Centerra Gold Repays $112 Million of Debt in Third Quarter 2017 and Generates $62 Million Free Cash FlowNG
NEWS RELEASE
Centerra Gold Repays $112 Million of Debt in Third Quarter 2017 and Generates $62 Million Free Cash FlowNG
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 and nine month period ended September 30, 2017. The consolidated financial statements of Centerra are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. All figures are in United States dollars unless otherwise stated.
All references in this document denoted with NG, indicate a non-GAAP term which is discussed under “Non-GAAP Measures”.
Toronto, Canada, October 31, 2017: Centerra Gold Inc. (TSX: CG) today reported a net loss of $0.8 million or $nil per common share (basic) on revenues of $276.2 million in the third quarter of 2017. The third quarter 2017 result includes a one-time charge of $60 million ($0.20 per share) as a result of the settlement reached with the Government of the Kyrgyz Republic and a gain from proceeds received of $9.8 million ($6.9 million net of tax or $0.02 per share) on the sale of the ATO property in Mongolia. Excluding these items, adjusted earningsNG in the third quarter 2017 were $52.3 million or $0.18 per common share (basic). During the same period in 2016, the Company reported net earnings (and adjusted earningsNG) of $66.9 million or $0.28 per common share (basic) on revenues of $218.7 million.
The Company’s results include Thompson Creek operations for the three and nine months ended September 30, 2017. Comparative results for the same periods in 2016 do not include Thompson Creek operations, as the Company closed the acquisition of Thompson Creek Metals Company Inc. on October 20, 2016.
2017 Third Quarter Highlights
- Entered into a comprehensive settlement agreement with the Government of the Kyrgyz Republic to resolve all the outstanding matters affecting the Kumtor Project. Closing expected in the fourth quarter.
- Repaid $111.9 million of debt in the quarter under the Company’s credit facilities.
- Produced a total of 200,201 ounces of gold, including 138,561 ounces at Kumtor and 61,640 ounces at Mount Milligan.
- Sold a total of 174,099 ounces of gold in the quarter, including 99,514 ounces at Kumtor and 74,585 ounces at Mount Milligan. Kumtor’s gold sales to the refinery were limited in the quarter.
- Mount Milligan produced 13.7 million pounds of copper during the period and sold 18.6 million pounds of copper.
- Company-wide all-in sustaining costs on a by-product basis per ounce soldNG for the third quarter were $722, excluding revenue-based tax in the Kyrgyz Republic and income tax.
- Cash generated from operations totaled $119.5 million.
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- Cash provided by operating activities before changes in working capitalNG of $108.0 million (including $74.3 million from Kumtor and $48.0 million from Mount Milligan).
- Cash, cash equivalents and short-term investments at September 30, 2017 was $352.1 million.
- Gold doré inventory held at Kumtor as of September 30, 2017 valued at market at $53.4 million.
- Revised Company-wide gold production guidance for 2017 to 775,000 to 815,000 ounces reflecting increased production guidance at Kumtor and lower payable gold production guidance at Mount Milligan.
- Completed an updated feasibility study on the Gatsuurt Project which shows total open pit mineral reserves of 1.3 million contained ounces of gold (15.4 million tonnes at an average gold grade of 2.7 grams per tonne gold), using a gold price assumption of $1,250 per ounce of gold.
Commentary
Scott Perry CEO of Centerra Gold stated, “During the third quarter both of our operating sites completed the deployment of our Company-wide safety leadership program “Work Safe, Home Safe” with every employee. For the rest of the year we will continue to deploy the program at the balance of our sites, so that by year-end every Centerra employee will have received training.”
“In the quarter, we achieved an important milestone when we reached a comprehensive settlement agreement with the Government of the Kyrgyz Republic to resolve all of the outstanding matters affecting the Kumtor Project. The settlement provides for the lifting of all restrictions on the freedom of movement of Kumtor employees as well as the restrictions on the ability of Kumtor to distribute funds to Centerra. The agreement also provides business certainty for future mining operations at the Kumtor Project, as it preserves all rights of Centerra and Kumtor under the Kumtor Project Agreements.”
“Operationally, we had a good quarter producing 200,201 ounces of gold and 13.7 million pounds of copper at a low all-in sustaining cost on a by-product basis of $722 per ounce soldNG, reflecting Mount Milligan achieving all-in sustaining costs on a by-product basis per ounce soldNG (before tax) of $437.”
