Centerra Gold Commences Construction at Öksüt and Records First Quarter 2018 Net Earnings of $9 million
NEWS RELEASE
Centerra Gold Commences Construction at Öksüt and Records First Quarter 2018 Net Earnings of $9 million
This news release contains forward-looking information that is subject to the risk factors and assumptions set out under “Caution Regarding Forward-looking Information”. It should be read in conjunction with the Company’s unaudited interim condensed consolidated financial statements and the notes thereto for the three months ended March 31, 2018. The consolidated financial statements of Centerra Gold Inc. are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. All figures are in United States dollars and all production figures are on a 100% basis, unless otherwise stated.
All references in this document denoted with NG, indicate a non-GAAP term which is discussed under “Non-GAAP Measures”, included in the Company’s MD&A herein, and reconciled to the most directly comparable GAAP measure.
Toronto, Canada, May 1, 2018: Centerra Gold Inc. (“Centerra”) (TSX: CG) today reported net earnings of $9.0 million or $0.03 per common share (basic) on revenues of $235.4 million in the first quarter of 2018. The first quarter 2018 results include charges of $4.4 million related to the acquisition of AuRico Metals Inc. Excluding this item, adjusted earningsNG in the first quarter of 2018 were $13.5 million or $0.05 per common share (basic). During the same period in 2017, the Company reported net earnings (and adjusted earningsNG) of $57.0 million or $0.20 per common share (basic) on revenues of $285.3 million.
2018 First Quarter Highlights
- Closed the AuRico Metals Inc. acquisition on January 8, 2018.
- Started construction of the Öksüt Project in Turkey late-March, after receiving the pastureland permit, investment incentive certificate and Board approval during the quarter.
- Partially restarted mill processing operations at Mount Milligan, operating both ball mill circuits at 40,000 tpd at the end of the first quarter.
- On February 1, 2018, entered into a $500 million, four-year senior secured revolving credit facility with a lending syndicate of eight financial institutions as lenders, replacing prior facilities. See “Liquidity – Credit Facilities”.
- Produced a total of 129,764 ounces of gold, including 100,220 ounces at Kumtor and 29,544 ounces at Mount Milligan.
- Sold a total of 132,432 ounces of gold in the quarter, including 116,919 ounces at Kumtor and 15,513 ounces at Mount Milligan.
- Mount Milligan produced 6.1 million pounds of copper during the period and sold 4.5 million pounds of copper.
- Company-wide all-in sustaining costs on a by-product basis per ounce soldNG were $932, excluding revenue-based tax in the Kyrgyz Republic and income tax reflecting the lower sales volumes.
- Cash provided by operating activities before changes in working capitalNG of $66.6 million.
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- Cash, cash equivalents, restricted cash and short-term investments at March 31, 2018 were $123.4 million.
- Value of royalty portfolio enhanced by mineral reserve increases at Kirkland Lake Gold’s Fosterville operation.
Commentary
Scott Perry, President and Chief Executive Officer of Centerra stated, “I am pleased to report that the rollout of our Work Safe – Home Safe program has been fully embraced across the organization and we are now embarking on our drive to zero harm within the work place. We are seeing the early benefits of this safety program where on April 11th, 2018, our Kumtor operation achieved a significant milestone of one full year and 6 million man-hours without incurring a lost time injury.”
“Another significant milestone achieved during the quarter was that we commenced construction activity at the Öksüt Project in Turkey. Our site contractor mobilized their equipment and crews and started work on the main access road to site. Work will continue to ramp up over the summer and we will report back with regular updates on the construction activity at Öksüt.”
“As we reported earlier, we have restarted mill processing activities at the Mount Milligan Mine. Currently, our team on site has both of the ball mill circuits operating at an average throughput of approximately 40,000 tonnes per day while we wait for additional volumes of water from the upcoming freshet (spring melt). Once the freshet is underway, we plan to increase the throughput to our targeted average of 55,000 tonnes per calendar day throughput for the second half of the year.”
“With Mount Milligan back up and running, the Company produced a total of 129,764 ounces of gold in the quarter and 6.1 million pounds of copper. Due to the lower production volumes and the corresponding lower sales volumes our all-in sustaining costs (before taxes)NG were skewed higher this quarter coming in at $932 per ounce. The costs were higher, since Mount Milligan continued to mine through the mill shutdown and had fixed costs to cover during the period, but Kumtor achieved all-in sustaining costs (before taxes)NG of $758 per ounce in the quarter. As production increases at both sites and sales increase in the second half of the year, we expect to see our all-in sustaining costs come down significantly to be more in line with normal operating levels.”
