Centerra Gold Reports Second Quarter Results, (This news release contains forward-looking informa tion that is subject to the risk factors and assump tions set out on page 22 and in our Cautionary Note Regar ding Forward-looking Information on page 30. It
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 22 and in our Cautionary Note Regarding Forward-looking Information on page 30. 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, 2012 and June 30, 2011 and the 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, 2011. 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, 2012, please visit the following link:
http://media3.marketwire.com/docs/CG2012FSMDAQ2.pdf
Toronto, Canada, August 1, 2012: Centerra Gold Inc. (TSX: CG) today reported a net loss of $54.6 million, or $0.23 per share based on revenues of $89.7 million. The second quarter loss includes $13.5 million ($0.06 per share) of abnormal mining costs, an other operating expense of $21.0 million ($0.09 per share) for Kumtor’s contribution to a national micro-credit financing program in the Kyrgyz Republic in April and a charge of $7.2 million ($0.03 per share) for a gold metal reconciliation adjustment of the stockpiles at Kumtor. For the same period in 2011, the Company recorded net earnings of $71.1 million or $0.30 per common share based on revenues of $243.8 million in the same quarter last year reflecting significantly higher gold production and sales.
Consolidated gold production for the second quarter of 2012 totaled 52,482 ounces at a total cash cost of $885 per ounce produced reflecting lower gold production as a result of the revised mine plan at Kumtor. In the corresponding quarter of 2011, consolidated gold production was 155,166 ounces at a total cash cost of $513 per ounce produced. (Total cash cost per ounce produced is a non-GAAP measure and is discussed under “Non-GAAP Measures” in this news release.)
Commentary
Ian Atkinson, President and CEO of Centerra Gold stated, “As expected, our gold production was down for the second quarter. While Kumtor continues with its mitigation plan of moving the ice and waste material to allow access to the SB Zone on the southeast side of the pit, we continue the prestripping in the southwest portion of the pit and are on track to be in ore by mid-September. We expect to achieve our annual production guidance of 450,000 to 470,000 ounces of gold.”
1 University Avenue, Suite 1500 Toronto, ON M5J 2P1 tel 416-204-1953 fax 416-204-1954 www.centerragold.com “At Kumtor, the technical and financial study of the potential for expanding the limits of the ultimate pit is continuing. However, the work done to date has produced very encouraging results and indicates that a much larger open pit is feasible, which would result in a significant addition to the open pit reserves and a substantially extended mine life. The opportunity was created by the expansion of reserves and resources in the SB Zone over the last three years, in conjunction with the decision made in March to mitigate the impact of the high movement area by offloading the upper portion of the southeast section of the pit wall.”
“The expanded pit would also encompass a significant part of the existing SB underground development and would result in a revaluation of the associated capital investment. Further development work on Decline 1 has been postponed until the study is finalized. The expanded pit may require removal of additional ice and waste material that may have an impact on the short-term (2013-2014) production and financial estimates previously disclosed on May 15, 2012. Significant technical, financial and permitting factors require further study. We expect to complete the study and release its conclusions late in the third quarter.”
“Unfortunately for all shareholders, Centerra’s share price has been negatively impacted by the recent developments in the Kyrgyz Republic. We believe that the Kyrgyz Parliamentary Commission’s report regarding the Kumtor gold project released on June 18, 2012, and its findings are without merit. We believe that Kumtor has operated in full compliance with Kyrgyz laws and meets or exceeds Kyrgyz and international environmental, safety and health standards. This has been shown over the years in systematic compliance audits by both Kyrgyz and international independent experts, who have confirmed Centerra’s high level of performance. We also believe that the new agreements we signed in 2009 form a solid foundation for the successful operation of the Kumtor project. The new agreements were approved by all relevant Kyrgyz governmental authorities, including the Kyrgyz Parliament and the Constitutional Court, and all disputes in relation to the new agreements are subject to international arbitration. In response to the Parliamentary report and resolution relating to Kumtor, the Government established a State Commission to examine the parliamentary report and its conclusions, and to initiate revisions to the new agreements that may impact the relevant concession area, tax regime, local operating company management structure and other matters. The Company will work with the State Commission and Government to address the environmental matters raised in the parliamentary report and to resolve other issues identified in the parliamentary resolution in accordance with the new agreements.”
