Centerra Gold Revises 2016 Guidance Favourably and Reports Third Quarter Results
NEWS RELEASE
Centerra Gold Revises 2016 Guidance Favourably and Reports Third Quarter Results
This news release contains forward-looking information that is subject to the risk factors and assumptions set out on page 29 and in the Cautionary Note Regarding Forward-looking Information on page 35. It should be read in conjunction with the Company’s unaudited interim condensed consolidated financial statements and notes for the three and nine months ended September 30, 2016 and the associated Management’s Discussion and Analysis. The condensed interim 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.
To view Management’s Discussion and Analysis and the Unaudited Interim Consolidated Financial Statements and Notes for the three and nine months ended September 30, 2016, please visit the following link:
http://media3.marketwire.com/docs/CG1107-mdafs.pdf
Toronto, Canada, November 7, 2016: Centerra Gold Inc. (TSX: CG) today reported net earnings of $66.9 million or $0.28 per common share (basic) in the third quarter of 2016, compared to a net loss of $18.1 million or $0.08 per common share (basic) for the same period in 2015. This reflects the processing of higher grade material from cut-back 17 at Kumtor, 19% higher average realized gold price1 in the period and an inventory impairment reversal of $15.4 million ($0.06 per share), while the comparative period in 2015 included a non-cash goodwill impairment charge of $18.7 million ($0.08 per share).
For the first nine months of 2016, the Company recorded net earnings of $87.9 million or $0.36 per common share (basic), compared to a net earnings of $44.5 million or $0.19 per common share (basic) in the comparative period of 2015. This reflects the reversal of an inventory impairment of $27.2 million ($0.11 per share) and 34% lower corporate administration costs in the first nine months of 2016 and the recording of an $18.7 million ($0.08 per share) non-cash goodwill impairment in the comparative period.
Centerra’s third quarter results described in this news release do not include financial and operation data from Thompson Creek Metals Company Inc., which was acquired on October 20, 2016.
2016 Third Quarter Highlights
- On October 20, 2016, the Company completed the acquisition of Thompson Creek Metals Company Inc. for $1.03 billion. This included the redemption, at their call prices plus accrued and unpaid interest, or satisfaction and discharge, all of Thompson Creek's outstanding Senior Secured Notes due in 2017 and Unsecured Notes due in 2018 and 2019, representing $326.1 million, $349.7 million and $205.2 million, respectively.
- Favourably revised gold production guidance at Kumtor to 520,000 to 560,000 ounces.
- Lowered all-in sustaining cost1 (AISC) guidance for Kumtor to $666 - $718 per ounce.
1 Non-GAAP measure, see discussion under “Non-GAAP Measures”. All-in sustaining costs exclude revenue-based taxes in the Kyrgyz Republic and income taxes.
- Produced 166,030 ounces of gold at Kumtor at all-in sustaining costs1 of $555 per ounce sold. All-in sustaining costs1 were lower than previous guidance.
- Company-wide all-in sustaining costs per ounce sold1 for the third quarter were $591 due in part to more ounces sold and lower operating costs at Kumtor.
- Received the Forestry Usage Permit at the Öksüt Project in Turkey.
- Continued discussions with the Government of the Kyrgyz Republic with a view to resolving all outstanding matters affecting the Kumtor Project including removal of the restriction on cash held by Kumtor Gold Company (“KGC”).
- Continued discussions with the Mongolian Government regarding finalizing definitive agreements relating to the Gatsuurt Project. Discussions are continuing in the fourth quarter of 2016.
Centerra’s Kyrgyz Republic operating subsidiary, KGC is subject to an interim order of the Bishkek Inter- District Court in the Kyrgyz Republic prohibiting KGC from taking any actions relating to certain financial transactions, including transferring property or assets, declaring or paying dividends or making loans to Centerra. While such order does not prohibit KGC from continuing to use its cash resources to operate the Kumtor mine, cash generated from the Kumtor Project continues to be held in KGC and is not being distributed to Centerra. The interim order purports to secure KGC’s potential liability for a previously disclosed claim brought by the Kyrgyz Republic State Agency for Environmental Protection and Forestry. The Company believes that such claim and the interim order are without foundation and violate the fundamental investment protections contained in the 2009 agreements governing the Kumtor Project, as, in particular, the order deprives Centerra of the fundamental economic benefits of ownership of the Kumtor Project. KGC appealed the interim order to the Kyrgyz Republic Supreme Court but such appeal was denied on October 19, 2016. Centerra has included the dispute in the ongoing international arbitration proceeding against the Kyrgyz Republic (see “Other Corporate Developments – Notice of Arbitration”). As at September 30, 2016, the cash balance of KGC was $121.6 million and is expected to continue to increase over time. In light of the continued inability of the Company to access cash generated by the Kumtor Project, including as a result of the denial by the Kyrgyz Republic Supreme Court of KGC’s appeal of the interim order, the Company is deferring until its next regularly scheduled board meeting in December the consideration of declaring a quarterly dividend.
