Centerra Gold Records Net Loss for the Third Quarter of $165 Million or $(0.56) per Common Share (basic) (Includes a $231 Million Impairment Charge at Mount Milligan), Adjusted EarningsNG of $75 Million or $0.26 per Common Share (basic) on Revenues of $388 Million
NEWS RELEASE
Centerra Gold Records Net Loss for the Third Quarter of $165 Million or $(0.56) per Common Share (basic) (Includes a $231 Million Impairment Charge at Mount Milligan), Adjusted EarningsNG of $75 Million or $0.26 per Common Share (basic) on Revenues of $388 Million Generating Cash from Operations of $32 Million
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” and reconciled to the most directly comparable GAAP measure.
Toronto, Canada, October 30, 2019: Centerra Gold Inc. (“Centerra”) (TSX: CG) today reported third quarter 2019 results. Highlights of the quarter included:
- Net loss of $165.1 million, ($0.56) per common share (basic), and adjusted earningsNG of $75.4 million $0.26 per common share (basic) after including an adjustment for the impairment recorded on the Mount Milligan Mine and the additional settlement expense relating to Kyrgyz Republic Strategic Agreement.
- Cash flow from operations was $31.9 million in the period. Adjusted cash flowNG from operations was $94.5 million after adjusting for the Kyrgyz Republic settlement payments of $62.6 million.
- Production of 205,660 ounces of gold in the period, which includes 150,305 ounces at Kumtor and 55,355 ounces at Mount Milligan. Mount Milligan also produced 21.2 million pounds of copper.
- All-in sustaining costs per ounce soldNG of $666 per ounce, including $626 per ounce at Kumtor and $557 per ounce at Mount Milligan and reported consolidated cost of sales of $236.6 million on revenue of $388.3 million.
- 2019 Guidance for gold production and sales increased to 730,000 – 765,000 ounces and 745,000
- 785,000 ounces, respectively, from previously issued guidance of 705,000 – 750,000 ounces.
Consolidated all-in sustaining costs per ounce soldNG guidance remains unchanged from previously issued guidance of $713 - $743 per ounce.
- Construction at the Öksüt Project in Turkey is now 79% complete and remains on schedule with first gold pour expected in January of 2020.
An impairment charge of $230.5 million was recorded on our Mount Milligan Mine reducing the • carrying value to $522.6 million, primarily due to a reduction in gold recoveries and a higher unit cost profile which will continue over the short to medium term.
- The Company has begun a comprehensive technical review of the Mount Milligan mine with the objective of publishing an updated NI 43-101 technical report in the coming months. The extent of any change in reserves and resources cannot be precisely determined until all of the relevant studies and modelling are completed, including studies to optimize the economics of the mine and further work to incorporate results of the Company’s exploration drilling in 2019. However, based upon the work performed in connection with the impairment test, the Company’s expectation is that Mount Milligan’s mineral reserves and resources will be materially reduced.
- Completed Strategic Agreement with the Kyrgyz Republic Government; an additional expense of $10 million was recorded in the period and cash payments of $62.6 million, were made.
- Gordon D. Reid, Vice President and Chief Operating Officer has announced his retirement effective January 1, 2020. Dan Desjardins, currently the President of our Kumtor Mine, will succeed Gordon.
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Commentary
Scott Perry, President and Chief Executive Officer of Centerra stated, “During the quarter we achieved a number of significant Lost Time Injury Free milestones including one million work hours at our Öksüt Project and Mount Milligan, one full year at Kumtor and most recently six full years without incurring a lost time injury to our employees or contractors at the Endako Mine. These achievements validate that Zero Harm is within our reach at Centerra and demonstrates our workforce’s commitment to Centerra’s Work Safe – Home Safe program as we continue to build a team-based culture of excellence that responsibly delivers sustainable value and growth.”
“The operations produced a total of 205,660 ounces of gold and 21.2 million pounds of copper in the quarter. Kumtor had another strong quarter as we got into higher-grade ore earlier than expected producing 150,305 ounces of gold. Mount Milligan had a strong quarter, the mill throughput averaged 55,727 tonnes per calendar day, producing 55,355 ounces of gold and 21.2 million pounds of copper.”
“Company-wide our all-in sustaining costs (before taxes)NG were $666 per ounce sold for the quarter reflecting Mount Milligan achieving all-in sustaining costs (before taxes)NG of $557 per ounce and Kumtor realizing all-in sustaining costs (before taxes)NG of $626 per ounce.”
