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 28 and in the Cautionary Note Regarding Forward-looking Information on page 39. It should be read in conjunction with the Company’s unaudited interim condensed consolidated financial statements and notes for the three and nine months ended September 30, 2013 and associated Management’s Discussion and Analysis. The condensed interim financial statements of Centerra are prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as issued by the International Accounting Standards Board. The Company’s accounting policies are described in note 3 to its annual consolidated financial statements for the year ended December 31, 2012. The Company’s September 30, 2013 condensed interim financial statements give effect to the adoption of new accounting standards effective January 1, 2013 as described in note 2 of the financial statements.
All figures are in United States dollars.
To view Management’s Discussion and Analysis and the Financial Statements and Notes for the three and nine months ended September 30, 2013, please visit the following link:
http://media3.marketwire.com/docs/CG2013-Q3MDA.pdf
Toronto, Canada, October 30, 2013: Centerra Gold Inc. (TSX: CG) today reported a net loss for the third quarter of 2013 of $1.8 million, or $0.01 per share (basic and diluted), compared to a net loss of $33.7 million, or $0.14 per share (basic and diluted) in the comparative quarter of 2012. The year-over year change reflects higher gold sales due to higher gold production at both of the Company’s operations, partially offset by the lower average realized gold price1 in the third quarter of 2013. The 2012 third quarter results were affected by the seven week mill shutdown at Kumtor and a $11.4 million charge for abnormal mining costs associated with the unplanned removal of ice and waste from the high movement area at Kumtor.
2013 Third Quarter Highlights
- Entered into a non-binding memorandum of understanding with the Government of the Kyrgyz Republic regarding a potential restructuring transaction under which Kyrgyzaltyn JSC would exchange its 32.7% equity interest in Centerra and $100 million payable to Centerra by way of adjustments to future joint venture distributions otherwise due to Kyrgyzaltyn for a 50% interest in a joint venture company that would own the Kumtor Project. On October 23, 2013 the Kyrgyz Parliament passed a decree with respect to the memorandum of understanding, in which Parliament rejected the memorandum of understanding and instructed the Government to (among other things) continue negotiations with Centerra with a view to improving the Kyrgyz Republic’s position and increasing its interest in the joint venture project to no less than 67%.
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- Successfully rotated the ball mill ring gear at Kumtor during the scheduled shutdown in August 2013 after identifying a number of cracks in the ring gear teeth during an inspection in June 2013. The mill is currently operating at full capacity.
- Produced 113,840 ounces of gold in the quarter, including 90,289 ounces at Kumtor and 23,551 ounces at Boroo, compared to 42,723 ounces (23,786 ounces and 18,938 ounces at Kumtor and Boroo, respectively) in the same period in 2012.
- Increased revenue to $155 million in the quarter from $68.8 million in the same quarter of 2012.
- Used $8.5 million cash in operations during the third quarter, but for the nine months ending September 30, 2013 cash provided by operations totaled $124.4 million.
- Increased annual consolidated gold production guidance to 635,000 to 685,000 ounces, which reflects increased forecasted production at Boroo.
Commentary
Ian Atkinson, President and CEO of Centerra Gold stated, “Following discussions with the Kyrgyz Government and their advisors, we announced on September 9, 2013 that we had entered into a nonbinding memorandum of understanding, but on October 23, 2013 the Kyrgyz Parliament rejected the memorandum of understanding and instructed the Government to continue negotiations with Centerra with a view to increasing the Kyrgyz Republic’s interest in the joint venture project that would own the Kumtor project to no less than 67%. The Company expects to continue its discussions with the Government regarding a potential restructuring transaction to resolve all outstanding concerns relating to the Kumtor Project, however we maintain that any agreement to resolve matters must be fair to all of Centerra’s shareholders.”
“Operationally Kumtor and Boroo performed well in the quarter. Kumtor rotated the ring gear on the ball mill and the mill is currently operating at full capacity. At Boroo we completed the scheduled maintenance of the heap leach liner and the heap leach facility is back in full operation. The Boroo mine had another good quarter, achieving 23,551 ounces of gold production, which brings year-to-date gold production at Boroo to 76,214 ounces. Boroo’s performance has enabled us to increase our gold production guidance for the mine to approximately 85,000 ounces from 65,000 to 75,000 ounces for the year.”