The Company believes its cash at hand, cash from the Company’s existing credit facilities, and cash flow from the Company’s Mount Milligan operations will be sufficient to fund its anticipated operating cash requirements through to the end of 2017, although there can be no assurance of this. Absent access to cash held by KGC, the Company expects that it will be required to raise financing in order to fund construction and development expenditures on its development properties or to defer such expenditures.
Centerra’s cash, cash equivalents and short-term investments at the end of the third quarter of 2016 was $479 million (excluding cash restricted as a result of a court order in the Kyrgyz Republic, and the proceeds from the offering of Subscription Receipts which was completed in connection with the acquisition of Thompson Creek and held in restricted cash) compared to $542 million at December 31, 2015.
The pro-forma cash, cash equivalents and short-term investments giving effect to the acquisition of Thompson Creek as at September 30, 2016 was $106 million (excluding the cash restricted by the Kyrgyz Republic court order). This amount gives effect to the payments made to discharge or redeem the outstanding Thompson Creek Senior Secured Notes.
As at September 30, 2016, the Company had drawn $100 million on its $150 million corporate revolving credit facility with the European Bank for Reconstruction and Development (EBRD). Subsequent to the end of the third quarter, the Company drew an additional $50 million under the EBRD credit facility which is intended to be used solely for the Gatsuurt Project and related corporate overhead. The Company does not expect to expend such additional funds until it has signed a definitive investment agreement relating to the Gatsuurt Project with the Government of Mongolia. The additional $50 million was made available under the EBRD credit facility on the condition that the funds are to be re-paid if an investment agreement relating to the Gatsuurt Project has not been concluded with the Government of Mongolia by February 2018.
The Company also intends to draw on the remaining $25 million available under the TCM Credit Facility which funds are expected to be used for working capital purposes at Centerra’s Thompson Creek operations during the fourth quarter of 2016. Although the Company expects that such funds will be sufficient to fund operations at its Thompson Creek operations, there are no assurances in this regard.
OMAS, the Company’s wholly-owned Turkish subsidiary, entered into a $150 million credit facility agreement with UniCredit Bank AG and EBRD which expires on December 30, 2021 (the “OMAS Facility”). The purpose of the OMAS Facility is to assist in financing the construction of the Company’s Öksüt Project. Access to the OMAS Facility is dependent on the satisfaction of certain conditions by November 30, 2016, including the receipt of all necessary permits. If the conditions are not satisfied or waived by such date, or an extension is not granted by the lenders, the commitments under the OMAS Facility will be cancelled. The Company continues to work on satisfying the conditions precedents by such deadline; however some conditions, such as the receipt of the pastureland permit, are beyond Centerra’s control. There are no assurances that all conditions will be satisfied by the deadline, or that the lenders will provide any waivers or extensions.
CEO Commentary
Scott Perry CEO of Centerra Gold stated, “As we mined and processed the higher grade material from the SB Zone, Kumtor delivered strong gold production in the quarter, producing 166,000 ounces. Kumtor’s all-in sustaining costs1 were in the lower cost quartile of the gold industry at $555 per ounce sold, well below our revised guidance for the year. During the third quarter, Kumtor generated $106 million of free cash, however without access to the cash generated from the Kumtor Project, the Company has decided to defer until December the consideration of declaring a quarterly dividend.”
“With our third quarter earnings release today, the Company increased its gold production guidance for Kumtor for the year to 520,000 – 560,000 ounces. We also lowered our expected all-in sustaining costs1 by 6% at Kumtor to $692 per ounce sold. The Company’s consolidated (excluding Thomson Creek) all-in sustaining costs reduced by 7% to $744 per ounce sold, based on the mid-point of the ranges. We are well positioned to achieve our revised gold production and cost guidance for the year.”
“Following the quarter end, we successfully closed the $1 billion acquisition of Thompson Creek that creates a geographically diversified, high-quality, low cost gold producer with a strong growth pipeline. It diversifies Centerra’s operating platform and adds high quality, low risk production and cash flow from the long-lived Mount Milligan mine. Centerra now has two cornerstone, high quality, low cost operating assets with the Kumtor and Mount Milligan mines, a more balanced operating asset base with a lower overall jurisdictional risk profile, significant low-cost gold production that will underpin significant cash flows into the future and we have retained optionality to stronger molybdenum prices through our new molybdenum asset base.”
Thompson Creek Update
On October 20, 2016, the Company completed the acquisition of Thompson Creek Metals Company Inc. (“the Acquisition”) for $1.03 billion. This included the redemption, at their call prices plus accrued and unpaid interest, or satisfaction and discharge, all of Thompson Creek's outstanding Senior Secured Notes due in 2017 and Unsecured Notes due in 2018 and 2019, representing $326.1 million, $349.7 million and $205.2 million, respectively.
Concurrently with the Acquisition, the streaming arrangement with Royal Gold Inc. (“Royal Gold”) associated with the Mount Milligan mine was amended, whereby Royal Gold’s 52.25% gold stream at Mount Milligan has been converted to a 35% gold stream and an 18.75% copper stream. Royal Gold will continue to pay us US$435 per ounce of gold delivered to them and will pay 15% of the spot price per metric tonne of copper delivered to them.