“As part of our recent annual budgeting process, we identified that long term recoveries are expected to decrease and recent cost escalation will continue at current levels in the short to medium term at the Mount Milligan mine. This triggered the need to complete an impairment test on Mount Milligan’s long-lived assets. The test identified an impairment of $230.5 million which we reflected in the quarter. The company has begun a comprehensive technical review of Mount Milligan with the objective of publishing an updated NI 43-101 technical report in the coming months. The extent of any change in reserves and resources cannot be precisely determined until all of the relevant studies and modelling are completed, including studies to optimize the economics of the mine and further work to incorporate results of the Company’s exploration drilling through 2019. However, based upon the work performed in connection with the impairment test, the Company’s expectation is that Mount Milligan’s mineral reserves and resources will be materially reduced.”
“Construction activity continued at the Öksüt Project in Turkey and the project is now 79% complete with the crushing circuit and Absorption Desorption Regeneration (“ADR”) plant commissioned, mining commenced in both the Keltepe and Güneytepe pits and the completion of the Heap Leach Pad readying it for the stacking of ore. The project remains on schedule with first gold pour expected in January of 2020.”
“Financially, the business delivered $32 million of cash from operations in the quarter. Excluding the $63 million payment for the completion of the Strategic Agreement, the adjusted cash flow from operationsNG was $95 million. At the operating level, Kumtor and Mount Milligan generated $74 million and $37 million, respectively, of cash from operations before working capital changesNG in the quarter. During the third quarter, Kumtor generated $42 million of free cash flowNG before reflecting the completion payment and Mount Milligan generated $31 million of free cash flowNG.”
Exploration Update
Exploration activities in the third quarter of 2019 included drilling, surface sampling, geological mapping and geophysical surveying at the Company’s various projects (including earn-in properties) targeting gold and copper mineralization in Turkey, Canada, Mexico, Sweden, Finland and Burkina Faso. Exploration
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expenditures totaled $7.6 million in the third quarter of 2019 compared to $7.2 million in the same quarter of 2018 ($18.9 million compared to $14.3 million, year-to-date). The Company’s 2019 exploration program is primarily focused on brownfield exploration at Kumtor, Mount Milligan, Öksüt and Kemess.
Kumtor Mine
At Kumtor, planned exploration work is aimed at defining additional resources on the flanks of the Central Pit, focusing on the Hockey Stick Zone and the SB Zone deep extension to add to the open pit mine life. Exploration drilling focused on testing zones of mineralization near the surface for additional open pit resources on the north-east side of the Central Pit, at the corridor between the Central and Southwest pits, and on the flanks of the Sarytor target area. During the third quarter of 2019, sixty-seven diamond drill holes for 18,215 metres were completed, including 11,472 metres of infill drilling in the Hockey Stick Zone.
Central Pit In the Hockey Stick Zone, eight exploration and forty-three infill drill holes for 2,109 and 11,472 metres, respectively, and two RC drill holes for 323 metres were completed. The drilling results revealed intersections of gold mineralization and selected best intercepts, are reported below.
| D1932: | 25.0 metres @ 7.76 g/t Au from 195.0 metres; Includes 7.4 metres @ 15.89 g/t Au from 196.3 metres; |
| D1944: | 24.9 metres @ 7.19 g/t Au from 167.0 metres; Includes 4.4 metres @ 15.78 g/t Au from 172.4 metres; Includes 3.9 metres @ 16.91 g/t Au from 179.3 metres; |
| D1944A: | 28.7 metres @ 3.83 g/t Au from 174.9 metres; Includes 6.7 metres @ 7.81 g/t Au from 178.8 metres; 6.4 metres @ 1.35 g/t Au from 220.8 metres; 6.7 metres @ 4.74 g/t Au from 269.2 metres. |
| D1949: | 31.3 metres @ 7.41 g/t Au from 150.7 metres; Includes 13.5 metres @ 14.91 g/t Au from 154.5 metres; 20.0 metres @ 1.61 g/t Au from 188.0 metres; 27.7 metres @ 1.49 g/t Au from 213.8 metres. |
| D1953: | 5.8 metres @ 4.38 g/t Au from 194.7 metres; |
| D1955: | 20.0 metres @ 4.50 g/t Au from 180.5 metres; Includes 6.9 metres @ 9.68 g/t Au from 180.5 metres; |
| D1960: | 25.1 metres @ 3.42 g/t Au from 109.1 metres; Includes 7.0 metres @ 6.90 g/t Au from 119.0 metres; 4.2 metres @ 2.87 g/t Au from 139.9 metres; |
Southwest Area One RC drill hole was completed between the Southwest and Central pits for a total of 216 metres.
