Centerra Gold Reports Third Quarter Results
NEWS RELEASE
Centerra Gold Reports Third Quarter Results
This news release contains forward-looking information that is subject to the risk factors and assumptions set out on page 20 and in the Cautionary Note Regarding Forward-looking Information on page 31. 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, 2014 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 and the Company’s accounting policies as described in note 3 of its annual consolidated financial statements for the year ended December 31, 2013. All figures are in United States dollars unless otherwise stated.
To view Management’s Discussion and Analysis and the Financial Statements and Notes for the three and nine months ended September 30, 2014, please visit the following link:
http://media3.marketwire.com/docs/cg1029fsmda.pdf
Toronto, Canada, October 29, 2014: Centerra Gold Inc. (TSX: CG) today reported a net loss for the third quarter of 2014 of $3.2 million, or $0.01 per share (basic) which reflects lower average realized gold price1 and fewer ounces sold during the quarter. For the same period in 2013, the Company recorded a net loss of $1.8 million or $0.01 per common share (basic).
2014 Third Quarter Highlights
- Increased Boroo’s 2014 gold production guidance to 50,000 ounces and the Company is on track to achieve its revised production and cost guidance.
- Produced 110,792 ounces of gold in the quarter, including 95,265 ounces at Kumtor and 15,527 ounces at Boroo, compared to 113,840 ounces in the same period in 2013.
- All-in sustaining costs per ounce sold1 of $1,139, which excludes revenue-based tax in the Kyrgyz Republic, compared to $1,208 in the same period in 2013.
- All-in costs per ounce sold1, which excludes revenue-based tax in the Kyrgyz Republic and income taxes was $1,344 for the quarter the same as the third quarter of 2013.
During the third quarter of 2014, Centerra’s cash, cash equivalents and short-term investments decreased by $87.8 million to $404.4 million from $492.2 million at the end of June 2014 ($501.5 million at December 31, 2013). As at September 30, 2014, 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 at September 30, 2014. The amount drawn is due to be repaid on February 11, 2015. Centerra believes, based on its current forecast, that it has sufficient cash and short-term investments to carry out its business plan in 2014 (see “2014 Outlook”).
1 University Avenue, Suite 1500 Toronto, ON M5J 2P1 tel 416-204-1953 fax 416-204-1954 www.centerragold.com For the first nine months of 2014, the Company recorded a net loss of $32.8 million, compared to net earnings of $51.1 million in the comparative period of 2013. The decrease in earnings reflects lower realized gold prices and sales volumes, higher depreciation, depletion and amortization (DD&A) and an inventory impairment charge at the Kumtor mine as compared to the same period in 2013.
Commentary
Ian Atkinson, President and CEO of Centerra Gold stated, “I am pleased to report that both operations performed well during the quarter, Kumtor got back into the SB Zone in September as planned and Boroo had another solid quarter. Total quarterly gold production was 110,792 ounces, which brings year-to-date gold production to 319,585 ounces. We are on track to achieve our 2014 guidance.”
“On the Öksüt Project in Turkey things are proceeding well. Work on the environmental social impact assessment is progressing as planned and we had our first public meeting regarding that in early August. Additionally, we continue to work on the full feasibility study which we are targeting to complete by the end of second quarter next year.”
“In the Kyrgyz Republic, the Company is continuing its discussions with the government regarding the potential restructuring of the Kumtor Project to resolve all outstanding concerns relating to the project. We are in the process of negotiating the definitive agreements to implement the restructuring as described in the Heads of Agreement signed on January 18, 2014 and are continuing discussions with the Kyrgyz Government in this regard.”
Recent Developments
Kumtor Operations
- 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”). See “Other Corporate Developments”.
- The Company is analyzing the potential impact on Kumtor’s reserves of the buttress constructed to manage the movement of the Davidov Glacier. The Company is also reviewing the performance of the Kumtor block model. See “Operations Update – Kumtor Operating Results – Ongoing Technical Matters” below.
Mongolian Operations
- Discussions with the Mongolian Government regarding the Gatsuurt project continued during the third quarter, including as to possible levels of Government ownership in the project as well as the potential designation by Parliament of Gatsuurt as a strategic deposit.
- The Company expects that the Mongolian Parliament will consider the designation of Gatsuurt as a strategic deposit by the end of 2014. If Parliament ultimately approves this designation, it would have the effect of excluding Gatsuurt from the application of the Mongolian Water and Forest Law and would allow the Mongolian Government to acquire up to a 34% interest in Gatsuurt. The terms of any such participation are currently unclear and will be determined through negotiations with the Mongolian Government. See “Other Corporate Developments – Mongolia”.