As part of the transaction, the Company closed a public offering pursuant to which the underwriters purchased on a bought deal basis 26,599,500 subscription receipts, at a price of Cdn$7.35 per subscription receipt for gross proceeds to the Company of approximately Cdn$195.5 million (the “Offering”). The funds were held by an escrow agent until the transaction was completed on October 20, 2016. Upon completion of the Acquisition, the net proceeds of the Offering, Cdn$185.7 million, were used to partially fund the redemption of the Secured and Unsecured Notes of Thompson Creek.
The Acquisition involved the exchange of common shares, whereby one Thompson Creek share was exchanged for 0.0988 Centerra common shares. Thompson Creek preferred share units (“PSU”) and restricted share units (“RSU”) were exchanged for an equivalent number of Thompson Creek common shares, which were then exchanged for Centerra common shares at the exchange rate. In total, Centerra issued 22,327,218 Centerra common shares in accordance with the exchange ratio, representing approximately 8% of Centerra’s issued and outstanding common shares following closing. The Centerra shares issued were equivalent to $112.3 million (including $1.6 million relating to the settled Thompson Creek PSUs and RSUs) using the October 19, 2016 closing price of Centerra’s common share price of Cdn$6.60. Holders of Thompson Creek’s stock options were issued 111,341 options to acquire common shares of Centerra, with the number of shares and exercise price adjusted for the exchange conversion ratio, and other terms consistent with Thompson Creek’s outstanding stock options.
Concurrently with the closing of the Acquisition, Centerra B.C. Holdings (a newly formed wholly-owned subsidiary of Centerra) entered into a $325 million credit agreement with a lending syndicate to finance a portion of the Acquisition and to pay certain related fees and expenses. The 5-year term facilities consists of a $75 million senior secured revolving credit facility (the “Revolving Facility”) and a $250 million senior secured non-revolving term credit facility (the “Term Facility”, collectively, the “TCM Credit Facility”). Centerra B.C. Holdings’ obligations under the TCM Credit Facility are guaranteed by the assets of Thompson Creek and certain of Thompson Creek’s material subsidiaries.
For further information, refer to the Company’s news releases dated July 5, 2016, July 20, 2016 and October 20, 2016 filed on SEDAR.
The following is operating data from Thompson Creek regarding Mount Milligan for the first three quarters of 2016 and pre-dates the closing of the Acquisition. Information for the first and second quarters are taken from the public filings for Thompson Creek, however third quarter results have not been previously publicly disclosed nor were they reviewed by Thompson Creek’s or Centerra’s auditors. The operating data below is not included in Centerra’s third quarter 2016 results.
| Q1 2016 | Q2 2016 | Q3 2016 | |
|---|---|---|---|
| Copper and Gold | |||
| Mount Milligan Mine | |||
| Average Daily Mill Throughput (tonnes) | 58,099 | 49,980 | 50,326 |
| Mill Availability (%) | 96.6% | 90.9% | 90.3% |
| Copper ore grade (%) | 0.23% | 0.20% | 0.18% |
| Copper recovery (%) | 75.0% | 77.2% | 71.8% |
| Copper payable production (million lbs) | 19.1 | 14.6 | 12.3 |
| Copper sold (million lbs) | 15.0 | 20.3 | 10.7 |
| Gold ore grade (g per tonne) | 0.55 | 0.54 | 0.63 |
| Gold recovery (%) | 59.3% | 60.4% | 55.6% |
| Gold payable production (000's ounces) | 53.3 | 46.4 | 50.1 |
| Gold sold (000's ounces) | 44.4 | 62.3 | 27.4 |
During the third quarter of 2016, Mount Milligan continued to achieve excellent safety performance. Construction of the permanent secondary crushing circuit continued to proceed on schedule. As previously announced, commissioning of major equipment and components of the secondary crusher commenced earlier in October, with routine testing and commissioning of all equipment and process circuits to continue over the next several weeks. First feed through the secondary crusher is expected in the fourth quarter of 2016.
During the third quarter of 2016, Mount Milligan underwent a ten-day scheduled maintenance shutdown, which impacted mill throughput and availability, in connection with the planned semi-annual change of liners in the SAG mill and the integration of the existing ore handling conveyor systems with the new secondary crushing plant facility. For the nine months ended September 30, 2016, average daily mill throughput was 52,793 tonnes per day and mill availability was 92.6%.
Copper and gold payable in copper concentrate produced for the third quarter of 2016 was 12.3 million copper pounds and 50,100 ounces, this was lower compared to the prior quarter (second quarter, 2016: 14.6 million copper pounds and 46,400 gold ounces), as a result of the scheduled maintenance shutdown as described above, as well as lower copper grades and lower copper and gold recoveries due to operational challenges in the flotation circuits. For the remainder of 2016, the primary operational focus will be to continue to optimize the mine and mill with the expectation to gradually increase recoveries.