“Financially, both operations generated a significant amount of cash from operations before working capital changesNG during the quarter, Mount Milligan generated $48.0 million and Kumtor generated $74.3 million.”
“The lifting of Kumtor’s cash restriction along with the positive cash flow generated from both our operations during the quarter enabled the Company to aggressively pay down its debt by approximately $112 million. Looking forward to the fourth quarter, our production levels are expected to increase which means the Company’s cash position should continue to grow as the operations continue to generate positive cash flows. We are well positioned to achieve our updated production and cost guidance for the year, ranking the Company in the lower-cost quartile on the global gold producers All-In Sustaining Cost curve.”
Management Changes
The Company also announces that Frank Herbert, President of Centerra will be retiring at December 31, 2017. Mr. Herbert joined Centerra in 2004 as General Counsel and was named President in 2015. In recognition of Frank’s service, Stephen Lang, Chairman of Centerra, stated “On behalf of the Board of Directors and the Company, I thank Frank for his leadership, hard work and integrity as well as his thoughtful advice and contributions to the strategic direction of the Company during his many years of service, particularly in the area of government relations and negotiations with the Kyrgyz Republic and Mongolia. We wish Frank well in his retirement.”
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As part of the Company’s succession plan, Mr. Yousef Rehman, Senior Legal Counsel, will be promoted to General Counsel. Mr. Herbert will work with Mr. Rehman to ensure a smooth transition. Yousef joined Centerra in 2013. Prior to joining Centerra, Yousef worked in the private sector and with Stikeman Elliott LLP on M&A and securities transactions. Since joining Centerra, Yousef has been involved in all of the Company’s significant strategic initiatives, including the acquisition of Thompson Creek Minerals and the recently announced Strategic Agreement with the Kyrgyz Republic. Yousef holds undergraduate and law degrees from the University of Toronto and was called to the Ontario Bar in 2007. Additionally, upon Mr. Herbert’s retirement, Scott Perry, CEO of Centerra will take on the added title of President of Centerra. Mr. Perry joined Centerra and was named CEO in 2015.
Exploration Update
Exploration activities during the third quarter included drilling, geological mapping, soil/chip and channel sampling, and geophysics at the Company’s various projects. Exploration expenditures for the third quarter of 2017 totalled $2.5 million compared to $3.5 million in the same period of 2016 ($6.6 million in the first nine months of 2017 compared to $8.6 million in the comparative period of 2016).
During the quarter, drilling activities were initiated at the Northern and Southern Siuna Project in Nicaragua (Calibre JV), the Klippen and Käringberget project areas in Sweden (Erris Resources JV) and the Kapyut Project in Armenia (100% owned). At the Yamaç Project in Turkey (100% owned) a drill program is expected to commence in the fourth quarter 2017. Centerra continues to advance other exploration opportunities in Turkey, Armenia, Canada, Mexico, Nicaragua and Sweden.
Brownfields Exploration Turkey Öksüt Gold Project
Drilling activities continued during the quarter at Öksüt with 12 drill holes completed for 1,870 metres, at a cost of $0.3 million ($0.6 million in the first nine months of 2017). The in-pit infill diamond drill holes were encouraging for both the Keltepe and Güneytepe deposits with some of the better intervals being:
Keltepe (in pit)
ODD0290 from 81.8 to 231.2 metres; 148.9 metres @ 2.41 g/t gold (“Au”)
including 38.3 metres @ 5.96 g/t Au from 111 to 149.3 metres.
ODD0291 from 71.6 to 209.4 metres; 137.3 metres @ 1.47 g/t Au including 5.5 metres @ 2.48 g/t Au and 65.4 metres @ 2.32 g/t Au
Güneytepe (in pit)
ODD0281 from the surface; 80.8 metres @ 1.23 g/t Au ODD0282 from 21.9 to 71.5 metres 49.6 metres @ 0.58 g/t Au including 12 metres @1.28 g/t Au ODD0283 from the surface; 42.3 metres @ 1.07 g/t Au ODD0284 from 72.5 to 83.7 metres 11.2 metres @ 0.35 g/t Au
These results will be incorporated into the year-end reserves/resources update.
