Centerra Gold 2015 First Quarter Results
NEWS RELEASE Centerra Gold 2015 First Quarter Results
This news release contains forward-looking information that is subject to the risk factors and assumptions set out on page 26 and in the Cautionary Note Regarding Forward-looking Information on page 31. It should be read in conjunction with the Company’s unaudited interim consolidated financial statements and notes for the three-month period ended March 31, 2015 and associated Management’s Discussion and Analysis. The consolidated financial statements of Centerra are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. All figures are in United States dollars unless otherwise stated.
To view Management’s Discussion and Analysis and the Unaudited Interim Consolidated Financial Statements and Notes for the three-months ended March 31, 2015, please visit the following link:
http://media3.marketwire.com/docs/CG2015MDAFS.pdf .
Toronto, Canada, April 30, 2015: Centerra Gold Inc. (TSX: CG) today reported net earnings of $40.7 million or $0.17 per common share (basic) in the first quarter of 2015, compared to net earnings of $2.1 million or $0.01 per common share (basic) for the same period in 2014. The increase in earnings reflects a 53% increase in gold ounces sold, partially offset by lower average realized gold price1, currency movements and higher share-based compensation charges in 2015.
2015 First Quarter Highlights
- Produced 170,683 ounces of gold in the first quarter, including 164,272 ounces at Kumtor and 6,411 ounces at Boroo.
- All-in sustaining costs per ounce sold1 for the first quarter of $718, excluding revenue-based tax in the Kyrgyz Republic and income tax.
- All-in costs per ounce sold1, which excludes revenue-based tax in the Kyrgyz Republic and income tax, were $799 for the first quarter.
- The Gatsuurt Project in Mongolia was designated as a mineral deposit of strategic importance by the Mongolian Parliament.
- Completed forming a 50/50 partnership for the joint ownership, exploration and development of Premier Gold’s Trans-Canada Property including the Hardrock Gold Project located in the Geraldton- Beardmore Greenstone Belt in northwestern Ontario.
- Filed an updated Technical Report and new life-of-mine plan for Kumtor.
Centerra’s cash, cash equivalents and short-term investments at the end of the first quarter of 2015 was $544.1 million after spending $67.4 million (C$85 million) to acquire a 50% interest in the Trans-Canada Partnership compared to $562.0 million at December 31, 2014. As at March 31, 2015, the Company had drawn $76 million on its $150 million revolving credit facility with EBRD, leaving a balance of $74 million undrawn. The amount drawn is due to be repaid on August 11, 2015 or, at the Company’s discretion, repayment of the loaned funds may be extended until February 2016. Centerra believes, based on its current forecast, that it has sufficient cash and short-term investments to carry out its business plan in 2015 (see “2015 Outlook”).
Commentary
Ian Atkinson, President and CEO of Centerra Gold stated, “I am pleased to report that we are on track to achieve our production and cost guidance for the year. At Kumtor, the operation performed well during the quarter exceeding our expectations for gold production as it produced 164,272 ounces. Financially, cash provided by operations was $130.4 million for the first quarter and our cash, cash equivalents and short-term investments totaled $544 million at March 31, 2015 after closing the Trans-Canada transaction.”
“At the Öksüt Project in Turkey things are proceeding well. As we announced earlier, measured and indicated resources increased to an estimated 1.4 million contained ounces of gold (40.0 million tonnes (Mt) at 1.1 grams per tonne gold (g/t Au)). We have recently filed the environmental impact assessment and work is progressing as planned on the full feasibility study which we are targeting to complete by mid-year.”
“In the Kyrgyz Republic, the Company continues to work toward a resolution of all outstanding matters affecting the Kumtor Project. Any proposed resolution would need to be fair to all shareholders of Centerra and to receive all necessary legal and regulatory approvals under the Kyrgyz Republic and Canadian laws.”
“During the quarter, we reported the designation of Gatsuurt as a mineral deposit of strategic importance by the Mongolian Parliament and this designation allows the Gatsuurt Project to move forward within the application of the Water and Forest Law. We are currently working with the Mongolian Government to determine either the level of state ownership or a special royalty in lieu of ownership and we expect the new proposal to be considered by Parliament in the current Parliamentary session. We also announced the formation of a partnership with Premier Gold to develop the Trans-Canada Property in northwestern Ontario. These two projects together with our Öksüt Project represent a significant step forward for Centerra in creating a development pipeline and reducing the risk associated with over reliance on a single project,” Mr. Atkinson concluded.