Financial and Operating Summary
| Three Months Ended June 30 | Six Months Ended June 30 | |||||
|---|---|---|---|---|---|---|
| Financial and Operating Summary | 2012 | 2011 | % Change | 2012 | 2011 | % Change |
| Revenue - $ millions | 89.7 | 243.8 | (63%) | 223.5 | 494.0 | (55%) |
| Cost of sales - $ millions (1) | 78.4 | 105.9 | (26%) | 163.1 | 167.7 | (3%) |
| Abnormal mining costs - $ millions | 13.5 | - | 100% | 32.8 | - | 100% |
| Other operating expenses | 22.9 | 0.5 | 4480% | 24.3 | 0.5 | 4760% |
| Net earnings (loss) - $ millions | (54.6) | 71.1 | (177%) | (69.3) | 207.7 | (133%) |
| Earnings (loss) per common share - $ basic and diluted | (0.23) | 0.30 | (177%) | (0.28) | 0.88 | (132%) |
| Cash provided by (used in) operations - $ millions | (45.1) | 123.3 | (137%) | (34.9) | 266.4 | (113%) |
| Capital expenditures - $ millions | 115.1 | 48.6 | 137% | 244.0 | 120.8 | 102% |
| Weighted average common shares outstanding - basic (thousands) | 236,370 | 236,021 | 0% | 236,370 | 235,951 | 0% |
| Weighted average common shares outstanding - diluted (thousands) | 236,370 | 236,353 | 0% | 236,370 | 236,281 | 0% |
| Average gold spot price - $/oz | 1,609 | 1,506 | 7% | 1,651 | 1,445 | 14% |
| Average realized gold price - $/oz | 1,597 | 1,527 | 5% | 1,669 | 1,452 | 15% |
| Gold sold – ounces | 56,201 | 159,642 | (65%) | 133,921 | 340,271 | (61%) |
| Cost of sales - $/oz sold (1) | 1,395 | 663 | 110% | 1,218 | 493 | 147% |
| Gold produced – ounces | 52,482 | 155,166 | (66%) | 125,037 | 335,882 | (63%) |
| Total cash cost - $/oz produced(2) | 885 | 513 | 72% | 943 | 436 | 117% |
| Total production cost - $/oz produced(2) | 1,005 | 625 | 61% | 1,106 | 541 | 104% |
(1) Cost of sales includes depreciation, depletion and amortization related to operations.
(2) Total cash cost and total production cost per ounce produced are non-GAAP Measures and are discussed under “Non-GAAP Measures”.
Revenues for the second quarter of 2012 were $89.7 million compared to $243.8 million during the same period one year ago. Second quarter 2012 revenue reflects lower sales (56,201 ounces versus 159,642 ounces) due to the mine plan revision at Kumtor, disclosed on March 27, 2012. The Company’s average realized gold price in the second quarter of 2012 was $1,597 per ounce compared to $1,527 per ounce in the second quarter of 2011.
Gold production for the second quarter of 2012 was 52,482 ounces compared to 155,166 ounces reported in the second quarter of 2011. The decline in gold production reflects the decision to revise Kumtor’s mine plan, which delayed mining activities and access to the scheduled area of higher grade SB Zone in the southeast portion of the open pit. Gold production at Boroo was lower in the second quarter 2012 due to processing low-grade stockpiled ore with lower recoveries. The heap leach operation at Boroo remained idle during the quarter.
Centerra’s total cash cost per ounce of gold produced was $885 in the second quarter of 2012 compared to $513 in the second quarter of 2011. The year-over-year increase in unit cash costs was primarily due to lower gold production at Kumtor as a result of lower grades and recoveries from the processing of stockpiled materials and reduced operating levels at Boroo (see “Operations Update”). (Total cash cost per ounce produced is a non-GAAP measure and is discussed under “Non-GAAP Measures” in this news release.)
The Company recorded an amount of $13.5 million of abnormal mining costs in the second quarter of 2012 resulting from the increased unloading of ice and waste material in the high movement area and the impact of the revised mine plan at its Kumtor operation. See “Operations Update – Kumtor”. There were no abnormal mining costs recorded in the comparative quarter of 2011.
