Centerra Gold Records Third Quarter 2018 Net Earnings of $6 million; Increases 2018 Gold Production Guidance Range to 665,000 to 705,000 ounces and Lowers Cost Guidance Range to $782 to $829 per ounce sold
NEWS RELEASE
Centerra Gold Records Third Quarter 2018 Net Earnings of $6 million; Increases 2018 Gold Production Guidance Range to 665,000 to 705,000 ounces and Lowers Cost Guidance Range to $782 to $829 per ounce sold
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 periods ended September 30, 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, October 31, 2018: Centerra Gold Inc. (“Centerra” or “Company”) (TSX: CG) today reported net earnings of $6 million or $0.02 per common share (basic) on revenues of $259.1 million in the third quarter of 2018. The third quarter 2018 results include an impairment charge of $8.5 million to writedown the net assets of the Company’s Mongolian business unit to their sale value which closed on October 11, 2018. Excluding this item, adjusted earningsNG in the third quarter of 2018 were $14.5 million or $0.05 per common share (basic). During the same period in 2017, the Company reported a net loss of $0.8 million or nil per common share (basic) on revenues of $276.2 million. The third quarter 2017 results included 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).
2018 Third Quarter Highlights
- Increased Company-wide gold production guidance range for 2018 to 665,000 to 705,000 ounces (from 625,000 to 695,000) reflecting increased gold production guidance at Kumtor of 490,000 to 510,000 ounces (from 450,000 to 500,000).
- Lowered all-in sustaining costs on a by-product basis per ounce soldNG Company-wide range to $782 to $829 (from $812 to $903) which reflects lower cost guidance at both Kumtor and Mount Milligan. Capital spending lowered to $217 million (from $237 million), reflecting lower spending at the Öksüt Project and at Kumtor.
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Produced a total of 181,243 ounces of gold, including 122,445 ounces at Kumtor and 58,798 ounces • at Mount Milligan. Kumtor accessed and processed high grade ore ahead of plan.
- Sold a total of 166,716 ounces of gold in the quarter, including 119,521 ounces at Kumtor and 47,195 ounces at Mount Milligan.
- Produced 12.7 million pounds of copper during the period and sold 13.6 million pounds of copper at Mount Milligan.
- Company-wide all-in sustaining costs on a by-product basis per ounce soldNG were $698, excluding revenue-based tax in the Kyrgyz Republic and income tax.
- Progressed construction of the Öksüt Project, substantially completing main road access and site preparation and advancing site infrastructure preparation. The Öksüt Project remains on budget and on schedule.
- Completed the sale of the Company’s Mongolian business unit on October 11, 2018 for net proceeds of $35 million.
- Extended long-stop date in connection with the Strategic Agreement with the Government of the Kyrgyz Republic to January 31, 2019.
- Gold and copper mineralization identified at depth and to the west of Mount Milligan’s existing pit design.
- Cash provided by operating activities before changes in working capitalNG of $67.1 million.
- Cash, cash equivalents, restricted cash and short-term investments at September 30, 2018 were $222 million.
Mount Milligan Water Matters
As noted in the Company’s September 14, 2018 news release, Mount Milligan received approval to access certain short-term water sources, namely to (i) pump from groundwater wells within Mount Milligan’s tailings storage facility (“TSF”) (as well as from a single groundwater well outside of the TSF for the entire life-of-mine) and (ii) pump up to 15% of the base flow from Philip Lake until November 15, 2018.
In addition, and in accordance with its regulatory plan, the Company has made applications for certain additional / extended water sources until 2021 and is also working on a long-term solution to meet its water needs at Mount Milligan. The Company is in discussions with regulators, First Nations and other affected stakeholders with respect to such applications.
The Company notes that as the flow from its current water sources declines during the fourth quarter and during the remainder of the winter season, Mount Milligan expects to reduce its throughput to properly manage its water balance until the water flow increases in the spring.
See “Operating Mines and Facilities – Mount Milligan Mine – Water Permitting Update” and “2018 Outlook” for further details.
Sale of Mongolian business unit
On September 25, 2018, the Company entered into a definitive agreement to sell its Mongolian business unit, including Boroo Gold LLC (including the mine and processing facility) and Centerra Gold Mongolia LLC (including the Gatsuurt Gold Project) to OZD ASIA PTE Ltd. (“OZD”), for net proceeds of $35 million. The agreement closed on October 11, 2018 when the proceeds were transferred.