Consolidated Financial and Operating Summary (excluding results of Thompson Creek Metals Company Inc.)
| Unaudited ($ millions, except as noted) | Three months ended September 30,(7) | Nine months ended September 30,(7) | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Financial Highlights | 2016 | 2015 | % Change | 2016 | 2015 | % Change | ||||
| Revenue | $ | 220.2 | $ | 116.2 | 90% | $ | 455.0 | $ | 475.6 | (4%) |
| Cost of sales | 98.0 | 76.1 | 29% | 247.4 | 271.1 | (9%) | ||||
| Standby costs, net | (1.5) | 1.0 | (250%) | (2.2) | 4.8 | (146%) | ||||
| Regional office administration | 3.6 | 4.1 | (12%) | 10.7 | 14.4 | (26%) | ||||
| Earnings from mine operations | 120.1 | 35.0 | 243% | 199.1 | 185.3 | 7% | ||||
| Revenue-based taxes | 30.8 | 15.9 | 94% | 63.7 | 64.4 | (1%) | ||||
| Other operating expenses | 0.1 | 0.4 | (75%) | 1.4 | 1.1 | 27% | ||||
| Pre-development project costs | 2.3 | 3.3 | (30%) | 7.6 | 11.5 | (34%) | ||||
| Impairment of goodwill | - | 18.7 | (100%) | - | 18.7 | (100%) | ||||
| Exploration and business development (1) | 5.8 | 3.1 | 87% | 13.0 | 8.0 | 63% | ||||
| Corporate administration | 5.9 | 8.0 | (26%) | 18.5 | 28.1 | (34%) | ||||
| Earnings (loss) from operations | 75.2 | (14.4) | 622% | 94.9 | 53.5 | 77% | ||||
| Other (income) and expenses | 1.0 | 2.3 | (57%) | (0.9) | 4.9 | (118%) | ||||
| Finance costs | 1.7 | 1.1 | 55% | 4.4 | 3.3 | 33% | ||||
| Earnings (loss) before income taxes | 72.5 | (17.8) | 507% | 91.4 | 45.3 | 102% | ||||
| Income tax expense | 5.6 | 0.3 | 1767% | 3.5 | 0.8 | 338% | ||||
| Net earnings (loss) | 66.9 | (18.1) | (470%) | 87.9 | 44.5 | 98% | ||||
| Earnings (loss) per common share - $ basic (2) | $ | 0.28 | $ | (0.08) | 450% | $ | 0.36 | $ | 0.19 | 89% |
| Earnings (loss) per common share - $ diluted (2) | $ | 0.28 | $ | (0.08) | 450% | $ | 0.35 | $ | 0.19 | 84% |
| Cash provided by operations | 134.4 | 42.2 | 218% | 201.0 | 288.0 | (30%) | ||||
| Average gold spot price - $/oz (3) | 1,335 | 1,124 | 19% | 1,260 | 1,178 | 7% | ||||
| Average realized gold price - $/oz(4) | 1,336 | 1,123 | 19% | 1,284 | 1,184 | 8% | ||||
| Capital expenditures (5) | 63.7 | 94.7 | (33%) | 164.3 | 336.9 | (51%) | ||||
| Operating Highlights | ||||||||||
| Gold produced – ounces | 166,030 | 107,485 | 54% | 350,198 | 403,256 | (13%) | ||||
| Gold sold – ounces | 164,847 | 103,467 | 59% | 354,500 | 401,778 | (12%) | ||||
| Operating costs (on a sales basis) (6) | 46.7 | 35.3 | 32% | 127.3 | 114.7 | 11% | ||||
| Adjusted operating costs (4) | 50.1 | 40.6 | 23% | 138.4 | 135.0 | 3% | ||||
| All-in Sustaining Costs(4) | 97.4 | 112.7 | (14%) | 265.2 | 353.6 | (25%) | ||||
| All-in Costs, excluding development projects(4) | 104.2 | 117.2 | (11%) | 289.2 | 373.4 | (23%) | ||||
| All-in Costs, excluding development projects | ||||||||||
| (including revenue-based taxes and income taxes) (4) | 135.1 | 133.1 | 2% | 353.2 | 438.0 | (19%) | ||||
| Unit Costs | ||||||||||
| Cost of sales - $/oz sold(4) | 594 | 736 | (19%) | 698 | 675 | 3% | ||||
| Adjusted operating costs - $/oz sold (4) | 303 | 393 | (23%) | 390 | 336 | 16% | ||||
| All-in sustaining costs – $/oz sold(4) | 591 | 1,090 | (46%) | 748 | 881 | (15%) | ||||
| All-in costs, excluding development projects – $/oz | ||||||||||
| sold (4) | 632 | 1,134 | (44%) | 816 | 930 | (12%) | ||||
| All-in costs, excluding development projects | ||||||||||
| (including revenue-based taxes and income taxes) – | ||||||||||
| $/oz sold (4) | 820 | 1,287 | (36%) | 996 | 1,089 | (9%) |
(1) Includes business development of $2.3 million and $4.4 million for the three and nine months ended September 30, 2016 (nil and $1.9 million for the three and nine months ended September 30, 2015, respectively).