“Financially, the operations delivered in the quarter approximately $67 million of cash provided by operations before changes in working capitalNG. Kumtor generated $85 million while Mount Milligan had a use of cash of only $7 million before working capital changes despite the mill being shutdown for 6 weeks and then operating at less than half capacity for a significant portion of the quarter.”
Select First Quarter 2018 Developments
Acquisition of AuRico Metals Inc.
On January 8, 2018, the Company completed the acquisition (the “AuRico Acquisition”) of 100% of the outstanding shares of AuRico Metals Inc. (“AuRico”). AuRico was a North American-based mining development and royalty company with interests in the Kemess Underground project (the “Kemess Underground”), a feasibility stage underground gold-copper project in British Columbia, Canada, and the Kemess East project (together “Kemess Project”).
The AuRico Acquisition was completed by way of a Plan of Arrangement under the Business Corporations Act (Ontario), whereby the Company acquired all of the issued and outstanding AuRico common shares for
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Cdn$1.80 per share in cash consideration, representing an aggregate transaction value of approximately Cdn$307 million ($247 million).
AuRico’s holdings also included a free cash-flow generating royalty portfolio which includes a 1.5% net smelter return (“NSR”) royalty on the Young-Davidson gold mine in Ontario and a 2.0% NSR royalty on the Fosterville mine in Australia. The value of the royalty portfolio has increased with the significant growth in mineral reserves at the Fosterville Mine operated by Kirkland Lake Gold Ltd. At December 31, 2017, mineral reserves at Fosterville increased by 65% to 1.7 million ounces of gold at 23.1 g/t from Kirkland Lake’s June 30, 2017 mid-year estimate. The Swan Zone mineral reserve doubled to over a million ounces of gold at 61.2 g/t (see Kirkland Lake’s news release dated February 20, 2018).
Prior to the acquisition, the Kemess Underground project achieved the following milestones in 2017:
- March 2017 – granted an Environmental Assessment (EA) Certificate from the Canadian Environmental Assessment Agency and the British Columbia Environmental Assessment Office
- May 2017 – signed an Impact Benefit Agreement (“IBA”) with an alliance of three First Nations groups – the Takla Lake First Nations, Tsay Key Dene First Nation and the Kwadacha First Nation (collectively known as “Tse Key Nay” or “TKN”)
- August 2017 – submitted construction permit applications with the Major Mines Permitting Office
In addition, the Kemess East project announced in May 2017 the results of a preliminary economic assessment (“PEA”) supporting an 11 million tonne per annum panel cave underground mine. A PEA is preliminary in nature and includes inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no certainty that the PEA will be realized.
See “Development Projects – Kemess Underground Project” for further details.
Mount Milligan - Mill Shutdown and Partial Restart
On December 27, 2017, the Company reported that, due to a lack of sufficient fresh water resources, mill processing operations at the Mount Milligan mine had been temporarily suspended. Milling operations restarted, at a reduced capacity, on February 5, 2018 utilizing one ball mill to minimize water requirements. Following a ramp-up period, mill operations achieved sustainable mill throughput levels of approximately 30,000 tonnes per day by mid-February.
On March 23, 2018, the second ball mill was restarted following a build-up of water in Mount Milligan’s tailings storage facility (TSF) due to faster than expected thawing of ice in the TSF as well as pumping of water from groundwater sources, tower drains and nearby Philip Lake.
By the end of the first quarter 2018, milling operations had achieved a throughput of 40,000 tpd.
As at April 30, 2018, the Company has made two shipments of copper/gold concentrates in 2018 with a gross value of approximately $74 million.
See “Mount Milligan Mine” for further details.
Exploration Update
Exploration expenditures in the first quarter of 2018 totaled $2.4 million compared to $1.7 million in the same quarter of 2017. Exploration activities during the first quarter included drilling, trenching, geological mapping, geophysics, surface sampling and geophysics at the Company’s various projects.