Other operating expenses for the second quarter of 2012 totaled $22.9 million and include $21.0 million contributed by Kumtor to a national micro-credit financing program, pertaining to an agreement signed by Kumtor and the Kyrgyz Government on April 23, 2012. See “Other Corporate Developments - Kyrgyz Republic – National Micro-Credit Financing Program”. In Mongolia, Boroo increased its commitment to fund the construction of the maternity hospital in Ulaanbaatar during the second quarter of 2012 and accrued a further $1.1 million, bringing its overall commitment to its maximum approved level of $7.5 million (or 10 billion tugriks). Other spending on ongoing social development programs in the various countries where the Company operates totaled $0.7 million in the second quarter of 2012, compared to $0.5 million in the same quarter of 2011.
Exploration expenditures for the second quarter of 2012 were $9.1 million dollars compared to $12.5 million in the second quarter of 2011 mainly reflecting decreased drilling activity at the Öksüt joint venture project in Turkey, and in Mongolia at the Altan Tsagaan Ovoo (“ATO”) property, while the Company focused its efforts on the completion of the Mongolian Reserve and Resource Report.
On May 28, 2012, a tax advance agreement was signed by Kumtor and the Kyrgyz Government, after which $30 million of future revenue-based taxes were advanced. This interest-free advance will be applied against future revenue-based taxes otherwise payable during 2012 (starting in November 2012) and 2013, under a formal repayment schedule that will involve $10 million being off-set in 2012 and the remaining $20 million off-set in 2013. See “Other Corporate Developments - Kyrgyz Republic – Tax Advance Agreement”.
Cash used in operations, net of working capital changes, was $45.1 million compared to cash provided by operations of $123.3 million in the second quarter of 2011, primarily reflecting lower earnings as a result of lower sales volumes.
Capital expenditures spent and accrued of $115.1 million in the second quarter of 2012 included $12.2 million of sustaining capital and $102.9 million invested in growth capital. Kumtor spent and accrued $11.2 million on sustaining capital and $98.8 million on growth capital, mainly for the capitalization of pre-stripping activities ($64.1 million), the purchase of haul trucks, shovels and drills ($17.6 million), underground development ($12.0 million) and other various projects ($5.1 million). Boroo spent and accrued $0.8 million on sustaining capital and $4.0 million on growth capital, mainly for the capitalization of pre-stripping activities in Pit 6. Capital expenditures in the comparative quarter of 2011 totaled $48.6 million, consisting of $8.4 million of sustaining capital and $40.2 million of growth capital.
Centerra’s cash and cash equivalents and short-term investments at the end of June 2012 were $297.7 million, compared to cash and short-term investments of $568.2 million at December 31, 2011. As of June 30, 2012, the Company had an undrawn revolving credit facility of $150.0 million.
Operations Update
| Three Months Ended June 30 | Six Months Ended June 30 | |||||
|---|---|---|---|---|---|---|
| Kumtor Operating Results | 2012 | 2011 | % Change | 2012 | 2011 | % Change |
| Gold sold – ounces | 40,228 | 144,687 | (72%) | 102,425 | 310,832 | (67%) |
| Revenue - $ millions | 64.0 | 221.2 | (71%) | 171.8 | 451.1 | (62%) |
| Average realized gold price – $/oz | 1,592 | 1,529 | 4% | 1,677 | 1,451 | 16% |
| Cost of sales - $ millions (1) | 62.1 | 92.9 | (33%) | 130.6 | 141.2 | (8%) |
| Cost of sales - $/oz sold (1) | 1,544 | 642 | 140% | 1,275 | 454 | 181% |
| Abnormal mining costs - $ millions | 13.5 | - | 100% | 32.8 | - | 100% |
| Tonnes mined - 000s | 42,736 | 38,271 | 12% | 73,482 | 74,779 | (2%) |
| Tonnes ore mined – 000s | 16 | 1,448 | (99%) | 79 | 2,036 | (96%) |
| Average mining grade - g/t (2) | 1.18 | 2.68 | (56%) | 1.30 | 3.97 | (67%) |