Sarytor Area In the Sarytor area, twelve drill holes were completed for a total of 3,880 metres. The best selected intercepts are:
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| SR-19-212: | 21.7 metres @ 2.16 g/t Au from 168.0 metres |
| SR-19-214: | 12.2 metres @ 1.89 g/t Au from 307.0 metres 24.7 metres @ 3.51 g/t Au from 326.1 metres Includes 9.7 metres @ 7.22 g/t Au from 341.1 metres; 4.8 metres @ 1.51 g/t Au from 362.1 metres; |
| SR-19-215: | 12.7 metres @ 4.24 g/t Au from 398.1 metres Includes 3.4 metres @ 9.27 g/t Au from 407.4 metres; |
| SR-19-216: | 6.2 metres @ 6.84 g/t Au from 350.1 metres |
The above mineralized intercepts were calculated using a cut-off grade of 1.0 g/t Au, minimum interval of 4.0 metres and a maximum internal dilution interval of 5.0 metres. Drill collar locations and associated graphics are available at the following link:
http://ml.globenewswire.com/Resource/Download/98e07913-f3ae-4d97-91c8-74c4db53e763
A complete listing of the drill results, drill hole locations and plan map for the Kumtor 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.
Mount Milligan Mine
At Mount Milligan, the 2019 exploration program is focused on expanding resources to the west and at depth and drilling other exploration targets adjacent to the mine lease. A total of 8,901 metres in drilling was completed during the third quarter of 2019. Selected best assay results are reported below.
Great Eastern Fault Zone In the Great Eastern Fault Zone, exploration is related to early-stage vein fragments and mineralized clasts in fault breccia. The best intercept is:
19-1169 42.8 metres @ 0.22 g/t Au, 0.23% Cu from 111.0 metres;
Saddle Zone and MBX Zone In the Saddle and MBX Zones exploration is associated with monzonite dykes or stocks, magnetite-bearing potassic alteration, magnetite veins and local breccia cement; and early-to-transitional (pyrite ± chalcopyrite) stage veins. The best intercepts of the Saddle Zone are:
| 19-1158: | 76.8 metres @ 0.32 g/t Au, 0.38% Cu from 64.0 metres; |
| 19-1170: | 75.0 metres @ 0.36 g/t Au, 0.30% Cu from 131.5 metres; |
| 19-1173: | 93.8 metres @ 0.34 g/t Au, 0.34% Cu from 246.0 metres; |
| 19-1176: | 129.5 metres @ 0.21 g/t Au, 0.20% Cu from 193.0 metres: |
| 19-1180: | 48.4 metres @ 0.80 g/t Au, 0.10% Cu from 89.5 metres; |
| 19-1181: | 96.0 metres @ 0.51 g/t Au, 0.22% Cu from 86.0 metres; |
| 19-1186: | 77.0 metres @ 0.43 g/t Au, 0.20% Cu from 21.0 metres; |
South Boundary-Satellite Pit In the Southern Star Zone and SB-Satellite Pit area, exploration is related to monzonite dykes and hydrothermal breccia with magnetite-bearing potassic alteration overprinted by albite-bearing propylitic or quartz-sericite-pyrite-carbonate (fault related) alteration, and with transitional to late stage veins. The best intercepts are:
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| 19-1188: | 49.1 metres @ 0.32 g/t Au, 0.19% Cu from 462.0 metres; |
| 19-1191: | 28.0 metres @ 0.35 g/t Au, 0.04% Cu from 128.0 metres; |
| 19-1196: | 4.0 metres @ 0.93 g/t Au, 0.03% Cu from 104.0 metres; |
Oliver Zone In the Oliver Zone, similar to the Goldmark-Oliver Zone (see brownfields below), exploration is related to quartz-sericite-pyrite-carbonate alteration near faults and may overprint residual magnetite-bearing potassic alteration with early-to-transitional stage veins. The best intercepts are:
19-1199: 8.0 metres @ 2.09 g/t Au, 0.04% Cu from 105.3 metres;
60.2 metres @ 0.33 g/t Au, 0.09% Cu from 147.0 metres
The 2019 Phase-2 of the near pit infill/expansion drilling program at Mount Milligan began mid-September and is ongoing. As of September 30, 2019, a total of 2,159 metres has been drilled in five holes in the MBX Footwall Zone. The Phase-2 program is planned for completion in the fourth quarter of 2019 and will be comprised of 8,000 metres of drilling in five zones (Great Eastern Fault, Oliver, MBX Footwall, Southern Star East, Rainbow Fault Central).