Update on Negotiations with the Kyrgyz Republic Government
On September 9, 2013, the Company announced that it had entered into a non-binding memorandum of understanding with the Kyrgyz Republic government (the “Government”) and Kyrgyzaltyn JSC (the “MOU”) in connection with a potential restructuring transaction under which (among other things) Kyrgyzaltyn would exchange its 32.7% equity interest in Centerra and $100 million payable to Centerra by way of adjustments to future joint venture distributions otherwise due to Kyrgyzaltyn for a 50% interest in a joint venture company that would own the Kumtor project. See “Other Corporate Developments – Kyrgyz Republic – Negotiations between Kyrgyz Republic and Centerra” for further information regarding the MOU.
On October 23, 2013, the Kyrgyz Republic parliament (“Parliament”) passed a decree (the “Decree”) with respect to the MOU. The Company has not yet received a final official copy of the Decree and the following disclosure relates to a final draft of the Decree which the Company understands was passed. In the Decree, Parliament rejects the MOU and orders the Government to (among other things) continue negotiations with Centerra with a view to improving the Kyrgyz Republic’s position and increasing its interest in the joint venture project to no less than 67%, to provide for the project to develop the Kumtor mine using underground mining methods, and to provide for the establishment and financing of a centre to monitor the preservation of glaciers. In the Decree, Parliament also recommends that the Kyrgyz Republic General Prosecutor’s Office consider pursuing allegations that management of the former parent company of Centerra, Centerra, Kumtor Operating Company, and Kumtor Gold Company violated environmental regulations and committed “other offenses”, and that precious metal reserves (silver, tellurium, and other associated components) at the Kumtor deposit were deliberately understated.
In the Decree, Parliament has requested that the Government and the General Prosecutor’s Office report to Parliament on these matters by December 23, 2013. The Decree provides that if a mutually acceptable solution on the outstanding matters cannot be reached, the Government is ordered to initiate a process to cancel the 2009 agreements governing the Kumtor project (the “Kumtor Project Agreements”).
The Company disputes the allegations raised in the Decree and continues to believe that the Kumtor Project Agreements are legal, valid and enforceable obligations. The Kumtor Project Agreements were reviewed and approved by the Government and the Parliament, and were the subject of a positive decision by the Kyrgyz Republic Constitutional Court and a legal opinion by the Kyrgyz Republic Ministry of Justice. Such agreements provide for all disputes relating to the Kumtor project for all disputes to be resolved by international arbitration, if necessary.
Centerra understands that the Government continues to support the MOU.
The Company expects to continue its discussions with the Government regarding a potential restructuring transaction to resolve all outstanding concerns relating to the Kumtor Project. However, it maintains that any agreement to resolve matters must be fair to all of Centerra’s shareholders. Any definitive agreement for a potential restructuring remains subject to Centerra Special Committee and Board approval, as well as compliance with all applicable legal and regulatory requirements and approvals, including an independent formal valuation and minority shareholder approval. While Centerra expects to continue discussions, there can be no assurance that any transaction will be consummated or that Centerra will be able to successfully resolve any of the matters currently affecting the Kumtor Project. The inability to successfully resolve matters, including obtaining all necessary approvals, and/or further actions of the Kyrgyz Republic Government and/or Parliament, could have a material adverse impact on Centerra’s future cash flows, earnings, results of operations and financial conditions.
For further information on the status of negotiations, please see “Other Corporate Developments – Kyrgyz Republic – Negotiations between Kyrgyz Republic and Centerra”.
Management Changes
Centerra is sorry to announce that David A. Groves, Vice President Global Exploration has decided to leave the Company effective November 30, 2013 for personal reasons.