The 2017 objectives for the 3,000 metres drill program were to upgrade the resources at Keltepe and Güneytepe, as well as to confirm oxide mineralization at Keltepe NW, Yelibelen and Büyüktepe target areas. The success of the infill drilling at both Keltepe and Güneytepe has warranted an additional 1,000 metres to be added to the 2017 drill program to improve the resource model and to close off Güneytepe mineralization.
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The above mineralized intercepts were calculated using a cut-off grade of 0.2 g/t Au and a maximum internal dilution interval of 5.0 metres. Drill collar locations and associated graphics are available at the following link: http://media3.marketwire.com/docs/CGQ32017LOC.pdf
A listing of the drill results, drill hole locations and plan map for the Öksüt 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.
Canada Mount Milligan Mine
A near pit drilling program (within the ultimate open pit) was completed in the third quarter for a total of 3,168 metres in six diamond drill holes. Drilling costs in the third quarter and first nine months of 2017 were $0.5 million and were charged to operating costs. Results for three holes were available at the end of the quarter. Intersected mineralization and some of the better results are:
17-039 from 103 to 151 metres; 48 metres @ 0.23 g/t Au, 0.25% Cu 17-040 from 164 to 198 metres; 34 metres @ 0.39 g/t Au, 0.38% Cu 17-041 from 46 to 134 metres; 88 metres @ 0.27 g/t Au, 0.16% Cu
These results, along with the results from the remainder of the planned program (3,650 metres), will be incorporated into the year-end reserves/resources update.
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://media3.marketwire.com/docs/CGQ32017LOC.pdf
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.
Qualified Person & QA/QC - Exploration
Exploration information and other related scientific and technical information in this news release regarding the Öksüt Project were prepared in accordance with the standards of the Canadian Institute of Mining, Metallurgy and Petroleum and National Instrument 43-101 (NI 43-101) and were prepared, reviewed, verified and compiled by Mustafa Cihan, Member of the Australian Institute of Geoscientists (AIG), Exploration Manager at Centerra’s Turkish subsidiary Öksüt 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.
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 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.
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Gastuurt Project Update
In October 2017, the Company completed a feasibility study for the Gatsuurt Project (“the Feasibility Study”) located in central northern Mongolia. The Feasibility Study incorporates results from the technical and economic studies initiated in 2016, further optimization studies completed in 2017, updated capital and operating costs and the current Mongolian tax and royalty regime.
Highlights of the Feasibility Study:
- Total open-pit mineral reserves of 1.3 million contained ounces of gold (15.4 million tonnes at an average gold grade of 2.7 grams per tonne gold (g/t Au) using a gold price assumption of $1,250 per ounce;
- Mineral reserves consist of 339,000 contained ounces of gold in oxide material (4.9 million tonnes grading 2.2 g/t Au) and 977,000 contained ounces of gold in refractory sulphide material (10.5 million tonnes grading 2.9 g/t Au);
- Life-of-mine (“LOM”) gold production of 1.1 million ounces and 10 years of operations; average annual gold production of 111,000 ounces;
- Mill throughput of 4,800 tonnes per day (tpd) with average LOM mill head grade of 2.7 g/t Au and 84.4% recovery;
- Planned conventional open pit and contract mining;
- LOM strip ratio of 4.7:1 (waste:ore);
- Total LOM construction capital cost of $245 million, includes Boroo mill refurbishment ($8 million), upgrades to the existing 55 km haul road ($14 million), a new 110kv and 35kv power line ($12 million), expansion of the existing tailings management facility ($21 million), water diversion and treatment ($10 million), the addition of flotation circuit, BIOX® plant and CIP plant ($95 million), owner’s costs ($28 million) and a contingency of $27 million;
- Total LOM sustaining capitalNG of $36.6 million excluding closure costs of $13.9 million;
- LOM all-in sustaining costNG of $870 per ounce sold; after inclusion of growth capitalNG, LOM all-in costNG (excluding taxes) is $1,103 per ounce sold;
After-tax payback period of 7 years; and
- After-tax net present value of (NPV) at 5% discount rate of $39.4 million, and an after-tax 9.3% project internal rate of return (“IRR”) on a pre-finance basis.
The Company has not made a development or construction decision on the Gatsuurt Project and expects to restart negotiations with the Mongolian Government based on the results of the Gatsuurt Feasibility Study.