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In the third quarter of 2018, the Company wrote-down the net assets of the Company’s Mongolian business unit to $35 million and recorded an impairment charge of $8.5 million (included in discontinued operations), which represents the amount by which its net carrying value exceeds the proceeds less transaction costs.
Commentary
Scott Perry, President and Chief Executive Officer of Centerra stated, “Our sites had another safe quarter and we continue to roll out phase two of our Work Safe – Home Safe program, as we strive to zero harm within the work place.”
“During the quarter and earlier than planned, Kumtor accessed and started mining and processing the higher-grade material from the SB Zone in the Central Pit. As a result, Kumtor delivered better than planned results in the quarter, producing over 122,000 ounces of gold at all-in sustaining costs (before taxes)NG of $662 per ounce sold. Company-wide the operations produced a total of 181,243 ounces of gold and 12.7 million pounds of copper in the quarter.”
“Company-wide our all-in sustaining costs on a by-product basis per ounce sold (before taxes)NG were $698 per ounce for the quarter bringing year-to-date to $861 per ounce.”
“With our third quarter earnings release today, the Company increased its gold production guidance for Kumtor for the year to 490,000 – 510,000 ounces and Company-wide to 665,000 to 705,000 ounces. We also lowered our expected all-in sustaining costs on a by-product basis (before taxes)NG at Kumtor to $700 to $750 per ounce sold and at Mount Milligan to $825 to $875 per ounce sold, which bring the Company’s consolidated all-in sustaining costs on a by-product basis (before taxes)NG to $782 to $829 per ounce sold.”
“Construction activity continued at the Öksüt Project in Turkey as the main access road and site road construction were substantially completed and the installations including the crusher area, ADR plant area, heap leach pad site and other site infrastructure are advancing according to plan.”
“The Kemess Project achieved another milestone in the quarter as it received its effluent discharge permit after receiving the amendment to its Mines Act Permit in the second quarter, which approved the underground mine plan and reclamation program for the Kemess Underground Project.”
“Financially, the business delivered approximately $67 million of consolidated cash from operations before changes in working capitalNG in the quarter. Kumtor and Mount Milligan generated $64 million and $19 million respectively, before working capital changes.”
“Lastly, after the end of the quarter, we announced the sale of our Mongolian business unit for net proceeds of $35 million. I would like to acknowledge and to personally express my heartfelt thanks to all of our former colleagues in Mongolia for their contributions over many years to Centerra.”
Exploration Update
Exploration expenditures in the third quarter of 2018 totaled $7.2 million compared to $2.5 million in the same quarter of 2017, reflecting the restart of exploration activities at Kumtor in 2018. Exploration activities during the third quarter included drilling, trenching, surface sampling, geological mapping and geophysical surveying at the Company’s various projects.
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Kyrgyz Republic
Kumtor Mine
Kumtor has designed and initiated a two-year 60,000 metre drill program to test potential extensions of gold mineralization along the Kumtor trend. The program is focused within the Central, South-West and Sarytor pits and the North-East Target area. A budget of $18 million has been allocated to the program with $6.5 million for 2018 and $11.5 million budgeted for 2019.
Drilling in 2018 is planned to test near surface targets, including the Hockey Stick Zone, the north-west periphery of the Central Pit and the corridor between the Central Pit and South-West Pit.
During the third quarter of 2018, 30 diamond drill holes were completed for a total 8,318 metres, at the vicinity of the Central and South-West Pits and the North-East Target area. More than half of the holes (17 drill holes for a total 4,507 metres) were completed in the Central Pit area targeting the Hockey Stick Zone.
Significant intercepts are:
D1784 32.1 metres @ 1.37 g/t Gold (“Au”) from 191.7 metres;
D1785 15.0 metres @ 3.62 g/t Au from 176.3 metres;
D1786 24.5 metres @ 2.79 g/t Au from 181.5 metres D1786 4.7 metres @ 2.37 g/t Au from 232.0 metres;
D1787 19.9 metres @ 2.80 g/t Au from 174.2 metres;
D1790 18.5 metres @ 3.62 g/t Au from 156.0 metres D1790 26.4 metres @ 5.57 g/t Au from 180.5 metres Includes 9.8 metres @ 10.42 g/t Au from 186.0 metres;
D1795 7.0 metres @ 2.45 g/t Au from 22.0 metres;
D1797 48.4 metres @ 2.85 g/t Au from 154.9 metres Includes 3.7 metres @ 11.51 g/t Au from 196.1 metres;
D1803 4.4 metres @ 2.78 g/t Au from 73.6 metres.