(2) As at September 30, 2016, the Company had 242,277,625 common shares issued and outstanding.
(3) Average for the period as reported by the London Bullion Market Association (US dollar Gold P.M. Fix Rate).
(4) Adjusted operating costs, all-in sustaining costs, all-in costs, excluding development projects and all-in costs, excluding development projects (including taxes) ($ millions and per ounce sold) as well as average realized gold price per ounce and cost of sales per ounce sold are non-GAAP measures and are discussed under “Non-GAAP Measures”.
(5) Includes capitalized stripping of $38.7 million and $78.4 million in the three and nine months ended September 30, 2016, respectively ($64.9 million and $198.4 million of capitalized stripping in the three and nine months ended September 30, 2015, respectively).
(6) Operating costs (on a sales basis) are comprised of mine operating costs such as mining, processing, regional office administration, royalties and production taxes (except at Kumtor where revenue-based taxes are excluded), but excludes reclamation costs and depreciation, depletion and amortization. Operating costs (on a sales basis) represents the cash component of cost of sales associated with the ounces sold in the period.
(7) Results may not add due to rounding.
Third Quarter 2016 compared to Third Quarter 2015
- Gold production for the third quarter of 2016 totaled 166,030 ounces compared to 107,485 ounces in the comparative quarter of 2015. The 60% increase in ounces poured at Kumtor reflects the processing of higher grade ore mined from the SB Zone of cut-back 17, in addition to higher recoveries. In contrast the Company processed lower grade ore stockpiled from cut-back 16 and lower grade material obtained from within cut-back 17 in the comparative quarter of 2015.
- Operating costs (on a sales basis) increased 32% to $46.7 million in the third quarter of 2016 from $35.3 million in the same period of 2015, reflecting more ounces sold, partially offset by lower unit costs in the third quarter of 2016. The decrease in unit costs in the third quarter of 2016 was due to processing higher grade ounces at Kumtor from the SB Zone of cut-back 17, compared to lower grade ore stockpiled from cut-back 16 and lower grade material within cut-back 17 in 2015. Higher costs in the third quarter of 2015 were partially offset by the fact that capitalization of mining costs in cut-back 17 continued until ore was accessed in September 2015.
- All-in sustaining costs per ounce sold1 for the third quarter of 2016 decreased to $591 from $1,089 in the comparative period of 2015, reflecting more ounces sold and the lower unit costs described above.
- All-in costs per ounce sold1, (excluding development project costs), were $632 compared to $1,133 in the comparative quarter of 2015, and includes all cash costs related to gold production, excluding revenue-based taxes and income taxes. The decrease primarily reflects the lower all-in sustaining costs described above, partially offset by additional spending in the third quarter of 2016 for exploration and business development.
- Revenue in the third quarter of 2016 increased 90% to $220.2 million from $116.2 million in the comparative period of 2015 as a result of more gold ounces sold (164,847 ounces compared to 103,467 ounces in the third quarter of 2015), as well as a 19% higher average realized gold price1 ($1,336 per ounce compared to $1,123 per ounce in the same quarter of 2015).
- In the third quarter of 2016, ounces sold increased 59% compared to the third quarter of 2015 while cost of sales only incrementally increased by 29% to $98 million when compared to the same period of 2015. The lower costs of sales reflects lower costs per ounce sold for the higher grade ore mined and processed at Kumtor from cut-back 17 in the third quarter of 2016. The cost of sales in the third quarter of 2015 resulted from the processing of lower grade ore stockpiled from cut-back 16 and lower grade material processed within cut-back 17, resulting in higher unit operating costs, and increased waste stripping as compared to the third quarter of 2016. Depreciation, depletion and amortization (“DD&A”) associated with production was $60.6 million in the third quarter of 2016 as compared to $40.8 million in the same quarter of 2015, reflecting increased ounces sold in 2016 and higher equipment charges attributed to the larger scale of cut-back 17.
- Exploration expenditures in the third quarter totaled $3.5 million compared to $3.1 million in the same period of 2015. The increase in the third quarter of 2016 reflects higher exploration activity at the Company’s various projects including the Gatsuurt property.
- Corporate administration costs decreased $5.9 million in the third quarter of 2016 from $8.0 million in the same period of 2015. The decrease was primarily due to the impact of currency movements, lower share-based compensation and lower general spending. Share-based compensation expense in the third quarter of 2016 was $0.9 million compared to $1.5 million in the same period of 2015.
- Cash provided by operations increased by $92.2 million to $134.4 million in the third quarter of 2016 mainly from the sale of lower cost ounces from the high grade SB Zone of cut-back 17 and lower working capital required in the third quarter of 2016.