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Mount Milligan Mine
Exploration activities in the first quarter of 2018 at Mount Milligan included till drilling and near-pit infill diamond drilling south-west of the current Mount Milligan pit. A total of 3,445 metres in ten diamond drill holes was completed. Assay result have been returned from four drill holes. Selected best results are:
18-1052: 16.1 metres @ 0.20 g/t Au, 0.11% Cu from 155.9 metres;
18-1053: 110.6 metres @ 0.30 g/t Au, 0.35% Cu from 127.8 metres;
18-1054: 26.9 metres @ 0.32 g/t Au, 0.27% Cu from 249.4 metres;
18-1055: 41.5 metres @ 0.24 g/t Au, 0.13% Cu from 216.5 metres;
18-1057: 149.9 metres @ 0.46 g/t Au, 0.43% Cu from 178.5 metres including 10.0 metres @ 1.42 g/t Au, 1.05% Cu and 2 metres @ 1.11 g/t Au, 0.79 % Cu;
18-1059: 110.0 metres @ 1.73 g/t Au, 0.04 % Cu from 6.1 metres including 38.6 metres @ 4.15 Au, 0.07% Cu and 11.95 metres 1.35 g/t Au, 0.05% Cu.
The above mineralized intercepts were calculated using a cut-off grade of 0.1 g/t Au and a maximum internal dilution interval of 4 metres. Drill collar locations and associated graphics are available at the following link:
http://resource.globenewswire.com/Resource/Download/ad0cf0b8-e356-4550-b2a1-edb6119644e0
A listing of the drill results, drill hole locations and plan map for the Mount Milligan Mine have been filed on the System for Electronic Document Analysis and Retrieval (‘SEDAR’) at www.sedar.com and are available at the Company’s web site www.centerragold.com.
Greenfields Exploration Turkey Yamaç Project
The phase one drilling program at the Yamaç Project in northern Turkey was finalized in the first quarter of 2018 with the completion of 863 metres in three diamond drill holes (YDD007-009). The Yamaç Project is an early-stage exploration project located approximately 170 kilometres northwest of Ankara in Zonguldak Province, Turkey. Porphyry-style copper-gold ± molybdenum mineralization was identified in the area through regional reconnaissance (stream sediment sampling and rock chip sampling) and land tenure was acquired in early 2015.
Final assay results have been received for holes YDD007-009 with the following anomalous intercepts being recorded:
YDD007: Au - 16.20 metres @ 0.825g/t Au from 6.40 metres;
including 1.00 metres @ 9.219g/t Au from 15.40 metres;
YDD007: Cu - 45.30 metres @ 0.19% Cu from 60.70 metres;
YDD008: Cu - 26.00 metres @ 0.26% Cu from 16.00 metres;
YDD009: Cu - 3.00 metres @ 0.11% Cu from 147.00 metres.
The above mineralized intercepts were calculated using a cut-off grade of 0.1 g/t Au, 0.1 % Cu, a minimum width of 3.0 metres, and a maximum internal dilution interval of 3.0 metres. Drill collar locations and associated graphics are available at the following link:
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http://resource.globenewswire.com/Resource/Download/ad0cf0b8-e356-4550-b2a1-edb6119644e0
A listing of the drill results, drill hole locations and plan map for Yamaç Project have been filed on the System for Electronic Document Analysis and Retrieval (‘SEDAR’) at www.sedar.com and are available at the Company’s web site www.centerragold.com.
Other Projects
During the first quarter of 2018, exploration programs targeting gold and copper were ongoing in Turkey, Armenia, Canada, Mexico, Nicaragua and Sweden.
Qualified Person & QA/QC - Exploration
Exploration information and other related scientific and technical information in this news release regarding the Mount Milligan Mine were prepared in accordance with the standards of National Instrument 43-101 (“NI 43-101”) and were prepared, reviewed, verified and compiled by C. Paul Jago, Member of the Engineers and Geoscientists British Columbia, Exploration Manager at Centerra’s Mount Milligan Mine, who is the qualified person for the purpose of NI 43-101. Sample preparation, analytical techniques, laboratories used and quality assurance-quality control protocols used during the exploration drilling programs are done consistent with industry standards and independent certified assay labs are used.