| Tonnes milled - 000s | 1,376 | 1,545 | (11%) | 2,627 | 2,936 | (11%) |
| Average mill head grade - g/t (2) | 1.33 | 3.27 | (59%) | 1.64 | 3.68 | (55%) |
| Recovery - % | 71.2 | 82.6 | (14%) | 72.0 | 82.6 | (13%) |
| Gold produced – ounces | 41,307 | 139,077 | (70%) | 102,014 | 303,244 | (66%) |
| Total cash cost - $/oz produced (3) | 876 | 507 | 73% | 950 | 418 | 128% |
| Total production cost - $/oz produced (3) | 985 | 615 | 60% | 1,114 | 517 | 116% |
| Capital expenditures - $ millions | 110.0 | 46.0 | 139% | 235.0 | 117.9 | 99% |
| Boroo Operating Results | ||||||
| Gold sold – ounces | 15,973 | 14,955 | 7% | 31,496 | 29,439 | 7% |
| Revenue - $ millions | 25.7 | 22.6 | 14% | 51.7 | 42.9 | 21% |
| Average realized gold price - $/oz | 1,610 | 1,513 | 6% | 1,643 | 1,457 | 13% |
| Cost of sales - $ millions (1) | 16.3 | 13.0 | 25% | 33.6 | 26.5 | 27% |
| Cost of sales - $/oz sold (1) | 1,018 | 869 | 17% | 1,065 | 900 | 18% |
| Total Tonnes mined - 000s | 2,453 | - | 100% | 4,374 | - | 100% |
| Average mining grade (non heap leach material) - g/t (2) | 1.05 | - | 100% | 1.05 | - | 100% |
| Tonnes mined heap leach – 000s | 22 | - | 100% | 22 | - | 100% |
| Tonnes ore mined direct mill feed -000’s | - | - | 100% | - | - | 100% |
| Tonnes ore milled - 000s | 635 | 510 | 25% | 1,222 | 1,106 | 10% |
| Average mill head grade - g/t (2) | 0.86 | 1.35 | (36%) | 0.82 | 1.35 | (39%) |
| Recovery - % | 69.0 | 70.3 | (2%) | 73.7 | 65.5 | 13% |
| Gold produced – ounces | 11,175 | 16,089 | (31%) | 23,023 | 32,639 | (29%) |
| Total cash cost - $/oz produced (3) | 916 | 568 | 61% | 911 | 607 | 50% |
| Total production cost - $/oz produced (3) | 1,079 | 707 | 53% | 1,069 | 756 | 41% |
| Capital expenditures - $ millions (Boroo) | 4.9 | 2.4 | 99% | 8.6 | 2.5 | 250% |
| Capital expenditures - $ millions (Gatsuurt) | 0.09 | 0.12 | (26%) | 0.19 | 0.25 | (23%) |
(1) Cost of sales includes depreciation, depletion and amortization related to operations.
(2) g/t means grams of gold per tonne.
(3) Total cash cost and total production cost per ounce produced are non-GAAP Measures and are discussed under “Non-GAAP Measures”.
Kumtor
At the Kumtor mine in the Kyrgyz Republic, gold production was 41,307 ounces in the second quarter of 2012 compared to 139,077 ounces in the same quarter in 2011. The decrease in gold production in the second quarter of 2012 is the result of fewer tonnes milled with lower mill head grades (1.33 g/t versus 3.27 g/t) and lower recoveries (71.2% versus 82.6%). Total tonnes mined for the second quarter of 2012 were 42.7 million tonnes compared to 38.3 million tonnes in the comparative quarter of 2011, an increase of 12% due to the increased capacity of the expanded mining fleet. During the quarter, the company mined waste from cut-back 14B and continued to unload the ice and waste material from the high movement area. The revised mining plan in the southwest section of the open pit and the progress with the ice and waste unload is expected to provide access to ore by the end of the third quarter of 2012. During the second quarter of 2012, very little ore was mined and the majority of the mill feed processed came from stockpiles.
Kumtor recorded an amount of $13.5 million of abnormal mining costs in the second quarter of 2012 resulting from the increased unloading of ice and waste material in the high movement area and the impact of the revised mine plan at its Kumtor operation. Under this new plan no ore was released from the pit during the second quarter of 2012 while pre-stripping activities were moved to the southwest portion of the pit (cut-back 14B). This pre-stripping activity added costs totaling $9.6 million which were in excess of what the Company believes it can realize after further processing and eventual sale of the gold. The cost of removal of the ice and waste from the high movement area during the second quarter of 2012 was $3.9 million, expensed to abnormal mining costs.