Corporate
- On October 10, 2014, Centerra was served with an order (the “Stans Order”) from the Ontario Superior Court of Justice in favour of Stans Energy Corp. (“Stans”) which prohibits Kyrgyzaltyn JSC (“Kyrgyzaltyn”) from, among other things: (i) selling, disposing or exchanging 47,000,000 shares (the “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 Stans Order. The order also prohibits Centerra from, among other things, registering any transfers or issuing share certificates in respect of the Frozen Shares, and requires Centerra to hold in trust for the proceeding under the Stans 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 Stans with a notice of application to the Ontario Superior Court of Justice (the “Stans Application”) which seeks to enforce a June 30, 2014 arbitral award (the “Stans Arbitration Award”) obtained by Stans against the Kyrgyz Republic from the arbitration tribunal of the Moscow Chamber of Commerce in the amount of approximately $118 million. The Stans Application seeks, among other things, an order declaring that the Kyrgyz Republic has a beneficial interest in all of the shares in Centerra held by Kyrgyzaltyn and that monies, interest, dividends and other rights of Kyrgyzaltyn in the stock of Centerra may be seized in order to satisfy the Stans Arbitration Award. We understand that the Kyrgyz Republic is appealing the Stans Arbitration Award to the Russian courts in Moscow.
- In a separate proceeding, Kyrgyzaltyn has appealed to the Ontario Court of Appeal (the “Sistem Appeal”) the decision of the Ontario Superior Court of Justice in the Sistem Muhenkislik Insaat Sanayi Tiacaret SA matter, which found that the Kyrgyz Republic has a beneficial interest in the Centerra shares held by Kyrgyzaltyn. See “Other Corporate Developments”.
- If the Kyrgyz Republic does not succeed in overturning the Stans Arbitration Award in the Russian courts and Kyrgyzaltyn is unsuccessful in the Sistem Appeal, Centerra expects that Stans would likely succeed in enforcing the Stans Arbitration Award in Ontario and in seizing a sufficient number of the Centerra shares held by Kyrgyzaltyn to satisfy the Stans Arbitration Award. If Stans ultimately seizes such shares, Kyrgyzaltyn would no longer hold a sufficient number of Centerra shares to contribute to the HOA restructuring transaction such that it could receive 50% of a new Kumtor joint venture. In such circumstances, the Company believes that the restructuring of the Kumtor Project in accordance with the HOA would be impossible. See “Other Corporate Developments”.
Consolidated Financial and Operating Summary
| Unaudited ($ millions, except as noted) | Three months ended September 30, | Nine months ended September 30, | ||||||
|---|---|---|---|---|---|---|---|---|
| 2014 | 2013 | % Change | 2014 | 2013 | % Change | |||
| Financial Highlights | ||||||||
| Revenue | $ | 135.8 | 155.0 | (12%) | $ | 403.3 | 475.5 | (15%) |
| Cost of sales | 100.7 | 111.7 | (10%) | 319.1 | 287.5 | 11% | ||
| Revenue-based taxes | 16.4 | 16.4 | 0% | 48.8 | 50.7 | (4%) | ||
| Exploration and business development (1) | 5.0 | 7.3 | (32%) | 11.7 | 20.8 | (44%) | ||
| Corporate administration | 5.9 | 8.6 | (31%) | 24.2 | 22.5 | 8% | ||
| (Loss) Earnings from operations | (1.0) | 2.6 | (138%) | (26.3) | 70.0 | (138%) | ||
| Net (loss) earnings | (3.2) | (1.8) | 78% | (32.8) | 51.1 | (164%) | ||
| Earnings (loss) per common share - $ basic (2) | $ | (0.01) | (0.01) | 0% | $ | (0.14) | 0.22 | (164%) |
| Earnings (loss) per common share - $ diluted (2) | $ | (0.02) | (0.01) | 100% | $ | (0.14) | 0.20 | (170%) |
| Cash (used in) provided by operations | (14.0) | (8.4) | 67% | 159.4 | 124.4 | 28% | ||
| Average gold spot price - $/oz (3) | 1,282 | 1,326 | (3%) | 1,288 | 1,456 | (12%) | ||
| Average realized gold price - $/oz(4) | 1,265 | 1,337 | (5%) | 1,281 | 1,450 | (12%) | ||
| Capital expenditures (5) | 83.1 | 80.6 | 3% | 293.5 | 289.9 | 1% | ||
| Operating Highlights | ||||||||
| Gold produced – ounces | 110,792 | 113,840 | (3%) | 319,585 | 328,486 | (3%) | ||
| Gold sold – ounces | 107,367 | 115,941 | (7%) | 314,864 | 327,864 | (4%) | ||
| Operating costs (on a sales basis) (6) | 56.2 | 66.8 | (16%) | 147.1 | 167.1 | (12%) | ||
| Adjusted operating costs (4) | 63.4 | 74.9 | (15%) | 169.0 | 188.9 | (11%) | ||
