Centerra Gold Records $108 Million Net Earnings and Generates $217 Million Cash from Operations and Exceeds 2018 Consolidated Gold Production and Cost Guidance
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NEWS RELEASE
Centerra Gold Records $108 Million Net Earnings and Generates $217 Million Cash from
Operations and Exceeds 2018 Consolidated Gold Production and Cost Guidance
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, 2018. 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 22, 2019: Centerra Gold Inc. (“Centerra”) (TSX: CG) today reported fourth
quarter 2018 net earnings of $49.0 million or $0.17 per common share (basic) on revenues of $391.5
million, including a charge of $41.8 million ($0.14 per share) in reclamation expenses mainly at the
Thompson Creek Mine which is currently on care and maintenance. During the same period in 2017, the
Company reported net earnings of $130.0 million or $0.45 per common share (basic) on revenues of $358.2
million, including a tax benefit of $21.3 million as a result of a change in tax legislation enacted in the U.S.
Adjusted earningsNG in the fourth quarter of 2018 were $49.0 million or $0.17 per common share (basic)
compared to $108.7 million or $0.37 per common share (basic), which excludes the tax benefit, in the same
period of 2017.
For the full year 2018, the Company recorded net earnings of $107.5 million or $0.37 per share (basic) on
revenues of $1.1 billion compared to $209.5 million or $0.72 per share (basic) on revenues of $1.2 billion
in 2017. The decrease in earnings in 2018 reflect the impact from Mount Milligan operating at reduced
capacity for a portion of the year due to a shortage of water resources, slightly lower gold production at
Kumtor and a charge of $40.4 million in reclamation expenses as compared to the prior year. In 2018, the
Company recorded a gain of $28.0 million on the sale of the gold royalty portfolio, $9.4 million gain on
receipt of proceeds from the sale of the ATO property, partially offset by an asset impairment of $8.4
million related to the sale of the Mongolian business unit and $4.4 million of costs incurred as part of the
acquisition of AuRico Metals Inc. in January 2018. Excluding these items, adjusted earningsNG in 2018
were $77.8 million or $0.27 per share (basic). The 2017 net earnings include charges for a settlement
reached with the Kyrgyz Republic Government of $60 million, an impairment charge relating to the
Company’s Mongolian assets of $41.3 million ($39.7 million net of tax), a tax benefit of $21.3 million due
to new tax legislation enacted in the United States, 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).
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2018 Fourth Quarter and Full Year Highlights
• Exceeded Company-wide 2018 gold production guidance producing 729,556 ounces; Kumtor
produced 534,563 ounces exceeding the upper end of its favourably revised guidance, while Mount
Milligan produced 194,993 ounces achieving the upper end of its revised gold production guidance.
• Mount Milligan produced 47.1 million pounds of copper during 2018, which was at the upper end
of the revised guidance despite the mill being temporarily shutdown until early February and
operating at a reduced capacity as it ramped up, and operating at a reduced rate in the fourth quarter
due to a shortage of water resources in the milling process.
• Cash generated from operations totalled $217.5 million for the year (including $291.0 million from
Kumtor and $37.4 million from Mount Milligan). In the fourth quarter 2018 cash generated from
operations was $151.6 million (including $149.6 million from Kumtor and $39.3 million from
Mount Milligan).
• Outperformed the low-end of Company-wide 2018 guidance for all-in sustaining costs on a by-
product basis per ounce soldNG at $754, excluding revenue-based tax in the Kyrgyz Republic and
income tax ($576 per ounce sold in the fourth quarter 2018).
• Proven and probable gold mineral reserves total an estimated 14.2 million ounces of contained gold
(706.3 Mt at 0.6 g/t gold) at year-end, reflecting 2018 mining depletion and the impact of the sale
of the Company’s Mongolian business unit.
• Proven and probable copper mineral reserves total an estimated 2,465 million pounds of contained
copper (555 Mt at 0.202% copper) at year-end, reflecting 2018 mining depletion and the impact of
geological model changes.
• Closed the AuRico Metals Inc. acquisition on January 8, 2018 and added the Kemess Project to the
Company’s pipeline of projects.
• Started construction of the Öksüt Project in Turkey late-March, after receiving the pastureland
permit, investment incentive certificate and Board approval. Construction was 38% complete at
the end of 2018.
• 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, replacing prior facilities. See
“Liquidity – Credit Facilities”.
• Sold the Company’s gold royalty portfolio on June 27, 2018 for $155 million, recognizing a gain
of $28.0 million.
• Sold a silver stream on the Kemess Project on June 27, 2018 for $45 million with first of four
stream payments to be received when a construction decision is made by the Board.
• Completed the sale of the Company’s Mongolian business unit on October 11, 2018 for net
proceeds of $35 million.