Total cash cost per ounce produced, a measure of production efficiency, was $876 in the second quarter of 2012 compared to $507 in the second quarter of 2011. The quarter-over-quarter increase in unit cash costs reflects lower gold production due to the lower grades and recoveries from the stockpiled material processed, which increased cash costs by $615 per ounce. This was partially offset by a decrease in operating costs of $244 per ounce predominantly from the capitalization and expensing of substantial mining costs ($40.2 million for capital pre-stripping and unloading activities expensed). Operating costs include costs directly related to the production of gold bullion and include mining, milling, site administration and other related costs (including refining costs and royalties). (Total cash cost per ounce produced is a non-GAAP measure and is discussed under “Non-GAAP Measures”.)
Exploration expenditures totaled $2.9 million for the second quarter of 2012, comparable to the same quarter in 2011. Exploration activity focused on drilling of the SB Zone from the Central Pit, underground exploration drilling from Decline#1 and #2, and drilling at Sarytor.
Capital expenditures spent and accrued at Kumtor for the second quarter of 2012 were $110.0 million which includes $11.2 million of sustaining capital, compared to $46.0 million in the same quarter of 2011. Sustaining capital was predominantly expended for the dewatering program ($4.3 million), the major overhaul program for heavy duty equipment ($3.9 million), the tailings dam expansion ($2.9 million) and other projects ($0.1 million). Growth capital investment totalling $98.8 million was expended for pre-stripping capitalization ($64.1 million), the underground development ($12.0 million), purchase of new CAT 789 haul trucks ($6.5 million), purchase of Hitachi shovels ($6.0 million), purchase of larger Sandvik drills ($5.1 million), Stockwork Zone delineation drilling ($1.2 million), camp expansion ($1.0 million), underground equipment ($1.0 million), expanded fuel farm ($0.6 million) and numerous other smaller projects ($1.3 million).
The underground development at Kumtor continued in the second quarter of 2012 with a total advance of 536 metres. During the second quarter of 2012, Decline #1 (SB Zone decline) advanced 92 metres and Decline #2 advanced 444 metres towards the SB Zone. Year-to-date total development advance is 1,010 metres. The two declines joined on June 30, 2012 and flow through ventilation has been established. As at June 30, 2012, the Company has capitalized approximately $180 million for the underground development, delineation drilling and associated underground equipment.
Underground exploration drilling continued in the second quarter of 2012 along with the delineation drilling of the Stockwork Zone resource. Underground exploration drilling will continue in 2012 from Decline#1.
Boroo/Gatsuurt
At the Boroo mine in Mongolia, gold production was 11,175 ounces in the second quarter of 2012 compared to 16,089 ounces in the second quarter of 2011. The lower gold production is the result of processing low-grade and low recovery stockpiled ore (including low-grade material originally destined for the heap leach operation). The mill head grade averaged 0.86 g/t with a recovery of 69% in the second quarter of 2012, compared to 1.35 g/t with a recovery of 70.3% in the same quarter of 2011. During the quarter, mining activities continued in Pit 6 exposing ore at the end of the second quarter of 2012. Milling of Pit 6 ore is expected to extend to January 2013. The heap leach operation remained idle during the second quarter 2012 pending final permitting and regulatory commissioning by the Mongolian government authorities.
Total cash cost per ounce produced, a non-GAAP measure of production efficiency, was $916 in the second quarter of 2012 compared to $568 in the second quarter of 2011 due to the lower gold production and higher milling costs. Operating cash costs at Boroo increased in the second quarter of 2012 by $4.9 million before the capitalization of $3.6 million for pre-stripping activities in Pit 6 (net increase of $1.3 million) compared to the same quarter in 2011. Milling costs at Boroo for the second quarter of 2012 were $5.4 million, $1.3 million or 31% higher than the same quarter in 2011. This is primarily the result of higher costs incurred for the consumption of reagents, grinding media and electricity in the second quarter of 2012 as 25% higher throughput flowed through the mill compared to the same period in 2011. During 2011, there was a shutdown of the mill caused by the SAG mill repair in May and June 2011 that reduced overall consumption of consumables.