Brownfield exploration drilling The 2019 Phase-1 Brownfield (within mine lease, outside ultimate pit) exploration drilling program at Mount Milligan was completed in August 2019, totaling 9,900 metres in twenty-three drill holes. A total of 5,181 metres in twelve drill holes were completed in the third quarter of 2019.
Geology in all brownfield zones, Goldmark, Goldmark-Oliver, Saddle West and South Boundary, relate to quartz-sericite-pyrite-carbonate or albite-bearing propylitic alteration, and transitional-to-late stage veins (or pyrite replacement style veins) proximal to shear zones, faults, fault breccia, calcite-cemented hydrothermal breccias and monzonite dyke contacts. Remnant potassic alteration and early stage veins may also be present. There may also be a spatial association with pyrrhotite in some areas.
Selected best assay results from ten drill holes completed in the second quarter and the twelve drill holes drilled in the third quarter of 2019 are reported below.
Goldmark Zone
| 19-1155: | 1.3 metres @ 12.60 g/t Au, 0.19% Cu from 204.3 metres; |
| 19-1160: | 18.0 metres @ 0.54 g/t Au, 0.01% Cu from 168.0 metres; 33.1 metres @ 0.45 g/t Au, 0.14% Cu from 328.0 metres; |
| 19-1166: | 12.0 metres @ 2.50 g/t Au, 0.17% Cu from 250.0 metres; |
| 19-1166: | 12.0 metres @ 0.51 g/t Au, 0.19% Cu from 289.0 metres; |
Goldmark-Oliver Zone
| 19-1171: | 7.6 metres @ 1.11 g/t Au, 0.05% Cu from 242.8 metres; 9.2 metres @ 1.55 g/t Au, 0.11% Cu from 256.0 metres; |
| 19-1198: | 57.0 metres @ 0.40 g/t Au, 0.38% Cu from 101.0 metres; 6.0 metres @ 3.31 g/t Au, 0.06% Cu from 297.0 metres; |
Saddle West Zone
19-1185: 14.9 metres @ 2.14 g/t Au, 0.26% Cu from 97.1 metres;
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South Boundary Zone
| 19-1194: | 27.0 metres @ 0.62 g/t Au, 0.03% Cu from 26.0 metres; |
| 19-1200: | 49.3 metres @ 1.21 g/t Au, 0.05% Cu from 354.0 metres; 19.0 metres @ 0.57 g/t Au, 0.05% Cu from 409.0 metres |
The 2019 Phase-2 Brownfield drilling program at Mount Milligan began in late August and comprises 6,000 metres of drilling in four zones (Goldmark-Oliver, Saddle West, Southern Star West and Rainbow Fault SE). As of September 30, 2019, a total of 946 metres has been drilled in two holes in the Goldmark- Oliver Zone. Selected drill hole results summarized below:
Goldmark-Oliver Zone
| 19-1202: | 6.0 metres @ 1.08 g/t Au, 0.05% Cu from 251.0 metres; |
| 19-1203: | 68.0 metres @ 0.21 g/t Au, 0.18% Cu from 335.0 metres; |
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://ml.globenewswire.com/Resource/Download/98e07913-f3ae-4d97-91c8-74c4db53e763
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.
Kemess Project
The 2019 Kemess Phase-1 exploration drilling program was completed in August 2019 for a total of 6,452 metres. A total of 5,347 metres was completed in four holes in the third quarter of 2019, including three holes (3,521 metres) in the Nugget Zone and one hole (1,826 metres) proximal to the Kemess Underground deposit (KUG). Drilling encountered only anomalous gold and copper intervals. Best results include:
Nugget Zone
| KN-19-01: | 634.5 metres @ 0.30 g/t Au, 0.11% Cu from 16.5 metres |
| KN-19-03: | 177.5 metres @ 0.18 g/t Au, 0.11% Cu from 724.0 metres |
The above mineralized intercepts were calculated using a cut-off grade of 0.1 g/t Au and a maximum internal dilution interval of 10.0 metres.
