Operating Results of the 2nd Quarter of 2016

published: 17 August 2016

Centerra Gold Inc. (Centerra) and Kumtor Gold Company (KGC) have summed up their operating results in the second quarter of 2016. In the first six months of 2016, the Kumtor mine produced 184,168 ounces* or 5,728.27 kg of gold. The Company has contributed more than 3.01 billion soms in taxes and mandatory payments.

Gold Production and Sales

During the second quarter of 2016, Kumtor continued to process ore from cut-back 17 and ore stockpiled from the previous year. Gold production for the second quarter of 2016 was 97,724 ounces of gold compared to 122,111 ounces of gold in the comparative period of 2015. The decrease in ounces poured is due processing lower grade ore from stockpiles and from cut-back 17. In contrast, during the comparative quarter of 2015, the Company processed higher grade stockpiled ore mined from the lower benches of cut-back 16. During the quarter, Kumtor processed 1.6 million tonnes, 4% more than the second quarter of 2015. Kumtor’s average mill head grade was 2.63 g/t with a recovery of 71.9% in the second quarter of 2016, compared to 3.26 g/t with a recovery of 77.5% for the same period of 2015. The mill achieved increased throughput in the second quarter of 2016 averaging 17,700 tonnes per day compared to 17,100 tonnes per day in the comparative quarter.

Gold sales in the second quarter of 2016 were 127,909 ounces, or 3.98 tonnes. Total revenues from gold sales in the second quarter of 2016 were $161.62 million**.

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.

Production costs and capital expenditures

All-in costs per ounce sold3, which excludes revenue-based taxes, for the second quarter of 2016 was $810 compared to $867 in the comparative period of 2015, representing a decrease of 7%. The decrease is a result of lower all-in sustaining costs***.

Capital expenditures in the second quarter of 2016 totaled $44.6 million which includes $13.6 million of sustaining capital*** mainly on equipment rebuilds and overhauls, $5.4 million invested in growth capital*** and $25.6 million for capitalized stripping ($18.9 million cash). Capital expenditures the comparative quarter of 2015 totaled $81.7 million, consisting of $11.8 million for sustaining capital***, $3.9 million for growth capital3 and $66.0 million of capitalized stripping ($49.5 million cash).

All-in sustaining costs per ounce sold***, which excludes revenue-based taxes, for the second quarter of 2016 decreased 8% to $768 compared to $835 in the comparative period of 2015. The decrease results primarily from the higher ounces sold, as the Company sold the 33,165 ounces that were delayed at the end of March 2016 due to the contractual negotiations between Kyrgyzaltyn and its off-take bank.

Operating Results of the Kumtor Project

 

Unaudited ($ millions, except as noted) Three Months Ended June 30 Six Months Ended June 30
2016 2015 % Change 2016 2016 % Change
Revenue  from gold sales to Kyrgyzaltyn – $ millions 161.62 141.6 14% 234.85 346.6 (32%)
Operating costs (on a sales basis)**** 61.6 32.8 88% 80.7 70.7 14%
Tonnes mined – 000s 34,744 40,434 (14%) 74,018 82,165 (10%)
Tonnes ore mined – 000s 2,891 168 1,621% 4,717 1,506 213%
Tonnes milled – 000s 1,609 1,554 4% 3,151 2,729 15%
Average mill head grade – g/t 2.63 3.26 (19%) 2.46 4.06 (39%)
Recovery – % 71.9% 77.5% (7%) 73.3% 79.4% (8%)
Gold produced – ounces 97,724 122,111 (20%) 184,168 286,383 (36%)
Gold produced – kg 3,039.56 3,798.08 (20%) 5,728.27 8,907.51 (36%)
Gold sold – ounces 127,909 118,789 8% 189,653 287,974 (34%)
Gold sold – kg 3,978.42 3,694.75 8% 5,898.87 8,957.00 (34%)
Average realized gold price – $/oz*** 1,264 1,192 6% 1,238 1,204 3%
Capital expenditures (sustaining)*** 13.6 11.8 15% 36.6 24.3 51%
Capital expenditures (growth)*** 5.4 3.9 38% 10.1 10.3 (3%)
Capital expenditures (stripping)*** 25.6 66.0 (61%) 39.7 133.5 (70%)
Adjusted operating costs – $/oz sold*** 511 317 61% 466 280 66%
All-in sustaining costs – $/oz sold*** 768 835 (8%) 816 717 14%
All-in costs – $/oz sold*** 810 867 (7%) 869 753 15%
All-in costs (including taxes) – $/oz sold*** 987 1,035 (5%) 1,043 922 13%