- Total capital expenditures in the third quarter of 2016 were $63.7 million, which included sustaining capital1 of $13.0 million, growth capital1 of $4.7 million, $4.7 million of Öksüt Project development costs, $2.6 million of Greenstone Gold Property costs and $38.7 million of capitalized stripping costs ($28.2 million cash). Capital expenditures were 32% lower in the third quarter of 2016 as a result of lower capitalized stripping at Kumtor (a decrease of 40%), partially offset by increased growth capital1 (an increase of $2.8 million) and a $2.9 million increase in Öksüt Project development spending. Capital expenditures in the same quarter of 2015 were $94.7 million, which included $14.8 million for sustaining capital1, $1.9 million for growth capital1, $3.0 million of Greenstone Gold Property costs, $8.3 million in Greenstone Partnership acquisition costs and capitalized stripping of $94.7 million ($49.1 million cash).
First Nine Months 2016 compared to First Nine Months 2015
- Gold production for the nine months ended September 30, 2016 totaled 350,198 ounces compared to 403,256 ounces in the comparative period of 2015. The decrease in production is primarily due to lower average mill head grades processed and lower recoveries at Kumtor.
- Operating costs (on a sales basis)1 increased by $12.6 million to $127.3 million in the nine months ended September 30, 2016 compared to the same period in 2015, mainly as a result of higher per unit operating costs for the ounces from cut-back 17 processed and sold in the current period.
- All-in sustaining costs per ounce sold1 for the nine months ended September 30, 2016, was $748 compared to $881 in the same period of 2015. The decrease in the nine months ended September 30, 2016 reflects the lower per unit cost for the cut-back 17 ounces sold in the third quarter of 2016 and lower capitalized stripping.
- All-in costs per ounce sold1, (excluding development project costs) which excludes revenue-based taxes at Kumtor and income tax, for the first nine months of 2016 were $816, compared to $930 per ounce sold in the nine months ended September 30, 2015. The decrease reflects the lower all-in sustaining costs described above offset by higher exploration costs, business development costs and growth capital.
- Revenue in the first nine months of 2016 decreased 4% to $455.0 million, as a result of 12% fewer ounces sold (354,500 ounces compared to 401,778 ounces in the nine months ended September 30, 2015), partially offset by higher average realized gold price1 ($1,284 per ounce compared to $1,184 per ounce in the nine months ended September 30, 2015).
- In the first nine months of 2016, cost of sales decreased by 9% to $247.4 million due primarily to fewer ounces sold in the nine months ended September 30, 2016. DD&A associated with production decreased to $138.6 million in the nine months ended September 30, 2016 from $156.3 million in the comparative period of 2015, reflecting fewer ounces sold, in addition to lower per unit capitalized stripping charges for the cut-back 17 ore that was processed in the nine months ended September 30, 2016.
- The idled operation at Boroo generated earnings of $2.2 million in the nine months ended September 30, 2016 as the proceeds from the sale of residual gold coming from the rinsing of the heap leach pad were greater than care and maintenance costs in the period. Standby costs incurred at Boroo during the nine months ended September 30, 2015 to place the mill and operation on care and maintenance totaled $4.8 million, which included spending mainly for cleaning circuits and to maintain equipment in a ready state.
- Exploration expenditures in the nine months ended September 30, 2016 totaled $8.6 million compared to $6.1 million in the same period of 2015. The increase in the first nine months of 2016 reflects higher exploration spending at Gatsuurt and on the Company’s other projects.
- Corporate administration costs decreased to $18.4 million from $28.1 million in the nine months ended September 30, 2016 due primarily to a lower charge for share-based compensation. The share-based compensation charge in the nine months ended September 30, 2016 was a credit of $0.2 million, compared to $6.8 million in the same period in 2015.
- Cash provided by operating activities decreased to $201.0 million in the nine months ended September 30, 2016, from $288.0 million in the comparative period of 2015, mainly from lower sales and higher working capital levels for gold inventory.
- Total capital expenditures in the first nine months of 2016 were $164.3 million, which included sustaining capital1 of $49.9 million, growth capital1 of $18.2 million, $9.9 million of Öksüt Project development costs, $7.9 million of Greenstone Gold Property costs and $78.4 million of capitalized stripping costs ($57.6 million cash). Total capital expenditures were 51% lower for the first nine months of 2016 as a result of 60% lower capitalized stripping costs at Kumtor, partially offset by higher sustaining capital1 (an increase of 27%) and a 42% increase in growth capital1. Capital expenditures in the same period of 2015 were $336.9 million, which included $39.4 million for sustaining capital1, $12.8 million for growth capital1, capitalized stripping of $198.4 million ($150.3 million cash), $75.7 million of acquisition costs for the Greenstone Partnership and $8.8 million in Greenstone Gold Property costs.