The economic analysis in the Feasibility Study is based on the current Mongolian tax and royalty regime which includes a 25% income tax, a government royalty of 9%, a 3% estimated special royalty to the Mongolian Government and a 3% royalty held by a previous owner of the Gatsuurt Project. The Feasibility Study and LOM plan are subject to a number of assumptions and risks noted in the Material Assumptions and Risks Section (stated below).
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Gatsuurt Mineral Resource and Reserve Summary Mineral Reserves 1
| Classification | Tonnes (‘000) | Grade (Au g/t) | Ounces (000) |
|---|---|---|---|
| Probable | 15,356 | 2.7 | 1,316 |
1) The mineral reserve has been calculated using a gold price of $1,250 per ounce and have been validated by the positive project NPV that uses a 5% discount rate.
Mineral Resources (Exclusive of Mineral Reserves) 1
| Classification | Tonnes (‘000) | Grade (Au g/t) | Ounces (000) |
|---|---|---|---|
| Indicted | 10,988 | 1.9 | 678 |
| Classification | Tonnes (‘000) | Grade (Au g/t) | Ounces (000) |
|---|---|---|---|
| Inferred | 3,812 | 2.1 | 263 |
1) The mineral resources are exclusive of mineral reserves and have estimated on the basis of a gold price of $1,450 per ounce. The resources have been constrained by an economic open pit in accordance with CIM best practices.
The Feasibility Study plan for mining is to occur in two phases, initially targeting the oxide material that can be milled at the existing Boroo processing facility followed by the refractory sulphide material which requires the addition of a BIOX® circuit. The processing plan is to refurbish the existing Boroo mill to process the oxide material in the first three years while the BIOX® circuit is being constructed which will treat the refractory sulphide material in years 4 through 10. Initial capital expenditures for the processing of the oxide material are expected to be approximately $76 million excluding contingency of $8 million.
The LOM operating cost estimates used in the Feasibility Study on a per tonne processed basis are: mining $10.97, ore haulage $5.37, oxide processing $11.90, sulphide processing $26.42 and administration $8.92.
A technical report for the Gatsuurt Project will be prepared in accordance with National Instrument 43- 101 and will be filed on SEDAR at www.sedar.com and on the Company’s websites before year-end.
Material Assumptions & Risks
Material assumptions or factors that have been used in the Mineral Reserve and Mineral Resource estimates and the Gatsuurt Feasibility Study and LOM plan include the following:
- A gold price of $1,250 per ounce,
- An exchange rate of 2,200 MNT: US$1.
Other important assumptions (and corresponding risks) that are implicit in the Mineral Reserve and Mineral Resource estimates and Gatsuurt Feasibility Study and LOM plan are as follows:
- All necessary permits, licenses, and approvals, including the EA/EIS and waste dump footprints, are received in a timely manner;
- All licenses held by Centerra in relation to the Gatsuurt Project and all related administrative acts remain in good standing and are not revoked.
- Ore tonnes, grade and metallurgical recoveries at the Gatsuurt Project remain consistent with the LOM plan to achieve the forecast gold production;
- Tax and royalty rates remain at current levels for the life of the project;
- Power and water supply will remain uninterrupted during operations;
- No unplanned delays in or interruption of scheduled production at the Gatsuurt Project, including due to labour disruptions, civil unrest, natural phenomena, regulatory or political disputes, equipment breakdown, or other developmental and operational risks; and
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- The Gatsuurt Project does not make allowance for inflation, changes in exchange rates and movements in gold prices.
Production and cost forecasts and capital estimates are forward-looking information and are based on key assumptions and subject to material risk factors.
Qualified Person & QA/QC
The feasibility study was undertaken by Centerra staff with the assistance of several external consultants. Reserve and resource estimates, life-of-mine plan and other scientific and technical information in this news release were prepared in accordance with the standards of the Canadian Institute of Mining, Metallurgy and Petroleum and National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI-43-101”) and were reviewed, verified and compiled by Centerra’s geological and mining staff under the supervision of Gordon Reid, Professional Engineer and Centerra’s Vice-President and Chief Operating Officer, who is the qualified person for the purpose of NI-43-101. Sample preparation, analytical techniques, laboratories used and quality assurance-quality control protocols used during the exploration drilling programs on the Gatsuurt Project have been done consistent with industry standards and independent certified assay labs have been used. Available quality control data indicates that the gold assay data used for resource estimation are reliable.