Consolidated Financial and Operating Summary
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||
|---|---|---|---|---|---|---|
| Financial Summary ($ millions, except as noted) | 2013 | 2012 Restated (4) | % Change | 2013 | 2012 Restated (4) | % Change |
| Revenue | $ 155.0 | $ 68.8 | 125% | $ 475.5 | $ 292.3 | 63% |
| Cost of sales | 111.7 | 53.9 | 107% | 287.5 | 215.4 | 33% |
| Abnormal mining costs | - | 11.4 | 100% | - | 15.9 | 100% |
| Mine standby costs | - | - | 0% | - | 4.6 | 100% |
| Regional office administration | 6.1 | 5.3 | 16% | 17.6 | 15.4 | 14% |
| Earnings (loss) from mine operations | 37.2 | (1.8) | 2159% | 170.4 | 41.0 | 316% |
| Revenue-based taxes | 16.4 | 6.2 | 166% | 50.7 | 30.2 | 68% |
| Other operating expenses | 2.3 | 5.2 | (56%) | 6.4 | 29.5 | (78%) |
| Exploration and business development | 7.4 | 9.5 | (22%) | 20.8 | 27.0 | (23%) |
| Corporate administration | 8.6 | 7.8 | 10% | 22.5 | 18.3 | 23% |
| Earnings (loss) from operations | 2.6 | (30.4) | 109% | 70.0 | (64.0) | 209% |
| Other (income) and expenses | (1.1) | (0.1) | 901% | 3.1 | (0.1) | 100% |
| Finance costs | 1.2 | 1.1 | 18% | 3.7 | 2.7 | 38% |
| Earnings (loss) before income taxes | 2.4 | (31.3) | 108% | 63.2 | (66.6) | 195% |
| Income tax expense | 4.2 | 2.3 | 80% | 12.1 | 6.4 | 88% |
| Net earnings (loss) | $ (1.8) | $ (33.7) | 95% | $ 51.1 | $ (73.0) | 170% |
| Earnings (loss) per common share - $ basic | $ (0.01) | $ (0.14) | 93% | $ 0.22 | $ (0.31) | 171% |
| Earnings (loss) per common share - $ diluted | $ (0.01) | $ (0.14) | 93% | $ 0.21 | $ (0.31) | 168% |
| Weighted average common shares outstanding - basic (thousands) | 236,385 | 236,376 | 0% | 236,380 | 236,367 | 0% |
| Weighted average common shares outstanding - diluted (thousands) | 236,385 | 236,376 | 0% | 236,847 | 236,367 | 0% |
| Cash provided by (used in) operations | (8.5) | (25.4) | 67% | 124.4 | (35.7) | 448% |
| Capital expenditures (1) | 80.6 | 97.5 | (17%) | 289.9 | 377.7 | (23%) |
| Operating Summary | ||||||
| Gold produced – ounces | 113,840 | 42,723 | 166% | 328,486 | 167,760 | 96% |
| Gold sold – ounces | 115,941 | 41,251 | 181% | 327,864 | 175,172 | 87% |
| Average realized gold price - $/oz(3) | 1,337 | 1,667 | (20%) | 1,450 | 1,669 | (13%) |
| Average gold spot price - $/oz (2) | 1,326 | 1,652 | (20%) | 1,456 | 1,652 | (12%) |
| Cost of sales - $/oz sold (3) | 963 | 1,307 | (26%) | 877 | 1,230 | (29%) |
| Operating cash costs - $/oz produced(3) | 699 | 1,093 | (36%) | 582 | 835 | (30%) |
| All-in cash costs (pre-tax) - $/oz produced(3) | 1,426 | 3,604 | (60%) | 1,440 | 3,246 | (56%) |
| All-in cash costs (including taxes) - $/oz produced(3) | 1,604 | 3,791 | (58%) | 1,633 | 3,457 | (53%) |
(1) Includes capitalized stripping of $56.4 million in the third quarter of 2013 ($67.3 million in the third quarter of 2012) and $207.9 million in the nine months ended September 30, 2013 ($202.4 million in the nine months ended September 30, 2012).
(2) Average for the period as reported by the London Bullion Market Association (US dollar Gold P.M. Fix Rate).
(3) Non-GAAP measure, see discussion under “Non-GAAP Measures”.
(4) Restated to reflect the impact of new accounting standards adopted effective January 1, 2013.
Results of Operations
Third Quarter 2013 versus Third Quarter 2012
Revenue for the third quarter of 2013, increased 125% to $155.0 million from $68.8 million in the comparative quarter of 2012, primarily as a result of higher sales volumes (115,941 ounces in the third quarter of 2013 compared to 41,251 ounces in the third quarter of 2012) that was partially offset by a 20% decrease in average realized gold price1 at $1,337 per ounce compared to $1,667 per ounce in the same quarter of 2012. The higher sales volumes reflect the increase in gold production at both operations.
Gold production for the third quarter of 2013 totaled 113,840 ounces compared to 42,723 ounces in the comparative quarter. The 166% increase in ounces poured was mainly due to the increased production at Kumtor, as compared to the same quarter of 2012, which was impacted by a seven week mill shutdown at Kumtor, and the resumption of heap leach operations at Boroo in October 2012.
Cost of sales was $111.7 million in the third quarter of 2013, compared to $53.9 million in the comparative period of 2012, mainly as a result of higher sales volumes. Operating costs1 in the third quarter of 2013 were higher than the comparative quarter reflecting higher production levels at Kumtor as compared to the comparative period which was impacted by a seven week shutdown of the mill, significant mining of ice and waste, higher operating costs for the expanded mining fleet at Kumtor, higher labour costs, resulting from inflationary increases provided for in the collective bargaining agreements which were finalized in December, 2012, and the addition of costs at Boroo from the resumption of heap leach operations.