• Received the final permit to allow construction of the Kemess Project on July 6, 2018, although a
construction decision has not yet been made by the Board.
• Repaid net $105 million in 2018 on the Company’s credit facilities.
• Cash, cash equivalents, restricted cash and short-term investments at December 31, 2018 were
$179.2 million.
Subsequent to December 31, 2018
• Extended long-stop date in connection with the Strategic Agreement with the Government of the
Kyrgyz Republic to May 31, 2019.
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Commentary
Scott Perry, President and Chief Executive Officer of Centerra stated, “As a result of the strong fourth
quarter operating performance at both operations, the Company exceeded its overall 2018 production and
cost guidance producing 729,556 ounces of gold at an all-in sustaining costNG on a by-product basis of $754
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 534,563 ounces of gold production at an all-in-sustaining cost on a by-product basis of $694 per
ounce sold. In 2018, Mount Milligan achieved the upper end of both its gold and copper production
guidance, producing 194,993 ounces of gold and 47.1 million pounds of copper and beat its all-in-sustaining
cost guidance at all-in-sustaining cost on a by-product basis of $764 per ounce sold.
“Financially, the Company generated $336.6 million of cash from operations before changes in working
capitalNG for the year, with both operations generating a meaningful amount of cash from operations before
changes in working capitalNG, Mount Milligan generated $63.1 million and Kumtor generated $345.0
million. In 2018, Kumtor generated $128 million of free cash flowNG and Mount Milligan generated $2.5
million which enabled the Company to aggressively pay down its debt in the fourth quarter by
approximately $139 million ($105 million over the 2018 year) ending the year with net debt of $46.0 million
(excluding restricted cash).”
“For 2019, we are estimating consolidated gold production to be in the range of 690,000 to 740,000 ounces
and 65 million to 75 million pounds of payable copper production from Mount Milligan. The guidance
assumes reduced mill throughput in the first quarter of 2019 at Mount Milligan to properly manage its water
balance until the spring melt runoff. Gold production at Kumtor is expected to be evenly weighted for the
first three quarters of the year with the fourth quarter representing approximately 28% of the full year’s
production forecast. Centerra’s projected consolidated all-in sustaining cost per ounce soldNG net of copper
by-product for 2019 is expected to be in the range of $723 to $775 per ounce.”
“Our projected capital expenditures for 2019, excluding capitalized stripping, is estimated to be $275
million which includes $91 million of sustaining capitalNG and $184 million of growth capitalNG spending.
Growth capital spending includes $123 million at the Öksüt Project in Turkey as we complete the
construction of our next gold mine with an expected first gold pour to be in the first quarter of 2020, $26
million at the Kemess Underground Project and $21 million at the Greenstone Gold Property on pre-
construction activities.” See “2019 Outlook” for further details.
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This Management Discussion and Analysis (“MD&A”) has been prepared as of February 22, 2019, 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, 2018 in comparison with
the corresponding periods ended December 31, 2017. This discussion should be read in conjunction with the
Company’s audited financial statements and the notes thereto for the year ended December 31, 2018 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. The Company is currently constructing
its next gold mine, the Öksüt Project in Turkey and has two promising development properties in Canada
as well as exploration joint ventures or properties in Canada, Finland, Mexico, Sweden, Turkey and the
United States.
Centerra’s common shares are listed for trading on the Toronto Stock Exchange under the symbol CG. As
of February 22, 2019, there are 292,123,716 common shares issued and outstanding and options to acquire
4,981,701 common shares outstanding under its stock option plan.
As of December 31, 2018, Centerra’s significant subsidiaries are as follows:
Property
Current Ownership
Entity Property - Location Status 2018 2017
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
(Molybdenum Processing Plant)
Langeloth - United States Operation 100% 100%
Öksüt Madencilik A.S. (“OMAS”) Öksüt Project - Turkey Development 100% 100%
AuRico Metals Inc Kemess Project - Canada
Pre-
development 100% 0%
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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As at December 31, 2018, the Company has also entered into agreements to earn an interest in joint venture
exploration properties located in Canada, Mexico and Finland. In addition, the Company has exploration
properties in Canada, Turkey and the United States and has strategic alliance agreements with partners to
evaluate potential gold opportunities in West Africa and Sweden.
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 while 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. (collectively “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,
the Kemess Project and the Greenstone Gold Property, care and maintenance costs at the Company’s
molybdenum mines (Endako Mine and 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.
The Company’s 2018 production costsNG at its two operating mines totaled $598 million compared to $592
million in 2017. Production costs at Kumtor were 2.2% higher than 2017 ($368 million in 2018 compared
to $360 million in 2017). The increase reflects the impact of higher mining costs, especially for diesel fuel
(higher input prices and consumption). At Mount Milligan, production costs in 2018 were $230 million,
similar to 2017, reflecting higher labour and environmental consulting costs, offset by lower drill and blast
costs.