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This Management Discussion and Analysis (“MD&A”) has been prepared as of October 31, 2017, 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 and nine months ended September 30, 2017 in comparison with the corresponding period ended September 30, 2016. This discussion should be read in conjunction with the Company’s unaudited condensed consolidated interim financial statements and the notes thereto for the three and nine months ended September 30, 2017. This MD&A should also be read in conjunction with the Company’s audited annual consolidated financial statements for the years ended December 31, 2016 and 2015, the related MD&A and the Annual Information Form for the year ended December 31, 2016 (the “2016 Annual Information Form”). The Company’s unaudited condensed consolidated interim financial statements and the notes thereto for the three and nine months ended September 30, 2017, 2016 Annual Report and 2016 Annual Information Form are available at www.centerragold.com and on the System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com. The consolidated financial statements of Centerra are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. All figures are in United States dollars unless otherwise stated.
All references in this document denoted with NG, indicate a non-GAAP term which is discussed under “Non-GAAP Measures”.
1. Overview
Centerra is a gold mining company focused on operating, developing, exploring and acquiring gold properties in North America, Asia, and other markets worldwide. Centerra is a leading Canadian-based gold producer and is one of the largest Western-based gold producers in Central Asia. Centerra’s principal operations are the Kumtor Mine located in the Kyrgyz Republic and the Mount Milligan 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”) 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. It 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 also has agreements to earn interests in joint venture exploration properties located in Canada, Mexico, Sweden and Nicaragua.
The Company’s results include Thompson Creek operations for the three and nine months ended September 30, 2017. Comparative results for the same periods in 2016 do not include Thompson Creek operations, as the Company closed the acquisition of Thompson Creek Metals Company Inc. on October 20, 2016.
Centerra’s shares trade on the Toronto Stock Exchange (TSX) under the symbol CG. The Company is headquartered in Toronto, Ontario, Canada.
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2. Market Conditions Gold Price
During the third quarter of 2017, the spot gold price fluctuated between a low of $1,211 per ounce and a high of $1,346 per ounce. The average spot gold price for the third quarter was $1,278 per ounce, a decrease of $57 per ounce from the third quarter of 2016 average ($1,335 per ounce), and a $21 per ounce increase compared to the second quarter of 2017 average ($1,257 per ounce).
Copper Price
The average spot copper price for the quarter was $2.88 per pound, a $0.71 per pound increase compared to the third quarter of 2016 average of $2.17 per pound, and a $0.31 per pound increase compared to the second quarter of 2017 ($2.57 per pound).
Spot copper prices reached a 52-week record high of $3.13 per pound during the third quarter of 2017 with prices continuing to rise at the beginning of the fourth quarter.
Foreign Exchange Rates USD to CAD
The average U.S. dollar exchange rate for the third quarter of 2017 (1.25) weakened by 4% when compared to the average of the third quarter of 2016 (1.30), with rates in the third quarter of 2017 ranging from 1.21 to 1.30 and averaging 1.25. The Bank of Canada executed two successive domestic interest rate hikes in July and September, raising the key overnight rate target from 0.5% to 1.0%. The Canadian dollar peaked in early September following news that Canadian second quarter growth was 4.5%, with the USD/CAD exchange rate briefly dipping below 1.21.
USD to Kyrgyz Som
The average U.S. dollar exchange rate for the third quarter of 2017 was consistent with the average of the second quarter of 2016 (68.2), with rates in the third quarter of 2017 ranging from 68.3 to 69.6 and averaging 68.9. The Kyrgyz som continues to be influenced by the strengthening of currencies of the Kyrgyz Republic’s main trading partners – mainly Russia. The strengthening in the Russian ruble reflects higher oil prices and an improving economic situation.
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 the Mount Milligan Mine and its corporate head office are also located, Kyrgyz Republic, Turkey, Mongolia and the United States of America. During the first nine months of 2017, the Company incurred combined expenditures (including capital) totalling approximately $856 million. Approximately $411 million of this (48%) was in currencies other than the U.S. dollar. Centerra’s non-U.S. dollar costs includes 50% in Canadian dollars, 42% in Kyrgyz soms, 4% in Euros, and 1% in Turkish lira. The average value of the Turkish lira depreciated against the U.S. dollar by approximately 2% from its value at December 31, 2016. The Euro, Canadian dollar, British pound, Mongolian tugrik and Kyrgyz som appreciated against the U.S. dollar by approximately 5%, 3%, 3%, 2% and 1%, respectively, from their value at December 31, 2016. The net impact of these movements in the nine months ended September 30 2017, after taking into account currencies held at the beginning of the year, was to increase annual costs by $6.3 million (increase of $13.6 million in the nine months ended September 30 2016), inclusive of an foreign exchange gain on derivatives of $1.2 million (nil for the nine months ended September 30 2016).