| All-in Sustaining Costs(4) | 122.2 | 140.1 | (13%) | 392.4 | 410.2 | (4%) | ||
| All-in Costs (4) | 144.2 | 155.7 | (7%) | 437.1 | 466.6 | (6%) | ||
| All-in Costs - including taxes (4) | 164.0 | 176.0 | (7%) | 489.2 | 530.0 | (8%) | ||
| Unit Costs | ||||||||
| Cost of sales - $/oz sold(4) | 938 | 963 | (3%) | 1,013 | 877 | 16% | ||
| Adjusted operating costs - $/oz sold (4) | 590 | 646 | (9%) | 537 | 576 | (7%) | ||
| All-in sustaining costs – $/oz sold(4) | 1,139 | 1,208 | (6%) | 1,246 | 1,251 | (0%) | ||
| All-in costs – $/oz sold (4) | 1,344 | 1,343 | 0% | 1,388 | 1,423 | (2%) | ||
| All-in costs (including taxes) – $/oz sold (4) | 1,527 | 1,518 | 1% | 1,554 | 1,617 | (4%) |
(1) Includes business development of $0.2 million and $0.3 million for the three and nine months ended September 30, 2014, respectively (nil for three and nine months ended September 30, 2013, respectively).
(2) As at September 30, 2014, the Company had 236,400,254 common shares issued and outstanding.
(3) Average for the period as reported by the London Bullion Market Association (US dollar Gold P.M. Fix Rate).
(4) Adjusted operating costs, all-in sustaining costs, all-in costs and all-in costs - including taxes ($ 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 $53.5 million and $228.5 million in the three and nine months ended September 30, 2014 respectively ($56.4 million and $207.9 million in the three and nine months ended September 30, 2013, 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.
Third Quarter 2014 compared to Third Quarter 2013
- Gold production for the third quarter of 2014 totaled 110,792 ounces compared to 113,840 ounces in the comparative quarter of 2013. The decrease in ounces poured reflects lower production at Boroo due to the processing of lower grade ore and fewer ounces recovered from heap leach which is now under secondary leaching. Production was 6% higher at Kumtor in the third quarter of 2014 as compared to the third quarter of 2013 as cracking in the ring gear of the Kumtor mill resulted in reduced mill throughput.
- All-in sustaining costs per ounce sold1, which excludes revenue-based tax and income tax, for the third quarter decreased to $1,139 from $1,208 in the comparative period of 2013. The decrease results primarily from lower spending in the third quarter of 2014 on sustaining1 capital and capitalized stripping, lower royalties paid by Boroo and a higher charge for the build-up of inventory, partially offset by fewer ounces sold.
- All-in costs per ounce sold1, for the third quarter of 2014, was $1,344, and includes all cash costs related to gold production, excluding revenue-based tax and income tax. This is unchanged from the all-in costs per ounce sold1 reported in the third quarter of 2013.
- Revenue for the third quarter of 2014, decreased to $135.8 million from $155.0 million in the comparative quarter of 2013, primarily from a 5% lower average realized gold price in the third quarter of $1,265 per ounce compared to $1,337 per ounce in the same quarter of 2013. Sales volumes were also 5% lower (107,367 ounces in the third quarter of 2014 compared to 115,941 ounces in the third quarter of 2013).
- Cost of sales decreased by 10% to $100.7 million compared to the same period of 2013 due primarily to fewer ounces sold and a reduction in the inventory impairment charge at Kumtor. DD&A associated with production was $44.5 million in the third quarter of 2014, similar to the same period of 2013. Kumtor lowered its inventory impairment to $12.2 million at September 30, 2014, a reduction of $2.4 million in the third quarter of 2014, as it started mining and processing ore from cut-back 16 beginning in early September which resulted in a reduction to the average operating cost per ounce in inventory.
- Operating costs (on a sales basis) decreased by $10.6 million to $56.2 million in the third quarter compared to the third quarter of 2013, reflecting lower milling, leaching and site support costs and a higher charge for a build-up of inventory at both sites. In particular, $5.2 million of operating costs were charged to inventory in the third quarter of 2014 reflecting increased mining levels at Kumtor. At Boroo, leaching costs were lower as secondary leaching commenced in the third quarter of 2014 and site support costs reflected reduced personnel levels.
