Centerra Gold Achieves 2017 Consolidated Gold Production Guidance, Beats Cost Guidance, Records $210 Million Net Earnings and Generates $234 Million Free Cash FlowNG and Provides 2018 Outlook
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NEWS RELEASE
Centerra Gold Achieves 2017 Consolidated Gold Production Guidance, Beats Cost
Guidance, Records $210 Million Net Earnings and Generates $234 Million Free Cash
FlowNG and Provides 2018 Outlook
This news release contains forward-looking information that is subject to the risk factors and assumptions set out
under “Caution Regarding Forward-looking Information”. It should be read in conjunction with the Company’s
audited financial statements and the notes thereto for the year ended December 31, 2017. The consolidated financial
statements of Centerra Gold Inc. are prepared in accordance with International Financial Reporting Standards as
issued by the International Accounting Standards Board. All figures are in United States dollars and all production
figures are on a 100% basis unless otherwise stated.
All references in this document denoted with NG, indicate a non-GAAP term which is discussed
under “Non-GAAP Measures” and reconciled to the most directly comparable GAAP measure.
Toronto, Canada, February 23, 2018: Centerra Gold Inc. (“Centerra”) (TSX: CG) today reported net
earnings of $130.0 million or $0.45 per common share (basic) on revenues of $358.2 million in the fourth
quarter of 2017. The fourth quarter 2017 result includes a tax benefit of $21.3 million as a result of a change
in tax legislation enacted in the U.S. Excluding this item, adjusted earningsNG in the fourth quarter of 2017
were $108.7 million or $0.37 per common share (basic). During the same period in 2016, the Company
reported net earnings of $63.6 million or $0.23 per common share (basic) on revenues of $305.7 million
and adjusted earningsNG of $68.6 million or $0.24 per common share (basic).
For the full year 2017, the Company recorded net earnings of $209.5 million or $0.72 per share (basic) on
revenues of $1.2 billion compared to $151.5 million or $0.60 per share (basic) on revenues of $757.7 million
in 2016. The increase in earnings in 2017 reflects a full-year of operations at Mount Milligan and increased
production at Kumtor. In addition in 2017, the Company recorded charges for a settlement reached with
the Kyrgyz Republic Government of $60 million, an impairment charge of the Company’s Mongolian assets
of $41.3 million ($39.7 million net of tax), a tax benefit of $21.3 million resulting from the enactment of
new tax legislation in the U.S. and a gain of $9.8 million ($6.9 million net of tax) on the sale of the ATO
property in Mongolia. Excluding these items, adjusted earningsNG in 2017 were $281 million or $0.96 per
share (basic) compared to adjusted earnings of $160.9 million or $0.64 per share (basic) in the comparative
year.
2017 Fourth Quarter and Full Year Highlights
• Entered into a comprehensive settlement agreement in September 2017 with the Government of the
Kyrgyz Republic to resolve all the outstanding matters affecting the Kumtor Project.
• Announced a friendly acquisition of AuRico Metals Inc. on November 7, 2017, which closed on
January 8, 2018.
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• Offset 2017 mining depletion and increased global gold mineral reserves to 16.3 million contained
ounces of gold (746.8 Mt at 0.7 g/t gold) at year -end, primarily as a result of the acquisition of
AuRico Metals and successful brownfield exploration at Mount Milligan and Öksüt. Mineral
reserves and mineral resources estimates are described in the Company’s news release of February
8, 2018.
• Achieved Company- wide 2017 gold production gui dance producing 785,316 ounces; Kumtor
produced 562,749 ounces exceeding the upper end of its favourably revised guidance, while Mount
Milligan produced 222,567 ounces falling short of the lower end of its revised guidance.
• Mount Milligan produced 53.6 million pounds of copper during 2017, which was slightly below its
guidance, but sold 59.7 million pounds of copper. The Mount Milligan mill was shutdown
temporarily late December due to a shortage of water in the milling process. The mill was restarted
utilizing one ball mill (approximately 30,000 tonnes per day) on February 5, 2018 once sufficient
water became available.