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3. Consolidated Highlights Summary
| ($ millions, except as noted) | Three months ended September 30, | Nine months ended September 30, | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Financial Highlights | 2017 | 2016 (6) | % Change | 2017 | 2016 (6) | % Change | ||||
| Revenue | $ | 276.2 | 218.7 | 26% | $ | 840.8 | 452.0 | 86% | ||
| Cost of sales | 164.2 | 96.5 | 70% | 501.3 | 244.4 | 105% | ||||
| Earnings from mine operations | 105.5 | 120.1 | (12%) | 321.9 | 199.2 | 62% | ||||
| Corporate administration | 12.6 | 5.9 | 113% | 31.6 | 18.5 | 71% | ||||
| Asset Impairment (net of tax) | - | - | 100% | 39.7 | - | 100% | ||||
| Kyrgyz Republic settlement | 60.0 | - | 100% | 60.0 | - | 100% | ||||
| Gain on sale of ATO (net of tax) | (6.9) | - | 100% | (6.9) | - | 100% | ||||
| Thompson Creek Metals Inc. acquisition and integration expenses | 0.0 | 0.0 | 100% | 0.0 | - | 100% | ||||
| Net earnings (loss) | $ | (0.8) | $ | 66.7 | (101%) | $ | 79.6 | $ | 87.7 | -9% |
| Adjusted earnings (3)(4) | 52.3 | 66.7 | (22%) | 172.4 | 87.7 | 97% | ||||
| Cash provided by operations | 119.5 | 134.4 | (11%) | 330.5 | 201.0 | 64% | ||||
| Cash provided by operations before changes in working capital (4) | 108.0 | 119.3 | (9%) | 352.7 | 205.7 | 71% | ||||
| Capital expenditures (sustaining) (4) | 23.8 | 13.0 | 83% | 62.5 | 49.9 | 25% | ||||
| Capital expenditures (growth) (4) | 5.2 | 4.7 | 11% | 11.0 | 18.2 | (40%) | ||||
| Capital expenditures (stripping) | 41.5 | 38.7 | 7% | 168.4 | 78.4 | 115% | ||||
| Total assets | $ | 2,656.7 | 1,922.5 | 38% | $ | 2,656.7 | 1,922.5 | 38% | ||
| Long-term debt and long-term lease obligation | 271.6 | - | 100% | 271.6 | - | 100% | ||||
| Cash, short-term investments and restricted cash | 352.9 | 747.0 | (53%) | 352.9 | 747.0 | (53%) | ||||
| Share Data | ||||||||||
| Earnings per common share - $ basic (1)(3) | $ | 0.00 | 0.28 | - | $ | 0.27 | 0.36 | (25%) | ||
| Earnings per common share - $ diluted (1)(3) | $ | 0.00 | 0.28 | - | $ | 0.27 | 0.35 | (23%) | ||
| Adjusted earnings per common share - $ basic (1)(3) | $ | 0.18 | 0.28 | (36%) | $ | 0.59 | 0.36 | 64% | ||
| Adjusted earnings per common share - $ diluted (1)(3) | $ | 0.18 | 0.28 | (36%) | $ | 0.59 | 0.35 | 69% | ||
| Per Ounce Data (except as noted) | ||||||||||
| Average gold spot price - $/oz(2) | 1,278 | 1,335 | (4%) | 1,252 | 1,260 | (1%) | ||||
| Average copper spot price - $/lbs(2) | 2.88 | - | 100% | 2.70 | - | 100% | ||||
| Average realized gold price (Kumtor) - $/oz(4) | 1,249 | 1,327 | (6%) | 1,237 | 1,275 | (3%) | ||||
| Average realized gold price (Mount Milligan - combined) - $/oz(4) | 998 | - | 100% | 1,003 | - | 100% | ||||
| Average realized gold price (Consolidated) - $/oz(4) | 1,142 | 1,327 | (14%) | 1,160 | 1,275 | (9%) | ||||
| Operating Highlights | ||||||||||
| Gold produced – ounces poured | 200,201 | 166,030 | 21% | 568,564 | 350,199 | 62% | ||||
| Gold sold – ounces sold | 174,099 | 164,847 | 6% | 550,238 | 354,500 | 55% | ||||
| Payable Copper Produced (000's lbs) | 13,677 | - | 100% | 41,335 | - | 100% | ||||
| Copper Sales (000's payable lbs) | 18,644 | - | 100% | 46,613 | - | 100% | ||||
| Operating costs (on a sales basis) (4) (5) | 89.3 | 45.2 | 98% | 259.4 | 124.3 | 109% | ||||
| Unit Costs | ||||||||||
| Operating costs (on a sales basis) - $/oz sold (4) (5) | $ | 513 | 274 | 87% | $ | 471 | 350 | 34% | ||
| Adjusted operating costs on a by-product basis - $/oz sold(4)(5) | $ | 329 | $ | 303 | 9% | $ | 336 | $ | 390 | (14%) |