During the second quarter of 2012, exploration expenditures in Mongolia decreased to $2.1 million from $4.1 million in the same period of 2011, reflecting lower activity on the ATO property in northeast Mongolia as the Company focused its efforts on completion of the Mongolian Reserve and Resource Report.
Capital expenditures spent and accrued at Boroo in the second quarter of 2012 increased to $4.9 million including $0.8 million of sustaining capital compared to $2.4 million, which included $0.3 million of sustaining capital in the same period of 2011. 2012 growth capital consisted of cash and non-cash Pit 6 pre-stripping activities resulting in $4.1 million of these costs capitalized in the second quarter of 2012. Minimal capital expenditures were incurred at Gatsuurt, pending resolution of permitting issues related to the Water and Forest Law as the project was put on care and maintenance. Since June 2011, Gatsuurt’s care and maintenance costs, including security contractors, have been expensed.
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/CG2012Q2ExplorationAll.pdf or visit the Company’s web site at: www.centerragold.com.
Kyrgyz Republic
During the second quarter of 2012, exploration drilling programs continued in the Kumtor Central Pit, and Sarytor regions of the concession and underground delineation and exploration drilling from Declines 1 and 2.
For the discussion on the quality assurance program, please see “Qualified Person & QA/QC” elsewhere in this news release.
Kumtor Pit
In the Central Pit, sixteen holes were completed in the second quarter of 2012 with another three drill holes in progress at the end of the quarter. Two holes were stopped due to technical reasons and did not intersect mineralization. Drilling in the quarter focused on testing for continuity and western extensions to the SB Zone within and below the KS12 pit design on Sections -10 to 6.
Three holes were drilled on Section -10 to test the SB Zone. D1620 intersected 7.9 g/t gold over 39.9 metres, including 17.5 g/t over 5.8 metres and 18.7 g/t over 6.5 metres. Approximately 40 metres further down dip, D1625 returned 6.4 g/t gold over 35 metres, including 13.7 g/t over 4 metres. D1633 intersected the SB Zone approximately 120 metres below the KS12 pit design and returned 3.8 g/t gold over 8.2 metres and 7.4 g/t gold over 40.9 metres, including 15.3 g/t over 5.3 metres.
Forty metres further east on Section -6, D1627 intersected 3.2 g/t gold over 33 metres within the KS 12 pit design. D1634 returned 5.1 g/t gold over 58.7 metres below the KS12 pit design. A third hole, D1639A, intersected 4.9 g/t gold over 13.3 metres and 3.3 g/t gold over 39.9 metres before terminating in mineralization due to drilling difficulties.
On Section -2, D1632 intersected 3.1 g/t gold over 42.7 metres, and D1638A returned 3.6 g/t gold over 53.4 metres. Both intercepts lie below the KS12 pit design. A third hole, D1619, tested the SB Zone within the KS12 pit design and returned 3.5 g/t gold over 7.4 metres and 3.4 g/t gold over 5.6 metres.
A single hole, D1622 on Section 2 intersected 1.6 g/t gold over 16.7 metres. On Section 6, D1614 returned 5.4 g/t gold over 14.5 metres (including 11.1 g/t over 3 metres), and D1635 intersected 1.7 g/t gold over 13.2 metres. These intercepts are located 150-200 metres below the KS12 pit design.
On Section 10, D1643 returned 4.0 g/t gold over 27.2 metres, including 10.5 g/t over 7.8 metres. The intercept is located approximately 200 metres below the KS12 pit.
A number of these intercepts lie beyond the limits of the KS12 mine design and will have a positive impact on future resource estimates.
Further drilling will continue in the third quarter of 2012 from the Central Pit and Decline 1 to infill inferred resources and test for extensions to the SB Zone.
True widths for the mineralized zones are from 50% to 95% of the stated intercept.
Decline Exploration
Seven underground exploration holes were completed during the quarter in Decline 1 and a single hole in Decline 2. Four holes were stopped due to technical reasons and did not intersect any mineralized zones.