• Exceeded Company-wide 2017 guidance for all-in sustaining costs on a by-product basis per ounce
soldNG at $688, excluding revenue -based tax in the Kyrgyz Republic and income tax ($572 per
ounce sold in the fourth quarter 2017).
• Cash generated from operations totaled $500.9 million for the year (including $416.1 million from
Kumtor and $150.6 million from Mount Milligan). In the fourth quarter 2017 cash generated from
operations was $170.4 million (including $160 million from Kumtor and $29.2 million from Mount
Milligan).
• Cash, cash equivalents, restricted cash and short -term investments at December 31, 2017 were
$416.6 million.
• Received all of the necessary permits and approvals for Kumtor’s 2018 mine plan. The approvals
and permits are valid through December 31, 2018.
Subsequent to December 31, 2017
• Received approval of the pastureland permit for the Öksüt Gold Project in Turkey, the last
remaining outstanding permit needed for the project’s future development. In addition, received
from the Turkish Ministry of Economy an investment incentive certificate which provides Öksüt
with certain tax incentives.
• Received Board approval for the construction of the Öksüt Project, subject to continued availability
of the OMAS Facility (defined below). Construction is expected to commence in April 2018.
• Received an amendment to the Mount Milligan Environmental Assessment Certificate that allows
for limited withdrawal of water from Philip Lake until October 2018. The Company expects to
commence drawing water by the end of February and to carry out the necessary studies, and to
consult with affected First Nations groups to work toward a further, longer-term amendment to the
Environmental Assessment Certificate.
• On February 1, 2018, entered into a $500 million, four-year senior secured revolving credit facility
with a lending syndicate of eight financial institutions as lenders, led by The Bank of Nova Scotia
and National Bank of Canada. This facility amended and restated the Centerra B.C. Facility which
had an outstanding amount of $190 million and replaced the $125 million AuRico Acquisition
Facility which was fully drawn. See “Liquidity – Credit Facilities”.
Commentary
Scott Perry, President and Chief Executive Officer of Centerra stated, “I am pleased to report that we met
our overall gold production guidance producing 785,316 ounces at an all-in sustaining costNG on a by-
product basis of $688 per ounce sold, beating the low-end of our all-in-sustaining cost guidance for the
year. Kumtor had another strong year exceeding its revised production guidance and beating its all-in-
sustaining cost guidance, delivering 562,749 ounces of gold production at all-in-sustaining cost on a by-
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product basis of $698 per ounce sold in 2017. In 2017, Mount Milligan met its all-in-sustaining cost
guidance at all-in-sustaining cost on a by-product basis of $505 per ounce sold but fell short of its gold and
copper production producing 222,567 ounces of gold and 53.6 million pounds of copper.”
“Financially, both operations generated a significant amount of cash provided by operations before changes
in working capitalNG during the year, Mount Milligan generated $138.6 million and Kumtor generated
$424.3 million. The lifting of the restrictions on Kumtor’s cash along with the positive cash flow generated
from both our operations during the year enabled the Company to aggressively pay down its debt by
approximately $209 million. In 2017, we generated $188 million of free cash flowNG from Kumtor and
$127.4 million from Mount Milligan.”
“For 2018, we are estimating consolidated gold production to be in the range of 645,000 to 715,000 ounces.
Additionally, we are expecting 47 million to 52 million pounds of payable copper production from Mount
Milligan for the year. At Kumtor, we are expecting gold production to be weighted more towards the back-
half of the year with approximately 45% of the production expected in the fourth quarter of 2018. At Mount
Milligan we expect 60% of the production to be in the second half of the year. Centerra’s projected
consolidated all-in sustaining cost per ounce soldNG on a by-product basis for 2018 is expected to be in the
range of $799 to $885 per ounce.”
“Our projected capital expenditures for 2018, excluding capitalized stripping, is estimated to be $242
million which includes $100 million of sustaining capitalNG and $142 million of growth capitalNG spending.