Exploration information and other related scientific and technical information in this news release regarding the Yamaç Project were prepared in accordance with the standards of the Canadian Institute of Mining, Metallurgy and Petroleum and National Instrument 43-101 and were prepared, reviewed, verified and compiled by Malcolm Stallman, a Member of the Australian Institute of Geoscientists(AIG), Director Exploration at Centerra’s Turkish subsidiary Centerra Madencilik A.Ş., who is the qualified person for the purpose of NI 43-101. Sample preparation, analytical techniques, laboratories used and quality assurance quality control protocols used during the exploration drilling programs are done consistent with industry standards and independent certified assay labs are used.
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This Management Discussion and Analysis (“MD&A”) has been prepared as of April 30, 2018, and is intended to provide a review of the financial position and results of operations of Centerra Gold Inc. (“Centerra” or the “Company”) for the three months ended March 31, 2018 in comparison with the corresponding periods ended March 31, 2017. This discussion should be read in conjunction with the Company’s unaudited condensed consolidated interim financial statements and the notes thereto for the three months ended March 31, 2018 prepared in accordance with International Financial Reporting Standards (“IFRS”). This MD&A should also be read in conjunction with the Company’s audited annual consolidated financial statements for the years ended December 31, 2017 and 2016, the related MD&A and the Annual Information Form for the year ended December 31, 2017 (the “2017 Annual Information Form”). The Company’s unaudited condensed consolidated interim financial statements and the notes thereto for the three months ended March 31, 2018, 2017 Annual Report and 2017 Annual Information Form are available at www.centerragold.com and on the System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com. In addition, this discussion contains forward- looking information regarding Centerra’s business and operations. Such forward-looking statements involve risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward looking statements. See “Risk Factors” and “Caution Regarding Forward-Looking Information” in this discussion. All dollar amounts are expressed in United States dollars (“USD”), except as otherwise indicated.
Overview
Centerra is a Canadian-based gold mining company focused on operating, developing, exploring and acquiring gold properties worldwide and is one of the largest Western-based gold producers in Central Asia. Centerra’s principal operations are the Kumtor Gold Mine located in the Kyrgyz Republic and the Mount Milligan Gold-Copper Mine located in British Columbia, Canada.
The Company’s significant wholly-owned subsidiaries include Kumtor Gold Company (“KGC” or “Kumtor”) in the Kyrgyz Republic, Thompson Creek Metals Company Inc. (“Thompson Creek”) and AuRico Metals Inc. (“AuRico”) in Canada, Langeloth Metallurgical Company LLC (“Langeloth”) and Thompson Creek Mining Co. in the United States of America, Öksüt Madencilik Sanayi vi TicaretA.S. (“OMAS”) in Turkey and Boroo Gold LLC and Centerra Gold Mongolia LLC (“CGM”) in Mongolia. Additionally, the Company holds, through Thompson Creek, a 75% joint venture interest in the Endako Mine in British Columbia, Canada, and through AuRico a royalty portfolio which includes a 1.5% net smelter return (“NSR”) royalty on the Young-Davidson gold mine in Ontario and a 2.0% NSR royalty on the Fosterville mine in Australia. The Company also owns a 50% partnership interest in Greenstone Gold Mines LP (the “Greenstone Partnership”) which owns the Greenstone Gold development property including the Hardrock deposit, located in Ontario, Canada. See “Operating Mines and Facilities”, “Development Projects” and “Other Corporate Developments” for further details.
The Company has also entered into agreements to earn an interest in joint venture exploration properties located in Mexico, Sweden and Nicaragua. In addition, the Company has exploration properties in Armenia, Canada and Turkey.
Centerra’s common shares are listed for trading on the Toronto Stock Exchange under the symbol CG. As of April 30, 2018, there are 291,822,674 common shares issued and outstanding and options to acquire 6,208,732 common shares outstanding under its stock option plan.
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Market Conditions
Gold Price
During the first quarter of 2018, the spot gold price fluctuated between a low of $1,308 per ounce and a high of $1,341 per ounce. The average spot gold price for the first quarter was $1,329 per ounce, an increase of $110 per ounce from the first quarter of 2017 average ($1,219 per ounce), and a $54 per ounce increase compared to the fourth quarter of 2017 average ($1,275 per ounce).
Copper Price
The average spot copper price for the quarter was $3.15 per pound, a $0.50 per pound increase compared to the first quarter of 2017 average of $2.65 per pound, and a $0.06 per pound increase compared to the fourth quarter of 2017 average ($3.09 per pound).