- Exploration expenditures in the third quarter totaled $4.8 million compared to $7.3 million in the same period of 2013. The decrease in the third quarter reflects the cessation of all exploration activities at Kumtor and reduced spending at the Company’s Öksüt project in Turkey, as the project is transitioning to the pre-development stage.
- Corporate administration costs decreased to $5.9 million in the third quarter from $8.6 million in the third quarter of 2013 due to a decrease in share-based compensation resulting from the revaluation at September 30, 2014 of the awards issued under the Company’s share-based plans. The Company’s share price decreased by 25% during the third quarter of 2014 as compared to an increase in share price of 45% during the same quarter of 2013. Share-based compensation was a credit of $0.2 million in the third quarter of 2014, compared to a charge of $1.9 million in the same period in 2013.
- The $1.7 million decrease in income tax expense is due to lower taxable income at Boroo. As Boroo is forecasting taxable earnings for 2014, based on its local Tugrik results and tax positions, an income tax expense was recorded in the third quarter 2014. Kumtor pays taxes based on revenue (not taxable income), while losses incurred by Centerra’s other entities are not tax effected.
- Cash used in operations was $14.0 million in the third quarter of 2014 compared to $8.4 million in the same period of 2013 as a result of lower earnings and higher working capital levels.
- Capital expenditures in the third quarter of 2014 were $83.1 million, which included sustaining capital1 of $14.2 million, growth capital1 of $15.4 million and $53.5 million of capitalized stripping costs ($38.5 million cash). Capital expenditures in the same quarter of 2013 were $80.5 million, which included $16.0 million for sustaining capital1 and $8.1 million for growth capital1 and capitalized stripping of $56.4 million ($40.7 million cash).
First Nine Months 2014 compared to First Nine Months 2013
- Gold production for the first nine months totaled 319,585 ounces compared to 328,486 ounces in the comparative period of 2013. The decrease in ounces poured is due to lower production at Boroo due primarily to lower mill grades processed and fewer ounces under primary leach, partially offset by higher gold production at Kumtor due to processing more tonnes of ore with higher recoveries.
- All-in sustaining costs per ounce sold1, which excludes revenue-based tax and income tax, for the first nine months of 2014, remained relatively unchanged at $1,246 compared to $1,251 in the same period of 2013.
- All-in costs per ounce sold1, which excludes revenue-based tax at Kumtor and income tax, was $1,388, compared to $1,423 per ounce sold in the first nine months of 2013. The decrease is primarily due to lower spending on sustaining and growth capital1 and lower exploration spending, partially offset by fewer ounces sold and higher capitalized stripping costs at Kumtor.
- Revenue for the first nine months of 2014, decreased to $403.3 million from $475.5 million in the comparative period of 2013, primarily from a 12% lower average realized gold price of $1,281 per ounce compared to $1,450 per ounce in the first nine months of 2013. Sales volumes were also 4% lower (314,864 ounces compared to 327,864 ounces in the first nine months of 2013).
- Cost of sales increased by 11% to $319.1 million due primarily to higher DD&A and an inventory impairment charge of $12.2 million at Kumtor. DD&A associated with production increased to $172.0 million in the first nine months of 2014 from $120.4 million in the comparative period of 2013. The increase in DD&A resulted from processing higher cost ore from cut-back 15 compared to ore from cutback 14B which was processed in the third quarter of 2013. Access to ore from cut-back 15 required more stripping of ice and waste thereby resulting in increased amortization of capitalized stripping costs as the ore was mined and stockpiled. Operating costs were capitalized for the stripping of 142 million tonnes of ice and waste for cut-back 15, whereas 61 million tonnes were stripped and capitalized for cut-back 14B. In addition, the expanded mobile fleet at Kumtor was fully commissioned in 2013 which resulted in a higher equipment cost to the ore from cut-back 15.
- Operating costs (on a sales basis) decreased by $20.0 million to $147.1 million in the first nine months compared to the same period of 2013, as a result of higher stripping capitalization at Kumtor and lower heap leach costs at Boroo due to the completion of crushing and stacking activities in 2013. Kumtor also benefited from lower prices on tires and fuel, while Boroo consumed fewer reagents. This was partially offset by the cost of the mill liner replacement at Kumtor and the drawdown of higher cost inventory at both operations in the first nine months of 2014.
- Exploration expenditures totaled $11.3 million compared to $20.8 million in the same period of 2013. The decrease in the first nine months of 2014 primarily reflects the cessation of all exploration activities at Kumtor and reduced spending on the Company’s projects in Turkey, Mongolia and Russia.
- Corporate administration costs increased to $24.2 million from $22.5 million in the first nine months of 2013 due primarily to an increase in share-based compensation of approximately $4.5 million, partially offset by a decrease in expenditures. The increase in share-based compensation reflects the movement in the Company’s share price.
