Centerra Gold Reports Second Quarter Results
NEWS RELEASE
Centerra Gold Reports Second Quarter Results
This news release contains forward-looking information that is subject to the risk factors and assumptions set out on page 28 and in our Cautionary Note Regarding Forward-looking Information on page 39. It should be read in conjunction with the Company’s unaudited interim condensed consolidated financial statements and notes for the three and six months ended June 30, 2013 and associated Management’s Discussion and Analysis. The condensed interim financial statements of Centerra are prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as issued by the International Accounting Standards Board. The Company’s accounting policies are described in note 3 to its annual consolidated financial statements for the year ended December 31, 2012. The Company’s June 30, 2013 condensed interim financial statements give effect to the adoption of new accounting standards on January 1, 2013 as described in note 2 of the financial statements.
All figures are in United States dollars.
To view Management’s Discussion and Analysis and the Financial Statements and Notes for the three and six months ended June 30, 2013, please visit the following link:
http://file.marketwire.com/release/CG-MDA-073113.pdf
Toronto, Canada, July 31, 2013: Centerra Gold Inc. (TSX: CG) today reported net earnings for the second quarter of 2013 of $1.6 million, or $0.01 per share (basic and diluted) reflecting higher gold sales due to higher gold production at both operations, partially offset by the lower average realized gold price1 in the quarter. The 2013 second quarter results include other expenses of $2.8 million primarily made up of a charge of $2.2 million for the write-off of certain infrastructure assets at Kumtor which could not be relocated as a result of the accelerated movement of the Central Valley Waste Dump. For the same period in 2012, the Company recorded a net loss of $48.9 million or $0.21 per common share which included a charge of $21 million representing a contribution made by Kumtor to a national micro-credit financing program and a charge for abnormal mining costs of $3.9 million associated with the unplanned removal of ice and waste from the high movement area at Kumtor.
2013 Second Quarter Highlights
- Produced 99,426 ounces of gold in the quarter, including 72,365 ounces at Kumtor and 27,061 ounces at Boroo, compared to 52,482 ounces (41,307 ounces and 11,175 ounces at Kumtor and Boroo, respectively) in the same period in 2012.
- Increased revenues to $128.2 million compared to $89.7 million in the same quarter of 2012.
- Cash provided by operations increased to $40.9 million compared to a use of cash of $42.3 million in the second quarter of 2012.
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- Mining and processing operations were impacted at Kumtor between May 30 and June 1 as a result of an illegal protest which blocked the road leading to the mine, thereby disrupting delivery of supplies. The protestors also interrupted the power supply to the mine. Milling operations were suspended during the period as a result of the power interruption. During this time, the mine continued to operate sufficient equipment to continue to remove ice and waste from the high movement area of the pit.
- Movement in the Central Valley Waste Dump at Kumtor slowed to pre-March levels after modifications to the waste dump management plan.
- The modification to Kumtor’s 2013 waste dump management plan is not expected to have an impact on the planned 2013 gold production.
- Increased annual consolidated gold production guidance to a range of 615,000 to 675,000 ounces.
Commentary
Ian Atkinson, President and CEO of Centerra Gold stated, “Our Boroo mine performed well operationally during the quarter, achieving 27,061 ounces of gold production, which brings year-todate gold production to 52,663 ounces. Boroo’s performance has enabled us to increase our gold production guidance for the mine to a range of 65,000 to 75,000 ounces from 55,000 to 60,000 ounces for the year. Unfortunately, on July 3, 2013 the operation suffered a fatality resulting from a single vehicle rollover accident at our tailings facility. I extend our deepest sympathies and our condolences to the family.”
“In the Kyrgyz Republic, the Company is continuing its discussions with the government regarding a potential restructuring transaction to resolve all outstanding concerns relating to the Kumtor Project. At Kumtor work on the infrastructure relocation continues and our 2013 waste dump management plan was modified. The Central Valley Waste Dump movement has slowed to pre-March rates of movement. I am also happy to report that the movement rates of ice and waste in the high movement area are as expected and the stripping of waste is on track to allow access to the higher grade ore by the end of the third quarter.”
“Kumtor also experienced a disruption in operations from May 30 to June 1, 2013 as a result of an illegal protest which blocked the road leading to the mine, thereby disrupting delivery of supplies to the mine. The protestors also interrupted the power supply to the mine. Milling operations were suspended during the period as a result of the power interruption. Mining operations were limited to management of the ice and waste in the high movement area of the open pit in order to preserve diesel inventory at the site. The mine has returned to normal operations and we expect Kumtor to achieve its gold production guidance for the year.”