Third Quarter Operations Update Kumtor Mine
| Three months ended | Nine months ended | |||||
|---|---|---|---|---|---|---|
| Kumtor Operating Results | September 30, | September 30, | ||||
| % | % | |||||
| Unaudited ($ millions, except as noted) | 2016 | 2015 | Change | 2016 | 2015 | Change |
| Tonnes mined - 000s | 34,838 | 41,944 | (17%) | 108,856 | 124,109 | (12%) |
| Tonnes ore mined – 000s | 3,970 | 1,136 | 249% | 8,687 | 2,642 | 229% |
| Average mining grade - g/t | 5.32 | 1.80 | 196% | 3.32 | 2.54 | 31% |
| Tonnes milled - 000s | 1,571 | 1,496 | 5% | 4,722 | 4,225 | 12% |
| Average mill head grade - g/t | 4.11 | 2.83 | 45% | 3.01 | 3.63 | (17%) |
| Recovery - % | 81.4% | 75.7% | 8% | 77.0% | 78.4% | (2%) |
| Mining costs - total ($/t mined material) | 1.28 | 1.25 | 2% | 1.28 | 1.28 | 0% |
| Milling costs ($/t milled material) | 10.28 | 11.13 | (8%) | 10.04 | 11.60 | (13%) |
| Gold produced – ounces | 166,030 | 103,701 | 60% | 350,198 | 390,084 | (10%) |
| Gold sold – ounces | 164,847 | 100,994 | 63% | 354,500 | 388,968 | (9%) |
| Average realized gold price - $/oz(1) | 1,336 | 1,124 | 19% | 1,284 | 1,183 | 9% |
| Capital expenditures (sustaining)(1) | 13.0 | 14.4 | (10%) | 49.6 | 38.6 | 28% |
| Capital expenditures (growth)(1) | 3.2 | 1.4 | 129% | 13.3 | 11.8 | 13% |
| Capital expenditures (stripping) | 38.7 | 64.9 | (40%) | 78.4 | 198.4 | (60%) |
| Capital expenditures (total) | 54.9 | 80.7 | (32%) | 141.3 | 248.8 | (43%) |
| Operating costs (on a sales basis) (2) | 46.7 | 33.5 | 39% | 127.3 | 104.3 | 22% |
| Adjusted operating costs (1) | 50.1 | 37.4 | 34% | 138.4 | 118.2 | 17% |
| All-in Sustaining Costs (1) | 91.5 | 101.1 | (10%) | 246.3 | 307.8 | (20%) |
| All-in Costs(1) | 94.7 | 102.5 | (8%) | 259.6 | 319.4 | (19%) |
| All-in Costs - including revenue-based taxes(1) | 125.5 | 118.4 | 6% | 323.3 | 383.8 | (16%) |
| Adjusted operating costs - $/oz sold (1) | 303 | 369 | (18%) | 390 | 304 | 28% |
| All-in sustaining costs – $/oz sold (1) | 555 | 1,000 | (45%) | 695 | 791 | (12%) |
| All-in costs – $/oz sold (1) | 574 | 1,014 | (43%) | 732 | 821 | (11%) |
| All-in costs (including revenue-based taxes) – $/oz sold (1) | 761 | 1,171 | (35%) | 912 | 987 | (8%) |
(1) Adjusted operating costs, all-in sustaining costs, all-in costs and all-in costs – including revenue-based taxes (in $ millions and per ounce sold), as well as average realized gold price per ounce sold, cost of sales per ounce sold and capital expenditures (sustaining and growth) are non-GAAP measures and are discussed under “Non-GAAP Measures”.
(2) Operating costs (on a sales basis) is comprised of mine operating costs such as mining, processing, regional office administration, royalties and production taxes (except at Kumtor where revenue-based taxes are excluded), but excludes reclamation costs and depreciation, depletion and amortization.
At the Kumtor mine in the Kyrgyz Republic, mining activities in the third quarter of 2016 focused on mining the higher grade ore from the SB Zone from cut-back 17. In early October 2016, Kumtor completed cut-back 17, and is now developing cut-back 18. The mine has stockpiled sufficient inventory to process higher grade material through the remainder of 2016.
Total waste and ore mined in the third quarter of 2016 decreased 17% to 34.8 million tonnes compared to 41.9 million tonnes in the comparative period of 2015. The decrease was mainly due to a 28% increased average haulage distance compared to the same period of 2015, as mining in the third quarter of 2016 was at greater depth and longer hauls were required. The Company mined 4.0 million tonnes of ore at 5.32 g/t in the third quarter of 2016 compared to 1.1 million tonnes of ore at 1.80 g/t in the comparative quarter.
During the third quarter of 2016, Kumtor continued to process ore from cut-back 17. Gold production for the third quarter of 2016 was 166,030 ounces of gold compared to 103,701 ounces in the comparative period of 2015. The increase in ounces poured was the result of mining and milling higher grade ore from the SB Zone, while in the third quarter of 2015 the Company processed lower grade ore stockpiled from cut-back 16 and lower grade material within cut-back 17.
During the third quarter, Kumtor processed 1.6 million tonnes, 5% more than the third quarter of 2015. Kumtor’s average mill head grade was 4.11 g/t with a recovery of 81.4% in the third quarter of 2016, compared to 2.83 g/t with a recovery of 75.7% for the same period of 2015. The mill achieved increased throughput in the third quarter of 2016 averaging 17,074 tonnes per day compared to 16,262 tonnes per day in the comparative quarter. Mill throughput has increased as a result of blending harder and softer ore, opening screens in the SAG mill and increasing the grinding media sizes in the SAG and ball mills.