- The $8.3 million reduction in income tax expense in the first nine months of 2014 is due to lower taxable income at Boroo. Boroo is forecasting taxable earnings for 2014, based on its local Tugrik results and tax positions.
- Cash provided by operations increased by $35.0 million to $159.4 million in the first nine months of 2014 mainly from lower levels of working capital partially offset by lower earnings.
- Capital expenditures in the first nine months of 2014 were $293.5 million, which included sustaining capital1 of $35.8 million, growth capital1 of $29.2 million and $228.5 million of capitalized stripping
costs ($162.4 million cash). Capital expenditures in the same period of 2013 were $289.9 million, which included $48.1 million for sustaining capital1 and $33.9 million for growth capital1 and capitalized stripping of $207.9 million ($150.7 million cash).
Operations Update
| Kumtor Operating Results | ||||||
|---|---|---|---|---|---|---|
| Three months ended | Nine months ended | |||||
| Unaudited ($ millions, except as noted) | September 30, | September 30, | ||||
| % | % | |||||
| 2014 | 2013 | Change | 2014 | 2013 | Change | |
| Revenue | 117.0 | 116.8 | 0% | 348.4 | 362.0 | (4%) |
| Cost of sales-cash | 43.8 | 48.3 | (9%) | 111.4 | 120.9 | (8%) |
| Cost of sales-non-cash | 41.1 | 37.7 | 9% | 161.5 | 97.1 | 66% |
| Cost of sales-total | 84.9 | 86.0 | (1%) | 272.9 | 218.0 | 25% |
| Cost of sales - $/oz sold(1) | 916 | 991 | (8%) | 1,002 | 877 | 14% |
| Tonnes mined - 000s | 48,649 | 41,741 | 17% | 148,938 | 129,827 | 15% |
| Tonnes ore mined – 000s | 1,422 | 2,087 | (32%) | 2,025 | 3,095 | (35%) |
| Average mining grade - g/t | 3.49 | 2.78 | 26% | 2.87 | 2.53 | 13% |
| Tonnes milled - 000s | 1,426 | 1,312 | 9% | 4,338 | 4,136 | 5% |
| Average mill head grade - g/t | 3.05 | 3.04 | 0% | 2.68 | 2.63 | 2% |
| Recovery - % | 72.7% | 76.4% | (5%) | 74.0% | 73.6% | 1% |
| Mining costs - total ($/t mined material) | 0.55 | 0.60 | (8%) | 0.21 | 0.31 | (32%) |
| Milling costs ($/t milled material) | 12.98 | 14.75 | (12%) | 11.95 | 12.22 | (2%) |
| Gold produced – ounces | 95,265 | 90,289 | 6% | 276,058 | 252,272 | 9% |
| Gold sold – ounces | 92,645 | 86,699 | 7% | 272,303 | 248,635 | 10% |
| Average realized gold price - $/oz(1) | 1,263 | 1,347 | (6%) | 1,279 | 1,456 | (12%) |
| Capital expenditures (sustaining)(1) | 14.2 | 13.3 | 7% | 35.3 | 40.1 | (12%) |
| Capital expenditures (growth)(1) | 15.2 | 7.9 | 92% | 28.6 | 33.4 | (14%) |
| Capital expenditures (stripping)(1) | 53.5 | 56.4 | (5%) | 228.5 | 207.8 | 10% |
| Operating costs (on a sales basis) (2) | 43.8 | 48.3 | (9%) | 111.4 | 121.0 | (8%) |
| Adjusted operating costs (1) | 49.8 | 55.4 | (10%) | 129.5 | 138.2 | (6%) |
| All-in Sustaining Costs (1) | 102.7 | 109.6 | (6%) | 328.0 | 330.0 | (1%) |
| All-in Costs(1) | 117.9 | 118.4 | (0%) | 356.6 | 370.0 | (4%) |
| All-in Costs - including taxes(1) | 134.3 | 134.8 | (0%) | 405.4 | 420.0 | (3%) |
| Adjusted operating costs - $/oz sold (1) | 539 | 639 | (16%) | 476 | 556 | (15%) |
| All-in sustaining costs – $/oz sold (1) | 1,110 | 1,264 | (12%) | 1,205 | 1,327 | (9%) |
| All-in costs – $/oz sold (1) | 1,274 | 1,366 | (7%) | 1,310 | 1,488 | (12%) |
| All-in costs (including taxes) – $/oz sold (1) | 1,451 | 1,555 | (7%) | 1,489 | 1,689 | (12%) |
(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 third quarter of 2014 continued to focus on cut-back 16. The mining fleet obtained access to and commenced mining ore from cut-back 16 in early September. As such, Kumtor has ceased capitalizing waste stripping costs associated with cut-back 16 and expects to mine higher grade ore during the fourth quarter of 2014. During the third quarter of 2014, Kumtor mined 1.4 million tonnes of ore at an average grade of 3.49 g/t from cut-back 16, compared to 2.1 million tonnes of ore mined at an average grade of 2.78 g/t in the third quarter of 2013.