“We have undergone a program aimed at increasing our margins and cash flow in the lower gold price environment which includes an expected reduction in spending of approximately $50 million associated with exploration activities, capital and corporate initiatives and operating efficiencies. Centerra has no significant committed capital programs going forward and we continue to review our costs to look for ways to maximize our margins. With the increased gold production guidance and expected increase in gold production in the second half of the year, we are forecasting our all-in cash costs pre-tax1 to be between $945 and $1,040 an ounce for the year.”
“I am also pleased to note that the Board of Directors today has appointed Mr. Kylychbek Shakirov to the Board. Mr. Shakirov is a Kyrgyz Republic citizen and is the Deputy Chairman of Kyrgyzaltyn JSC., Centerra’s largest shareholder. Mr. Shakirov is also a member of the Kyrgyz Republic Government working group established to represent the Kyrgyz Republic in negotiations with Centerra. We believe that Mr. Shakirov’s presence on the Board will support and reinforce the excellent communication we have with Kyrgyzaltyn and with the Government and will facilitate future discussions. On behalf of Stephen Lang, Chairman of the Board, we welcome Mr. Shakirov to the Board of Directors,” he concluded.
Impact of Falling Gold Price
In light of the recent significant decline in the gold price, the Company has conducted reviews of its operating costs and capital expenditures and implemented measures to reduce spending on certain operating costs, exploration activities, capital and corporate costs. While this activity is ongoing and we continue to review costs to look for ways to maximize our margins, the Company believes it can continue to generate cash at the lower gold prices reached in June 2013. Centerra is forecasting allin cash costs1, including all operating cash costs1, capital and taxes to be between $1,120 and $1,230 per ounce for the year.
The Company has performed an assessment of the recoverability of its capitalized assets at these lower gold prices and determined that no impairment exists at June 30, 2013.
In Mongolia, we understand the Mongolian Government has added a number of deposits, including Gatsuurt, to the list of mineral deposits of strategic importance which, if approved by Parliament, would exclude Gatsuurt from the application of the Water and Forest Law. In light of this development, along with the recent decline in the gold price, the Company is reviewing the Gatsuurt deposit mine plan and is studying its capital and operating costs. Although the Company has determined that no impairment currently exists, the results of these studies could impact the Company’s future assessment of the recoverability of the Gatsuurt and Boroo assets which are approximately $140 million. Centerra will continue to monitor these developments and assess their impact on its Mongolian assets.
Other Matters
During an inspection of the Kumtor ball mill in June 2013, an increased number of cracks were observed in the ring gear of the ball mill as compared to the previous inspection in April 2013. The Company has ordered a replacement ring gear which it expects to be delivered in approximately 52 weeks. In the event that the ball mill cannot continue to operate with the existing ring gear until the replacement arrives, a spare ring gear is available on site, although it would be expected to operate at 95-97% of the capacity of the existing ring gear.