Recent Developments
Kumtor Operations
- In 2013, the Company disclosed that it had discovered significant cracking in Kumtor’s ball mill ring gear, requiring the Company to rotate the ring gear to continue milling operations. During the first quarter of 2015, the Company successfully replaced the ball mill ring gear during the scheduled mill maintenance with the replacement ring gear that had been delivered in late-2014, returning the mill to full operating capacity.
- On March 20, 2015, Centerra announced that it had filed an updated NI 43-101 technical report for the Kumtor Mine. The updated technical report describes in detail Kumtor’s new life-of-mine plan (LOM), which is based on Kumtor’s mineral reserve estimates as at December 31, 2014 and reflects an updated production profile, and updated operating and capital costs from those that were disclosed in the prior technical report for Kumtor dated December 20, 2012. See the Company’s news releases dated February 9, 2015 and March 20, 2015 and the updated technical report which are available on SEDAR. Refer as well to the “Operations Update – Kumtor Operating Results – Technical Matters” below.
- The Company continued its discussions with the Government of the Kyrgyz Republic relating to the restructuring described in the Heads of Agreement dated January 18, 2014 (the “HOA”). On April 9, 2015, the Company announced that it was aware of certain statements made by the Prime Minister of the Kyrgyz Republic at a meeting of the Kyrgyz Republic Parliament and to local media suggesting that the restructuring of the Kumtor Project as a 50/50 joint venture between Centerra and Kyrgyzaltyn JSC (“Kyrgyzaltyn”), as previously announced by Centerra in its news release of December 24, 2013, would
not be in the interests of the Kyrgyz Republic. The Prime Minister is also reported to have stated that nationalization of the Kumtor mine is not a viable alternative. Additionally, the Prime Minister is reported to have proposed changes or additions to the composition of Centerra’s Board of Directors. See “Other Corporate Developments”.
- Starting in the fourth quarter of 2014, Kumtor has submitted to various Kyrgyz Republic governmental agencies for approval its 2015 annual mine plan and its ecological passport, which provides for, among other things, allowable levels of environmental emissions and discharges. The ecological passport requires renewal every five years. Similar to Kumtor’s experience in 2014, Kumtor initially received correspondence from such agencies declining to review such documents. The Company and Kumtor dispute the reasons provided by the regulatory agencies for their refusal to review the documents. Subsequently, Kumtor received the required expertise of the 2015 annual mine plan from the Kyrgyz Republic State Agency for Geology and Mineral Resources (“SAGMR”). It has also received notice from the Kyrgyz Republic State Agency for Environmental Protection and Forestry (“SAEPF”) on March 31, 2015 stating that: (i) SAEPF is reviewing the 2015 annual mine plan and that the time frame for such review ends on June 4, 2015; and (ii) Kumtor’s permits for emissions into the atmosphere and waste disposal into tailings ponds have been extended until June 4, 2015.
- The Company notes that project agreements governing the Kumtor Project require relevant Kyrgyz Republic Government authorities to be reasonable in relation to their approval of any mining plans submitted for approval. Similarly with respect to permits and approvals, Kumtor is entitled to maintain, have renewed and receive such licenses, consents, permissions and approvals as are from time to time necessary or convenient for the operation of the Kumtor Project. The Company intends to continue discussion with the Kyrgyz Republic Government and the applicable agencies to obtain the relevant approvals and permits but there can be no assurances that such approvals and permits will be received or that a suspension of mining will not occur. See “Other Corporate Developments - Kyrgyz Permitting and Regulatory Matters”.
Mongolian Operations
- The Company announced on January 23, 2015 that the Gatsuurt Project, which is located approximately 55 km (by road) from the Company’s Boroo mine in Mongolia, has been designated as a mineral deposit of strategic importance by the Mongolian Parliament. This designation allows the Gatsuurt Project to proceed in compliance with the Water and Forest Law and also allows Mongolia to acquire up to a 34% interest in the project. On February 17, 2015, the Government’s proposal on state ownership of 20% was considered by Parliament but rejected and returned to the Government for review. On February 18, 2015, amendments to the Mongolian Minerals Law were approved by Parliament which provides an option for the Government to impose a special royalty at a rate up to 5% for strategic deposits rather than take an ownership interest in the project. The terms of such participation are subject to continued discussions between the Company and the Mongolian Government. Further development of the Gatsuurt Project is expected to be subject to, among other things, receiving Parliamentary approval of the Mongolia’s state ownership or special royalty charge as well as the all required approvals and regulatory commissioning from the Mongolian Government. See “Other Corporate Developments - Mongolia”.