Drill hole GD1616A was a geotechnical hole drilled on Section -2 some 200 metres below existing drill holes. It intersected 11.4 g/t gold over 21 metres, including 24.0 g/t over 5.5 metres. The other six holes were drilled further west on Sections -22, -38 and -42 and encountered narrow gold intervals in the hanging wall of the main Kumtor ore horizon or were stopped short of the target due to drilling difficulties.
Exploration drilling will continue from Decline 1 in the third quarter of 2012 to test the western limits of the SB Zone
True widths for the mineralized zones are typically from 40% to 95% of the stated intercept.
Resource Delineation Drilling
In the second quarter 15 drill holes were completed from the Stockwork Zone Drive. Six of the holes were abandoned short of their targets due to drilling difficulties.
UD1621 intersected 7.1 g/t gold over 22.9 metres, including 25.7 g/t over 3.5 metres, on Section 138 in the Stockwork Zone. On Section 142, UD1610 intersected 8.1 g/t gold over 3 metres, 13.5 g/t gold over 3.5 metres and 6.8 g/t gold over 17.1 metres. Further east on Section 146, UD1636 intersected 3.1 g/t gold over 48.1 metres, including 7.7 g/t over 5.7 metres.
Delineation drilling has been completed in the Stockwork Zone. Work will shift to exploration drilling of the SB Zone from Decline 1.
True widths for the mineralized zones are typically from 40% to 95% of the stated intercept.
Sarytor Area
During the quarter three holes were completed at the Sarytor deposit to test prospective ore horizons at depth. Drill hole SR-12-205 intersected 3.9 g/t gold over 23.7 metres, whereas the other two holes intersected narrow, low-grade intervals. Two additional holes are planned for the third quarter of 2012.
Regional Exploration
The Licensing Commission of the Agency for Subsoil and Natural Resources considered Kumtor Gold Company’s application for renewal of the Karasay and Koendy licenses and requested a review by the Environment and Forestry Agencies of the possible impacts on the Sarychat-Ertash Reserve (see “Other Corporate Developments – Kyrgyz Republic - Kyrgyz Republic Parliamentary Commission Report and State Commission – Other Related Matters”). It is unlikely that any exploration work will be performed on these licenses this year.
A complete listing of the drill results and supporting maps for the Kumtor pit, Sarytor area and the underground 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.
Mongolia ATO Project
The Mineral Reserve Authority of Mongolia (MRAM) formally accepted the ATO reserves and resources as calculated by Centerra Gold Mongolia (CGM). The ATO General Environmental Impact Assessment (GEIA) was also officially approved by the Ministry of Nature, Environment and Tourism. Authorities also outlined watershed areas within the boundaries of the exploration license. Metallurgical test work is ongoing, and hydrological and environmental programs are progressing according to plan.
Exploration drilling resumed in June following formal acceptance of the ATO reserves and resource report. Drilling is targeting extensions and feeders to the pipe-like bodies hosting the current ATO resource and possible strike extensions to the nearby Mungu prospect. Infill soil sampling, IP and trenching have outlined the surface expression of Mungu over some 600 metres of strike length. Drilling will continue at Mungu and ATO through the third quarter of 2012.
Russia Kara Beldyr Joint Venture
Results were received for six holes drilled on two widely-spaced sections at the Baran prospect located one kilometre south and on strike with the Camp Zone. Three holes were drilled on Section 900NW to test the southern extension of the structure. KB134 intersected 2.7 g/t gold over 2.4 metres near surface, and KB132 intersected 2.2 g/t gold over 10.8 metres, approximately 60 metres below the intercept in KB134. A third drill hole encountered two, 1 metre intercepts. Further south on Section 400NW, three holes intersected isolated 1 metre intercepts.
Drilling will resume in the third quarter of 2012 and focus on extending and infilling the Camp Zone and testing several peripheral targets.
Turkey Stratex JV - Öksüt Project
Drilling commenced in the second quarter of 2012 at Ortacam North with two drill rigs completing two drill holes. Two additional drill rigs were added to the project in June. The first two holes in this year’s drill program encountered 100-150 vertical metres of andesite before intersecting oxidized breccia, the principal gold host at Ortacam North. Final assay results are pending for both holes.
Exploration drilling will continue in the third quarter of 2012 with four drill rigs and include both step-out and infill drilling at Ortacam North.