Consolidated Financial and Operating Summary
| Three Months Ended June 30 | Six Months Ended June 30 | |||||
|---|---|---|---|---|---|---|
| Financial Summary ($ millions, except as noted) | 2013 | 2012 Restated (4) | % Change | 2013 | 2012 Restated (4) | % Change |
| Revenue | $ 128.2 | $ 89.7 | 43% | $ 320.5 | $ 223.5 | 43% |
| Cost of sales | 84.6 | 82.4 | 3% | 175.8 | 161.5 | 9% |
| Abnormal mining costs | - | 3.9 | 100% | - | 4.5 | 100% |
| Mine standby costs | - | - | 0% | - | 4.6 | 100% |
| Regional office administration | 5.9 | 5.3 | 10% | 11.5 | 10.1 | 13% |
| Earnings from mine operations | 37.7 | (1.8) | 2157% | 133.2 | 42.8 | 212% |
| Revenue-based taxes | 13.5 | 9.0 | 51% | 34.3 | 24.0 | 43% |
| Other operating expenses | 2.2 | 22.9 | (91%) | 4.1 | 24.3 | (83%) |
| Exploration and business development | 6.3 | 9.2 | (32%) | 13.4 | 17.5 | (23%) |
| Corporate administration | 7.2 | 1.9 | 275% | 13.9 | 10.5 | 33% |
| Earnings from operations | 8.6 | (44.7) | 119% | 67.4 | (33.6) | 301% |
| Other (income) and expenses | 2.8 | 0.8 | 252% | 4.1 | 0.0 | 100% |
| Finance costs | 1.2 | 0.7 | 68% | 2.5 | 1.7 | 51% |
| Earnings before income taxes | 4.5 | (46.3) | 110% | 60.8 | (35.3) | 272% |
| Income tax expense | 3.0 | 2.6 | 13% | 7.9 | 4.1 | 92% |
| Net earnings | $ 1.6 | $ (48.9) | 103% | $ 52.9 | $ (39.4) | 234% |
| Earnings per common share - $ basic | $ 0.01 | $ (0.21) | 105% | $ 0.22 | $ (0.17) | 229% |
| Earnings per common share - $ diluted | $ 0.01 | $ (0.21) | 105% | $ 0.22 | $ (0.17) | 229% |
| Weighted average common shares outstanding - basic (thousands) | 236,377 | 236,363 | 0% | 236,377 | 236,370 | 0% |
| Weighted average common shares outstanding - diluted (thousands) | 236,551 | 236,363 | 0% | 236,603 | 236,370 | 0% |
| Cash provided by (used in) operations | 40.9 | (42.3) | 197% | 132.8 | (10.3) | 1390% |
| Capital expenditures (1) | 105.5 | 117.9 | (11%) | 209.4 | 277.5 | (25%) |
| Operating Summary | ||||||
| Gold produced – ounces | 99,426 | 52,482 | 89% | 214,646 | 125,037 | 72% |
| Gold sold – ounces | 93,177 | 56,201 | 66% | 211,922 | 133,921 | 58% |
| Average realized gold price - $/oz (3) | 1,376 | 1,597 | (14%) | 1,512 | 1,669 | (9%) |
| Average gold spot price - $/oz (2) | 1,415 | 1,604 | (12%) | 1,532 | 1,651 | (7%) |
| Cost of sales - $/oz sold (3) | 908 | 1,466 | (38%) | 829 | 1,206 | (31%) |
| Operating cash costs - $/oz produced(3) | 577 | 831 | (31%) | 520 | 746 | (30%) |
| All-in cash costs (pre-tax) - $/oz produced(3) | 1,585 | 3,431 | (54%) | 1,447 | 3,124 | (54%) |
| All-in cash costs (including taxes) - $/oz produced(3) | 1,749 | 3,608 | (52%) | 1,642 | 3,319 | (51%) |
(1) Includes capitalized stripping of $77.2 million in the second quarter of 2013 ($71.0 million in the second quarter of 2012) and $151.5 million in the six months ended June 30, 2013 ($135.1 million in the six months ended June 30, 2012).
(2) Average for the period as reported by the London Bullion Market Association (US dollar Gold P.M. Fix Rate).
(4) Restated to reflect the impact of new accounting standards adopted January 1, 2013 (see “Changes in Accounting Policies”).
Revenue for the second quarter of 2013, increased 43% to $128.2 million from $89.7 million in the comparative quarter of 2012, primarily as a result of higher sales volumes (93,177 ounces in the second quarter of 2013 compared to 56,201 ounces in the second quarter of 2012) that was partially offset by a 14% decrease in average realized gold price1 at $1,376 per ounce compared to $1,597 per ounce in the same quarter of 2012. The higher sales volumes reflect the increase in gold production at both operations.
Gold production for the second quarter of 2013 totaled 99,426 ounces compared to 52,482 ounces in the comparative quarter. The 89% increase in ounces poured was mainly due to the processing of higher grade ore at both Kumtor and Boroo and the resumption of heap leach operations at Boroo.
Cost of sales was $84.6 million in the second quarter of 2013, compared to $82.4 million in the comparative period of 2012, mainly as a result of higher sales volumes. Operating costs1 in the second quarter of 2013 were higher than the comparative quarter reflecting higher labour costs, resulting from inflationary increases provided for in the collective bargaining agreements which were finalized in the second half of 2012, and the addition of costs at Boroo from the resumption of heap leach operations. During the second quarter of 2013, Kumtor recorded a charge of $2.1 million against cost of sales, representing a write-down of inventoried cost in excess of current net realizable value.