Gold production for the third quarter of 2014 increased to 95,265 ounces compared to 90,289 ounces in the comparative quarter of 2013 due to higher throughput achieved by the mill partially offset by lower recoveries from processing higher carbonaceous material in the current period. Kumtor’s mill processed approximately 1.4 million tonnes for the third quarter of 2014, which was 9% higher than the comparative quarter of 2013 when the mill experienced issues with cracking in the ring gear and was not operating at full capacity.
The total waste and ore mined was 48.6 million tonnes compared to 41.7 million tonnes in the comparative period of 2013, representing an increase of 17% as Kumtor mined proportionately less ice in the third quarter of 2014.
Mining costs, including capitalized stripping costs, totaled $65.2 million for the third quarter of 2014, which is consistent with the comparative quarter.
Operating costs (on a sales basis), excluding capitalized stripping, decreased 9% to $43.8 million during the third quarter of 2014 reflecting a higher charge for the build-up of inventory.
DD&A associated with production increased to $41.1 million in the third quarter of 2014 from $37.7 million in the comparative period of 2013. The increase in DD&A resulted from processing higher cost ore from cutback 15 compared to ore from cut-back 14B which was processed in the comparative period of 2013. Access to ore from cut-back 15 required more stripping of ice and waste thereby resulting in increased amortization of capitalized stripping costs as the ore was mined and stockpiled.
All-in sustaining costs per ounce sold1, which excludes revenue-based tax, for the third quarter of 2014 decreased 12% to $1,110 compared to $1,264 in the comparative period of 2013. The decrease results primarily from higher ounces sold and a higher charge for the build-up of inventory.
All-in costs per ounce sold1, which excludes revenue-based tax, for the third quarter of 2014 was $1,274 compared to $1,366 in the comparative period of 2013, representing a decrease of 7%. The decrease is mainly due to more gold sold, partially offset by an increase in growth capital spending for the infrastructure relocation at Kumtor.
Capital expenditures in the third quarter of 2014 were $82.9 million which includes $14.2 million of sustaining capital1, $15.2 million invested in growth capital1 mainly on infrastructure relocation and equipment purchases and $53.5 million for capitalized stripping ($38.5 million cash). Capital expenditures the comparative quarter of 2013 totaled $77.6 million, consisting of $13.3 million for sustaining capital1 and $7.9 million for growth capital1 excluding $56.4 million of capitalized stripping ($40.7 million cash).
Ongoing Technical Matters As previously noted in the Company’s news release of May 6, 2014, Kumtor constructed a buttress at the edge of the ultimate pit in response to increased movement of the south arm of the Davidov glacier. The buttress, which continues to be monitored, has been effective in reducing the rate of movement to manageable levels. However, the Company is studying whether it will be necessary to reduce the width of the ultimate cut-back for the SB Zone, due to the positioning of the buttress, which could reduce the reserves accessible from that cut-back. Though further study is required, the Company believes that some contained ounces are likely to be downgraded from reserves to resources; however the Company does not expect that such downgrade would have a material effect on Kumtor’s total reserves. The Company expects to provide an update on the impact of the buttress on Kumtor’s reserves in its annual reserve statement in February 2015.
As previously reflected in its news release of February 5, 2014, the Company experienced a negative production reconciliation at the Kumtor mine in 2013, resulting in contained ounces mined being lower than predicted by the current Kumtor resource model. Though the model has historically been an accurate predictor of Kumtor’s production, the Company has retained AMEC Americas Limited (“AMEC”) to assist it in a review of the model to determine if any adjustments to the model are required.
In addition, the Company has undertaken metallurgical studies to evaluate the significance, if any, of lower than expected metallurgical recoveries experienced in 2013.
The Company expects to complete its review of each of these matters in the first quarter of 2015 and will disclose the results, if material, when they are available. These reviews carried out by AMEC and the Company may result in adjustments to, among other things, expected grades and/or expected metallurgical recoveries, which may negatively impact the Company’s reserves and resources estimates at the Kumtor mine. Any such changes may have a material adverse impact on Centerra’s future cash flows, earnings, results of operations and financial condition.