In the South-West area, 7 drill holes were completed for a total 2,297.7 metres. Best intercepts include:
SW-18-257 11.0 metres @ 1.57 g/t Au from 307.9 metres SW-18-257 34.0 metres @ 2.23 g/t Au from 344.7 metres;
SW-18-258 11.6 metres @ 2.15 g/t Au from 290.9 metres SW-18-258 9.9 metres @ 2.95 g/t Au from 344.7 metres;
SW-18-259 22.9 metres @ 2.82 g/t Au from 377.3 metres Includes 3.1 metres @ 8.80 g/t Au from 377.3 metres;
SW-18-262 4.8 metres @ 1.78 g/t Au from 15.7 metres.
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In the North-East area, 6 drill holes were completed for a total 1,512.4 metres. The best intercept is:
DN1800 5.8 metres @ 1.00 g/t Au from 75.2 metres.
In the fourth quarter of 2018, drilling will be focused on inferred near-surface mineralization in the northeast wall of the Central Zone, south-west extension of the Hockey Stick Zone and periphery of the North- East target.
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://resource.globenewswire.com/Resource/Download/9a34de56-af74-465c-8617-99019cd8a4a7
A 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.
Canada
Mount Milligan Mine
Exploration activities in the third quarter of 2018 at Mount Milligan included brownfield exploration drilling (within the mine lease) and greenfield exploration drilling (outside the mine lease). Phase-2 of the near-pit infill and expansion drilling began in the Saddle Zone in September.
Receipt of assay results for the latter drill holes of the Phase-1 near-pit infill and expansion drilling program continued during the third quarter. The program was completed on June 30, 2018 and totaled 10,985 metres in 30 drill holes (18-1056 to 18-1084) including one geotechnical hole. The last five drill holes were completed within the 66 Zone. Selected best results include:
18-1080: 125.0 metres @ 0.91 g/t Au, 0.01% Copper (“Cu”) from 47.0 metres;
18-1081: 54.0 metres @ 0.46 g/t Au, 0.01% Cu from 103.0 metres;
18-1082: 145.2 metres @ 0.94 g/t Au, 0.08% Cu from 4.1 metres;
18-1084: 56.0 metres @ 1.99 g/t Au, 0.04% Cu from 3.1 metres;
The brownfield drilling program completed a total of 6,669 metres in 12 drill holes and three target areas within the mine lease up to 730 metres west of the ultimate pit boundary. Assay results demonstrate near surface high-gold-low-copper targets in all zones and additional gold-copper mineralized porphyries at deeper levels. Selected best results include:
18-1093 (Saddle West zone): 23.0 metres @ 0.98 g/t Au, 0.07% Cu from 242.0 metres; 18-1105 (Saddle West zone): 14.2 metres @ 0.82 g/t Au, 0.11% Cu from 142.0 metres; 18-1108 (Saddle West zone): 7.9 metres @ 4.69 g/t Au, 0.03% Cu from 112.1 metres;
18-1085(Goldmark zone): 29.8 metres @ 0.24 g/t Au, 0.38% Cu from 261.2 metres; 18-1086 (Goldmark zone): 23.1 metres @ 6.21 g/t Au, 0.04% Cu from 20.2 metres;
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18-1098 (Goldmark zone): 11.0 metres @ 1.46 g/t Au, 0.33% Cu from 160.0 metres; 18-1102(Goldmark zone): 15.0 metres @ 0.62 g/t Au, 0.32% Cu from 165.0 metres; 34.8 metres @ 0.42 g/t Au, 0.15% Cu from 457.5 metres;
18-1089 (North Slope zone): 11.4 metres @ 0.54 g/t Au, 0.13% Cu from 4.6 metres;
18-1097 (North Slope zone): 22.5 metres @ 0.67 g/t Au, 0.02% Cu from 126.5 metres; 99.0 metres @ 0.35 g/t Au, 0.18% Cu from 283.5 metres; 18-1107(North Slope zone): 18.3 metres @ 1.41 g/t Au, 0.08% Cu from 66.0 metres.