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/CG2012Q2ExplorationAll.pdf or visit the Company’s web site at: www.centerragold.com.
Other Corporate Developments
The following is a summary of corporate developments since the Company’s news release and MD&A for the period ended March 31, 2012 filed on May 15, 2012 with respect to matters affecting the Company and its subsidiaries in the Kyrgyz Republic, Mongolia and Canada. Except as expressed below, no material changes have occurred with respect to the matters discussed in the “Other Corporate Development” section of the Company’s news release and MD&A for the period ended March 31, 2012 published on May 15, 2012 and no new corporate developments have occurred that are material to Centerra.
In particular, the following corporate matters remain outstanding:
- Heap Leach Permit: receipt of a permanent permit and regulatory commissioning to resume heap leach operations at Boroo;
- Gatsuurt and the Impact of the Mongolian Water and Forest Law: the receipt of regulatory commissioning of the Gatsuurt development property, and determination of the impact of the Mongolian Law to Prohibit Mineral Exploration and Mining Operations at River Headwaters, Protected Zones of Water Reservoirs and Forested Areas (the “Water and Forest Law”) on the Company’s Mongolian operations. Centerra is reasonably confident that the economic and
development benefits resulting from its exploration and development activities will ultimately result in the Water and Forest Law having a limited impact on the Company’s Mongolian activities. There can be no assurance, however, that this will be the case. Unless the Water and Forest Law is repealed or amended such that the law no longer applies to the Gatsuurt project or Gatsuurt is designated as a “mineral deposit of strategic importance” that is exempt from the Water and Forest Law, mineral reserves at Gatsuurt may have to be reclassified as mineral resources or eliminated entirely and the Company may be required to write-off the associated investment in Gatsuurt and Boroo. As at June 30, 2012, the Company had net assets recorded amounting to approximately $36 million related to the investment in Gatsuurt and approximately $28 million remaining capitalized for the Boroo mill facility and other surface structures which are expected to be utilized for the processing of ore from Gatsuurt. Although the Company expects to exploit the Gatsuurt deposit, should this not be the case, the Company would be required to write-off these amounts. A revocation of the Company’s mineral licenses, including the Gatsuurt mineral license, or the reclassification of mineral reserves or the write-off of assets could have an adverse impact on Centerra’s future cash flows, earnings, results of operations or financial condition;
- Impact of the Graduated Royalty Fee on Boroo: the possibility that the graduated royalty fee introduced by the Mongolian Parliament in November 2010 may apply to the Boroo project, despite the existence of a stability agreement which provides legislative stabilization for the property. The Company is of the opinion that the Boroo Stability Agreement provides, among other things, legislative stabilization for its Boroo operations and accordingly the graduated royalty fee is not applicable to Boroo’s remaining operations. Despite this, the Company cannot provide any assurances that Boroo will not be made subject to the graduated royalty fee. If the graduated royalty fee does apply to Boroo, it may have an adverse impact on Centerra’s future cash flows, earnings, results of operations or financial condition;
- Enforcement Notice by Sistem: the impact on Centerra of an enforcement notice filed in an Ontario court by Sistem Muhenkislik Insaat Sanayi Ticaret (“Sistem”) in March 2011 to seize shares and dividends in Centerra held by Kyrgyzaltyn JSC in satisfaction of an international arbitral award against the Kyrgyz Republic in favour of Sistem in the amount of $11 million with additional interest. On July 25, 2012, the Ontario Superior Court of Justice dismissed a motion brought by Kyrgyzaltyn raising a jurisdictional challenge to a prior Ontario court decision which had recognized an international arbitral award obtained by Sistem. The merits of the dispute between Kyrgyzaltyn and Sistem will now proceed in court, subject to any appeal which may be taken of the July 25th decision.
For further discussion relating these corporate matters affecting the Company and its operations, please see the Company’s MD&A for the period ended March 31, 2012 and the Company’s 2011 Annual Information Form.
Kyrgyz Republic
Tax Advance Agreement
At the request of the Kyrgyz Government, an agreement was reached on May 28, 2012 between Kumtor Gold Company (“KGC”) and the Kyrgyz Government whereby KGC agreed to advance $30