Depreciation, depletion and amortization associated with production increased to $44.9 million in the third quarter of 2013 from $12.5 million in the comparative quarter of 2012 primarily due to the higher ounces sold which resulted in higher depreciation for assets depreciated using the units of production method. The basis for depreciation has increased due to the expanded mobile fleet at Kumtor and higher deferred stripping costs at Kumtor.
Other operating expenses for the third quarter of 2013 totaled $2.3 million compared to $5.2 million in the comparative quarter of 2012. In the third quarter of 2013, the Company spent $2.2 million on corporate social responsibility (“CSR”) programs in the Kyrgyz Republic and in Mongolia, compared to $0.1 million spent on CSR programs in the comparative quarter of 2012, mainly in the Kyrgyz Republic. The Company also incurred $5.0 million in the third quarter of 2012 for the care and maintenance of the underground development project at Kumtor while the Company conducted a detailed study on the potential for expanding the limits of the ultimate pit.
Exploration expenditures for the third quarter of 2013 were $7.4 million dollars compared to $9.5 million in the third quarter of 2012. Exploration expenditures in the third quarter of 2013 reflect ongoing drilling programs at the Öksüt project in Turkey and the ATO Project in Mongolia and reduced spending on drilling at Kumtor.
Corporate administration costs in the third quarter of 2013 were $8.6 million compared to $7.8 million in the same quarter of 2012, reflecting increased activity on the Company’s projects and an increase in share-based compensation costs resulting from an increase in the share price. Sharebased compensation expense was $1.9 million in the third quarter of 2013 compared to $1.3 million in the third quarter of 2012.
Centerra reported $16.4 million in the third quarter of 2013 for revenue-based tax expense at Kumtor compared to $6.2 million in the same period of 2012, and $4.2 million in the third quarter of 2013 for income tax expense at Boroo compared to $2.3 million in the same period of 2012. The increase in revenue-based tax expense reflects the higher volumes sold in the third quarter of 2013 at Kumtor resulting in increased revenue. The increase of $1.9 million in Boroo’s income tax expense resulted from the higher earnings achieved in the third quarter of 2013.
Cash used in operations in the third quarter of 2013 totaled $8.5 million compared to $25.4 million used in operations in the same period of 2012, mainly as a result of the increased earnings in 2013, offset by increases in working capital requirements.
Capital expenditures spent and accrued in the third quarter of 2013 amounted to $80.6 million, which includes $16 million of sustaining capital1, $8.1 million invested in growth capital1 and $56.4 million of capitalized stripping. Capital expenditures in the comparative quarter of 2012 totaled $97.5 million, consisting of $14.2 million of sustaining capital1, $16.0 million of growth capital1 and $67.3 million of capitalized stripping.
Centerra’s cash and cash equivalents and short-term investments at the end of September 2013 decreased to $236.8 million, compared to cash and short-term investments of $382.1 million at December 31, 2012. At September 30, 2013, the Company had drawn $76 million on its $150 million revolving credit facility with the European Bank for Reconstruction and Development (EBRD), leaving a balance of $74 million undrawn. The amount drawn is due to be repaid on February 8, 2014. Centerra believes, based on its current forecast, that it has sufficient cash and investments to carry out its business plan in 2013 (see “Outlook for 2013”).
All-in cash costs per ounce produced1 – Consolidated
| Three Months Ended September 30 | Nine Months Ended September 30 | |||
|---|---|---|---|---|
| $ millions, except as noted | 2013 | 2012 (3) | 2013 | 2012 (3) |
| Operating cash costs (1) Abnormal mining costs - cash Capitalized stripping and ice unload - cash Operating cash costs and capitalized stripping Sustaining capital (cash) (1) Growth capital (cash)(1) Operating cash costs including capital Corporate and other cash costs (2) All-in Cash Costs - pre-tax (1) Revenue-based tax and income tax All-in Cash Costs - including taxes (1) | $ 79.6 - 40.7 | $ 46.7 8.1 47.5 | $ 191.2 - 150.7 | $ 140.0 10.9 147.3 |
| 120.3 15.8 8.1 | 102.3 14.2 15.9 | 341.9 47.7 33.9 | 298.3 32.4 140.1 | |
| 144.2 | 132.5 | 423.5 | 470.8 | |
| 18.1 | 21.5 | 49.4 | 73.8 | |
| $ 162.3 | $ 154.0 | $ 472.9 | $ 544.5 | |
| 20.3 | 8.0 | 63.4 | 35.4 | |
| $ 182.6 | $ 162.0 | $ 536.3 | $ 580.0 | |
| Ounces poured Operating cash cost - $/oz produced (1) All-in Cash Costs (pre-tax) - $/oz produced (1) All-in Cash Costs (including taxes) - $/oz produced (1) | 113,840 $ 699 | 42,723 $ 1,093 | 328,486 $ 582 | 167,760 $ 835 |
| $ 1,426 | $ 3,604 | $ 1,440 | $ 3,246 | |
| $ 1,604 | $ 3,791 | $ 1,633 | $ 3,457 |
(1) Non-GAAP measure, see discussion under “Non-GAAP Measures”.