Operating costs (on a sales basis)1 increased by $13.2 million predominantly due to increased sales of $46.7 million. The movements in the major components of operating costs (mining, milling and site support) in the third quarter of 2016 compared to the same period of 2015 are as follows:
Mining costs, before capitalization of stripping activity, totaled $44.5 million in 2016, which was $7.8 million lower than the comparative period. Decreased costs for the third quarter of 2016 include lower diesel costs ($3.9 million) due to lower fuel prices realized, lower blasting costs and volumes ($1.9 million and 13.6 million tonnes) and lower tires costs ($0.6 million).
Milling costs of $16.1 million in the third quarter of 2016 compared to $16.7 million in the comparative quarter of 2015. Milling costs in 2016 were lower than the comparative period due mainly to the lower cost of cyanide ($0.3 million)
Site support costs in the third quarter of 2016 totaled $10.1 million compared to $11.5 million in the third quarter of 2015. The decrease is primarily attributable to lower insurance costs resulting from lower premiums, and lower labour costs due to a reduction in manpower. Other cost reductions include diesel costs, rent costs and network equipment costs.
DD&A associated with sales, increased to $51.3 million in the third quarter of 2016 from $39.3 million in the comparative quarter of 2015. The increase in DD&A is mainly due to the increased depreciation charges relating to the ounces processed from cut-back 17 compared to the ounces processed in the comparative period and the higher ounces sold in the third quarter of 2016.
All-in sustaining costs per ounce sold1, which excludes revenue-based taxes, for the third quarter of 2016 decreased 45% to $555 in the third quarter of 2016 compared to $1,000 in the third quarter of 2015. The decrease was primarily a result of lower operating costs per ounce sold, as explained above, (driven by processing higher mining grades from the SB Zone of cut-back 17, improving mill recovery through the year (81.4% by the third quarter) and the reversal of $27.2 million in inventory impairment), in addition to lower sustaining capital expenditures in the quarter.
All-in costs per ounce sold1, which excludes revenue-based taxes, in the third quarter of 2016 was $574 compared to $1,014 in the same period of 2015, representing a decrease of 43%, for the same reasons explained above.
Capital expenditures in the third quarter of 2016 totaled $54.9 million which includes $13.0 million of sustaining capital1 mainly on equipment rebuilds and overhauls, $3.2 million invested in growth capital1 and $38.7 million for capitalized stripping ($28.2 million cash). Capital expenditures the comparative quarter of 2015 totaled $80.7 million, consisting of $14.4 million for sustaining capital1, $1.4 million for growth capital1 and $64.9 million of capitalized stripping ($49.1 million cash).
Development Projects
Öksüt Project
At the Öksüt Project in Turkey, the Company spent $4.7 million and $10.0 million during the three and nine months ended September 30, 2016 respectively ($2.4 million and $6.0 million in the three and nine months ended September 30, 2015) on development activities to progress the ESIA (Environmental Social Impact Assessment), access and site preparation and detailed engineering works. With the approval of the feasibility study in July 2015, development costs at the Öksüt Project are now being capitalized.
Following approval of the business opening permit from local authorities in December 2015, applications were submitted for the land usage permits (Forestry and Pastureland). On July 14, 2016, the Company’s wholly-owned Turkish subsidiary Öksüt Madencilik Sanayi ve Ticaret A.S. (“OMAS”) received the Forestry Usage Permit for the project and the operation permit for forestry area was obtained on August 26, 2016. The Pastureland permit is currently outstanding and the Company is working with the relevant agencies to obtain the permit. There are no assurances that the approval of the Pastureland permit or other permits will be obtained by the Company in a timely manner or at all. Even if the pastureland permit was received in the fourth quarter of 2016, the Company would not expect to begin construction activity at the Öksüt Project until April 2017 due to the advent of the winter season. As a result, first gold production would not be expected to occur before mid-2018.
On April 5, 2016, OMAS entered into a $150 million credit facility agreement with UniCredit Bank AG to assist in financing the construction of the Company’s Öksüt Project and in August 2016, EBRD became a lender under the OMAS Facility, underwriting $75 million. The interest rate on the Öksüt Facility is LIBOR plus 2.65% to 2.95% (dependent on project completion status). It is secured by Öksüt assets and is nonrecourse to the Company. Availability of the Öksüt Facility is subject to customary conditions precedent, including receipt of all necessary approvals. If the conditions are not satisfied or waived by the deadline of November 30, 2016, or an extension is not granted by the lenders, the commitments under the OMAS Facility will be cancelled. The Company continues to work on satisfying the conditions precedents by such deadline, however some conditions, such as the receipt of the pastureland permit, are beyond Centerra’s control. There are no assurances that all conditions will be satisfied by the deadline, or that the lenders will provide any waivers or extensions.
Gatsuurt Project
The Company continued to engage in discussions with the Mongolian Government regarding the definitive agreements relating to the Gatsuurt Project, during the quarter. During the quarter, the Company continued drilling on the property and carrying out resource definition, metallurgical, exploration, geo-technical and