Growth capital spending includes $82 million for the Öksüt Project in Turkey where we expect to
commence construction activity in April and $36 million to advance the Kemess Underground Project with
pre-construction activities. Öksüt represents the new generation of low-cost production and an important
third source of cash flow for the Company.” See “2018 Outlook” for further details.
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This Management Discussion and Analysis (“MD&A”) has been prepared as of February 22, 2018, and is
intended to provide a review of the financial position and results of operations of Centerra Gold Inc.
(“Centerra” or the “Company”) for the three and twelve months ended December 31, 2017 in comparison with
the corresponding periods ended December 31, 2016. This discussion should be read in conjunction with the
Company’s audited financial statements and the notes thereto for the year ended December 31, 2017 prepared
in accordance with International Financial Reporting Standards (“IFRS”). In addition, this discussion contains
forward-looking information regarding Centerra’s business and operations. Such forward-looking statements
involve risks, uncertainties and other factors that could cause actual results to differ materially from those
expressed or implied by such forward looking statements. See “Risk Factors” and “Caution Regarding
Forward-Looking Information” in this discussion. All dollar amounts are expressed in United States dollars
(“USD”), except as otherwise indicated. Additional information about Centerra, including the Company’s most
recently filed Annual Information Form, is available at www.centerragold.com and on the System for Electronic
Document Analysis and Retrieval (“SEDAR”) at www.sedar.com.
Overview
Centerra is a Canadian -based gold mining company focused on operating, developing, exploring and
acquiring gold properties worldwide and is one of the largest Western-based gold producers in Central Asia.
Centerra’s principal operations are the Kumtor Gold Mine located in the Kyrgyz Republic and the Mount
Milligan Gold-Copper Mine located in British Columbia, Canada.
Centerra’s common shares are listed for trading on the Toronto Stock Exchange under the symbol CG. As
of February 22, 2018, there are 291,785,970 common shares issued and outstanding and options to acquire
4,816,297 common shares outstanding under its stock option plan.
As of December 31, 2017, Centerra’s significant subsidiaries are as follows:
Property
Current Ownership
Entity Property - Location Status 2017 2016
Kumtor Gold Company (“KGC”)
Kumtor Mine - Kyrgyz
Republic Operation 100% 100%
Thompson Creek Metals Company Inc. Mount Milligan Mine -
Canada
Operation 100% 100%
Langeloth Metallurgical Company LLC
(Molydbenum Processing Plant)
Langeloth - United States Operation 100% 100%
Boroo Gold LLC ("BGC") Boroo Mine - Mongolia Stand-by 100% 100%
Centerra Gold Mongolia LLC Gatsuurt Project - Mongolia Pre-Development
100% 100%
Öksüt Madencilik A.S. (“OMAS”) Öksüt Project - Turkey Pre-Development 100% 100%
Greenstone Gold Mines LP
Greenstone Gold Property -
Canada Pre-development 50% 50%
Thompson Creek Mining Co. Thompson Creek Mine -
United States
Care and
Maintenance
100% 100%
Thompson Creek Metals Company Inc. Endako Mine - Canada
Care and
Maintenance 75% 75%
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On January 8, 2018, the Company completed the acquisition of AuRi co Metals Inc. (“AMI”), thereby
acquiring AMI’s Kemess Underground and Kemess East properties as well as a royalty portfolio which
includes a 1.5% net smelter return (“NSR”) royalty on the Young -Davidson gold mine in Ontario and a
2.0% NSR royalty on the Fosterville mine in Australia. See “Subsequent to December 31, 2017” for further
information.
As at December 31, 2017, the Company has also entered into agreements to earn an interest in joint venture
exploration properties located in Mexico, Sweden and Nicaragua. In addition, the Company has exploration
properties in Armenia, Canada and Turkey.
Substantially all of Centerra’s revenues are derived from the sale of gold and copper. The Company’s
revenues are derived from gold and gold/copper concentrate production from its mines and gold and copper
prices realized upon the sale of these products. Gold doré production from the Kumtor mine is purchased
by Kyrgyzaltyn JSC (“Kyrgyzaltyn”), a Kyrgyz Republic state owned refinery and significant shareholder
of Centerra, for processing at its refinery in the Kyrgyz Republic wh ile gold and copper concentrate
produced by the Mount Milligan mine in Canada is sold to various smelters and off-take purchasers.