Corporate Trans-Canada Partnership
- Centerra and Premier Gold Mines Limited (“Premier”) announced on March 9, 2015 the formation of a 50/50 partnership for the purpose of the joint ownership, exploration and development of the Trans- Canada Property including the Hardrock Gold Project located in the Geraldton-Beardmore Greenstone belt in Ontario, Canada. Premier, through a wholly-owned subsidiary, has contributed all property, assets and rights it held in respect of the Trans-Canada Property to the partnership and Centerra: (i) in return for a 50% limited partner interest, has made an initial cash contribution to the partnership in the amount of
C$85 million (Premier withdrew C$85 million from the partnership in return for its contribution); and (ii) has agreed to make capital contributions to the partnership in the aggregate amount of C$185 million to be used to complete a comprehensive technical and economic feasibility study including an updated mineral resource calculation for the Hardrock Project at the Trans-Canada Property and for further development of the project. The C$185 million is subject to the satisfaction of certain feasibility study results and project advancement criteria. Centerra has also agreed to make an additional contingent payment to Premier not to exceed C$30 million based on the results of an updated mineral resource estimate in respect of the Trans-Canada Property.
Other matters
- On February 25, 2015, Centerra was served with an order (the “Belokon Order”) from the Ontario Superior Court of Justice in favour of Mr. Valeri Belokon (“Belokon”) which prohibits Kyrgyzaltyn from, among other things: (i) selling, disposing or exchanging 6,500,340 shares (the “Belokon Frozen Shares”) of the 77,401,766 shares it holds in the capital of Centerra; (ii) obtaining share certificates in respect of such shares; or (iii) exercising its rights as a registered shareholder of Centerra in a manner that is inconsistent with or would undermine the terms of the Belokon Order. The order also prohibits Centerra from, among other things, registering any transfers or issuing share certificates in respect of the Belokon Frozen Shares, and requires Centerra to hold in trust for the proceeding under the Belokon Application (as defined below) any amounts payable to Kyrgyzaltyn in respect of dividends or distributions that Centerra may declare or pay in the future.
- Centerra was also served by Belokon with a notice of application to the Ontario Superior Court of Justice (the “Belokon Application”) which seeks to enforce an October 24, 2014 arbitral award (the “Belokon Arbitration Award”) obtained by Belokon against the Kyrgyz Republic from an ad hoc Arbitration Tribunal established in accordance with the Agreement between the Government of the Republic of Latvia and the Government of the Kyrgyz Republic for the Promotion and Protection of Investments in the amount of approximately $16.5 million. The Belokon Application seeks, among other things, an order declaring that the Kyrgyz Republic has a beneficial interest in all of the shares in Centerra held by Kyrgyzaltyn and that monies, interest, dividends and other rights of Kyrgyzaltyn in the stock of Centerra may be seized in order to satisfy the Belokon Arbitration Award.