Öksüt Project
At the Öksüt Project, the 2019 diamond drilling program continued with three drill rigs. During the third quarter of 2019, twenty-three drill holes for 5,908 metres were completed. The drill holes were designed to expand the current oxide gold resources (Keltepe deposit), and to target new oxide gold mineralization adjacent to the known deposits (Keltepe North Prospect). The Keltepe North Prospect was discovered after encouraging mineralized intercepts were returned from shallow depths. The drilling program will continue in the fourth quarter of 2019, targeting new oxide gold mineralization and aiming to expand current resources. Assay results have been received from all the completed drill holes. The best intercepts are:
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Keltepe deposit (Infill - testing for oxide gold resource expansion)
| ODD0343: | 37.8 metres @ 0.59 g/t Au from 6.2 metres; |
| ODD0346: | 51.3 metres @ 0.46 g/t Au from 101.0 metres; |
| ODD0348: | 16.8 metres @ 0.75 g/t Au from 27.2 metres; |
Keltepe North Prospect (Exploration - testing for oxide gold resources)
| ODD0336: | 91.0 metres @ 0.72 g/t Au from 23.0 metres, Including 11.6 metres @ 2.09 g/t Au from 31.5 metres; |
| ODD0355: | 10.9 metres @ 0.56 g/t Au from 35.8 metres. |
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://ml.globenewswire.com/Resource/Download/98e07913-f3ae-4d97-91c8-74c4db53e763
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.
Qualified Person & QA/QC
All mineral reserve and mineral resource estimates 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 (except as set out below) were prepared, reviewed, verified and compiled by Centerra’s geological and mining staff under the supervision of Gordon Reid, Professional Engineer and Centerra’s Vice-President and Chief Operating Officer, who is the qualified person for the purpose of NI 43-101. Sample preparation, analytical techniques, laboratories used and quality assurance-quality control protocols used during the drilling programs are consistent with industry standards and independent certified assay labs are used, with the exception of the Kumtor Project as described in its technical report dated March 20, 2015 (with an effective date of December 31, 2014), prepared in accordance with NI 43-101 (the “Kumtor Technical Report”).
Exploration information and other related scientific and technical information in this news release regarding the Kumtor Mine were prepared in accordance with the standards of NI 43-101 and were prepared, reviewed, verified and compiled by Boris Kotlyar, a member with the American Institute of Professional Geologists (AIPG), Chief Geologist, Global Exploration with Centerra, who is the qualified person for the purpose of NI 43-101. Sample preparation, analytical techniques, laboratories used and quality assurancequality control protocols used during the exploration drilling programs are done as described in the Kumtor Technical Report. The Kumtor deposit is described in Centerra’s most recently filed Annual Information Form and the Kumtor Technical Report, which are both filed on SEDAR at www.sedar.com.
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 43101. 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. The Mount Milligan deposit is described in Centerra’s most recently filed Annual Information Form and a technical report dated March 22, 2017 (with
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an effective date of December 31, 2016) prepared in accordance win NI 43-101, both of which are available on SEDAR at www.sedar.com.
Exploration information and other related scientific and technical information in this news release regarding the Öksüt Project were prepared, reviewed, verified and compiled in accordance with NI 43-101 by Mustafa Cihan, Member of the Australian Institute of Geoscientists (AIG), Exploration Manager Turkey 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. The Öksüt deposit is described in Centerra’s most recently filed Annual Information Form and in a technical report dated September 3, 2015 (with an effective date of June 30, 2015) prepared in accordance with NI 43-101 both of which are available on SEDAR at www.sedar.com.
TABLE OF CONTENTS
1. Overview .............................................................................................................................................. 9
2. Consolidated Financial and Operational Highlights ..................................................................... 10
3. Overview of Consolidated Results ................................................................................................... 11
4. 2019 Outlook ...................................................................................................................................... 12
5. Financial Performance ..................................................................................................................... 15
6. Balance Sheet Review ....................................................................................................................... 17
7. Market Conditions ............................................................................................................................ 18
8. Financial Instruments ....................................................................................................................... 19
9. Operating Mines and Facilities ........................................................................................................ 20
10. Construction and Development Projects ........................................................................................ 32
11. Quarterly Results – Previous Eight Quarters ................................................................................ 33
12. Contingencies ..................................................................................................................................... 34
13. Accounting Estimates, Policies and Changes.................................................................................. 37
14. Disclosure Controls and Procedures and Internal Control Over Financial Reporting .............. 37
15. Non-GAAP Measures ....................................................................................................................... 38
16. Caution Regarding Forward-Looking Information ...................................................................... 43
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This Management Discussion and Analysis (“MD&A”) has been prepared as of October 29, 2019, 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, 2019 in comparison with the corresponding periods ended September 30, 2018. 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, 2019 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, 2018 and 2017, the related MD&A and the Annual Information Form for the year ended December 31, 2018 (the “2018 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, 2019, 2018 Annual Report and 2018 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.