The Mount Milligan Mine in Canada is subject to a streaming arrangement whereby RGLD Gold AG and
Royal Gold Inc. (collecti vely “Royal Gold”) is entitled to purchase 35% of the gold and 18.75% of the
copper produced from the Mount Milligan Mine for $435 per ounce of gold delivered and 15% of the spot
price per metric tonne of copper delivered (the “Mount Milligan Streaming Arrangement”).
The Company’s costs are comprised primarily of operating costs at the Kumtor and Mount Milligan mines
and the Langeloth molybdenum processing facility , project development costs at the Öksüt Gold Project
and the Greenstone Gold Property, closure and holding costs of the Boroo Mine (a majority of the Boroo
infrastructure is on stand-by pending progress on the Gatsuurt Gold Project), care and maintenance costs at
the Company’s molybdenum mines (Endako Mine a nd Thompson Creek Mine), exploration expenses
relating to the Company’s own projects and its earn-in projects, administrative costs from offices worldwide
and depreciation, depletion and amortization (“DD&A”).
There are many operating variables that affect the cost of producing an ounce of gold and a pound of copper.
In the mine, unit costs are influenced by the ore grade and the stripping ratio. The stripping ratio is the ratio
of the tonnage of waste material which must be removed per tonne of ore mined. Ore grade refers to the
amount of gold and/or copper contained in a tonne of ore. The significant costs of mining include labour,
diesel fuel and equipment maintenance.
At the mill, costs are impacted by the ore grade and the metallurgical characteristics of the ore, which can
impact gold and copper recovery. For example, a higher grade ore would typically result in a lower unit
production cost. The significant costs of milling are labour, energy, grinding media, reagents, consumables
and mill maintenance.
Mining and milling costs are also affected by the cost of labour, which depends mostly on the availability
of qualified personnel in the region where the operations are located, the wages in those markets, and the
number of people required. Mining and milling activities involve the use of many materials. The varying
costs of acquiring these materials and the amount used in the processing of the ore also influence the cash
costs of mining and milling. The non-cash costs (namely DD&A) are influenced by the amount of capital
costs related to the mine’s acquisition, development and ongoing capital requirements and the estimated
useful lives of capital items.
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In Figure A, the Company’s 2017 production costsNG at its two operating mines totaled $551 million, which
includes a full year of production at Mount Milligan. Production costs at Kumtor were 3% lower than 2016
($332 million in 2017 compared to $343 million in 2016). The reduction reflects the impact of lower input
prices (mainly for consumables) and the varying levels of production in both years. These impacts on costs
are discussed in the operational sections of this MD&A. There is no comparable data for Mount Milligan
as the Company acquired the asset on October 20, 2016.
Over the life of each mine, another significant cost that must be planned for is the closure, reclamation and
decommissioning of each operating site. In accordance with standard practices for international mining
companies, Centerra carries out remediation and reclamation work during the operating period of the mine,
where feasible, in order to reduce the final decommissioning costs. Nevertheless, the majority of
rehabilitation work can only be performed following the completion of m ining operations. Centerra’s
practice is to record the estimated final decommissioning costs based on conceptual closure plans, and to
accrue these costs according to the principles of IFRS. Kumtor has established a reclamation trust fund to
pay for these costs (net of forecast salvage value of assets) from the revenues generated over the life of
mine. At Boroo, 50% of the upcoming year’s annual environmental budget is deposited by Boroo into a
government account and such funds are recovered by Boroo during the mine closure phase after completion
of the annual environmental commitments. As required by Canadian provincial laws and US federal and
state laws, the Company has provided reclamation bonds for mine closure obligations at its Canadian and
U.S. sites, including the Mount Milligan Mine.