Consolidated Financial and Operating Summary
| Unaudited ($ millions, except as noted) | Three months ended March 31, | ||||
|---|---|---|---|---|---|
| Financial Highlights | 2015 | 2014 | % Change | ||
| Revenue | $ | 212.6 | $ | 148.0 | 44% |
| Cost of sales | 113.9 | 109.1 | 4% | ||
| Standby costs | 2.7 | - | 100% | ||
| Regional office administration | 5.3 | 5.7 | (7%) | ||
| Earnings from mine operations | 90.7 | 33.2 | 173% | ||
| Revenue-based taxes | 28.7 | 18.4 | 56% | ||
| Other operating expenses | (0.1) | 1.1 | (109%) | ||
| Pre-development project costs | 3.3 | 0.8 | 313% | ||
| Exploration and business development (1) | 2.8 | 2.6 | 8% | ||
| Corporate administration | 9.4 | 6.5 | 45% | ||
| Earnings from operations | 46.6 | 3.8 | 1126% | ||
| Other (income) and expenses | 4.2 | (0.2) | (2200%) | ||
| Finance costs | 1.1 | 1.4 | (21%) | ||
| Earnings before income taxes | 41.3 | 2.6 | 1488% | ||
| Income tax expense | 0.6 | 0.5 | 20% | ||
| Net earnings | 40.7 | 2.1 | 1838% | ||
| Earnings per common share - $ basic (2) | $ | 0.17 | $ | 0.01 | 1600% |
| Earnings per common share - $ diluted (2) | $ | 0.17 | $ | - | 100% |
| Cash provided by operations | 130.4 | 101.6 | 28% | ||
| Average gold spot price - $/oz (3) | 1,218 | 1,293 | (6%) | ||
| Average realized gold price - $/oz(4) | 1,213 | 1,293 | (6%) | ||
| Capital expenditures (5) | 155.6 | 98.9 | 57% | ||
| Operating Highlights | |||||
| Gold produced – ounces | 170,683 | 116,669 | 46% | ||
| Gold sold – ounces | 175,232 | 114,493 | 53% | ||
| Operating costs (on a sales basis) (6) | 43.5 | 42.4 | 3% | ||
| Adjusted operating costs (4) | 51.8 | 49.1 | 5% | ||
| All-in Sustaining Costs(4) | 125.8 | 126.9 | (1%) | ||
| All-in Costs (4) | 139.9 | 132.6 | 6% | ||
| All-in Costs - including taxes (4) | 168.7 | 151.1 | 12% | ||
| Unit Costs | |||||
| Cost of sales - $/oz sold(4) | 650 | 953 | (32%) | ||
| Adjusted operating costs - $/oz sold (4) | 296 | 429 | (31%) | ||
| All-in sustaining costs – $/oz sold(4) | 718 | 1,109 | (35%) | ||
| All-in costs – $/oz sold (4) | 799 | 1,158 | (31%) | ||
| All-in costs (including taxes) – $/oz sold (4) | 963 | 1,319 | (27%) |
(1) Includes business development of $1.1 million for the three months ended March 31, 2015 (nil for three months ended March 31, 2014).
(2) As at March 31, 2015, the Company had 236,475,477 common shares issued and outstanding.
(3) Average for the period as reported by the London Bullion Market Association (US dollar Gold P.M. Fix Rate).
(4) Adjusted operating costs, all-in sustaining costs, all-in costs and all-in costs - including taxes ($ 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 $67.5 million in the three months ended March 31, 2015 ($88.1 million in the three months ended March 31, 2015) and $67.4 million to acquire a 50% interest in the Trans-Canada Property.
(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.
First Quarter 2015 compared to First Quarter 2014
- Gold production for the first quarter of 2015 totaled 170,683 ounces compared to 116,669 ounces in the comparative quarter of 2014. The increase in ounces poured reflects higher production at Kumtor due
to higher grade feed being processed through the mill. Boroo production in the first quarter of 2015 was lower than the comparable period as a result of the mill shutdown in the fourth quarter of 2014 and lower production from the heap leach operation as it transitioned to 100% secondary leaching.
- All-in sustaining costs per ounce sold1, which excludes revenue-based tax and income tax, for the first quarter decreased to $718 from $1,109 in the comparative period of 2014. The decrease in the first quarter of 2015 results primarily from higher ounces sold and lower spending on capitalized stripping, partially offset by higher stock-based compensation, and higher spending on sustaining capital1.
- All-in costs per ounce sold1, which excludes revenue-based tax and income tax, were $799 compared to $1,158 in the comparative quarter of 2014, and includes all cash costs related to gold production, excluding revenue-based tax and income tax. The decrease reflects the additional ounces sold, the lower costs (described above) and lower exploration costs partially offset by increased spending for growth capital at Kumtor and spending in the first quarter of 2015 for pre-development activities at the new Trans-Canada partnership.
- Revenue in the first quarter of 2015 increased 44% to $212.6 million, as a result of 53% more ounces sold (175,232 ounces in the first quarter of 2015 compared to 114,493 ounces in the first quarter of 2014) partially offset by a 6% lower average realized gold price1 ($1,213 per ounce compared to $1,293 per ounce in the same quarter of 2014).
- In the first quarter of 2015, ounces sold increased 53% year-over-year, but cost of sales only increased by 4% to $113.9 million compared to the same period of 2014. This reflects the lower costs in both the stockpiled ore and in the ore mined and processed at Kumtor from cut-back 16 in the first quarter of 2015. The cost of sales in the first quarter of 2015 benefited from cut-back 16 containing more ounces and lower operating costs (for diesel, labour and other consumables) and reduced waste stripping as compared to cut-back 15 ore that was processed in the first quarter of 2014.