| Gold - All-in sustaining costs on a by-product basis – $/oz sold(4)(5) | $ | 722 | $ | 591 | 22% | $ | 739 | $ | 748 | (1%) |
| Gold - All-in sustaining costs on a by-product basis (including taxes) – $/oz sold(4) (5) | $ | 849 | $ | 779 | 9% | $ | 863 | $ | 929 | (7%) |
| Gold - All-in sustaining costs on a co-product basis (before taxes) – $/oz sold(4)(5) | $ | 805 | $ | 591 | 36% | $ | 796 | $ | 748 | 6% |
| Copper - All-in sustaining costs on a co-product basis (before taxes) – $/pound sold(4)(5) | $ | 1.70 | $ | - | - | $ | 1.68 | $ | - | - |
(1) As at September 30, 2017, the Company had 291,780,532 common shares issued and outstanding (291,782,075 common shares as of October 31, 2017). As of October 31, 2017, Centerra had 4,747,700 share options outstanding under its share option plan with exercise prices ranging from Cdn$3.82 per share to US$36.74 per share, with expiry dates between 2017 and 2024.
(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) Adjusted earnings per common share (basic and diluted) for three and nine months ended September 30, 2017 were $0.18 and $0.59 respectively.
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(4) Adjusted net earnings, adjusted earnings per common shares (basic and diluted), capital expenditures (sustaining and growth), operating costs (on a sales basis), adjusted operating costs per ounce sold, gold all-in sustaining costs on a by-product or co-product basis (excluding and including taxes) per ounce sold, gold all-in sustaining costs on a co-product or co-product basis (including taxes) per ounce sold, copper all-in sustaining costs on a co-product or co-product basis (including taxes) per ounce sold, cash provided by operation before changes in working capital, as well as average realized gold price per ounce and average realized copper price per pound are non-GAAP measures and are discussed under “Non-GAAP Measures”.
(5) Excludes Molybdenum business.
(6) No comparative results for Thompson Creek operations have been presented.
4. Overview of Consolidated Results
Third Quarter 2017 compared to Third Quarter 2016
The Company recorded a net loss of $0.8 million in the third quarter of 2017, compared to net earnings of $66.9 million in the comparative quarter of 2016, reflecting 40% fewer gold ounces sold at Kumtor, as Kumtor had 17% lower gold production and limited its shipments of gold to Kyrgyzaltyn starting in September 2017 due to concerns about the financial stability of Kyrgyzaltyn’s off-take bank which purchases the refined gold from Kyrgyzaltyn, lower average realized gold pricesNG, the acquisition of the Mount Milligan operations and a one-time charge for a settlement reached with the Kyrgyz Government of $60 million and a gain of $9.8 million ($6.9 million net of tax) on the sale of the ATO property in Mongolia. Excluding these one-time items, adjusted earningsNG in the third quarter of 2017 were $52.3 million compared to $66.9 million in the comparative quarter.
Production:
Gold production for the third quarter of 2017 totalled 200,201 ounces. Gold production at Kumtor was 138,561 ounces in the third quarter of 2017, 17% lower than the 166,030 ounces produced in the comparative quarter of 2016. The decrease in ounces poured at Kumtor is a result of milling lower grade ore and achieving lower recoveries from stockpiles and from the initial benches of the Sarytor pit, compared to the higher grade ore mined and processed from the lower benches in cut-back 17 of the Central pit during the comparative period. During the quarter, Mount Milligan produced 61,640 ounces of gold and 13.7 million pounds of copper.