Molybdenum Price
The average molybdenum price for the quarter was $12.22 per pound, a $4.92 per pound increase compared to the first quarter of 2017 average of $7.30 per pound, and a $3.47 per pound increase compared to the fourth quarter of 2017 average ($8.75 per pound).
Foreign Exchange Rates
USD to CAD
The average U.S. dollar exchange rate for the first quarter of 2018 (1.26), although weakening towards the end of the quarter, was relatively flat when compared to the average of the fourth quarter of 2017 (1.25), with rates in the first quarter ranging from 1.23 to 1.31. The Bank of Canada executed one domestic interest rate hike in the first quarter of 2018, raising the key overnight rate target from 1.0% to 1.25%. The low point for the Canadian dollar was in mid-March, before slightly recovering and closing the quarter at 1.29.
USD to Kyrgyz Som
The average U.S. dollar exchange rate for the first quarter of 2018 was relatively consistent with the average of the first quarter of 2017 (69.2), with rates in the quarter ranging from 67.9 to 69.4 and averaging 68.5. The Kyrgyz som continues to be influenced by currencies of the Kyrgyz Republic’s main trading partners
- mainly Russia.
Foreign Exchange Transactions
The Company receives its revenues through the sale of gold, copper and molybdenum in U.S. dollars. The Company has operations in the Canada, where its corporate head office is also located, Kyrgyz Republic, Turkey, Mongolia and the United States of America. During the first three months of 2018, the Company incurred combined expenditures (excluding the purchase of AuRico and including capital) totalling approximately $449 million. Approximately $152 million of this (34%) was in currencies other than the U.S. dollar. Centerra’s non-U.S. dollar costs includes 47% in Canadian dollars, 42% in Kyrgyz soms, 5% in Turkish lira, and 4% in Euros. The average value of the Canadian dollar and Turkish lira both depreciated against the U.S. dollar by approximately 1% from their value at December 31, 2017. The Euro and Kyrgyz som appreciated against the U.S. dollar by approximately 2% and 1%, respectively, over the same period. The net impact of these movements in the three months ended March 31, 2018 was to decrease annual costs by $0.1 million (increase of $1.2 million in the three months ended March 31, 2017).
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Consolidated Financial and Operational Highlights
| Unaudited ($ millions, except as noted) | Three months ended March 31, | ||
|---|---|---|---|
| Financial Highlights | 2018 | 2017 | % Change |
| Revenue | $ 235.4 | $ 285.3 | (18%) |
| Cost of sales | 152.8 | 171.9 | (11%) |
| Standby costs | 10.8 | - | 100% |
| Earnings from mine operations | 68.9 | 109.3 | (37%) |
| Finance costs | 14.8 | 7.7 | 91% |
| Net earnings (loss) | $ 9.0 | $ 57.0 | (84%) |
| Adjusted earnings (3) | 13.5 | 57.0 | (76%) |
| Cash provided by (used in) operations | (39.7) | 72.5 | (155%) |
| Cash provided by operations before changes in working capital (3) | 66.6 | 118.1 | (44%) |
| Capital expenditures (sustaining) (3) | 24.7 | 18.6 | 33% |
| Capital expenditures (growth) (3) | 3.4 | 4.0 | (14%) |
| Capital expenditures (stripping) | 38.5 | 62.5 | (39%) |
| Total assets | $ 2,862.9 | $ 2,686.1 | 7% |
| Long-term debt and lease obligation | 313.4 | 380.0 | (18%) |
| Cash, cash equivalents and restricted cash | 123.4 | 357.8 | (65%) |
| Per Share Data | |||
| Earnings per common share - $ basic (1) | $ 0.03 | $ 0.20 | (84%) |
| Earnings per common share - $ diluted (1) | $ 0.03 | $ 0.20 | (84%) |
| Adjusted earnings per common share - $ basic (1)(3) | $ 0.05 | $ 0.20 | (76%) |
| Adjusted earnings per common share - $ diluted (1)(3) | $ 0.05 | $ 0.20 | (76%) |
| Per Ounce Data (except as noted) | |||
| Average gold spot price - $/oz(2) | 1,329 | 1,219 | 9% |
| Average copper spot price - $/lbs(2) | 3.15 | 2.65 | 19% |
| Average realized gold price (Kumtor) - $/oz(3) | 1,309 | 1,219 | 7% |