Depreciation, depletion and amortization associated with production increased to $31.6 million in the second quarter of 2013 from $15.4 million in the comparative quarter of 2012 primarily due to the higher ounces sold which resulted in higher depreciation for assets depreciated using the units of production method. The basis for depreciation has increased due to the expanded mobile fleet at Kumtor and higher deferred stripping costs at Kumtor.
Other operating expenses for the second quarter of 2013 totaled $2.1 million compared to $22.9 million in the comparative quarter of 2012. In the second quarter of 2013 the Company spent $2.1 million on corporate social responsibility (“CSR”) programs in the Kyrgyz Republic and in Mongolia. The expense during the second quarter of 2012 includes a charge of $21 million representing a contribution made by Kumtor into a national micro-credit financing program, pursuant to an agreement signed by Kumtor and the Kyrgyz Government on April 23, 2012, and an amount of $1.8 million incurred by the Company on other CSR programs mainly in the Kyrgyz Republic.
Other expenses for the second quarter of 2013 totaled $2.8 million compared to $0.8 million in the comparative quarter of 2012. The second quarter of 2013 includes a charge of $2.2 million for the write-off of infrastructure assets at Kumtor which could not be relocated as a result of the accelerated movement in the Central Valley Waste Dump at Kumtor.
Exploration expenditures for the second quarter of 2013 were $6.3 million dollars compared to $9.2 million in the second quarter of 2012. Exploration expenditures in the second quarter of 2013 reflect new drilling programs at the Öksüt project in Turkey and reduced spending on drilling at Kumtor and at the Company’s other various projects.
Corporate administration costs in the second quarter of 2013 were $7.2 million compared to $1.9 million in the same quarter of 2012. During the second quarter of 2012, the Company experienced a significant decline in share price resulting in a reduction in share-based compensation.
Cash provided from operations, net of working capital changes, was $40.9 million compared to cash used in operations of $42.3 million in the second quarter of 2012, as a result of the increased earnings in 2013 and movements in working capital levels.
Capital expenditures spent and accrued in the second quarter of 2013 amounted to $105.5 million, which includes $18.7 million of sustaining capital1, $9.6 million invested in growth capital1 and $77.2 million of capitalized stripping. Capital expenditures in the comparative quarter of 2012 totaled $117.9 million, consisting of $12.2 million of sustaining capital1, $34.7 million of growth capital1 and $71.0 million of capitalized stripping.
Centerra’s cash and cash equivalents and short-term investments at the end of June 2013 decreased to $315.6 million, compared to cash and short-term investments of $382.1 million at December 31, 2012. At June 30, 2013, the Company had drawn $76 million on its $150 million revolving credit facility with the European Bank for Reconstruction and Development (EBRD), leaving a balance of $74 million undrawn. The amount drawn is due to be repaid on August 8, 2013. The Company has the ability to postpone repayment and has notified EBRD of its intention to extend the drawdown to February 8, 2014. Centerra believes, based on its current forecast, that it has sufficient cash and investments to carry out its business plan in 2013 (see “Outlook for 2013”).
All-in cash costs1 – Consolidated
| Three Months Ended June 30 | Six Months Ended June 30 | |||
|---|---|---|---|---|
| $ millions, except ounces poured | 2013 | 2012 (3) | 2013 | 2012 (3) |
| All-in Cash Costs(1): Operating cash costs Abnormal mining costs - cash Capitalized stripping and ice unload - cash Operating cash costs and capitalized stripping Sustaining capital (cash) Growth capital (cash) Operating cash costs including capital Corporate and other cash costs (2) All-in Cash Costs - pre-tax Revenue-based tax and income tax All-in Cash Costs - including taxes | $ 57.4 - 56.6 | $ 43.6 2.8 52.8 | $ 111.6 - 110.0 | $ 93.3 3.3 99.8 |
| 114.0 18.5 9.5 | 99.3 12.2 34.7 | 221.6 31.8 25.8 | 196.4 18.2 124.2 | |
| 142.0 | 146.2 | 279.3 | 338.8 | |
| 15.7 | 34.0 | 31.4 | 52.3 | |
| $ 157.7 | $ 180.2 | $ 310.7 | $ 391.2 | |
| 16.3 | 9.3 | 41.8 | 24.4 | |
| $ 174.0 | $ 189.5 | $ 352.5 | $ 415.6 | |
| Ounces poured Operating cash cost - $/oz produced All-in Cash Costs (pre-tax) - $/oz produced All-in Cash Costs (including taxes) - $/oz produced | 99,426 $ 577 | 52,482 $ 831 | 214,646 $ 520 | 125,037 $ 746 |
| $ 1,585 | $ 3,431 | $ 1,447 | $ 3,128 | |
| $ 1,750 | $ 3,610 | $ 1,642 | $ 3,324 |
(1) Non-GAAP measure, see discussion under “Non-GAAP Measures”.