Depreciation, depletion and amortization (“DD&A”) associated with production was $70.4 million in the first quarter of 2015 (2014:$66.7 million), reflecting the increased ounces sold in 2015, which was partially offset by 31% lower capitalized stripping charges per ounce from cut-back 16 ore.
- Operating costs (on a sales basis)1 increased by 3% to $43.5 million in the first quarter of 2015 compared to the same period of 2014, reflecting 66% more ounces sold at Kumtor. The increase was limited to 3% due to processing lower cost ounces which reflect a reduction in costs for diesel, labour and other consumables as compared to the same period of 2014. At Boroo, operating costs were lower in the first quarter of 2015 as milling activities ceased in late 2014, while leaching costs were lower as secondary leaching commenced in the third quarter of 2014 and site support costs reflected reduced personnel levels.
- During the first quarter of 2015 Boroo incurred standby costs to place the mill and operation on care and maintenance totaling $2.7 million which included spending mainly on labour to clean mill circuits and to maintain equipment in a ready state, as well as fixed costs for administration. There were no standby costs incurred in the same period of 2014. The mine recovered 3,595 ounces of gold from the clean out process and was cash positive for the quarter.
- In the first quarter of 2015, pre-development projects costs increased by $2.5 million to $3.3 million compared to the comparative quarter in 2014. The increase in the first quarter of 2015 represents higher spending at the Öksüt Project and spending at the Company’s new Trans-Canada Property.
- Exploration expenditures in the first quarter totaled $1.7 million compared to $2.6 million in the same period of 2014. The decrease in the first quarter reflects reduced spending on the Company’s projects in Turkey and Mongolia and the closure of its regional offices in Beijing, China and Khabarovsk, Russia.
- Business development spending in the first quarter of 2015 totaled $1.1 million, representing consulting and legal charges in connection with the acquisition of the Company’s 50% interest in the Trans- Canada partnership. There was no spending on business development activities in the same period of 2014.
- Other expenses of $4.2 million incurred in the first quarter of 2015 represent mainly the impact of currency movements, as the Canadian dollar weakened 9% against the US dollar and devalued the Canadian assets held by the Company.
- Corporate administration costs increased to $9.4 million in the first quarter of 2015 from $6.5 million in the same period of 2014. The increase was primarily due to higher legal and consulting costs related to on-going negotiations and higher share-based compensation resulting from the revaluation, at March 31, 2015, of underlying share awards issued to employees under the Company’s share-based plans. Share-based compensation charge in the first quarter of 2015 was $2.0 million, compared to $0.9 million in the same period in 2014.
- Cash provided by operations increased by $28.8 million to $130.4 million in the first quarter of 2015 compared to $101.6 million in the same period of 2014. The increase reflects the higher earnings in the first quarter 2015.
- Total capital expenditures in the first quarter of 2015 were $155.6 million, which included sustaining capital1 of $12.6 million, growth capital1 of $6.6 million, $68.9 million to acquire a 50% interest in the Trans-Canada Property including pre-development project costs of $1.5 million and $67.5 million of capitalized stripping costs ($51.7 million cash). Capital expenditures in the same quarter of 2014 were $98.9 million, which included $8.6 million for sustaining capital1 and $2.2 million for growth capital1 and capitalized stripping of $88.1 million ($62.4 million cash). The capital expenditures were 12% lower in the first quarter of 2015 as a result of lower capitalized stripping at Kumtor (a decrease of 23%), partially offset by higher sustaining capital1 for equipment rebuilds and overhauls and increased spending on the infrastructure relocation project at Kumtor.