1. 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 is currently constructing its next gold mine, the Öksüt Project in Turkey, is developing two properties in Canada, the Kemess Project and the Greenstone Gold Project (50% ownership), and has options to acquire exploration joint venture properties in Canada, Finland, Mexico, Sweden, Turkey and the United States. The Company owns various assets included in its Molybdenum Business Unit consisting of the Langeloth metallurgical processing facility and Thompson Creek Mine in the United States of America, and the Endako Mine in British Columbia, Canada. See “Operating Mines and Facilities” and “Development Projects” for further details.
Centerra’s common shares are listed for trading on the Toronto Stock Exchange under the symbol CG. As of October 29, 2019, there are 293,648,952 common shares issued and outstanding, options to acquire 4,413,358 common shares outstanding under its stock option plan and 1,238,170 units outstanding under its restricted share unit plan (exercisable on a 1:1 basis for common shares).
Management and Board changes – Gordon D. Reid, Vice President and Chief Operating Officer will be retiring on January 1, 2020 and will be succeeded by Daniel Desjardins, President of Kumtor Gold Company. As previously announced, Michael S. Parrett has succeeded Stephen A. Lang as independent Chair of the Board of Directors effective October 1, 2019.
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2. Consolidated Financial and Operational Highlights
| Unaudited ($ millions, except as noted) | Three months ended September 30 | Nine months ended September 30 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Financial Highlights | 2019 | 2018 | % Change | 2019 | 2018 | % Change | ||||
| Revenue | $ | 388.3 | $ | 259.1 | 50% | $ | 1,062.8 | $ | 737.8 | 44% |
| Cost of sales | 236.6 | 189.0 | 25% | 698.4 | 529.2 | 32% | ||||
| Earnings from mine operations | 148.7 | 66.7 | 123% | 355.4 | 188.1 | 89% | ||||
| Net (loss) earnings | $ | (165.1) | $ | 6.0 | (2855%) | $ | (81.3) | $ | 58.6 | (239%) |
| Adjusted earnings (3) | $ | 75.4 | $ | 14.5 | 420% | $ | 159.2 | $ | 28.9 | 451% |
| Cash provided by operations | 31.9 | 37.6 | (15%) | 241.6 | 65.9 | 267% | ||||
| Adjusted cash provided by operations(3) | 94.5 | 37.6 | 151% | 304.2 | 70.3 | 333% | ||||
| Free cash flow (unlevered)(3) | (52.5) | (24.1) | 118% | 35.6 | (133.9) | (127%) | ||||
| Adjusted free cash flow (unlevered)(3) | 10.1 | (24.1) | (142%) | 98.2 | (129.5) | (176%) | ||||
| Capital expenditures (sustaining) | 21.2 | 20.2 | 5% | 61.8 | 65.0 | (5%) | ||||
| Capital expenditures (growth and development projects) | 45.8 | 31.7 | 45% | 108.6 | 67.1 | 62% | ||||
| Capital expenditures (stripping) | 23.6 | 16.5 | 43% | 62.1 | 102.8 | (40%) | ||||
| Total assets | $ | 2,697.8 | $ | 2,890.7 | (7%) | $ | 2,697.8 | $ | 2,890.7 | (7%) |
| Long-term debt and lease obligation | 91.5 | 296.0 | (69%) | 91.5 | 296.0 | (69%) | ||||
| Cash, cash equivalents and restricted cash | 109.1 | 222.1 | (51%) | 109.1 | 222.1 | (51%) | ||||
| Per Share Data | ||||||||||
| Net (loss) earnings per common share - $ basic (1) | $ | (0.56) | $ | 0.02 | (2900%) | $ | (0.28) | $ | 0.20 | (240%) |
| Net (loss) earnings per common share - $ diluted (1) | $ | (0.56) | $ | 0.01 | (5700%) | $ | (0.28) | $ | 0.19 | (247%) |
| Adjusted earnings per common share - $ basic (1)(3) | $ | 0.26 | $ | 0.05 | 420% | $ | 0.54 | $ | 0.10 | 440% |
| Adjusted earnings per common share - $ diluted (1)(3) | $ | 0.26 | $ | 0.05 | 420% | $ | 0.54 | $ | 0.10 | 440% |
| Per Ounce Data (except as noted) | ||||||||||
| Average gold spot price - $/oz(2) | 1,447 | 1,213 | 19% | 1,344 | 1,283 | 5% | ||||
| Average copper spot price - $/lbs(2) | 2.77 | 3.12 | (11%) | 2.80 | 3.14 | (11%) | ||||
| Average realized gold price (Kumtor) - $/oz(3) | 1,464 | 1,195 | 23% | 1,352 | 1,263 | 7% | ||||
| Average realized gold price (Mount Milligan - combined) - $/oz(3) (4) | 1,114 | 947 | 18% | 1,063 | 964 | 10% | ||||
