Operating Results of the 2nd Quarter of 2014

published: 11 August 2014

Operating Results of the 1st Quarter of 2014
Centerra Gold Inc. (Centerra) and Kumtor Gold Company have summed up the operating results of the 2nd quarter of 2014. In the first six months of 2014, the Kumtor mine produced 180,793 ounces or 5,623 kg of gold. The Company has contributed more than 3 billion soms in taxes and mandatory payments.

Gold Production and Sales

At the Kumtor mine, gold production in the second quarter was 2,422 kg (or 77,860 ounces) compared to 2,251 kg (or 72 365 ounces) in the same quarter in 2013 as Kumtor processed stockpiled ore from cut-back 15 that was mined during the fourth quarter of 2013. The increase in ounces poured was due to processing more tonnes with a higher average mill head grade than the comparative period. During the second quarter of 2014, Kumtor’s mill head grade averaged 2.35 g/t with a recovery of 73.2%. Tonnes processed were approximately 1.4 million for the second quarter of 2014, which was 6% higher than the comparative quarter of 2013

Gold sales in the second quarter of 2014 were 77,743 ounces, or approximately 2.4 tonnes. Total revenue from gold sales in the second quarter of 2013 was $99.8 million.

The Dore bars produced by the Kumtor mine are purchased by Kyrgyzaltyn JSC for processing at the Kara-Balta refinery pursuant to a Restated Gold and Silver Sale Agreement signed by Kumtor Operating Company on behalf of Kumtor Gold Company, Kyrgyzaltyn JSC 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.

Production costs and capital expenditures

All-in sustaining costs per ounce sold, which excludes revenue-based tax, were $1,511 in the second quarter of 2014 compared to $1,681 in the comparative quarter of 2013. The decrease results primarily from higher production and sales.

All-in costs per ounce sold, excluding taxes for the second quarter of 2014 amounted to $1,658 compared to $1,842 in the comparative period of 2013. The decrease in all-in costs is primarily due to an 11% increase in gold sold for the second quarter of 2014.

Capital expenditures in the second quarter of 2014 were $111.2 million which includes:
– $12.9 million of sustaining capital;
– $11.4 million invested in growth capital; and
– $86.9 million for capitalized stripping ($61.5 million cash).

Operating Results for the Kumtor Project

Three Months Ended June 30 Six Months Ended June 30
2014 2013 % Change 2014 2013 % Change
Revenue from gold sales to Kyrgyzaltyn $ millions2 99,8 96,5 3% 231,4 245,2 (6%)
Cost of sales3 – – cash $millions 36,0 40,5 (11%) 67,6 72,7 (7%)
Cost of sales3 – non-cash $millions 56,9 25,2 126% 120,4
59,3 103%
Cost of sales3,4 – $/oz sold 1 195 935 28% 1 047 815 28%
Tonnes mined – 000s 49 527 47 901 3% 100 289 88 085 14%
Tonnes ore mined – 000s 460 799 (42%) 602 1 008 (40%)
Tonnes milled – 000s 1 430 1 351 6% 2 912 2 824 3%
Average mill head grade – g/t 2,35 2,17 8% 2,50 2,44 2%
Recovery – % 73,2 69,3 6% 74,8 72,0 4%
Gold produced – ounces1 77 860 72 364 8% 180 793 161 983 12%
Gold produced – kg 2 422 2 251 8% 5 623 5 038 12%
Gold sold – ounces1 77 743 70 318 11% 179 658 161 935 11%
Gold sold – kg 2 418 2 187 11% 5 588 5 037 11%
Average realized gold price4 – $/oz 1 284 1 372 (6%) 1 288 1 514 (15%)
Adjusted operating costs4 – $/oz 551 660 (17%) 443 512 (13%)
All-in sustaining costs4 – $/oz 1 511 1 681 (10%) 1 254 1 359 (8%)
All-in costs4 – $/oz 1 658 1 842 (10%) 1 328 1 552 (14%)
All-in costs including taxes4 – $/oz 1 838 2 034 (10%) 1 508 1 764 (15%)
Capital expenditures (sustaining)4 –  $millions 12,9 15,0 (14%) 21,2 26,8 (21%)
Capital expenditures (growth)4 – $millions 11,4 9,3 23% 13,4 25,4 (47%)
Capital expenditures (stripping) $millions 86,9 77,2 13% 175,0 151,5 16%

1 – One Troy ounce equals to 31,10348 grammes.
2 – Unless specified otherwise, all dollar figures in this news release are in US dollars.
3– Cost of sales does not include administrative expenses.
4– In 2013, the Company adopted non-GAAP performance measures recommended by the World Gold Council. See discussion under “Non-GAAP Measures” in Centerra’s news release of February 19, 2014.