Operations Update Kumtor Mine
| Three months ended | |||
|---|---|---|---|
| Kumtor Operating Results | March 31, | ||
| % | |||
| Unaudited ($ millions, except as noted) | 2015 | 2014 | Change |
| Revenue | 205.0 | 131.7 | 56% |
| Cost of sales-cash | 37.9 | 31.6 | 20% |
| Cost of sales-non-cash | 68.8 | 63.5 | 8% |
| Cost of sales-total | 106.7 | 95.1 | 12% |
| Cost of sales - $/oz sold(1) | 631 | 933 | (32%) |
| Tonnes mined - 000s | 41,731 | 50,762 | (18%) |
| Tonnes ore mined – 000s | 1,339 | 143 | 836% |
| Average mining grade - g/t | 3.30 | 1.45 | 128% |
| Tonnes milled - 000s | 1,175 | 1,482 | (21%) |
| Average mill head grade - g/t | 5.13 | 2.65 | 94% |
| Recovery - % | 81.0% | 76.2% | 6% |
| Mining costs - total ($/t mined material) | 1.34 | 1.26 | 6% |
| Milling costs ($/t milled material) | 13.62 | 11.09 | 23% |
| Gold produced – ounces | 164,272 | 102,933 | 60% |
| Gold sold – ounces | 169,185 | 101,915 | 66% |
| Average realized gold price - $/oz(1) | 1,212 | 1,292 | (6%) |
| Capital expenditures (sustaining)(1) | 12.4 | 8.3 | 49% |
| Capital expenditures (growth)(1) | 6.5 | 1.9 | 242% |
| Capital expenditures (stripping) | 67.5 | 88.1 | (23%) |
| Operating costs (on a sales basis) (2) | 37.9 | 31.6 | 20% |
| Adjusted operating costs (1) | 42.9 | 36.8 | 17% |
| All-in Sustaining Costs (1) | 107.2 | 107.8 | (1%) |
| All-in Costs(1) | 113.7 | 109.7 | 4% |
| All-in Costs - including taxes(1) | 142.4 | 128.1 | 11% |
| Adjusted operating costs - $/oz sold (1) | 254 | 361 | (30%) |
| All-in sustaining costs – $/oz sold (1) | 634 | 1,058 | (40%) |
| All-in costs – $/oz sold (1) | 673 | 1,077 | (38%) |
| All-in costs (including taxes) – $/oz sold (1) | 842 | 1,257 | (33%) |
(1) Adjusted operating costs, all-in sustaining costs, all-in costs and all-in costs – including 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 first quarter of 2015 focused on completing mining the ore from cut-back 16 and starting the waste stripping in cut-back 17. During the quarter, Kumtor mined approximately 1.3 million tonnes of ore at an average grade of 3.30 g/t from cut-back 16, compared to 0.1 million tonnes of ore mined at an average grade of 1.45 g/t in the first quarter of 2014, when the Company focused exclusively on waste stripping and processed lower grade stockpiled ore. During 2015, Kumtor will continue the development and waste mining from cut-back 17 which is expected to provide an increase in the grade of ore at the end of the third quarter of 2015 compared to the lower grade stockpiled ore currently being processed and uncover the high-grade ore in the third quarter of 2016.
Total waste rock and ore mined during the first quarter of 2015 was 41.7 million tonnes compared to 50.8 million tonnes in the comparative period of 2014, representing a decrease of 18%, primarily due to a 19.5% increase in average haulage distance when compared to the same period of 2014. Other negative factors include unfavourable weather conditions, as the mine experienced increased precipitation and higher temperatures than normal during the first quarter of 2015 which had an adverse impact on pit productivity, and decreased haul truck availability by 4% compared to the comparative period of 2014.
Gold production for the first quarter of 2015 was 164,272 ounces compared to 102,933 ounces in the comparative quarter of 2014. The increase in ounces poured during 2015 was due to processing higher grade mill feed and achieving higher recoveries than in the comparative quarter. During the quarter, Kumtor’s mill processed a blend of the higher grade ore mined during the quarter and the stockpiled ore mined from cutback 16 during the fourth quarter of 2014. Approximately 1.2 million tonnes were processed in the quarter, which was 21% lower than the comparative quarter of 2014 due the scheduled mill shutdown to replace the ring gear and the SAG and Ball Mill liners in the first quarter of 2015. Kumtor’s average mill head grade was 5.13 g/t with a recovery of 81.0% in the quarter, compared to 2.65 g/t with a recovery of 76.2% for the same period of 2014.
Operating costs (on a sales basis)1, excluding capitalized stripping, increased 20% to $37.9 million during the first quarter of 2015 predominately due to increased ounces sold which absorbed more higher cost ounces from the stockpiled inventory at the end of 2014.
Mining costs, including capitalized stripping costs, totaled $55.7 million for the first quarter of 2015, which was $8.2 million lower than the comparative quarter of 2014. The decrease reflects lower diesel costs ($3.7 million) due to lower fuel prices (69.4 cents per litre compared to 77.6 cents per liter), lower labour costs ($2.4 million) mainly due to a favourable foreign exchange movement on local salaries and reduced expatriate personnel, and lower blasting costs ($1.3 million) that resulted from implementing an improved wider drill pattern on waste material.