| Average realized gold price (consolidated) - $/oz(3)(4) | 1,374 | 1,125 | 22% | 1,282 | 1,186 | 8% | ||||
| Average realized copper price (consolidated) - $/lbs(3)(4) | 1.89 | 2.01 | (6%) | 2.04 | 2.13 | (4%) | ||||
| Operating Highlights | ||||||||||
| Gold produced – ounces | 205,660 | 181,243 | 13% | 588,802 | 441,189 | 33% | ||||
| Gold sold – ounces | 216,023 | 166,716 | 30% | 610,761 | 439,575 | 39% | ||||
| Payable Copper Produced (000's lbs) | 21,229 | 12,704 | 67% | 53,066 | 35,295 | 50% | ||||
| Copper Sales (000's payable lbs) | 21,907 | 13,605 | 61% | 53,129 | 30,779 | 73% | ||||
| Unit Costs | ||||||||||
| Gold - All-in sustaining costs on a by-product basis – $/oz sold(3)(4) | $ | 666 | $ | 698 | (5%) | $ | 683 | $ | 861 | (21%) |
| Gold - All-in sustaining costs on a by-product basis (including taxes) – | ||||||||||
| $/oz sold(3) (4) | $ | 825 | $ | 824 | 0% | $ | 833 | $ | 1,012 | (18%) |
| Gold - All-in sustaining costs on a co-product basis (before taxes) – | ||||||||||
| $/oz sold(3)(4) | $ | 717 | $ | 709 | 1% | $ | 711 | $ | 858 | (17%) |
| Copper - All-in sustaining costs on a co-product basis (before taxes) – | ||||||||||
| $/pound sold(3)(4) | $ | 1.36 | $ | 1.73 | (21%) | $ | 1.72 | $ | 1.89 | (9%) |
(1) As at September 30, 2019, the Company had 293,567,824 common shares issued and outstanding (293,648,952 common shares as of October 29, 2019). As of October 29, 2019, Centerra had outstanding, 4,413,358 share options under its share option plan with exercise prices ranging from US$2.83 per share to Cdn$19.48 per share, with expiry dates between 2020 and 2027 and 1,238,170 restricted share units.
(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).
(3) Non-GAAP measure. See discussion under “Non-GAAP Measures”.
(4) Combines streamed and unstreamed amounts.
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3. Overview of Consolidated Results
Third quarter 2019 compared to Third Quarter 2018
The Company recorded a net loss of $165.1 million in the third quarter of 2019, compared to income of $6.0 million in the comparative prior year period. Losses in the third quarter of 2019 reflect a $230.5 million impairment charge on the Mount Milligan mine primarily due to an adjustment to a higher cost profile and an anticipated reduction in gold recoveries; and an additional $10 million charge to reflect the final settlement of the Strategic Agreement with the Kyrgyz Government. Excluding these charges, adjusted earningsNG for the third quarter of 2019 were $75.4 million, compared to adjusted earningsNG of $14.5 million in the comparative period. The higher adjusted earningsNG are due to an increase in ounces sold at Kumtor and at Mount Milligan, as well as higher realized gold prices. The significant increase in production at Kumtor was as a result of processing higher grade ore and achieving higher recoveries. At Mount Milligan mill throughput averaged 55,727 tonnes per calendar day in the third quarter of 2019 due to increased mill availability.
Cash provided by operations was $31.9 million in the third quarter of 2019, compared to $37.6 million in the same prior year period. This reduction was a result of the $62.6 million of payments made by Kumtor Gold Company upon closing the Kumtor Strategic Agreement. Excluding this payment, adjusted cash provided by operationsNG in the third quarter of 2019 was $94.5 million compared to $37.6 million for the comparative period in 2018. The increase mainly related to higher adjusted earningsNG. Increased adjusted earningsNG also explains the higher adjusted free cash flow (unlevered)NG of $10.1 million in the third quarter of 2019 compared to adjusted free cash flow deficit (unlevered)NG of $(24.1) million in the same prior year period.
Cash and cash equivalents at September 30, 2019 was $80.5 million, as compared to $151.7 million at December 31, 2018. As at September 30, 2019, the $500 million corporate credit facility (“Centerra Revolving Term Corporate Facility” or “Corporate Facility”) remains undrawn and available in full.
