Operating Results of the 1st Quarter of 2017

Operating Results of the 1st Quarter of 2017

published: 15 May 2017

Centerra Gold Inc. (Centerra) and Kumtor Gold Company (KGC) have summed up their operating results in the first quarter of 2017. In the first three months of 2017, KGC produced 127,400 ounces¹ or 3962.59 kg of gold and contributed more than 2.2 billion soms in taxes and mandatory payments.

Gold Production and Sales

Gold production for the first quarter of 2017 was 127,400 ounces compared to 86,444 ounces of gold in the comparative period of 2016.

The increase in ounces poured is a result of milling higher grade ore from stockpiles mined from cut-back 17 of the Central pit at the beginning of the fourth quarter in 2016, compared to the lower grade ore mined and processed from the initial benches in cut-back 17 during the comparative period.

During the first quarter of 2017, Kumtor focused on simultaneously developing both the Central pit through mining cut-back 18 and the commencement of mining at the Sarytor pit. The Sarytor pit is approximately three kilometres south of the Central pit. The Company expects to obtain access to the Sarytor ore in the second half of 2017.

Gold sales in the first quarter of 2017 were 134,682 ounces, or 4.19 tonnes. Total revenues from gold sales in the first quarter of 2017 were $ 164.1 million2.

The Dore bars produced by the Kumtor mine are purchased by Kyrgyzaltyn JSC for processing at the Kara-Balta refinery pursuant to a Gold and Silver Sales Agreement signed by KGC, Kyrgyzaltyn and the Government of the Kyrgyz Republic. Kyrgyzaltyn JSC enjoys the exclusive right to sell refined gold and silver both in and outside the Kyrgyz Republic.

Operating costs and All-in Measures

Operating costs4 (on a sales basis), including capitalized stripping, decreased in the first quarter of 2017 by $0.4 million to $73.8 million compared to $74.2 million in the comparative quarter of 2016.

The movements in the major components of operating costs (mining and milling) in the first quarter of 2017 compared to the same period of 2016 are explained as follows:

Mining Costs, including capitalized stripping (First Quarter 2017 compared to First Quarter 2016):
Mining costs, including capitalized stripping, totaled $47.7 million in the first quarter of 2017, which was similar to the comparative quarter in 2016. Decreased costs for the first quarter of 2017 includes lower diesel costs ($1.4 million) due to lower consumption resulted from an advantageous hauling profile and lower fuel prices, lower blasting costs ($1.0 million) due to lower ammonium nitrate prices and lower blasted tonnages (35.1 Mt vs 38.9 Mt). Lower costs were partially offset by higher maintenance cost ($1.2 million) resulting from concentrated works on the shovels and dozers and higher labour cost ($1.1 million) due to a new collective agreement and strengthening of the Kyrgyz som in comparison to the same period of 2016.

Milling Costs (First Quarter 2017 compared to First Quarter 2016):
Milling costs of $15.4 million in the first quarter of 2017 were similar to the comparative quarter of 2016. Lower cyanide costs ($0.6 million) resulting from lower consumption (0.61 kg/t vs 0.66 kg/t) and a lower price, were offset by other costs ($0.5 million), including higher labour costs and exchange rate differences.

Other Cost movements:
Site support costs in the first quarter of 2017 totaled $10.7 million which is comparable to the same quarter in 2016.
All-in sustaining costs on a by-product basis per ounce sold4, which excludes revenue-based tax, was $762 for the first quarter of 2017 compared to $916 in the first quarter of 2016, representing a decrease of 17%. The unit cost decrease results from the increase in ounces sold (134,682 ounces vs 61,744 ounces, as explained above), partially offset by the additional operating costs associated with the increased sale volume. Including revenue-based taxes, all-in sustaining costs on a by-product basis per ounce sold4 was $933 for the first quarter of 2017 compared to $1,084 in the first quarter of 2016.

Operating Results of the Kumtor Project

Three month ended March 31
2017 2016 % Change
Revenue  from gold sales to Kyrgyzaltyn – $ millions** 164.1 73.2 124%
Cost of sales**** – $millions 72.2 31.2 132%
Cost of sales**** – $/$/oz sold 536 505 6%
Tonnes mined – 000s 39,003 39,275 (1%)
Tonnes ore mined – 000s – 1,826 0%
Tonnes milled – 000s 1,536 1,543 (0%)
Average mill head grade – g/t 3.53 2.27 55%
Recovery – % 76.0% 75.0% 1%
Gold produced – ounces* 127,400 86,444 47%
Gold produced – kg 3962.59 2688.71 47%
Gold sold – ounces* 134,682 61,744 118%
Gold sold – kg 4189.08 1920.45 118%
Average realized gold price**** – $/oz 1,219 1,186 3%
Capital expenditures**** (sustaining) 15.2 23.0 (34%)
Capital expenditures**** (growth) 0.9 4.7 (81%)
Capital expenditures**** (stripping) 46.7 10.4 348%
Operating costs (on a sales basis)4 36.3 19.1 90%
Adjusted operating costs**** – $/oz sold 299 371 (20%)
Gold – All-in sustaining costs on a by-product basis – $/oz sold4 762 916 (17%)
Gold – All-in sustaining costs on a by-product basis (including taxes)- $/oz sold4 933 1,084 (14%)