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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. N evertheless, the majority of
rehabilitation work can only be performed following the completion of mining 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 from the revenues generated over the life of the mine. 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.
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.
Economic Indicators
Gold Price
The average quarterly gold spot price of $1,229 in the fourth quarter of 2018 was slightly above the
quarterly average low point of $1,213 reached in the third quarter of 2018. The average gold spot price for
2018 was $1,269 per ounce, an increase of 1% over the average in 2017.
Copper Price
The average quarterly copper spot price dropped in the fourth quarter of 2018 to $2.80 per pound, a 11%
decrease compared to the high of $3.16 per pound reached in the first quarter of the year. The average
copper spot price for 2018 was $2.96 per pound, an increase of 6% over the average in 2017.
Currency
Figure A
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Canadian Dollar
The Canadian Dollar (C$) exhibited a sustained downward trend in 2018, depreciating 8.5% relative to the
U.S. Dollar and reaching C$1.36 per U.S. Dollar in December 2018 (December 31, 2017 C$1.26 per U.S.
Dollar).
Kyrgyz Som
The Kyrgyz Som to U.S. Dollar exchange rate depreciated 1% over 2018. The Som value is driven by the
economic growth and inflation expectations in the Kyrgyz Republic and influenced by the currencies of its
main trading partners, mainly Russia and Kazakhstan.
Turkish Lira
The Turkish Lira (“TRY”) depreciated markedly in 2018, closing on December 31, 2018 at 5.29 per U.S.
Dollar from 3.8 at December 31, 2017 (a deprecation of 39%). Following the United States’ announcement
of doubling tariffs on Turkish steel and aluminum, the USD-TRY rate increased to 7.24 on August 13,
2018, the highest level in the last 30 years, and subsequently decreased prior to the end of the year.
Foreign Exchange Transactions
The Company generates its revenues through the sale of gold, copper and molybdenum in U.S. Dollars. The
Company has significant operations in Canada (including its corporate head office), the Kyrgyz Republic,
Turkey and the United States. During 2018, the Company incurred combined expenditures (including
capital) of approximately $1,768 million. Approximately $624 million of this (35%) was in currencies
other than the U.S. dollar. The percentage of Centerra’s non-U.S. Dollar costs by currency was as follows:
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In 2018, Centerra’s non-U.S. dollar costs consisted
of 52% Canadian Dollars, 40% Kyrgyz Soms, 4%
Euros, 1% Mongolian Tugrik, 1% British Pound,
and 2% Turkish Lira. The net impact of the
currency movements in the year ended December
31, 2018, after factoring in the balances in non-
USD currencies held at the beginning of the year,
was to decrease annual costs by $14.5 million
(increase of $9.1 million in the year ended
December 31, 2017), inclusive of the currency
hedging cost of $0.3 million ($1.2 million gain for
the year ended December 31, 2017).
Diesel Fuel Prices
One of the more significant movements in commodity prices in 2018 was the decline in the West Texas
Intermediate (“WTI”) and Brent crude oil prices in the last quarter of the year.
According to the U.S. Energy Information Administration, Brent crude oil prices averaged $71/bbl in 2018,
ending the year at $54/bbl (a decrease of $13/bbl from the end of 2017). WTI crude oil prices averaged
$65/bbl in 2018, ending the year at $45/bbl (a decrease of $15/bbl from December 31, 2017).
Fuel costs represent a significant cost component for Centerra’s mining operations. Prices for Kumtor diesel
fuel in 2018 generally reflected the price movements of Brent crude oil. The purchase price for diesel fuel
for Kumtor in 2018 increased 26% when compared to 2017, averaging $0.53/l for the year. Kumtor sources
its fuel from Russia either directly or through Kyrgyz distributors. Kumtor’s diesel prices include additional
costs such as seasonal premiums for winterizing the diesel fuel and transportation costs from the Russian
refineries. The increase in price was partially offset by the Company’s diesel hedging program, which offset
costs with a $2.2 million gain in 2018.
To manage its exposure to fluctuations in diesel fuel prices, the Company has established a diesel fuel price
hedge program. See “Financial Instruments – Fuel Hedges”.
Liquidity
Financial liquidity provides the Company with the ability to fund future operating activities and
investments. The Company’s financial risk management policy focuses on cash preservation, while
maintaining the liquidity necessary to conduct operations on a day-to-day basis and advance the Company’s
pre-development and development projects. The Company manages counterparty credit risk, in respect of
cash and short-term investments, by maintaining bank accounts with highly-rated U.S. and Canadian banks
and investing only in highly-rated Canadian and U.S. Government bills, term deposits or banker’s
acceptances with highly-rated financial institutions, and corporate direct credit of highly-rated, highly-
liquid issuers.
Figure B