“Adjusted operating costs”, “all-in sustaining costs”, “all-in cash costs” pre-tax and including tax as well as “average realized price” and “cost of sales” per ounce sold are non-GAAP measures.

Dividend

Centerra’s Board of Directors has authorized a dividend of Cdn$0.04 per common share. The dividend is payable on August 28, 2014, to shareholders of record on the Toronto Stock Exchange on August 14, 2014.

Payments to the Kyrgyz National Budget and Mandatory Contributions

During the first six months of 2014, contributions to the national budget in taxes, deductions to the Social Fund and other mandatory payments totaled 3 billion soms.

Kumtor’s Contributions in Taxes and Mandatory Payments for the First Six Months of 2014

As of June 30, 2014 USD thousands
Gross Proceeds Tax 39 822,09
Issyk-Kul Development Fund 3 832,47
Pollution Tax 310,00
Employee Income Tax 2 479,97
Contributions to the KR Social Fund (employer and employee) 10 821,09
Customs Administration Fee 495,99
Withholding Tax on non-residents 234,17
Other taxes and mandatory payments 37,30
Total                                                                                 58 033,07
US$ official exchange rate to the Kyrgyz Soms as of June 30, 2014 52.06
Equivalent of payments effected in thousands Kyrgyz Soms 3 021 486,11

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.

Commentary
Evaluating the results of the second quarter of 2014, Michael Fischer, President of Kumtor Gold Company, commented, “We are happy to report that during the second quarter the Kumtor mine obtained approvals of its 2014 mine plan allowing the operations to continue uninterrupted. The results obtained allow us to count on the successful achievement of our 2014 guidance.”

Outlook for 2014

According to estimates, Kumtor mine will produce between 550,000 and 600,000 ounces or 17.1-18.7 tonnes in 2014 and, similar to 2013, over 50% of this gold production is expected during the fourth quarter when mining will reach the high-grade section of the SB Zone.

The projected capital expenditures for 2014, excluding capitalized stripping, are estimated to be $86 million of which $43 million will be spending on sustaining capital, including the major overhaul maintenance of the mine equipment, purchase of ball mill girth gear, tailings dam construction raise and other items. Growth capital investment at Kumtor is forecast at $43 million and includes the relocation of certain infrastructure at Kumtor related to the KS-13 life-of-mine expansion plan, dewatering projects and purchase of new mining equipment.

Capitalized stripping costs (cash) are expected to be $181 million in 2014.

* * *

The Kumtor open pit mine, located in the Kyrgyz Republic, is the largest gold mine in Central Asia operated by a Western-based gold producer. It has been operating since May 1997 and, as of June 30, 2014, has produced approximately 9.5 million ounces or 294 tonnes of gold.

Kumtor Gold Company is the operator of the Kumtor project responsible for the entire production cycle.

Centerra Gold Inc. (Centerra) is a gold mining company focused on operating, developing, exploring and acquiring gold properties primarily in Asia, the former Soviet Union and other markets worldwide. Centerra is a leading North American-based gold producer and 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, Canada.

The Kyrgyz Republic, via Kyrgyzaltyn JSC, is Centerra’s largest shareholder owning 77,401,766 common shares (about 33%). As of August 11, 2014, Kyrgyzstan’s interests were estimated at $424 million.

Currently, Centerra has two producing gold mines in the Kyrgyz Republic and Mongolia. The Company also owns the Gatsuurt development project in Mongolia, the Öksüt Gold Project, Turkey, and has interests in the promising exploration properties in Mongolia, Turkey, Russia, Cyprus, and Western Canada.

Additional information on Centerra and the full text of its news release on the results of the second quarter of 2014 are available on SEDAR at www.sedar.com and www.centerragold.com. Information on KGC is available at www.kumtor.kg

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