* – One Troy ounce equals to 31.103 48 grammes.
** – Unless specified otherwise, all dollar figures in this news release are in US dollars.
***– Numbers may not add up due to rounding
****- Adjusted operating costs, all-in sustaining costs, all-in costs and all-in costs – including taxes (in $ millions and per ounce sold), as well as average realized gold price per ounce sold and capital expenditures (sustaining and growth) are non-GAAP measures.

2016 Payments to the Kyrgyz National Budget and Mandatory Contributions

During the first three months of 2017, contributions to the national budget in taxes, deductions to the Social Fund and other mandatory payments have totaled 2.2 billion soms.

Kumtor’s Contributions in Taxes and Mandatory Payments for the First Three Months of 2016

 

As of March 31, 2017. USD thousands
Gross Proceeds tax 23,168.14
Issyk-Kul Development Fund 1,389.47
Pollution tax 310,00
Employee Income tax 1,245.57
Social Insurance Fund 5,673.43
Customs 148.83
Tax on nonresident companies 168.59
Other taxes and mandatory payments 108.94
Total 32,213
US$ official exchange rate to the Kyrgyz Soms as of March 31, 2017 68.61
Equivalent of payments effected in thousand Kyrgyz Soms 2,210,032.01


Note: Under the Agreement on New Terms dated as of April 24, 2009, the revenue-based tax and contributions to the Issyk-Kul Region Development Fund are estimated based on actual cash revenues from sales during the period under review.

Outlook for 2017

Kumtor’s gold production forecast is expected to be in the range of 455,000 ounces to 505,000 ounces with 30% of the gold production expected to be in the fourth quarter. At Kumtor, 2017 total capital expenditures, excluding capitalized stripping, are forecast to be $96 million2. Spending on sustaining capital4 of $68 million relates primarily to major overhauls and replacements of the heavy duty mine equipment ($58 million), major overhauls and replacements of mill equipment ($3 million) and other items ($7 million). Growth capital4 investment at Kumtor for 2017 is forecast at $28 million and includes the relocation of certain infrastructure at Kumtor related to the life-of-mine expansion plan amounting to $9 million, tailings dam construction ($11 million), purchase of new mining equipment ($4 million), dewatering projects ($2 million) and other items ($2 million). The cash component of capitalized stripping costs related to the development of the open pit is expected to be $172 million of the $234 million total capitalized stripping in 2017.

CEO Commentary

Scott Perry CEO of Centerra Gold stated, “While the Company had a good quarter operationally and financially, it was over shadowed by a tragic event which occurred in April at Kumtor when an employee was fatally injured while inspecting a light vehicle in the field. This tragedy reinforces our commitment to our Company-wide safety leadership program “Work Safe, Home Safe” which we continue to roll out to all our sites.

***

The Kumtor open pit mine, located in the Kyrgyz Republic, is the largest gold mine in Central Asia operated by a Western-based producer. It has been operating since May 1997 and, as of March 31, 2016, has produced approximately 11.064 million ounces or 344.14 tonnes of gold.

Kumtor Gold Company is a wholly-owned subsidiary of Centerra Gold Inc. and is the operator of the Kumtor project responsible for the entire production cycle.

Centerra Gold Inc. Centerra is a Canadian-based gold mining company focused on operating, developing, exploring and acquiring gold properties in Asia, North America and other markets worldwide. Centerra is the largest Western-based gold producer in Central Asia. Centerra’s shares trade on the Toronto Stock Exchange (TSX) under the symbol CG. The Company is headquartered in Toronto, Ontario, Canada.

The Kyrgyz Republic, via Kyrgyzaltyn JSC, is Centerra’s largest shareholder owning 77,401,766 shares as of May 15, 2017, Kyrgyzstan’s interests were estimated at $ 450 million.

Additional information on Centerra and the full text of the news release on the results of the first quarter of 2017 are available on SEDAR at www.sedar.com and and the corporate websites at www.centerragold.com and www.kumtor.kg.