(2) Corporate and other cash costs include corporate general and administrative expenses, global exploration expenses, and community investments which are only reflected in the all-in cash cost amounts reported at the consolidated level.
(3) Operating cash costs and capitalized stripping for 2012 were restated for the impact of the adoption of IFRIC 20 (see “Changes in Accounting Policies”).
Operating cash costs per ounce produced1 in the second quarter of 2013 decreased to $577 compared to $831 per ounce in the comparative period of 2012. The decrease in 2013 reflects the impact of higher gold production levels due to higher grades processed at both operations and the resumption of lower cost heap leach operations at Boroo, partially offset by higher operating labour costs in the second quarter of 2013.
On a pre-tax basis, all-in cash costs per ounce produced1 for the second quarter of 2013 were $1,585 and includes all cash costs directly related to gold production. This compares to pre-tax all-in cash costs1 of $3,431 per ounce produced in the second quarter of 2012. The decrease is mainly due to higher gold production in 2013, 59% lower capital spending and 54% lower corporate and other cash costs. Growth capital1 spending (excluding capitalized stripping) decreased from $34.7 million in the second quarter of 2012 to $9.5 million in the second quarter of 2013 reflecting the expansion of the mining fleet at Kumtor during 2012. Corporate and other cash costs2 were down from $34 million in the second quarter of 2012 (in which a special contribution of $21 million was made to a national micro-credit financing program) to $15.7 million in the current quarter of 2013, primarily as a result of lower corporate social responsibility spending.
Operations Update
| Three Months Ended June 30 | Six Months Ended June 30 | |||||
|---|---|---|---|---|---|---|
| Kumtor Operating Results | 2013 | 2012 (5) | % Change | 2013 | 2012 (5) | % Change |
| Gold sold – ounces | 70,318 | 40,228 | 75% | 161,935 | 102,425 | 58% |
| Average realized gold price – $/oz(3) | 1,372 | 1,592 | (14%) | 1,514 | 1,677 | (10%) |
| Revenue - $ millions | 96.5 | 64.0 | 51% | 245.2 | 171.8 | 43% |
| Cost of sales - $ millions (1) | 65.7 | 66.1 | (1%) | 132.0 | 128.9 | 2% |
| Cost of sales - $/oz sold (1)(3) | 935 | 1,644 | (43%) | 815 | 1,259 | (35%) |
| Tonnes mined - 000s | 47,901 | 42,736 | 12% | 88,085 | 73,482 | 20% |
| Tonnes ore mined – 000s | 799 | 16 | 4894% | 1,008 | 79 | 1176% |
| Average mining grade - g/t (2) | 1.91 | 1.18 | 62% | 2.02 | 1.30 | 55% |
| Tonnes milled - 000s | 1,351 | 1,376 | (2%) | 2,824 | 2,627 | 7% |
| Average mill head grade - g/t (2) | 2.17 | 1.33 | 63% | 2.44 | 1.64 | 49% |
| Recovery - % | 69.3 | 71.2 | (3%) | 72.0 | 72.0 | 0% |
| Gold produced – ounces | 72,365 | 41,307 | 75% | 161,983 | 102,014 | 59% |
| Operating cash cost - $/oz produced (3) | 608 | 808 | (25%) | 522 | 709 | (26%) |
| All-in cash cost (pre-tax) - $/oz produced(3) | 1,727 | 3,180 | (46%) | 1,524 | 3,032 | (50%) |
| All-in cash cost including tax-$/oz produced(3) | 1,913 | 3,397 | (44%) | 1,735 | 3,268 | (47%) |
| Capital expenditures - $ millions (4) | 101.5 | 112.8 | (10%) | 203.7 | 268.5 | (24%) |
| Boroo Operating Results | ||||||
| Gold sold – ounces | 22,858 | 15,973 | 43% | 49,987 | 31,496 | 59% |
| Average realized gold price - $/oz(3) | 1,388 | 1,610 | (14%) | 1,506 | 1,643 | (8%) |
| Revenue - $ millions | 31.7 | 25.7 | 23% | 75.3 | 51.7 | 46% |
| Cost of sales - $ millions (1) | 18.9 | 16.3 | 16% | 43.8 | 32.6 | 35% |
| Cost of sales - $/oz sold (1)(3) | 827 | 1,018 | (19%) | 876 | 1,034 | (15%) |
| Total tonnes mined - 000s | - | 2,475 | - | - | 4,396 | - |
| Tonnes mined heap leach - 000s | - | 22 | - | - | 22 | - |