| Average realized gold price (Mount Milligan - combined) - $/oz(3) | 1,037 | 1,054 | (2%) |
| Average realized gold price (Consolidated) - $/oz(3) | 1,277 | 1,172 | 9% |
| Average realized copper price (Consolidated) - $/lbs(3) | 2.22 | 2.10 | 6% |
| Operating Highlights | |||
| Gold produced – ounces | 129,764 | 172,644 | (25%) |
| Gold sold – ounces | 132,432 | 187,914 | (30%) |
| Payable Copper Produced (000's lbs) | 6,143 | 12,595 | (51%) |
| Copper Sales (000's payable lbs) | 4,506 | 13,612 | (67%) |
| Operating costs (on a sales basis) (3) (4) | 111.5 | 117.6 | (5%) |
| Unit Costs | |||
| Operating costs (on a sales basis) - $/oz sold (3) (4) | $ 842 | $ 626 | 35% |
| Adjusted operating costs on a by-product basis - $/oz sold(3)(4) | $ 446 | $ 340 | 31% |
| Gold - All-in sustaining costs on a by-product basis – $/oz sold(3)(4) | $ 932 | $ 750 | 24% |
| Gold - All-in sustaining costs on a by-product basis (including taxes) – $/oz sold(3) (4) | $ 1,097 | $ 879 | 25% |
| Gold - All-in sustaining costs on a co-product basis (before taxes) – $/oz sold(3)(4) | $ 903 | $ 795 | 14% |
| Copper - All-in sustaining costs on a co-product basis (before taxes) – $/pound sold(3)(4) | $ 3.08 | $ 1.86 | 66% |
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(1) As at March 31, 2018, the Company had 291,785,970 common shares issued and outstanding (291,822,674 common shares as of April 30, 2018). As of April 30, 2018, Centerra had 6,208,732 share options outstanding under its share option plan with exercise prices ranging from Cdn$2.83 per share to US$36.74 per share, with expiry dates between 2018 and 2026.
(2) Average for the period as reported by the London Bullion Market Association (US dollar Gold P.M. Fix Rate) and London Metal Exchange (LME). This is a non-GAAP measure and is discussed under “Non-GAAP Measures”.
(3) Non-GAAP measure. See discussion under “Non-GAAP Measures”.
(4) Excludes Molybdenum business.
Overview of Consolidated Results
First Quarter 2018 compared to First Quarter 2017
The Company recorded net earnings of $9.0 million in the first quarter of 2018, compared to $57.0 million in the same period of 2017. The lower earnings in the first quarter of 2018 reflect the shutdown and partial restart of milling operations at Mount Milligan. Also negatively impacting earnings was lower gold production at Kumtor, due primarily to processing complex Sarytor ore with lower average mill gold head grades and lower recoveries, partially offset by higher realized gold prices. In addition, the first quarter of 2018 earnings include costs related to the AuRico Acquisition and integration of $4.4 million. Excluding the costs related to the AuRico Acquisition, adjusted earningsNG in the first quarter of 2018 were $13.5 million compared to $57.0 million in the comparative period.
Production:
Gold production in the first quarter of 2018 totaled 129,764 ounces compared to 172,644 ounces in the same period of 2017. Gold production at Kumtor was 100,220 ounces in 2018, 21% lower than the 127,400 ounces produced in 2017. The decrease in ounces poured at Kumtor is a result of milling lower grade and lower recovery ore from stockpiles (2.58 g/t and 72.2% recovery compared to 3.53 g/t and 76.0% recovery) compared to first quarter of 2017. During the first quarter of 2018, Mount Milligan produced 29,544 ounces of gold and 6.1 million pounds of copper, compared to 45,244 ounces of gold and 12.6 million pounds of copper in the first quarter of 2017. The lower production at Mount Milligan in the first quarter of 2018 is due to the shutdown and partial restart of milling operations due to the lack of fresh water and low water volumes used in processing.
Safety and Environment:
Centerra had seven reportable injuries which included two lost time injuries, four medical aid injuries and one restricted work injury in the first quarter of 2018. On April 11, 2018, the Kumtor operation achieved one full year and 6 million man-hours without incurring a lost time injury.