The 2018 greenfield helicopter supported drilling program completed a total of 5,411 metres in 12 drill holes and in three target areas outside of the mine lease; the D2 & Heidi Stock target areas, about three kilometres west of the mine, and the Mitzi East target area, about three kilometres north of the mine. Geologic information and assay results are being used to delineate the margins of the porphyry system. A porphyry copper target was identified on the west side of the mine lease. Selected best results include:
18-1106 (Heidi Stock): 33.6 metres @ 0.07 g/t Au, 0.21% Cu from 17.0 metres.
The above mineralized intercepts (except for 18-1106) were calculated using a cut-off grade of 0.1 g/t Au and a maximum internal dilution interval of 4 metres. 18-1106 was calculated using a cut-off grade of 0.1% Cu. Drill collar locations and associated graphics are available at the following:
http://resource.globenewswire.com/Resource/Download/9a34de56-af74-465c-8617-99019cd8a4a7
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.
Turkey
Öksüt Gold Project
At the Öksüt Gold Project, two additional drill rigs were deployed during the third quarter of 2018. The drilling program is focused on resource expansion and upgrade at the Keltepe deposit, targeting supergene copper mineralization at depth, and testing oxide gold mineralization potential at other targets around the known deposits, including Keltepe NW and Yelibelen. In addition to these, a conceptual porphyry-style Cu/Au target was tested at Boztepe.
In the third quarter of 2018, 3,750 metres in 11 holes were completed. A total of 4,860 metres have been drilled of the initial 6,000 metres planned for the 2018 drilling program. Based on the results received to date, an additional 2,000 metres of drilling has been added to the 2018 drilling program.
Significant gold and copper mineralization have been intercepted with some of the better intervals being:
Keltepe (Testing for oxide Au resource expansion/conversion and resource upgrade)
ODD0308: 48.8 metres @ 0.44 g/t Au from 66 metres;
ODD0311A: 180.4 metres @ 0.88 g/t Au from 25.3 metres Includes 25.5 metres @ 1.17 g/t Au;
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ODD0313: 162.1 metres @ 1.65 g/t Au from 71.5 metres Includes 57.8 metres @ 2.86 g/t Au;
ODD0316: 193.2 metres @ 2.2 g/t Au from 16.6 metres Includes 86 metres @ 3.27 g/t Au.
Keltepe (Testing for supergene Cu mineralization at depth)
ODD0311A: 5 metres @ 1.49% Cu and 0.38 g/t Au from 343.8 metres;
ODD0313: 16.9 metres @ 0.77% Cu and 1.72 g/t Au from 219.9 metres;
Includes 2.4 metres @ 3.05% Cu and 3.52 g/t Au;
ODD0316: 51.3 metres @ 1.15% Cu and 1.67 g/t Au from 209.8 metres Includes 4.3 metres @ 8.89% Cu and 2.3 g/t Au.
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://resource.globenewswire.com/Resource/Download/9a34de56-af74-465c-8617-99019cd8a4a7
A listing of the drill results, drill hole locations and plan map for the Öksüt Gold 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.
Greenfields Exploration
Yamaç Project
At the Yamaç Project in Turkey, drill permits are still pending for the proposed step-out drill testing at 200 metre centres. Limited site preparations were commenced in anticipation of the drill permits being received in the third quarter.
Other Projects
During the third quarter of 2018, exploration programs targeting gold and copper were ongoing in Turkey, 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 Kumtor Mine were prepared in accordance with the standards of National Instrument 43-101 (“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 Gold Inc., 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 Kumtor deposit is described in Centerra’s most recently filed Annual Information Form and a technical report dated March 20, 2015 (with an effective date of December 31, 2014), which are both filed on SEDAR at www.sedar.com.
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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 assurancequality 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 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 in accordance with 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 assurancequality 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.
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This Management Discussion and Analysis (“MD&A”) has been prepared as of October 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 and nine months ended September 30, 2018 in comparison with the corresponding periods ended September 30, 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 and nine months ended September 30, 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 and nine months ended September 30, 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 assumptions set out under “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 and copper properties in North America, Asia and other markets worldwide. Centerra’s principal mining 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 also operates a molybdenum business which includes purchasing and upgrading molybdenum concentrate as well as a tolling service for customers.