Milling costs of $16.0 million in the first quarter of 2015 compared to $16.4 million in the same period of 2014 reflects lower sodium cyanide costs ($1.0 million) as a result of both lower tonnes milled (1.17 vs 1.48 million tonnes), decreased sodium cyanide prices and lower maintenance costs due to the timing of planned maintenance work. This was partially offset by higher costs for the replacement of mill liners ($1.2 million) which occurred during the scheduled mill shutdown in the first quarter of 2015 (no liner replacements were performed in the first quarter of 2014).
Site support costs of $11.5 million in the first quarter of 2015 compared to $14.2 million in the same period of 2014 reflects lower labour costs ($1.2 million) due to a favourable foreign currency exchange movement with a weakening of the Som against the US dollar and reduced expatriate support staff, and decreased insurance premiums ($0.8 million).
DD&A associated with production increased to $68.8 million in the first quarter of 2015 from $63.5 million in the comparative period of 2014. The increase in DD&A resulted primarily from the increase in ounces sold.
All-in sustaining costs per ounce sold1, which excludes revenue-based tax, for the first quarter of 2015 decreased 40% to $634 compared to $1,058 in the comparative period of 2014. The decrease results primarily from higher ounces sold, lower operating costs, and lower capitalized stripping costs, partially offset by higher spending on sustaining capital1 for equipment rebuilds and overhauls.
All-in costs per ounce sold1, which excludes revenue-based tax, for the first quarter of 2015 was $673 compared to $1,077 in the comparative period of 2014, representing a decrease of 38%. The decrease is mainly due to the reduction in all-in sustaining cost, partially offset by an increase in growth capital1 spending for the infrastructure relocation at Kumtor.
Capital expenditures in the first quarter of 2015 totaled $86.4 million which includes $12.4 million of sustaining capital1 mainly on equipment rebuilds and overhauls, $6.5 million invested in growth capital1 mainly on infrastructure relocation and $67.5 million for capitalized stripping ($51.7 million cash). Capital expenditures the comparative quarter of 2014 totaled $98.3 million, consisting of $8.3 million for sustaining capital1, $1.9 million for growth capital1 and $88.1 million of capitalized stripping ($62.4 million cash).
Ongoing Technical Matters As previously noted in the Company’s news release of March 20, 2015, the Company filed a NI 43-101 technical report for the Kumtor Mine. The updated technical report describes in detail Kumtor’s new life-ofmine plan (LOM) based on Kumtor’s mineral reserve estimates as at December 31, 2014. The new LOM takes into account, among other things, the impact of the buttress constructed at the edge of the Kumtor open pit, updated geotechnical design that requires lower pit slope angles in some sectors of the Kumtor open pit and the cancellation of certain capital spending that was planned and described in the December 2012 technical report on the Kumtor Project.
Mongolia (Boroo/Gatsuurt)
| Boroo Operating Results | Three months ended March 31, | ||
|---|---|---|---|
| Unaudited ($ millions, except as noted) | 2015 | 2014 | % Change |
| Revenue | 7.6 | 16.3 | (53%) |
| Cost of sales-cash | 5.5 | 10.8 | (49%) |
| Cost of sales-non-cash | 1.7 | 3.2 | (47%) |
| Cost of sales-total | 7.2 | 14.0 | (49%) |
| Cost of sales - $/oz sold(1) | 1,195 | 1,114 | 7% |
| Tonnes milled - 000s | - | 581 | (100%) |
| Average mill head grade - g/t | - | 0.66 | (100%) |
| Recovery - % | - | 61.3% | (100%) |
| Milling costs ($/t milled material) | - | 11.19 | (100%) |
| Gold produced – ounces | 6,411 | 13,736 | (53%) |
| Gold sold – ounces | 6,047 | 12,578 | (52%) |
| Average realized gold price - $/oz(1) | 1,265 | 1,301 | (3%) |
| Capital expenditures (sustaining)(1) | 0.1 | 0.2 | (50%) |
| Operating costs (on a sales basis) (2) | 5.5 | 10.8 | (49%) |
| Adjusted operating costs (1) | 8.9 | 12.2 | (27%) |
| All-in Sustaining Costs (1) | 9.2 | 12.5 | (26%) |
| All-in Costs(1) | 9.2 | 12.5 | (26%) |
| All-in Costs - including taxes(1) | 9.3 | 12.5 | (26%) |
| Adjusted operating costs - $/oz sold (1) | 1,466 | 977 | 50% |
| All-in sustaining costs – $/oz sold (1) | 1,501 | 1,001 | 50% |
| All-in costs – $/oz sold (1) | 1,501 | 1,001 | 50% |
| All-in costs (including taxes) – $/oz sold (1) | 1,518 | 1,001 | 52% |
(1)
Adjusted operating costs, all-in sustaining costs, all-in costs and all-in costs – including 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, but excludes reclamation costs and depreciation, depletion and amortization.