During the first quarter of 2018 there were no reportable release to the environment.
Financial Performance:
Revenue decreased to $235.4 million in the first quarter of 2018 from $ 285.3 million in the same period of 2017, as a result of lower sales at Mount Milligan (15,513 gold ounces compared to 53,232 gold ounces and 4.5 million pounds of copper compared to 13.6 million pounds of copper) and 13% fewer gold doré ounces sold at Kumtor. The decrease in sales in the first quarter of 2018 reflects lower production as described above. However, the decrease in overall revenue was partially offset by a 4% higher combined average realized gold priceNG during the first quarter of 2018 ($1,204 per ounce compared to $1,154 per ounce in the first quarter of 2017).
Cost of sales decreased in the first quarter of 2018 to $152.8 million compared to $171.9 million in the same period of 2017, mainly resulting from the lower number of gold ounces and copper pounds sold. 1 University Avenue, Suite 1500 9 Depreciation, depletion and amortization associated with production was $41.3 million in 2018 as compared to $54.3 million in the first quarter of 2017 due to lower sales volumes in the first quarter of 2018.
Standby costs of $10.7 million recorded in the first quarter of 2018 represent overhead costs at Mount Milligan during the mill shutdown and ramp-up period that were unrelated to normal processing volumes.
Financing costs in the first quarter of 2018 totalled $14.8 million, including a charge of $4.9 million for the write-off of the unamortized deferred financing costs associated with the Centerra B.C. Facility, EBRD Facility and the AuRico Acquisition Facility settled in the quarter. Financing costs in the comparative quarter of 2017 totalled $7.7 million, representing interest paid and amortization of deferred financing costs on the Centerra B.C. Facility and the EBRD Facility.
Operating Costs:
Operating costs (on a sales basis)NG decreased to $111.5 million in the first quarter of 2018 compared to $117.6 million in the same period of 2017. The decrease in costs is primarily due to lower sales volumes for gold and copper, partially offset by higher molybdenum sales and prices.
Centerra’s all-in sustaining costs on a by-product basis per ounce of gold soldNG, which excludes revenuebased tax and income tax, increased to $932 in 2018 from $750 in the comparative period mainly as a result of 30% fewer gold ounces sold, higher sustaining capitalNG, increased administration costs, as a result of the AuRico Acquisition, partially offset by lower capitalized stripping costs at Kumtor.
Liquidity and Capital Resources
The Company believes its cash on hand and working capital as at March 31, 2018, together with future cash flows from operations and cash provided by the Company’s existing credit facilities will be sufficient to fund its anticipated operating cash requirements, although there can be no assurance of this.
As at March 31, 2018, the Company held cash, cash equivalents, restricted cash and short-term investments of $123 million and undrawn credit facilities of $335 million.
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Cash generation and capital management:
Cashflow
| Unaudited ($ millions, except as noted) Cash provided by operations before changes in working capitalNG - Changes in working capital Cash (used in) provided by operating activities Cash used in investing activities: - Capital additions (cash) - Short-term investment net redeemed (net purchased) - Payment to AuRico shareholders - Cash received on AuRico acquisition - Increase in restricted cash - Other investing items Cash used in investing activities Cash received from (used in) financing activities: - Proceeds from (repayment of) debt - Payment of interest and borrowing costs and other Cash provided by (used in) financing activities Decrease in cash and cash equivalents | Three Months ended March 31, | ||
|---|---|---|---|
| 2018 | 2017 | % Change | |
| 66.6 (106.3) | 118.1 (45.6) | (44%) 133% | |
| (39.7) | 72.5 | (155%) | |
| (59.0) - (247.0) 20.2 (2.3) (6.0) | (69.0) (25.0) - - (2.7) (8.2) | (14%) (100%) (100%) 100% (14%) (27%) | |
| (294.1) | (104.9) | 180% | |
| 49.1 (10.7) | (37.5) (8.7) | (231%) 22% | |
| 38.4 | (46.2) | (183%) | |
| (295.4) | (78.7) | 275% |
Cash provided by operations before working capital changesNG decreased to $66.6 million in first quarter of 2018, compared to $118.1 million in the comparative period, as a result of lower earnings in the current year and higher working capital levels. Working capital movements in the first quarter of 2018 reflect increased levels at Mount Milligan due to the timing of payments to Royal Gold and increased receivable levels at Kumtor due to timing of shipments, partially offset by reduced levels in the molybdenum business.
