial covenants;
- That any 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 stakeholders, and that any such resolution will receive all necessary legal and regulatory approvals under Kyrgyz law and/or Canadian law;
-
All mine plans, expertises, and related permits and authorizations at Kumtor, including permits to allow the raising of the tailings dam and to discharge from the tailings facility, receive timely approval from all relevant governmental agencies in the Kyrgyz Republic and are not subsequently withdrawn;
- 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;
-
Any actions taken by the Kyrgyz Republic parliament and government do not have a material impact on operations or financial results. This includes any actions: (i) being taken by the parliament or government to cancel the Kumtor project agreements; (ii) which are not consistent with the rights of Centerra and KGC under the Kumtor project agreements; or (iii) that cause any disruptions to the operation and management of KGC and/or the Kumtor project;
- The previously disclosed claims received from the Kyrgyzstani regulatory authorities (SIETS and SAEPF) and related Kyrgyz Republic court decisions, 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, criminal and other investigations initiated by the GPO in connection with loans and dividends made by KGC, and the alleged misuse of funds or other property at KGC, any further claims by Kyrgyz authorities, whether environmental allegations or otherwise, and the securities litigation involving Thompson Creek are resolved without material impact on Centerra's operations or financial results;
- 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;
- The movement in the Central Valley waste dump at Kumtor, initially referred to in the annual information form for the year ended Dec. 31, 2013, and in the Lysii and Sarytor waste dumps, does not accelerate and will be managed to ensure continued safe operations, without impact to gold production;
-
The buttress constructed at the bottom of the Davidov glacier continues to function as planned;
-
The company is able to manage the risks associated with the increased height of the pit walls at Kumtor;
-
The dewatering program at Kumtor continues to produce the expected results, and the water management system works as planned;
-
The pit walls at Kumtor and Mount Milligan remain stable;
-
The resource block model at Kumtor and Mount Milligan reconciles as expected against production;
-
Grades and recoveries at Kumtor and Mount Milligan remain consistent with the 2017 production plan to achieve the forecast gold and copper production;
-
The Kumtor mill and the Mount Milligan processing plant continue to operate as expected;
-
Commissioning of the permanent secondary crushing plant at Mount Milligan continues within schedule and budget, and performs as designed;
-
The Mount Milligan processing facility continues to have access to sufficient water supplies to operate year-round;
-
There are no unfavourable changes to concentrate sales arrangements at Mount Milligan and roasting arrangements at the Langeloth facility;
- There are no adverse regulatory changes affecting the company's operations;
- Exchange rates, prices of key consumables, costs of power, water usage fees and any other cost assumptions at all operations and projects of the company are not significantly higher than prices assumed in planning;
- No unplanned delays in or interruption of scheduled production from the company's mines, including due to climate/weather conditions, political or civil unrest, natural phenomena, regulatory or political disputes, equipment breakdown, or other developmental and operational risks.
The company cannot give any assurances in this regard.
Production, cost and capital forecasts for 2017 are forward-looking information, and are based on key assumptions and subject to material risk factors that could cause actual results to differ materially, and which are discussed herein under material assumptions and risks, and under risk factors in the company's third quarter 2016 MD&A and in the company's annual information form for the year ended Dec. 31, 2015.
Qualified person and QA/QC (qualified assurance/quality control)
The scientific and technical information in this news release, including the production estimates, was prepared in accordance with the standards of the Canadian Institute of Mining, Metallurgy and Petroleum, and National Instrument 43-101, and was 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 QA/QC protocols used during the exploration drilling programs are done consistent with industry standards and independent certified assay labs are used.
The Kumtor deposit is described in Centerra's most recently filed annual information form and an NI 43-101 technical report dated March 20, 2015, and filed on SEDAR. The technical report describes the exploration history, geology and style of gold mineralization at the Kumtor deposit. Sample preparation, analytical techniques, laboratories used and QA/QC protocols used during the drilling programs at the Kumtor site prior to April, 2013, are described in the technical report.
The Mount Milligan deposit is described in the NI 43-101 technical report, Mount Milligan mine, north-central British Columbia, dated Jan. 21, 2015, and filed on SEDAR by Thompson Creek. The technical report describes the exploration history, geology and style of gold mineralization at the Mount Milligan deposit. Sample preparation, analytical techniques, laboratories used and QA/QC protocols used during the exploration drilling programs are done consistent with industry standards and independent certified assay labs.