The available balance on the Company’s $150 million five-year credit project financing facility for the Öksüt Project (“OMAS Facility”) at September 30, 2019 was $73.5 million. The undrawn amount is subject to the completion of current negotiations with the OMAS Facility lenders, contemplating a revised repayment schedule that gives consideration to the revised production profile, with first gold pour estimated for January 2020.
Safety and Environment During the quarter Centerra achieved a number of significant Lost Time Injury Free (“LTI”) milestones including one million LTI free work hours at Mount Milligan, one year of LTI free operation at Kumtor and one million LTI free work hours at the Öksüt Project.
There were no reportable releases to the environment in the third quarter of 2019.
First Nine Months 2019 compared to First Nine Months 2018
The Company recorded a net loss of $81.3 million in the first nine months of 2019, compared to net earnings of $58.6 million in the same period of 2018. The first nine months of 2019 reflect the $230.5 impairment charge on the Mount Milligan Mine and an additional $10 million charge on final settlement of the Strategic Agreement with the Kyrgyz Government. Excluding these costs, adjusted earningsNG were $159.2 million in the first nine months of 2019 compared to $28.9 million in the comparative period after adjusting for a $28.0 million gain on sale of the Company’s royalty portfolio, a $9.4 million gain on the sale of the Altan Tsagaan Ovoo property in Mongolia and an $8.5 million write-down of the Mongolian business unit prior to its sale. The increase in adjusted earningsNG in the current nine-month period was due to increased sales
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at both Kumtor and Mount Milligan. At Kumtor, the significant increase in ounces produced and sold was as a result of processing higher grade ore and achieving higher recoveries. At Mount Milligan the increased sales levels reflect more concentrate shipments, higher mill throughput, coupled with higher copper grades and recoveries and higher gold recoveries.
Cash provided by operations was $241.6 million in the first nine months of 2019, which included the Kyrgyz Republic settlement payment of $62.6 million. Excluding this payment, adjusted cash provided by operationsNG for the 2019 year-to-date was $304.2 million compared to $70.3 million in the comparative prior year period. The increase resulted mainly from higher sales volumes at both Kumtor and Mount Milligan and higher realized gold prices, offset by lower gold grades at Mount Milligan. Higher adjusted free cash flow (unlevered)NG of $98.2 million in the first nine months of 2019 compared to adjusted free cash flow deficit (unlevered)NG of $(129.5) million in the same prior year period was due to higher adjusted earningsNG.
4. 2019 Outlook
See “Material Assumption and Risks” for material assumptions or factors used to forecast production and costs for 2019.
2019 Production and Sales Guidance
The Company is increasing its 2019 consolidated gold production guidance to 730,000-765,000 ounces which reflects an increase in gold production guidance for Kumtor to 575,000-590,000. This compares to previously issued consolidated gold production guidance of 705,000-750,000 ounces and Kumtor of 550,000-575,000 ounces. These production guidance revisions reflect better than expected performance in the first nine months of 2019. Kumtor’s production in the fourth quarter will be slightly lower than previous quarters due to a newly planned mill maintenance shutdown in the fourth quarter that was previously scheduled to occur in 2020.
There is no change from previous guidance for gold and copper production from Mount Milligan (streamed and unstreamed).
Centerra’s 2019 production is currently forecast as follows:
| Mount | ||||
|---|---|---|---|---|
| Units | Kumtor | Centerra | ||
| (1) Milligan | ||||
| Gold | ||||
| Unstreamed Gold Payable Production | (Koz) | 575 – 590 | 101 – 114 | 676 – 704 |
| (1) Streamed Gold Payable Production | (Koz) | – | 54 – 61 | 54 – 61 |
| (2) Total Gold Payable Production | (Koz) | 575 – 590 | 155 – 175 | 730 – 765 |
| Copper | ||||
| Unstreamed Copper Payable Production | (Mlb) | – | 53 – 61 | 53 – 61 |
| (1) Streamed Copper Payable Production | (Mlb) | – | 12 – 14 | 12 – 14 |
| (3) Total Copper Payable Production | (Mlb) | – | 65 – 75 | 65 – 75 |
1. Mount Milligan Streaming Arrangement entitles Royal Gold to 35% and 18.75% of gold and copper sales, respectively, from the Mount Milligan mine. Under the Mount Milligan Streaming Arrangement, Royal Gold will pay $435 per ounce of gold delivered and 15% of the spot price per metric tonne of copper delivered.
2. Gold production assumes 82.9% recovery at Kumtor and 66.9% recovery at Mount Milligan.
3. Copper production assumes 81.6% recovery for copper at Mount Milligan.
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