The Company used $39.7 million in cash from operations in the first quarter of 2018 as compared to generating $72.5 million in the same period of 2017. Mount Milligan used $42.4 million in the first quarter of 2018, as a result of the mill processing disruptions discussed previously (compared to $2.8 million used in the comparative period), while Kumtor generated $43.1 million as compared to $91.6 million for the comparative period in 2017, a decrease related to lower production and the timing of shipments.
Cash used in investing activities increased to $294.1 million in the first quarter of 2018 as compared to $104.9 million in the same period of 2017, reflecting in 2018 the AuRico Acquisition for net cash outlays of $226.8 million.
Cash provided by financing activities of $38.4 million in the first quarter of 2018 represents the drawdown of $125 million under the AuRico Acquisition Facility (which was later replaced by the Corporate Facility), the repayment of the EBRD Facility of $76 million and payment of interest and borrowing costs. In the comparative quarter of 2017, the Company used $46.2 million from its financing activities, including principal repayments of $25 million on its EBRD Facility and $12.5 million on the Centerra B.C. Facility, in addition to normal payments for interest and borrowing costs.
Cash, cash equivalents, restricted cash and short-term investments at March 31, 2018 decreased to $123.4 million from $416.6 million at December 31, 2017.
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Credit Facilities
Centerra was in compliance with the terms of all of its credit facilities at March 31, 2018.
Centerra Revolving Term Corporate Facility On February 1, 2018, the Company entered into a new $500 million four-year senior secured revolving credit facility (the "Corporate Facility").
The Corporate Facility is held at the corporate level and is an amendment and restatement of a credit facility entered into by Centerra B.C. Holdings Inc. (the “Centerra B.C. Facility”), which had an outstanding balance owed of $190 million at the time of the amendment. The Corporate Facility also replaced the AuRico Acquisition Facility and the EBRD Facility (discussed below).
The Corporate Facility is for general corporate purposes, including working capital, investments, acquisitions and capital expenditures and as at March 31, 2018 had a drawn balance of $315 million.
OMAS Facility In 2016, OMAS, a wholly-owned subsidiary of the Company, entered into a $150 million five-year revolving credit facility (the “OMAS Facility”). In April 2018, the OMAS Facility was amended, and among other things, extended the expiry of the facility from December 30, 2021 to March 31, 2024. The purpose of the OMAS Facility is to assist in financing the construction of the Company’s Öksüt Project.
Availability of the OMAS Facility is subject to customary conditions precedent, with a deadline for completion of June 30, 2018. If the conditions are not satisfied, waived or amended by such deadline, the commitments under the OMAS Facility will be cancelled. The Company expects that such conditions will be satisfied in the normal course.
As part of the April 2018 amendment to the OMAS Facility, OMAS agreed to apply all excess cash flow towards debt prepayment until the Öksüt Project’s mining license is extended beyond its current expiry date of January 16, 2023. OMAS intends to apply for the extension of its mining license when permitted under Turkish legislation, which is two years prior to its expiry In addition, Centerra will provide a limited guarantee of a portion of OMAS’ obligations under the OMAS Facility and will agree to comply with certain covenants which are consistent with the covenants under the Corporate Facility. The guarantee will be callable under certain limited circumstances – primarily if the Öksüt mining license is not extended beyond January 16, 2023. The guarantee provided by Centerra as at January 16, 2023 will be limited to the OMAS facility balance outstanding at that time.
As at March 31, 2018, $4.9 million (December 31, 2017 - $4.8 million) of OMAS Facility deferred financing fees were included in prepaid expenses as the Company has yet to draw from the facility. The deferred financing fees are being amortized over the term of the OMAS Facility. The Company expects to be in a position to draw on the OMAS Facility in the second quarter of 2018. See “Caution Regarding Forward Looking information”.
AuRico Metals Inc. Acquisition Facility Subsequent to the end of the year, on January 8, 2018, the Company announced it had acquired all of the issued and outstanding common shares of AuRico. The purchase was funded, in part, by a $125 million acquisition facility (“AuRico Acquisition Facility”). The AuRico Acquisition Facility was repaid and cancelled when the Company entered into the Corporate Facility, noted above.
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