(2) Corporate and other cash costs include corporate general and administrative expenses, global exploration expenses, and community investments which are only reflected in the all-in cash cost amounts reported at the consolidated level.
(3) Operating cash costs and capitalized stripping for 2012 were restated for the impact of the adoption of IFRIC 20.
Operating cash costs per ounce produced1 in the third quarter of 2013 decreased to $699 compared to $1,093 per ounce in the comparative period of 2012. The decrease in 2013 reflects the impact of higher production levels at Kumtor, higher grades processed at both operations and the resumption of lower cost heap leach operations at Boroo, partially offset by higher labour costs in the third quarter of 2013.
On a pre-tax basis, all-in cash costs per ounce produced1 for the third quarter of 2013 were $1,426 and includes all cash costs directly related to gold production, excluding taxes. This compares to pre-tax all-in cash costs1 of $3,604 per ounce produced in the third quarter of 2012. The decrease is mainly due to higher gold production in 2013, 21% lower capital spending and 16% lower corporate and other cash costs. Growth capital1 spending (excluding capitalized stripping) decreased from $15.9 million in the third quarter of 2012 to $8.1 million in the third quarter of 2013 reflecting the expansion of the mining fleet at Kumtor during the comparative period of 2012. Corporate and other cash costs2 were down from $21.5 million in the third quarter of 2012 to $18.1 million in the third quarter of 2013, primarily as a result of lower exploration spending in the third quarter of 2013 and the charge incurred in the third quarter of 2012 due to the underground at Kumtor being placed under care and maintenance.
1 Non-GAAP measure, see discussion under “Non_GAAP Measures”.
2 Corporate and other cash costs include corporate general and administrative expenses, global exploration expenses, and community investments which are only reflected in the all-in cash cost amounts reported at the consolidated level.
Mining Operations
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||
|---|---|---|---|---|---|---|
| Kumtor Operating Results | 2013 | 2012 (5) | % Change | 2013 | 2012 (5) | % Change |
| Gold sold – ounces | 86,699 | 26,626 | 226% | 248,635 | 129,051 | 93% |
| Average realized gold price – $/oz(3) | 1,347 | 1,651 | (18%) | 1,456 | 1,671 | (13%) |
| Revenue - $ millions | 116.8 | 44.0 | 166% | 362.0 | 215.7 | 68% |
| Cost of sales - $ millions (1) | 86.0 | 38.0 | 126% | 217.9 | 166.9 | 31% |
| Cost of sales - $/oz sold (1)(3) | 991 | 1,427 | (31%) | 876 | 1,294 | (32%) |
| Tonnes mined - 000s | 41,741 | 35,943 | 16% | 129,827 | 109,425 | 19% |
| Tonnes ore mined – 000s | 2,087 | 412 | 407% | 3,095 | 491 | 530% |
| Average mining grade - g/t (2) | 2.78 | 2.25 | 24% | 2.53 | 2.09 | 21% |
| Tonnes milled - 000s | 1,312 | 581 | 126% | 4,136 | 3,209 | 29% |
| Average mill head grade - g/t (2) | 3.04 | 1.78 | 71% | 2.63 | 1.66 | 58% |
| Recovery - % | 76.4 | 75.1 | 2% | 73.6 | 72.6 | 1% |
| Gold produced – ounces | 90,289 | 23,786 | 280% | 252,272 | 125,799 | 101% |
| Operating cash cost - $/oz produced (3) | 709 | 1,338 | (47%) | 589 | 828 | (29%) |
| All-in cash cost (pre-tax) - $/oz produced(3) | 1,395 | 4,911 | (72%) | 1,478 | 3,388 | (56%) |
| All-in cash cost including tax-$/oz produced(3) | 1,576 | 5,170 | (70%) | 1,678 | 3,628 | (54%) |
| Capital expenditures - $ millions (4) | 77.7 | 96.8 | (20%) | 281.3 | 368.0 | (24%) |
| Exploration expenditures - $ millions | 0.9 | 3.5 | (74%) | 5.3 | 8.9 | (40%) |
| Boroo Operating Results | ||||||