Safety and Environment:
Centerra had six reportable injuries which included three lost time injuries, two medical aid injuries and one restricted work injury in the third quarter of 2017. During the third quarter both operating sites completed the deployment of the Company-wide safety leadership program “Work Safe, Home Safe” with every employee.
There was a reportable environmental incident during the third quarter of 2017. On July 9, 2017, a reportable spill occurred at Kumtor when a diesel fuel truck rolled over a safety berm on the technical road on its way to the mine site. Approximately 8.8 tonnes of diesel fuel leaked but was fully contained, with no release to any watershed. Clean-up of the affected area was initiated immediately and was completed on the same day. By the end of the third quarter of 2017, Kumtor and local authorities completed and closed their detailed investigations.
Financial Performance:
Revenue increased by 26% to $276.2 million in the third quarter of 2017 as a result of more gold ounces sold (174,099 ounces compared to 164,847 ounces in the third quarter of 2016), the addition of copper sales ($40.9 million) and molybdenum sales ($36.6 million) were partially offset by a 14% lower combined average realized gold price NG during the quarter ($1,141 per ounce compared to $1,327 per ounce in the same quarter of 2016). The increase in gold ounces sold results from the addition of Mount Milligan which recorded sales of 74,585 ounces of gold and contributed $74.4 million in gold revenues, 1 University Avenue, Suite 1500 11 partially offset by 40% lower gold ounces sold at Kumtor (99,514 ounces compared to 164,847 ounces in the same quarter of 2016) which was impacted by lower production and reduced gold shipments to Kyrgyzaltyn’s refinery in the month of September.
Beginning in September 2017, Kumtor began to limit shipments of gold doré to Kyrgyzaltyn due to concerns about the financial stability of Kyrgyzaltyn’s off-take bank which purchases gold refined by Kyrgyzaltyn and makes payment to Kumtor on behalf of Kyrgyzaltyn. At the end of the third quarter of 2017, Kumtor had in inventory 48,678 ounces of gold doré due to the reduction in shipments to Kyrgyzaltyn. See “Other Corporate Developments – Kyrgyz Republic”.
Cost of sales increased by 70% in the third quarter of 2017 ($164.2 million compared to $96.5 million in the third quarter of 2016) reflecting the addition of Mount Milligan (gold and copper sales) and the molybdenum business, partially offset by lower gold ounces sold from the Kumtor mine (as explained above). Depreciation, depletion and amortization (“DD&A”) associated with production was $41.1 million in the third quarter of 2017 as compared to $51.3 million in the same period of 2016, primarily due to lower sales and production volumes at Kumtor in the third quarter of 2017, partially offset by the addition of Mount Milligan and the molybdenum business in the third quarter of 2017.
As part of the settlement agreement with the Kyrgyz Republic the Company recorded a charge of $60 million (described above). Kumtor also accrued $2.0 million in the third quarter of 2017 as other operating expenses representing the increased annual payment for the new Nature Development Fund (See “Other Corporate Development – Kyrgyz Republic).
Corporate administration costs were $12.6 million in the third quarter 2017 compared to $5.9 million in the same period of 2016. The increase was mainly due to share-based compensation which increased by $3.6 million compared to the prior year, mainly due to increases in the Company’s share price. The third quarter 2017 also included additional costs for legal and consulting in relation to settlement negotiations as well as costs for the Denver office (formerly Thompson Creek’s corporate office).
Operating Costs (excluding molybdenum business):
Operating costs (on a sales basis)NG increased to $89.3 million in the third quarter of 2017 compared to $45.2 million in the same period of 2016, which reflects the addition of Mount Milligan ($62.7 million) and lower volumes sold at Kumtor.
Centerra’s all-in sustaining costs on a by-product basis per ounce of gold soldNG, which excludes revenuebased tax and income tax, for the third quarter of 2017 increased to $722 from $591 in the comparative period mainly as a result of 40% less ounces sold at Kumtor ($135 per ounce), higher operating costs and capitalized stripping ($94 per ounce), higher administration and other costs ($88 per ounce), higher sustaining capitalNG ($26 per ounce), partially offset by the positive impact from the acquisition of Mount Milligan ($213 per ounce).
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