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 and Öksüt Madencilik Sanayi vi TicaretA.S. (“OMAS”) in Turkey. Additionally, the Company holds, through Thompson Creek, a 75% joint venture interest in the Endako Mine in British Columbia, Canada. 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 Canada and Turkey.
Centerra’s common shares are listed for trading on the Toronto Stock Exchange under the symbol CG. As of October 30, 2018, there are 291,996,071 common shares issued and outstanding and options to acquire 6,136,396 common shares outstanding under its stock option plan.
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2. Market Conditions Gold Price
During the third quarter of 2018, the gold price decreased by 5%, falling from $1,253 as at June 30, 2018 to $1,191 per ounce as at September 30, 2018. The average gold price for the third quarter of 2018 was $1,212 per ounce, $67 lower than the third quarter of 2017 ($1,279 per ounce) and $94 lower per ounce than the second quarter of 2018 ($1,306 per ounce).
Copper Price
The price of copper decreased 5% in the quarter, from $3.00 to $2.84 per pound. The average spot copper price for the third quarter of 2018 was $2.78 per pound, a $0.11 per pound decrease when compared to the third quarter of 2017 ($2.89 per pound), and a $0.34 per pound decrease compared to the second quarter of 2018 average ($3.12 per pound).
Molybdenum Price
The molybdenum price began the third quarter of 2018 at $10.62 and closed at $11.80, an increase of 11%. The average molybdenum price for the quarter was $11.80 per pound, a $3.67 per pound increase compared to the third quarter of 2017 average ($8.13 per pound) and a $0.17 per pound increase when compared to the second quarter of 2018 average ($11.63 per pound).
Foreign Exchange Rates
USD to CAD
The Canadian dollar averaged $1.31 in the third quarter of 2018, with rates ranging from $1.29 to $1.33, and exhibited a 5% appreciation against the USD when compared to the average of the third quarter of 2017 ($1.34). When comparing the third quarter of 2018 to the average of the second quarter of 2018 ($1.29), the Canadian dollar weakened by 2%.
USD to Kyrgyz Som
The average U.S. dollar exchange rate for the third quarter of 2018 (68.76) was consistent with the average of the third quarter of 2017 (68.87) and the second quarter of 2018 (68.5), with rates in the third quarter of 2018 ranging from 68.0 to 69.75. The Kyrgyz som continues to be sensitive to 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 and projects in the Kyrgyz Republic, Turkey, United States of America and Canada. During the first nine months of 2018, the Company incurred combined expenditures (excluding the purchase of AuRico but including capital) totaling approximately $1,232 million. Approximately $452 million of this (37%) was in currencies other than the U.S. dollar. The percentage of Centerra’s non-U.S. dollar costs, by currency was as follows: 52% in Canadian dollars, 39% in Kyrgyz soms, 4% in Euros, and 3% in Turkish lira. The monthly average value of the Turkish lira, Canadian dollar and Euro depreciated against the U.S. dollar by 22%, 3% and 1%, respectively, from their values at December 31, 2017, respectively. The Kyrgyz som appreciated against the U.S. dollar by approximately 1% from its value at December 31, 2017. The net impact of these movements in the nine months ended September 30, 2018, after taking into account currencies held at the beginning of the year and settlement of foreign exchange derivatives, was to reduce the annual costs by $7.6 million (increase of $6.7 million in the nine months ended September 30, 2017). The net impact during the first nine months of 2018 was predominately due to currency movements experienced in the second quarter of 2018, while the net impact in the same period of 2017 was more evenly distributed over the second and third quarter.