| Gold sold – ounces | 29,242 | 14,625 | 100% | 79,229 | 46,121 | 72% |
| Average realized gold price - $/oz(3) | 1,306 | 1,698 | (23%) | 1,432 | 1,660 | (14%) |
| Revenue - $ millions | 38.2 | 24.8 | 54% | 113.5 | 76.6 | 48% |
| Cost of sales - $ millions (1) | 25.7 | 15.9 | 62% | 69.5 | 48.5 | 43% |
| Cost of sales - $/oz sold (1)(3) | 880 | 1,089 | (19%) | 878 | 1,051 | (17%) |
| Total tonnes mined - 000s | - | 1,821 | - | - | 6,195 | - |
| Tonnes mined heap leach - 000s | - | 121 | - | - | 143 | - |
| Tonnes stacked heap leach - 000s | 1,078 | - | - | 2,373 | - | - |
| Tonnes leached - 000s | 803 | - | - | 3,688 | - | - |
| Tonnes ore milled - 000s | 604 | 576 | 5% | 1,800 | 1,802 | (0%) |
| Average mill head grade - g/t (2) | 1.04 | 1.62 | (36%) | 1.23 | 1.07 | 15% |
| Recovery - % | 58.5 | 60.9 | (4%) | 57.5 | 67.5 | (15%) |
| Gold produced – ounces | 23,551 | 18,938 | 24% | 76,214 | 41,961 | 82% |
| Operating cash cost - $/oz produced (3) | 659 | 787 | (16%) | 559 | 855 | (35%) |
| All-in cash cost (pre-tax) - $/oz produced(3) | 765 | 812 | (6%) | 652 | 1,047 | (38%) |
| All-in cash cost including tax-$/oz produced(3) | 932 | 908 | 3% | 818 | 1,172 | (30%) |
| Capital expenditures - $ millions (Boroo) (4) | 2.7 | 0.5 | 440% | 7.5 | 9.1 | (18%) |
| Capital expenditures - $ millions (Gatsuurt) | 0.2 | 0.1 | 100% | 0.6 | 0.3 | 100% |
| Exploration expenditures-$ millions(Mongolia) | 1.9 | 2.7 | (30%) | 3.6 | 7.0 | (49%) |
(1) Cost of sales excludes regional office administration.
(2) g/t means grams of gold per tonne.
(3) Non-GAAP measure, see discussion under “Non-GAAP Measures”.
(4) Includes capitalized stripping of $56.4 million and $207.9 million for the three and nine months ended September 30, 2013 at Kumtor ($67.3 million and $195.1 million at Kumtor and nil and $7.3 million at Boroo for the three and nine months ended September 30, 2012, respectively).
(5) Operating cash costs and capitalized stripping for 2012 at Kumtor were restated to reflect the impact of the adoption of IFRIC 20.
Kumtor
At the Kumtor mine in the Kyrgyz Republic, gold production in the third quarter was 90,289 ounces compared to 23,786 ounces in the same quarter in 2012. The increase in ounces poured was mainly due to accessing and mining higher grade ore in cut-back 15 where 2.1 million tonnes of ore were mined with an average grade of 2.78 g/t. During the third quarter of 2013, Kumtor’s average mill head grade was 3.04 g/t with a recovery of 76.4%, compared with 1.78 g/t and a recovery of 75.1% for the same quarter in 2012. Tonnage processed was approximately 1.3 million tonnes for the third quarter of 2013 up significantly from the comparative period in 2012, which was impacted by a seven week mill shutdown.
The abnormal movement in the waste-rock dump, which began in mid-March 2013, has slowed to normal levels in the third quarter of 2013. There has been no impact on planned 2013 gold production. A revised 2013 waste-rock dumping plan has been approved by the appropriate Kyrgyz regulatory authorities, and is being followed. See “Other Corporate Developments – Kyrgyz Republic – Kumtor Waste Dump Movement”.
Operating cash cost per ounce produced1 in the third quarter of 2013 decreased to $709 compared to $1,338 per ounce in the comparative period of 2012. The decrease in the 2013 third quarter reflects the impact of significantly higher production levels, which resulted in a 280% increase in ounces produced than the comparative quarter of 2012. This was partially offset by higher mining costs as the mine ceased capitalizing stripping as it commenced mining ore earlier in 2013 than the comparative period.