The movement in the Central Valley waste-rock dump, which began in mid-March 2013, has since decreased to manageable levels. The Company continues to make progress in relocating and reconstructing the affected infrastructure. See “Other Corporate Developments – Kyrgyz Republic”.
Boroo/Gatsuurt
| Boroo Operating Results | ||||||
|---|---|---|---|---|---|---|
| Three months ended | Nine months ended | |||||
| Unaudited ($ millions, except as noted) | September 30, | September 30, | ||||
| 2014 | 2013 | % Change | 2014 | 2013 | % Change | |
| Revenue | 18.8 | 38.2 | (51%) | 54.9 | 113.5 | (52%) |
| Cost of sales-cash | 12.3 | 18.5 | (34%) | 35.7 | 46.2 | (23%) |
| Cost of sales-non-cash | 3.5 | 7.2 | (51%) | 10.5 | 23.3 | (55%) |
| Cost of sales-total | 15.8 | 25.7 | (39%) | 46.2 | 69.5 | (34%) |
| Cost of sales - $/oz sold(1) | 1,071 | 880 | 22% | 1,087 | 878 | 24% |
| Tonnes milled - 000s | 611 | 604 | 1% | 1,617 | 1,800 | (10%) |
| Average mill head grade - g/t | 0.66 | 1.04 | (37%) | 0.66 | 1.23 | (46%) |
| Recovery - % | 61.1% | 58.5% | 4% | 61.2% | 57.5% | 6% |
| Milling costs ($/t milled material) | 9.42 | 9.59 | (2%) | 10.45 | 9.42 | 11% |
| Gold produced – ounces | 15,527 | 23,550 | (34%) | 43,527 | 76,214 | (43%) |
| Gold sold – ounces | 14,722 | 29,242 | (50%) | 42,562 | 79,229 | (46%) |
| Average realized gold price - $/oz(1) | 1,278 | 1,306 | (2%) | 1,289 | 1,432 | (10%) |
| Capital expenditures (sustaining)(1) | - | 2.7 | (100%) | 0.3 | 7.5 | (96%) |
| Operating costs (on a sales basis) (2) | 12.4 | 18.5 | (33%) | 35.7 | 46.2 | (23%) |
| Adjusted operating costs (1) | 13.6 | 19.5 | (30%) | 39.6 | 50.7 | (22%) |
| All-in Sustaining Costs (1) | 13.7 | 22.1 | (38%) | 40.3 | 58.0 | (31%) |
| All-in Costs(1) | 13.7 | 22.1 | (38%) | 40.3 | 58.0 | (31%) |
| All-in Costs - including taxes(1) | 17.0 | 26.0 | (35%) | 43.6 | 70.7 | (38%) |
| Adjusted operating costs - $/oz sold (1) | 916 | 670 | 37% | 929 | 640 | 45% |
| All-in sustaining costs – $/oz sold (1) | 924 | 758 | 22% | 944 | 732 | 29% |
| All-in costs – $/oz sold (1) | 924 | 758 | 22% | 944 | 732 | 29% |
| All-in costs (including taxes) – $/oz sold (1) | 1,148 | 892 | 29% | 1,022 | 892 | 15% |
(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 was 15,527 ounces of gold in the third quarter of 2014 as compared to 23,550 ounces of gold in the same period of 2013. The lower gold production results mainly from processing lower grade ore through the mill as the operation’s stockpiles are being depleted. The stockpiles are expected to be fully depleted in December 2014. Additionally, fewer ounces were produced from the heap leach operation due to leaching lower grade ore, as secondary leaching commenced in August 2014. The heap leach grade averaging 0.52 g/t in the third quarter of 2014, compared to 0.75 g/t from primary leaching in the third quarter of 2013.
Mill grades averaged 0.66 g/t with a recovery of 61.1% in the third quarter of 2014, compared to 1.04 g/t with a recovery of 58.5% in the third quarter of 2013.
Operating costs (on a sales basis) in the third quarter of 2014 were $12.4 million, compared to $18.5 million in the third quarter of the prior year. The reduction reflects lower activity at the project.
All-in sustaining costs per ounce sold1, which excludes income tax, for the third quarter of 2014 increased 22% to $924 from $758 in the comparative period of 2013. The increase results primarily from 50% lower ounces sold in the third quarter of 2014, partially offset by lower operating costs and royalties and lower sustaining capital1 spending.
All-in costs per ounce sold1, including all costs directly related to gold production except income tax, increased 22% to $924 for the third quarter of 2014 compared to $758 for the same period of 2013. The increase in all-in costs1 is primarily due to a 50% fewer ounces sold year-over-year, partially offset by lower operating costs1 and royalties and lower sustaining capital1 spending.