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3. Consolidated Financial and Operational Highlights
| Unaudited ($ millions, except as noted) | Three months ended September 30, | Nine months ended September 30, | ||||
|---|---|---|---|---|---|---|
| Financial Highlights | 2018 | 2017 | % Change | 2018 | 2017 | % Change |
| Revenue | $ 259.1 | $ 276.2 | (6%) | $ 737.8 | $ 840.8 | (12%) |
| Cost of sales | 189.0 | 164.2 | 15% | 529.2 | 501.3 | 6% |
| Standby costs | - | - | 0% | 10.8 188.1 | - | 100% |
| Earnings from mine operations | 66.7 | 107.9 (4.6) | (38%) | 327.0 | (42%) | |
| Net earnings (loss) from continuing operations | 16.2 | (454%) | 64.6 | 119.3 | (46%) | |
| Net earnings (loss) from discontinued operations | (10.2) | 3.7 | (374%) | (6.0) | (39.8) | (85%) |
| Net earnings (loss) | $ 6.0 | $ (0.8) | (812%) | $ 58.6 | $ 79.6 | (26%) |
| Adjusted earnings (3) | $ 14.5 | $ 52.3 | (72%) | $ 28.9 | $ 172.4 | (83%) |
| Cash provided by operations (4) | 37.6 | 119.5 | (69%) | 65.9 | 330.5 | (80%) |
| Cash provided by operations before changes in working capital (3) (4) | 67.1 | 108.0 | (38%) | 181.2 | 352.7 | (49%) |
| Capital expenditures (sustaining) (3) | 20.2 | 23.8 | (15%) | 65.0 | 62.5 | 4% |
| Capital expenditures (growth and development projects) (3) | 31.8 | 8.1 | 292% | 67.3 | 21.5 | 213% |
| Capital expenditures (stripping) | 16.5 | 41.5 | (60%) | 102.8 | 168.4 | (39%) |
| Total assets | $ 2,890.7 | $ 2,656.7 | 9% | $ 2,890.7 | $ 2,656.7 | 9% |
| Long-term debt and lease obligation | 296.0 | 271.6 | 9% | 296.0 | 271.6 | 9% |
| Cash, cash equivalents and restricted cash | 222.1 | 352.9 | (37%) | 222.1 | 352.9 | (37%) |
| Per Share Data | ||||||
| Net earnings from continuing operations per common share - $ basic(1) | $ 0.06 | $ (0.02) | 377% | $ 0.22 | $ 0.41 | (46%) |
| Net earnings from continuing operations per common share - $ diluted(1) | $ 0.05 | $ (0.02) | 330% | 0.21 | $ 0.40 | (46%) |
| Net earnings per common share - $ basic (1) | $ 0.02 | $ - | 100% | $ 0.20 | $ 0.27 | (27%) |
| Net earnings per common share - $ diluted (1) | $ 0.01 | $ - | 100% | $ 0.19 | $ 0.27 | (30%) |
| Adjusted earnings per common share - $ basic (1)(3) | $ 0.05 | $ 0.18 | (72%) | $ 0.10 | $ 0.59 | (83%) |
| Adjusted earnings per common share - $ diluted (1)(3) | $ 0.05 | $ 0.18 | (72%) | $ 0.10 | $ 0.59 | (83%) |
| Per Ounce Data (except as noted) | ||||||
| Average gold spot price - $/oz(2) | 1,213 | 1,278 | (5%) | 1,283 | 1,251 | 3% |
| Average copper spot price - $/lbs(2) | 3.12 | 2.57 | 21% | 3.14 | 2.61 | 20% |
| Average realized gold price (Kumtor) - $/oz(3) | 1,195 | 1,249 | (4%) | 1,263 | 1,237 | 2% |
| Average realized gold price (Mount Milligan - combined) - $/oz(3) (5) | 939 | 999 | (6%) | 963 | 1,002 | (4%) |
| Average realized gold price (consolidated) - $/oz(3) | 1,123 | 1,142 | (2%) | 1,186 | 1,160 | 2% |
| Average realized copper price (consolidated) - $/lbs(3) | 2.01 | 2.20 | (8%) | 2.13 | 2.08 | 3% |
| Operating Highlights | ||||||
| Gold produced – ounces | 181,243 | 200,201 | (9%) | 441,189 | 568,564 | (22%) |
| Gold sold – ounces | 166,716 | 174,099 | (4%) | 439,575 | 550,238 | (20%) |
| Payable Copper Produced (000's lbs) | 12,704 | 13,677 | (7%) | 35,295 | 41,335 | (15%) |
| Copper Sales (000's payable lbs) | 13,605 | 18,644 | (27%) | 30,779 | 46,613 | (34%) |
| Operating costs (on a sales basis) (3) (6) | 140.6 | 123.3 | 14% | 396.0 | 355.0 | 12% |
| Unit Costs | ||||||
| Adjusted operating costs on a by-product basis - $/oz sold(3)(6) | $ 470 | $ 329 | 43% | $ 482 | $ 335 | 44% |
| Gold - All-in sustaining costs on a by-product basis – $/oz sold(3)(6) | $ 698 | $ 723 | (3%) | $ 861 | $ 738 | 17% |
| Gold - All-in sustaining costs on a by-product basis (including taxes) – $/oz sold(3) (6) | $ 824 | $ 850 | (3%) | $ 1,012 | $ 862 | 17% |
| Gold - All-in sustaining costs on a co-product basis (before taxes) – $/oz sold(3)(6) | $ 709 | $ 805 | (12%) | $ 858 | $ 796 | 8% |
| Copper - All-in sustaining costs on a co-product basis (before taxes) – $/pound sold(3)(6) | $ 1.73 | $ 1.70 | 2% | $ 1.89 | $ 1.68 | 13% |
(1) As at September 30, 2018, the Company had 291,938,804 common shares issued and outstanding (291,996,071 common shares as of October 30, 2018). As of October 30, 2018, Centerra had 6,136,396 share options outstanding under its share 1 University Avenue, Suite 1500 11 option plan with exercise prices ranging from US$2.83 per share to Cdn$22.28 per share, with expiry dates between 2018 and 2026.