In the third quarter of 2013, operating cash costs1 at Kumtor increased by $32.2 million to $64.1 million, excluding the capitalization of stripping activities and the expensing of unloading activities (increased by $18.2 million including capitalized stripping and unloading expense), compared to $31.9 million in the comparative quarter of 2012. The increased cost of mining activities in 2013 is primarily related to the increased tonnage moved as the higher density material incurred higher diesel and blasting costs. Labour costs also increased as a result of the new collective bargaining agreement ratified in December 2012. Other increases include increased tire requirements and maintenance due to the expanded equipment fleet and increased consumption of consumables and electricity by the mill.
Pre-tax all-in cash costs per ounce produced1 were $1,395 in the third quarter of 2013 compared to $4,911 in the same quarter of 2012. The decrease is due to both higher production and a reduction in growth capital spending1. Kumtor expects to mine and process significantly higher volumes and grade of ore during the fourth quarter and expects its all-in cash costs1 to decrease in the fourth quarter of 2013. See “Outlook for 2013”.
Exploration expenditures totaled $0.9 million for the third quarter of 2013, compared to $3.5 million reported in the third quarter 2012.
Capital expenditures spent and accrued in the third quarter of 2013 at Kumtor amounted to $77.7 million which includes $13.3 million of sustaining capital1, $8.1 million invested in growth capital1 for relocation of infrastructure and $56.4 million for capitalized stripping. Capital expenditures in the comparative quarter of 2012 totaled $96.8 million, consisting of $13.6 million of sustaining capital1 and $83.2 million of growth capital1 including $67.3 million of capitalized stripping.
During an inspection in June 2013, an increased number of cracks were observed in the ring gear of the Kumtor ball mill as compared to the previous inspection in April 2013. As a result the ring gear was rotated during a scheduled shutdown in August 2013, and is currently operating at full capacity. The Company continues to monitor the ring gear. In the event that the ball mill cannot continue to operate with the current ring gear, a spare ring gear is available on site, although it is expected to operate at only 95% to 97% of the capacity of the current ring gear. A replacement ring gear has been ordered and is expected to be delivered in the third quarter of 2014.
Boroo/Gatsuurt
At the Boroo mine in Mongolia, gold production was 23,551 ounces of gold in the third quarter of 2013 compared to 18,938 ounces of gold in the third quarter of 2012. The increase in gold production was due to the resumption of activities at the heap leach operation, which contributed 10,929 ounces. The higher mill throughput achieved in the third quarter of 2013 was partially offset by lower average mill head grade of 1.04 g/t with a recovery of 58.5% in the third quarter of 2013, compared to 1.62 g/t with a recovery of 60.9% in the same period of 2012. Boroo processed lower grade stockpiled ore in the third quarter of 2013, compared to Pit 6 higher grade ore processed in the same quarter of 2012.
Operating cash costs1 at Boroo increased by $0.6 million to $15.5 million in the third quarter of 2013, compared to the same period in 2012. There were no costs incurred for mining in the third quarter of 2013 as compared to $4.4 million in 2012.
Operating cash costs per ounce produced1 in the third quarter of 2013 were $659 compared to $787 per ounce in the same period of 2012. The decrease of 16% was a result of an 82% increase in production partially offset by higher operating costs1 resulting primarily from the resumption of heap leaching operations.
Boroo’s all-in cash costs per ounce produced (pre-tax)1 for the third quarter of 2013 were $765 and included all costs directly related to gold production except for income tax paid in Mongolia. The same pre-tax all-in cash costs1 for the third quarter of 2012 were $812 per ounce produced. The decrease in the pre-tax all-in cash costs1 was primarily the result of the increase in production, reflecting the resumption of heap leaching operations and no mining activity in the third quarter of 2013. In the comparative quarter of 2012, mining costs accounted for $233 per ounce produced.
Capital expenditures spent and accrued at Boroo and Gatsuurt in the third quarter of 2013 was $2.9 million compared to $0.6 million in the same period of 2012. Capital expenditures in 2013 primarily relate to sustaining capital1 for tailings dam construction work ($2.7 million) at Boroo.
1 Non-GAAP measure and are discussed under “Non-GAAP Measures”.
The Gatsuurt project remained under care and maintenance in the third quarter of 2013 due to continued delays in permitting resulting from the Water and Forest Law which prohibits mining and exploration activities in water basin and forested areas. Further development of the project is subject to resolution of the impact of the Water and Forest Law on the Gatsuurt project, and receiving all required approvals and regulatory commissioning from the Mongolian Government.