| Tonnes stacked heap leach - 000s | 1,026 | - | - | 1,294 | - | - |
| Tonnes leached - 000s | 1,083 | - | - | 2,886 | - | - |
| Tonnes ore milled - 000s | 624 | 635 | (2%) | 1,196 | 1,225 | (2%) |
| Average mill head grade - g/t (2) | 1.13 | 0.86 | 31% | 1.33 | 0.82 | 62% |
| Recovery - % | 60.8 | 69.0 | (12%) | 57.0 | 73.7 | (23%) |
| Gold produced – ounces | 27,061 | 11,175 | 142% | 52,663 | 23,023 | 129% |
| Operating cash cost - $/oz produced (3) | 495 | 916 | (46%) | 514 | 911 | (44%) |
| All-in cash cost (pre-tax) - $/oz produced(3) | 617 | 1,305 | (53%) | 601 | 1,241 | (52%) |
| All-in cash cost including tax-$/oz produced(3) | 752 | 1,471 | (49%) | 768 | 1,389 | (45%) |
| Capital expenditures - $ millions (Boroo) (4) | 3.6 | 4.9 | (27%) | 4.8 | 8.6 | (44%) |
| Capital expenditures - $ millions (Gatsuurt) | 0.2 | 0.1 | 117% | 0.4 | 0.2 | 92% |
(1) Cost of sales excludes regional office administration.
(2) g/t means grams of gold per tonne.
(4) Includes capitalized stripping of $77.2 million and $151.5 million for the three and six months ended June 30, 2013 at Kumtor ($66.9 million and $127.7 million at Kumtor and $4.1 million and $7.4 million at Boroo for the three and six months ended June 30, 2012, respectively).
(5) Operating cash costs and capitalized stripping for 2012 at Kumtor were restated to reflect the impact of the adoption of IFRIC 20.
Kumtor
At the Kumtor mine in the Kyrgyz Republic, gold production in the second quarter was 72,365 ounces compared to 41,307 ounces in the same quarter in 2012. The increase in ounces poured was mainly due to the processing of higher grade ore that was mined and stockpiled during the fourth quarter of 2012. During the second quarter of 2013, Kumtor’s average head grade was 2.17 g/t with a recovery of 69%, compared with 1.33 g/t and a recovery of 72% for the same quarter in 2012. Gold recovery was 3% lower than the comparative period primarily related to the metallurgical difficulty of the stockpiled ore from the “hockey-stick zone”. Tonnage processed was approximately 1.4 million tonnes for the second quarter of 2013, which is similar to the comparative period in 2012.
The increased movement in the waste-rock dump, which began in mid-March 2013, has accelerated the planned relocation of certain mine infrastructure. The rate of movement of the waste-rock dump decreased in the second quarter of 2013 to pre-March rates of movement as the Company modified the waste rock deposition plan. There has been no impact on planned 2013 gold production. See “Other Corporate Developments – Kyrgyz Republic – Kumtor Waste Dump Movement”.
Operating cash cost per ounce produced1 in the second quarter of 2013 decreased to $608 compared to $808 per ounce in the comparative period of 2012. The decrease in 2013 reflects the impact of higher production levels ($347 per ounce), as a result of processing material with higher average mill head grades. This was partially offset by higher operating costs1 ($147 per ounce) described below.
In the second quarter of 2013, operating cash costs1 at Kumtor increased by $10.6 million to $44.0 million, excluding the capitalization of stripping activities and the expensing of unloading activities (increased by $15.1 million including capitalized stripping and unloading expense), compared to $33.4 million in the comparative quarter of 2012. The increased cost of mining activities is primarily related to the increased tonnage as the higher density material moved in 2013 incurred higher diesel and blasting costs. Labour costs also increased as a result of the new collective bargaining agreement ratified in December 2012. Other increases include increased tire requirements and maintenance due to the expanded haul fleet.