Average for the period as reported by the London Bullion Market Association (US dollar Gold P.M. Fix Rate) and London (2)
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) Three and nine months of 2018 includes $1.3 million and $4.2 million of cash used by discontinued operations ($5.3 million and $8.1 million cash used in same periods of 2017)
(5) Combines streamed and unstreamed amounts.
(6) Excludes Molybdenum business.
4. Overview of Consolidated Results
Third Quarter 2018 compared to Third Quarter 2017
The Company recorded net earnings of $6.0 million in the third quarter of 2018, compared to a loss of $0.8 million in the same period of 2017. The earnings in the third quarter of 2018 include an after-tax impairment charge of $8.5 million to write-down the net carrying value of the Mongolian business unit to its sale value of $35 million. The Mongolian sale, which closed on October 11, 2018, includes the assets of Boroo Gold LLC (Boroo mine and processing facility) and Centerra Gold Mongolia LLC (including the Gatsuurt Project). Excluding this charge, adjusted earningsNG for the third quarter of 2018 were $14.5 million reflecting lower gold production at Kumtor, due primarily to processing complex Sarytor ore with lower average mill gold head grades and lower recoveries, lower throughput at Mount Milligan following unscheduled downtime of milling operations and lower realized gold and copper prices.
Production:
Gold production in the third quarter of 2018 totaled 181,243 ounces compared to 200,201 ounces in the same period of 2017. Gold production at Kumtor was 122,445 ounces in 2018, 12% lower than the 138,561 ounces produced in 2017. The decrease in ounces poured at Kumtor is a result of milling lower grade and lower recovery ore from the Sarytor stockpiles at the beginning of the third quarter 2018 (3.03 g/t and 79.0% recovery compared to 3.47 g/t and 80.5% recovery) compared to third quarter of 2017. Kumtor accessed the high-grade ore in cut-back 18 ahead of plan in late August 2018 which was then blended with lower grade stockpiles through the mill. During the third quarter of 2018, Mount Milligan produced 58,798 ounces of gold and 12.7 million pounds of copper, compared to 61,640 ounces of gold and 13.7 million pounds of copper in the third quarter of 2017. The lower production at Mount Milligan in the third quarter of 2018 was due to lower throughput as a result of an unscheduled mill shutdown in early September due to a lightning strike and a scheduled shutdown in late September to replace the SAG shell liners, as well as achieving lower recoveries compared to the same period of 2017.
Safety and Environment:
Centerra had six reportable injuries in the third quarter of 2018, which included one lost time injury, four medical aid injuries and one restricted work injury.
During the third quarter of 2018 there were no reportable release to the environment.
Financial Performance:
Revenue decreased to $259.1 million in the third quarter of 2018 compared to $ 276.2 million in the same period of 2017, as a result of lower sales at Mount Milligan (47,195 gold ounces compared to 74,585 gold ounces and 13.6 million pounds of copper compared to 18.6 million pounds of copper) and lower average realized pricesNG, partially offset by 20% more gold doré ounces sold at Kumtor. The decrease in sales in the third quarter of 2018 reflects lower production at both mining operations, as described above. The decrease in overall revenue was also impacted by lower combined average realized pricesNG for gold (2%)
1 University Avenue, Suite 1500 12