The Boroo deposit is described in Centerra's most recently filed annual information form and a technical report dated Dec. 17, 2009, prepared in accordance with NI 43-101, both of which are available on SEDAR. The technical report describes the exploration history, geology and style of gold mineralization at the Boroo deposit. Sample preparation, analytical techniques, laboratories used and QA/QC control protocols used during the drilling programs at the Boroo site are the same as, or similar to, those described in the technical report.
The Gatsuurt deposit is described in Centerra's most recently filed annual information form and a technical report dated May 9, 2006, prepared in accordance with NI 43-101. The technical report has been filed on SEDAR. The technical report describes the exploration history, geology and style of gold mineralization at the Gatsuurt deposit. Sample preparation, analytical techniques, laboratories used and QA/QC protocols used during the drilling programs at the Gatsuurt project are the same as, or similar to, those described in the technical report.
The Oksut deposit is described in Centerra's most recently filed annual information form and a technical report dated Sept. 3, 2015, prepared in accordance with NI 43-101. The technical report has been filed on SEDAR. The technical report describes the exploration history, geology and style of gold mineralization at the Oksut deposit. Sample preparation, analytical techniques, laboratories used and QA/QC protocols used during the drilling programs at the Oksut project are the same as, or similar to, those described in the technical report.
The Hardrock deposit is described in Centerra's most recently filed annual information form and a technical report dated Dec. 21, 2016, prepared in accordance with NI 43-101. The technical report has been filed on SEDAR. The technical report describes the exploration history, geology and style of gold mineralization at the Hardrock deposit. Sample preparation, analytical techniques, laboratories used and QA/QC protocols used during the drilling programs at the Hardrock project are the same as, or similar to, those described in the technical report.
Non-GAAP measures
This news release contains the following non-GAAP financial measures: all-in sustaining costs per ounce sold on a byproduct basis; all-in sustaining costs per ounce sold on a byproduct basis, including taxes; and all-in sustaining costs per ounce sold on a co-product basis. In addition, non-GAAP financial measures include the following: all-in costs on a byproduct basis per ounce sold (with or without tax); all-in costs excluding development projects (on a byproduct basis) per ounce sold (with or without tax); operating costs (on a sales basis); adjusted operating costs in dollars (millions) and per ounce sold; and cost of sales per ounce sold, capital expenditures (sustaining) and capital expenditures (growth). These financial measures do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable with similar measures presented by other issuers, even as compared with other issuers that may be applying the World Gold Council (WGC) guidelines.
Management believes that the use of these non-GAAP measures will assist analysts, investors and other stakeholders of the company in understanding the costs associated with producing gold, understanding the economics of gold mining, assessing the company's operating performance, its ability to generate free cash flow from current operations and to generate free cash flow on an overall company basis, and for planning and forecasting of future periods. However, the measures do have limitations as analytical tools as they may be influenced by the point in the life cycle of a specific mine, and the level of additional exploration or expenditures a company has to make to fully develop its properties. Accordingly, these non-GAAP measures should not be considered in isolation or as a substitute for analysis of the company's results as reported under GAAP.
Conference call
Centerra invites you to join its 2016 fourth quarter and year-end conference call on Friday, Feb. 24, 2017, 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 800-706-9230 or international callers dial 1-416-359-3128.
Alternatively, an audio feed webcast will be broadcast live by Thomson Reuters and can be accessed at Centerra Gold's website. A slide presentation will also be accessible on Centerra Gold's website.
An audio recording of the call will be available on the company's website shortly after the call and via telephone until midnight on Friday, March 3, 2017, by calling 416-626-4100 or 800-558-5253, and using passcode 21842730. In addition, the webcast will be archived on Centerra Gold's website.
About Centerra
Gold Inc.
Centerra is a Canadian-based gold mining company focused on operating, developing, exploring and acquiring gold properties in North America, Asia and other markets worldwide. Centerra is the largest Western-based gold producer in Central Asia.
We seek Safe Harbor.
© 2024 Canjex Publishing Ltd. All rights reserved.