Centerra understands that, in May 2013, the Mongolian Government proposed to Parliament that seven deposits, including Gatsuurt, be added to the list of “mineral deposits of strategic importance”. Centerra believes that such a designation, which is subject to the approval of Parliament, would have the effect of exempting Gatsuurt from the application of the Water and Forest Law. Centerra expects that Parliament and/or any relevant committees of Parliament will consider this matter further in the fourth quarter of 2013 during the fall sitting of Parliament. If Parliament ultimately approves this designation, it would allow the Government of Mongolia to acquire up to a 34% interest in Gatsuurt. The terms of any such participation would be subject to negotiations with the Government. See “Other Corporate Developments- Mongolia - Gatsuurt”.
During the third quarter of 2013, exploration expenditures in Mongolia were $1.9 million compared to $2.7 million in the same period of 2012. The 2013 exploration expenditures were largely on activities at the Company’s ATO project located in eastern Mongolia.
All-in cash costs1
| KUMTOR | Three months ended September 30 | Nine months ended September 30 | ||||
|---|---|---|---|---|---|---|
| $ millions, except as noted | 2013 | 2012 (3) | 2013 | 2012 (3) | ||
| Operating cash costs (1) Abnormal mining costs - cash Capitalized stripping and ice unload - cash Operating cash costs and capitalized stripping Sustaining capital (cash)(1) Growth capital (cash)(1) Operating cash costs including capital Corporate and other cash costs (2) All-in Cash Costs (pre-tax) (1) Revenue-based tax All-in Cash Costs (including taxes) (1) | $ 64.1 - 40.7 | $ 31.8 8.1 47.5 | $ 148.6 - 150.7 | $ 104.1 10.9 141.0 | ||
| 104.7 13.3 7.9 | 87.4 13.6 15.8 | 299.3 40.1 33.4 | 256.1 30.3 139.8 | |||
| 125.9 | 116.8 | 372.7 | 426.2 | |||
| - | - | - | - | |||
| $ 125.9 | $ 116.8 | $ 372.7 | $ 426.2 | |||
| 16.4 | 6.2 | 50.7 | 30.2 | |||
| $ 142.3 | $ 123.0 | $ 423.4 | $ 456.4 | |||
| Ounces poured All-in Cash Costs (pre-tax) - $/oz produced (1) All-in Cash Costs (including taxes) - $/oz produced (1) | 90,289 $ 1,395 $ 1,576 | 23,786 $ 4,911 $ 5,170 | 252,272 $ 1,478 $ 1,678 | 125,799 $ 3,388 $ 3,628 | ||
| BOROO | Three months ended September 30 | Nine months ended September 30 | ||||
| $ millions, except as noted | 2013 | 2012 | 2013 | 2012 | ||
| Operating cash costs (1) Capitalized stripping - cash Operating cash costs and capitalized stripping Sustaining capital (cash) (1) Growth capital (cash) (1) Operating cash costs including capital Corporate and other cash costs(2) All-in Cash Costs (pre-tax) (1) Income tax All-in Cash Costs (including taxes) (1) | $ 15.5 - | $ 14.9 - | $ 42.6 - | $ 35.9 6.3 | ||
| 15.5 2.5 - | 14.9 0.5 - | 42.6 7.1 - | 42.2 1.7 - | |||
| 18.0 | 15.4 | 49.7 | 43.9 | |||
| - | - | - | - | |||
| $ 18.0 | $ 15.4 | $ 49.7 | $ 43.9 | |||
| 3.9 | 1.8 | 12.7 | 5.2 | |||
| $ 21.9 | $ 17.2 | $ 62.4 | $ 49.2 | |||
| Ounces poured All-in Cash Costs (pre-tax) - $/oz produced (1) All-in Cash Costs (including taxes) - $/oz produced (1) | 23,551 $ 765 $ 932 | 18,938 $ 812 $ 908 | 76,214 $ 652 $ 818 | 41,961 $ 1,047 $ 1,172 |
(1) Non-GAAP measure, see discussion under “Non-GAAP Measures”.
(2) Corporate and other cash costs include corporate general and administrative expenses, global exploration expenses and community investments which are only reflected in the all-in cash cost amounts reported at the consolidated level.
(3) Operating cash costs and capitalized stripping for 2012 were restated to reflect the impact on adoption of IFRIC 20.