All-in cash costs per ounce produced pre-tax1 were $1,727 in the second quarter of 2013 compared to $3,180 in the same quarter of 2012. The decrease is due to both higher production and a reduction in growth capital spending1. Kumtor is currently processing lower than average ore grade as it completes a waste stripping phase and expects the all-in cash costs1 to decrease in the fourth quarter of 2013 when the higher grade ore from the SB Zone is accessed. See “Outlook for 2013”.
Exploration expenditures totaled $2.0 million for the second quarter of 2013, compared to $2.9 million reported in the second quarter 2012.
Capital expenditures spent and accrued in the second quarter of 2013 at Kumtor amounted to $101.5 million which includes $15.1 million of sustaining capital1, $9.3 million invested in growth capital1 for the fleet expansion and $77.2 million for capitalized stripping. Capital expenditures in the comparative quarter of 2012 totaled $112.8 million, consisting of $11.2 million of sustaining capital1 and $101.6 million of growth capital1 including $66.9 million of capitalized stripping.
During an inspection in June 2013, an increased number of cracks were observed in the ring gear of the Kumtor ball mill as compared to the previous inspection in April 2013. After consultation with the supplier of the ring gear, FL Smidth, it was decided that the ring gear would need to be replaced. The Company has ordered a replacement ring gear which it expects to be delivered in approximately 52 weeks. In the meantime, the Company has taken measures to closely monitor the ring gear and to lessen the stresses applied to it. In addition, the ring gear will be rotated during the regularly scheduled 5 day shutdown in August. The off-side of the ring gear does not appear to have any cracks and is expected to provide good temporary service until such time as the replacement gear arrives. In the event that the ball mill cannot continue to operate with the current ring gear until the replacement arrives, a spare ring gear is available on site, although it would be expected to operate at 95% to 97% of the capacity of the current ring gear.
Boroo/Gatsuurt
At the Boroo mine in Mongolia, gold production was 27,061 ounces of gold in the second quarter of 2013 compared to 11,175 ounces of gold in the second quarter of 2012. The gold production increase of 15,885 ounces was mainly due to the resumption of activities at the heap leach operation, which contributed 13,210 ounces, and the processing of higher grades of ore through the mill, which contributed 13,850 ounces, partially offset by lower mill recoveries in 2013. Mill head grades averaged 1.13 g/t with a recovery of 61% in 2013, compared to 0.86 g/t with a recovery of 69% in the second quarter of 2012.
The Boroo mill processed stockpiled ore in the second quarter of 2013 which was refractory in nature, resulting in lower recoveries (61% compared to 69%) than during the same period of 2012 when the mill processed non-refractory lower grade ore.
Operating cash costs1 at Boroo increased by $3.2 million in the second quarter of 2013, excluding the capitalization of stripping costs at Pit 6 in 2012 (and decreased by $0.4 million including capitalization), compared to the same period in 2012.
Operating cash costs per ounce produced1 in the second quarter of 2013 were $495 compared to $916 per ounce in the same period of 2012. The decrease of 46% was a result of a 142% increase in production partially offset by higher operating costs1 resulting primarily from the resumption of heap leaching operations.
Boroo’s all-in cash costs per ounce produced (pre-tax)1 for the second quarter of 2013 were $617 and included all costs directly related to gold production except for income tax paid in Mongolia. The same pre-tax all-in cash costs1 for the second quarter of 2012 were $1,306 per ounce produced. The decrease in the pre-tax all-in cash costs1 was primarily the result of the increase in production, reflecting the resumption of heap leaching operations and no mining activity in the second quarter of 2013. In the comparative quarter of 2012, mining costs accounted for $329 per ounce produced.
1 Non-GAAP measure and are discussed under “Non-GAAP Measures”.
Capital expenditures spent and accrued at Boroo in the second quarter of 2013 decreased to $3.6 million compared to $4.9 million in the same period of 2012. 2013 capital primarily relates to tailings dam construction ($2.8 million) and mobile component change outs ($0.5 million), whereas in the second quarter of 2012, $4.1 million was related to capitalized stripping of Pit 6.
The Gatsuurt project remained under care and maintenance in the second quarter of 2013 due to continued delays in permitting resulting from the Water and Forest Law which prohibits mining and exploration activities in water basin and forested areas. Further development of the project is subject to resolution of the impact of the Water and Forest Law on the Gatsuurt project, and receiving all required approvals and regulatory commissioning from the Mongolian Government. See “Other Corporate Developments- Mongolia”.