At the Boroo mine, located in Mongolia, gold production in the first quarter of 2015 was 6,411 ounces as compared to 13,736 ounces of gold in the same period of 2014. The lower gold production reflects no mill processing activities in the first quarter of 2015, as Boroo milled the last of its stockpiled ore in December 2014. As a result of the mill shutdown, Boroo recovered 3,595 ounces from the cleaning of the gold circuit. In addition, fewer ounces were poured from the heap leach operation as a result of transitioning to 100% secondary leaching from August of 2014, compared to primary leaching in the comparative quarter of 2014.
Operating costs (on a sales basis)1 decreased by $5.3 million to $5.5 million in the first quarter of 2015, as a result of lower activity at the project with no milling operations and the continued secondary leaching in 2015.
All-in sustaining costs per ounce sold1 and all-in costs per ounce sold1 which excludes income tax, increased in the first quarter of 2015 to $1,501 from $1,001 in the same quarter of 2014. The increase is primarily due to a 52% decrease in ounces sold, partially offset by lower adjusted operating costs and lower sustaining capital1 spending. During the quarter Boroo was cash positive.
Although the Gatsuurt Project was designated as a mineral deposit of strategic importance by the Mongolian Parliament, the project remained under care and maintenance in the first quarter of 2015. The Company now expects that Parliament will consider a new proposal for the level of state ownership in the project or the rate of the special royalty during its spring session which began in early April. The terms of such participation are subject to continued discussions between the Company and the Mongolian Government. Further development of the project will be subject to finalizing a deposit development agreement, and receiving all required approvals and regulatory commissioning from the Mongolian Government. See “Other Corporate Developments – Mongolia”.
Non-GAAP Measures
This news release contains the following non-GAAP financial measures: all-in sustaining costs, all-in costs, all-in costs including taxes and adjusted operating costs in dollars (millions) and per ounce sold, as well as cost of sales per ounce sold, capital expenditures (sustaining), capital expenditures (growth) and average realized gold price. These financial measures do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers, even as compared to other issuers who may also be applying the World Gold Council (“WGC”) guidelines, which can be found at http://www.gold.org.
Management believes that the use of these non-GAAP measures will assist analysts, investors and other stakeholders of the Company in understanding the costs associated with producing gold, understanding the economics of gold mining, assessing our operating performance, our ability to generate free cash flow from current operations and to generate free cash flow on an overall Company basis, and for planning and forecasting of future periods. However, the measures do have limitations as analytical tools as they may be influenced by the point in the life cycle of a specific mine and the level of additional exploration or expenditures a company has to make to fully develop its properties. Accordingly, these non-GAAP measures should not be considered in isolation, or as a substitute for, analysis of our results as reported under GAAP.
Definitions
The following is a description of the non-GAAP measures used in this news release. The definitions are consistent with the WGC’s Guidance Note on these non-GAAP measures:
- Operating costs (on a sales basis) include mine operating costs such as mining, processing, site support, royalties and operating taxes (except at Kumtor where revenue-based taxes are excluded), but exclude depreciation, depletion and amortization (DD&A), reclamation costs, financing costs, capital development and exploration.
- Adjusted operating costs per ounce sold include operating costs (on a sales basis), regional office administration, community costs related to current operations, refining fees and by-product credits.
- All-in sustaining costs per ounce sold include adjusted operating costs, the cash component of capitalized stripping costs, regional office administration costs, accretion expenses, and sustaining capital. The measure incorporates costs related to sustaining production.
- All-in costs per ounce sold include all-in sustaining costs and additional costs for growth capital, corporate general and administrative expenses, global exploration expenses and social development costs not related to current operations.
- All-in cost per ounce sold exclude the following:
- Working capital (except for adjustments to inventory on a sales basis).
- All financing charges (including capitalized interest).
- Costs related to business combinations, asset acquisitions and asset disposals.