* – One Troy ounce equals to 31,10348 grammes.
** – Unless specified otherwise, all dollar figures in this news release are in US dollars.
*** – Adjusted operating costs, all-in sustaining costs, all-in costs and all-in costs – including revenue-based taxes (in $ millions and per ounce sold), as well as average realized gold price per ounce sold, cost of sales per ounce sold and capital expenditures (sustaining and growth) are non-GAAP measures and are discussed under “Non-GAAP Measures”.
**** – Operating costs (on a sales basis) is comprised of mine operating costs such as mining, processing, regional office administration, royalties and production taxes (except at Kumtor where revenue-based taxes are excluded), but excludes reclamation costs and depreciation, depletion and amortization.

Payments to the Kyrgyz National Budget and Mandatory Contributions

During the second quarter of 2016, contributions to the national budget in taxes, deductions to the Social Fund and other mandatory payments have totaled 1,448,583,413.24 soms.

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

 

As of June 30, 2016 USD thousands
Revenue-based tax 29,044,223.15
Issyk-Kul Development Fund 2,234,171.02
Pollution tax 310,000.00
Employee Income tax 2,276,930.00
Social Insurance Fund 9,651,165.90
Customs 327,500.00
Tax on nonresident companies 363,602.22
Other taxes and mandatory payments 413,471.00
Total 44,621,063.29
US$ official exchange rate to the Kyrgyz Soms as of June 30, 2016 67.49
Equivalent of payments effected in thousands Kyrgyz Soms 3,011,297,076.94

 

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 2016

The Kumtor mine is expected to produce between 500,000 to 530,000 ounces in 2016, which narrows the range from the previous guidance of 480,000 to 530,000 ounces as disclosed in the Company’s news release of May 3, 2016. Gold production is consistent with the 2016 production outlined in the life-of-mine plan set out in the Kumtor NI 43-101 technical report dated March 20, 2015, filed on SEDAR. According to the 2016 mine plan at Kumtor more than half of the annual gold production will come in the second half of 2016.

At Kumtor, 2016 total capital expenditures, excluding capitalized stripping, are forecast to be $97 million, which is $13 million lower from the previous guidance. The Company decreased its forecast for sustaining capital*** from $84 million in the previous guidance to $75 million due to cancelations or deferral of major overhauls and replacements of certain heavy duty mine equipment ($7 million) and mill equipment ($2million).

2016 forecast for growth capital investment at Kumtor has been reduced to $22 million ($26 million in the previous guidance) reflecting lower cost estimates for relocation of certain infrastructure at Kumtor relating to the ongoing Kumtor pit expansion ($2 million) and other items ($2 million). The projected cash component of capitalized stripping costs related to the development of the open pit is expected to decrease to $108 million from $122 million in the previous guidance reflecting lower labour and diesel costs. Total capitalized stripping costs, including DD&A, are forecasted at $145 million ($162 million in the previous guidance) for 2016.

Quarterly Dividend

On July 26, 2016, the Centerra Gold Inc. announced that its Board of Directors declared a quarterly dividend of C$0.04 per common share, payable on August 25, 2016 to shareholders of record on August 11, 2016.

Commentary

Scott Perry CEO of Centerra Gold stated, “Kumtor delivered strong gold production in the quarter producing 97,724 ounces which was in line with our expectations and plans. Kumtor’s all-in sustaining costs were a competitive $768 per ounce sold*** well below our original guidance for the year. With mining activities at Kumtor slightly ahead of plan and the business improvement opportunities achieved so far this year combined with the favourable diesel fuel costs and currency exchange rate environment, we have decided to favourably revise our guidance for gold production, AISC and capital expenditures.”

“With our second quarter released today, the Company favourably revised its guidance for the year, narrowing expected gold production to 500,000 – 530,000 ounces, lowered our expected all-in sustaining costs*** by 14% at Kumtor to $738 per ounce sold and 14% Company-wide to $800 per ounce sold, based on the mid-point of the ranges, and lowered our overall expected capital expenditures for the year to $140 million a 48% decrease, excluding capitalized stripping. We are well positioned to achieve our revised gold production and cost guidance for the year, since mining at Kumtor recently intersected the higher grade ore in the SB Zone in cut-back 17.”

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 June 30, 2016, has produced approximately 10.666 million ounces or 328.8 tonnes of gold.

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

Centerra Gold Inc. 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.

Additional information on Centerra and the full text of the news release on the results of the second quarter of 2016 are available on SEDAR and the corporate websites at www.centerragold.com and www.kumtor.kg.

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