Centerra understands that, in May 2013, the Mongolian Government added seven deposits, including Gatsuurt, to the list of “mineral deposits of strategic importance”. Such a designation, which is subject to the approval of Parliament, would have the effect of excluding Gatsuurt from the application of the Water and Forest Law. Centerra expects that Parliament and/or any relevant committees of Parliament will consider this matter further in the fourth quarter of 2013, when Parliament reconvenes after its summer recess. If Parliament ultimately approves this designation, it would allow the Government of Mongolia to acquire up to a 34% interest in Gatsuurt. The terms of any such participation would be subject to discussion with the Government. See “Other Corporate Developments- Mongolia”.
During the second quarter of 2013, exploration expenditures in Mongolia were $0.7 million compared to $2.1 million in the same period of 2012. The 2013 exploration expenditures were largely on activities at the Company’s ATO project located in eastern Mongolia.
All-in cash costs1
| KUMTOR | Three months ended June 30 | Six months ended June 30 | ||||
|---|---|---|---|---|---|---|
| $ millions, except ounces poured | 2013 | 2012(3) | 2013 | 2012(3) | ||
| All-in Cash Costs (1): Operating cash costs Abnormal mining costs - cash Capitalized stripping and ice unload - cash Operating cash costs and capitalized stripping Sustaining capital (cash) Growth capital (cash) Operating cash costs including capital Corporate and other cash costs (2) All-in Cash Costs (pre-tax) Revenue-based tax All-in Cash Costs (including taxes) | $ 44.0 - 56.6 | $ 33.4 2.8 49.2 | $ 84.5 - 110.0 | $ 72.3 3.3 93.5 | ||
| 100.6 15.1 9.3 | 85.5 11.2 34.7 | 194.5 26.8 25.4 | 169.1 16.7 124.0 | |||
| 124.9 | 131.3 | 246.8 | 309.8 | |||
| - | - | - | - | |||
| 124.9 | 131.3 | 246.8 | 309.8 | |||
| 13.5 | 9.0 | 34.3 | 24.0 | |||
| $ 138.5 | $ 140.3 | $ 281.1 | $ 333.9 | |||
| Ounces poured All-in Cash Costs (pre-tax) - $/oz produced All-in Cash Costs (including taxes) - $/oz produced | 72,365 $ 1,727 $ 1,913 | 41,307 $ 3,180 $ 3,397 | 161,983 $ 1,524 $ 1,735 | 102,014 $ 3,037 $ 3,273 | ||
| BOROO | Three months ended June 30 | Six months ended June 30 | ||||
| $ millions, except ounces poured | 2013 | 2012 | 2013 | 2012 | ||
| All-in Cash Costs (1): Operating cash costs Capitalized stripping - cash Operating cash costs and capitalized stripping Sustaining capital (cash) Growth capital (cash) Operating cash costs including capital Corporate and other cash costs (2) All-in Cash Costs (pre-tax) Income tax All- Cash Costs (including taxes) | $ 13.4 0.0 | $ 10.2 3.6 | $ 27.1 0.0 | $ 20.9 6.3 | ||
| 13.4 3.3 0.0 | 13.8 0.8 0.0 | 27.1 4.6 0.0 | 27.3 1.3 0.0 | |||
| 16.7 | 14.6 | 31.6 | 28.6 | |||
| - | - | - | - | |||
| $ 16.7 | $ 14.6 | $ 31.6 | $ 28.6 | |||
| 3.7 | 1.9 | 8.8 | 3.4 | |||
| $ 20.4 | $ 16.4 | $ 40.4 | $ 32.0 | |||
| Ounces poured All-in Cash Costs (pre-tax) - $/oz produced All-in Cash Costs (including taxes) - $/oz produced | 27,061 $ 617 $ 752 | 11,175 $ 1,306 $ 1,472 | 52,663 $ 601 $ 768 | 23,023 $ 1,241 $ 1,389 |
(1) Non-GAAP measure, see discussion under “Non-GAAP Measures”.
(2) Corporate and other cash costs include corporate general and administrative expenses, global exploration expenses and community investments which are only reflected in the all-in cash cost amounts reported at the consolidated level.
(3) Operating cash costs and capitalized stripping for 2012 were restated to reflect the impact on adoption of IFRIC 20 (see “Changes in Accounting Policies”).