The Company reports the results of its operations in U.S. dollars, however not all of its costs are incurred
in U.S. dollars. As such, the movement in exchange rates between currencies in which the Company incurs
costs and the U.S. dollar also impact reported costs of the Company.
Figure A
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Economic Indicators
Gold Price
The average quarterly gold spot price of $1,275
in the fourth quarter was in- line with the 2017
quarterly high of $1,278 reached in third quarter.
The average gold spot price for 2017 was $1,258
per ounce, an increase of 1% over the average in
2016.
Copper Price
The average quarterly copper spot price increased in the
fourth quarter to $3.09 per pound, the highest quarterly
average of 2017, from $2.88 per pound in the third
quarter. The average copper spot price for 2017 was
$2.80 per pound, an increase of 27% over the average
in 2016.
Currency
Canadian dollar Kyrgyz Som
Canadian Dollar
The Canadian dollar, despite starting the year under pressure, and facing the prospects of a widening rate
disadvantage with the U.S., saw a 7% gain against the U .S. dollar during 2017 (1.34 to 1.25). With the
exception of the U .S. dollar , the Canadian dollar underperformed against other major currencies. In
Canada, the Bank of Canada raised its overnight rate twice, from 0.5% to 1%, and suggested it is beginning
Figure B Figure C
Figure D
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a tightening phase although it continues to be cautious on concerns surrounding ongoing NAFTA
negotiations. The Canadian dollar is highly exposed to fluctuations in crude oil prices due to the country’s
status as a major exporter of oil. Energy prices are predicted to remain strong in the short term and interest
rates to increase through 2018, which may help prevent potential depreciation of the Canadian dollar.
Kyrgyz Som
The Kyrgyz Som to U.S. dollar exchange rate appreciated 1% over 2017. The Som continues to be
influenced by the strengthening of currencies of the Kyrgyz Republic’s main trading partners, mainly
Russia, and by economic growth in the Kyrgyz Republic . In 2017, the Russian Ruble and Kazak Tenge,
strengthened against the U.S. dollar by 5% and 2%, respectively. The strengthening in the Russian ruble
reflects higher oil prices and Russia’s improving economic situation. Independent of the performance of
the Kyrgyz Republic’s main trading partners, economic growth in the Kyrgyz Republic in 2017 can be
attributed to increases in gold mining, manufacturing, electricity generation and construction.
Foreign Exchange Transactions
The Company receives its revenues through the sale of gold, copper and molybdenum in U.S. dollars. The
Company has operations in Canada, where the Mount Milligan Mine and its corporate head office are also
located, the Kyrgyz Republic, Turkey, Mongolia and the United States of America. During 2017, the
Company incurred combined expenditures (including capital) totalling approximately $1,066
million. Approximately $567 million of this ( 53%) was in currencies other than the U.S. dollar (Figure
F). The percentage of Centerra’s non-U.S. dollar costs, by currency was, on average, as follows:
In 2017, Centerra’s non -U.S. dollar
costs were incurred 51% in Canadian
dollars, 40% in Kyrgyz soms, 5% in
Euros, 2% in Mongolian tugrik and
1% in Turkish lira. The average value
of the Turkish lira depreciated against
the U.S. dollar over the year by
approximately 3% from its value at
December 31, 2016. The Euro,
Canadian dollar, Mongolian tugrik
and Kyrgyz som appreciated against
the U.S. dollar by approximately 7%,
3%, 2%, and 1%, respectively, from
their value at December 31, 2016.
The net impact of these movements in the year ended December 31, 2017, after taking into account
currencies held at the beginning of the year, was to increase annual costs b y $9.1 million (increase of $16
million in the year ended December 31, 2016), inclusive of a foreign exchange gain on Canadian dollars
acquired in the fourth quarter of 2017 due to the anticipated closing of the acquisition of AMI in January
2018 ($3.0 million) and currency derivative gain of $1.2 million (nil for the year ended December 31, 2016).
Diesel Fuel Prices
One of the most significant movements in commodity prices in 2017 was the continued strengthening of
oil prices.
Figure F