During the quarter, the Company and Boroo’s trade union signed a new 2-year collective agreement which will expire on June 30, 2016.
The Gatsuurt project remained under care and maintenance in the third quarter of 2014 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.
During the third quarter of 2014 exploration expenditures in Mongolia were $1.1 million down from $1.9 million in the same period in 2013. The 2014 exploration expenditures were largely for activities at the Company’s ATO project located in eastern Mongolia.
Exploration Update To view the graphics, maps/drill sections and complete drill results discussed in this news release, visit the following link: http://media3.marketwire.com/docs/cg1029gr1.pdf or visit the Company’s web site at: www.centerragold.com.
Turkey Öksüt
During the third quarter of 2014 a total of 33 diamond drill holes, totaling 8,128 metres, were completed to further explore and in-fill drill the Keltepe and Güneytepe deposits and the Keltepe NW prospect area. Year to date, 10,766 metres in exploration diamond drill holes have been completed, 1,211 metres in seven PQ holes drilled for metallurgical samples, and 1,608 metres in eight drill holes that were drilled to collect geotechnical information which is being used in the ongoing feasibility study.
A focus of this year’s drilling campaign was to test for an extension of the Keltepe deposit to the south and for gold mineralization in the area between the Keltepe and Güneytepe deposits. Seven drill holes were drilled during the quarter along the projected southern limits of the Keltepe open-pit as it was planned in the February-2014 preliminary economic assessment (PEA). Intersections of oxidized gold mineralization obtained in holes ODD0204 and ODD0205, which were drilled in the second quarter, and in hole ODD217 do confirm that the Keltepe gold mineralization extends about 100 metres further south than was previously known.
A total of nine in-fill holes were drilled into the Keltepe and Güneytepe deposits to improve our confidence in the gold resource estimate. Interpreted geology and assay results obtained from these drill holes have confirmed the continuity and grade of mineralization in the tested parts of the deposits where resources were previously identified in the resource block model completed for the PEA.
Some highlights of the 2014 drilling program include:
- ODD0205 (Keltepe extension): 1.75 g/t Au over 26.0 metres
- ODD0217 (Keltepe extension): 1.16 g/t Au over 21.1 metres
- ODD0238 (Keltepe in-fill): 4.73 g/t Au over 21.8 metres
- ODD0216 (Güneytepe in-fill): 1.52 g/t Au over 28.5 metres
True widths of the mineralized zones are from 60 to 90% of the stated interval length.
A complete listing of the drill results and supporting maps for the Öksüt project have been filed on the System for Electronic Document Analysis and Retrieval (‘SEDAR’) at www.sedar.com and are available at the Company’s web site at: www.centerragold.com.
To view the graphics, maps/drill sections and complete drill results discussed in this news release, visit the following link: http://media3.marketwire.com/docs/cg1029gr1.pdf or visit the Company’s web site at: www.centerragold.com.
Qualified Person & QA/QC
Exploration information and related scientific and technical information in this news release regarding the Öksüt project were prepared in accordance with the standards of the Canadian Institute of Mining, Metallurgy and Petroleum and National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”) and were prepared, reviewed, verified and compiled by Centerra’s geological and mining staff under the supervision of Malcolm Stallman, Member of the Australian Institute of Geoscientists (AIG), Centerra’s Regional Exploration Manager – Western Asia and Eastern Europe, who is the qualified person for the purpose of NI 43-101. Sample preparation, analytical techniques, laboratories used and quality assurancequality control protocols used during the exploration drilling programs are done consistent with industry standards and independent certified assay labs are used.
The production information and related scientific and technical information in this news release, including the production estimates were prepared in accordance with the standards of the Canadian Institute of Mining, Metallurgy and Petroleum and National Instrument 43-101 and were prepared, reviewed, verified and compiled by Centerra’s geological and mining staff under the supervision of Gordon Reid, Professional Engineer and Centerra’s Vice-President and Chief Operating Officer, who is the qualified person for the purpose of NI 43-101. Mr. Reid will supervise the preparation, review, verification and compilation of such information as the qualified person following the departure of Mr. Dan Redmond from the Company and until Mr. Redmond’s replacement develops sufficient knowledge and familiarity with the Company’s projects to take on such responsibility.
Other Corporate Developments
The following is a summary of corporate developments with respect to matters affecting the Company and its subsidiaries in the Kyrgyz Republic and Mongolia. For a more complete discussion of these matters, see the Company’s 2013 Annual Information Form available on SEDAR at www.sedar.com.
Readers are cautioned that there are a number of legal and regulatory matters that are currently affecting the Company and that the following brief description is only a summary of the current status of such matters. For more complete background and information on these matters, including with respect to the Kyrgyz