Operating Results of the 3rd Quarter of 2016

Operating Results of the 3rd Quarter of 2016

published: 18 November 2016

Centerra Gold Inc. (Centerra) and Kumtor Gold Company (KGC) have summed up their operating results in the third quarter of 2016. In the nine months of 2016, the Kumtor mine produced 350,198 ounces* or 10,892.38 kg of gold. The Company has contributed more than 5 billion soms in taxes and mandatory payments.

Gold Production and Sales

During the third quarter of 2016, Kumtor continued to process ore from cut-back 17. Gold production for the third quarter of 2016 was 166,030 ounces of gold compared to 103,701 ounces in the comparative period of 2015. The increase in ounces poured was the result of mining and milling higher grade ore from the SB Zone, while in the third quarter of 2015 the Company processed lower grade ore stockpiled from cut-back 16.

During the third quarter, Kumtor processed 1.6 million tonnes, 5% more than the third quarter of 2015. Kumtor’s average mill head grade was 4.11 g/t with a recovery of 81.4% in the third quarter of 2016, compared to 2.83 g/t with a recovery of 75.7% for the same period of 2015. The mill achieved increased throughput in the third quarter of 2016 averaging 17,074 tonnes per day compared to 16,262 tonnes per day in the comparative quarter. Mill throughput has increased as a result of blending harder and softer ore, opening screens in the SAG mill and increasing the grinding media sizes in the SAG and ball mills.

Gold sales in the third quarter of 2016 were 164,847 ounces, or 5.13 tonnes. Total revenues from gold sales in the third quarter of 2016 were $220.2 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 sustaining costs per ounce sold***, which excludes revenue-based taxes, for the third quarter of 2016 decreased 45% to $555 in the third quarter of 2016 compared to $1,000 in the third quarter of 2015. The decrease was primarily a result of lower operating costs**** per ounce sold (driven by processing higher mining grades from the SB Zone of cut-back 17, increasing mill throughput and improving mill recovery through the year (81.4% during the third quarter) and the reversal of $27.2 million in inventory impairment), in addition to lower sustaining capital expenditures in the quarter.

All-in costs per ounce sold***, which excludes revenue-based taxes, in the third quarter of 2016 was $574 compared to $1,014 in the same period of 2015, representing a decrease of 43%, for the same reasons explained above.

Capital expenditures in the third quarter of 2016 totaled $54.9 million which includes $13.0 million of sustaining capital*** mainly on equipment rebuilds and overhauls, $3.2 million invested in growth capital*** and $38.7 million for capitalized stripping ($28.2 million cash). Capital expenditures in the comparative quarter of 2015 totaled $80.7 million, consisting of $14.4 million for sustaining capital***, $1.4 million for growth capital*** and $64.9 million of capitalized stripping ($49.1 million cash).

Operating Results of the Kumtor Project


Unaudited ($ millions, except as noted) Three Months Ended September 30 Nine Months Ended September 30
2016 2015 % Change 2016 2016 % Change
Revenue  from gold sales to Kyrgyzaltyn – $ millions 220.2 113.59 4% 455.0 460.1 (1%)
Operating costs (on a sales basis)**** 46.7 33.5 39% 126.9 104.3 22%
Tonnes mined – 000s 34,838 41,944 (17%) 108,856 124,109 (12%)
Tonnes ore mined – 000s 3,970 1,136 249% 8,687 2,642 229%
Tonnes milled – 000s 1,571 1,496 5% 4,722 4,225 12%
Average mill head grade – g/t 4.11 2.83 45% 3.01 3.63 (17%)
Recovery – % 81.4% 75.7% 8% 77.0% 78.4% (2%)
Gold produced – ounces 166,030 103,701 60% 350,198 390,084 (10%)
Gold produced – kg 5,164.11 3,225.5 60% 10,892.38 12,133 (10%)
Gold sold – ounces 164,847 100,994 63% 354,500 388,968 (9%)
Gold sold – kg 5,127.32 3,141.3 63% 11,026.19 12,098.3 (9%)
Average realized gold price – $/oz*** 1,336 1,124 19% 1,284 1,183 9%
Capital expenditures (sustaining)*** 13.0 14.4 (10%) 49.6 38.6 28%
Capital expenditures (growth)*** 3.2 1.4 129% 13.3 11.8 13%
Capital expenditures (stripping)*** 38.7 64.9 (40%) 78.4 198.4 (60%)
Adjusted operating costs – $/oz sold*** 303 369 (18%) 390 304 28%
All-in sustaining costs – $/oz sold*** 555 1,000 (45%) 695 791 (12%)
All-in costs – $/oz sold*** 574 1,014 (43%) 732 821 (12%)
All-in costs (including taxes) – $/oz sold*** 761 1,171 (35%) 912 987 (8%)

* – 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” in Centerra’s news release dated November 7, 2016.
**** – 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 Nine Months of 2016, contributions to the national budget in taxes, deductions to the Social Fund and other mandatory payments have totaled 5 billion soms.

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


                                                                             USD thousands
Q1 2016 Q2 2016 Q3 2016
Gross Proceeds Tax 15,076.88 13,967.338  20,954.16
Issyk-Kul Development Fund 1,159.76 1,074.41 1,611.86
Pollution tax 310,000.00
Employee Income tax 1,125.93 1,151  939.77
Social Insurance Fund 5,056.86 4,594.30  4,245.85
Customs 188.74 138.758 74.63
Tax on nonresident companies 173.33 190.28  772.82
Other taxes and mandatory payments 63.92 348.862  105.20
Total 23,155.42 21,464.95 28,704.28
US$ official exchange rate to the Kyrgyz Soms  70.0158 67.4860 68.6538
Equivalent of payments effected in thousands Kyrgyz Soms 1,621,245.46 1,448,583.41 1,970,657.85


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

At Kumtor, 2016 total capital expenditures, excluding capitalized stripping, are forecast to be $85 million, which is $12 million lower than the previous guidance. The Company decreased its forecast for sustaining capital*** from $75 million in the previous guidance to $68 million due to further cancelations or deferral of major overhauls and replacements of certain heavy duty mine equipment ($7 million).

2016 forecast for growth capital investment at Kumtor has been reduced to $17 million ($22 million in the previous guidance) reflecting lower cost estimates for relocation of certain infrastructure at Kumtor relating to the ongoing Kumtor pit expansion ($5 million).

The projected cash component of capitalized stripping costs related to the development of the open pit is expected to be $112 million ($108 million in the previous guidance) due to increased overburden stripping at the cut-back 18. Total capitalized stripping costs, including DD&A, are forecasted at $150 million for 2016 ($145 million in the previous guidance).

CEO Commentary

Scott Perry CEO of Centerra Gold stated, “As we mined and processed the higher grade material from the SB Zone, Kumtor delivered strong gold production in the quarter, producing 166,030 ounces. Kumtor’s all-in sustaining costs*** were in the lower cost quartile of the gold industry at $555 per ounce sold, well below our revised guidance for the year. During the third quarter, Kumtor generated $106 million of free cash, however without access to the cash generated from the Kumtor Project, the Company has decided to defer until December the consideration of declaring a quarterly dividend.”

“With our third quarter earnings release, the Company increased its gold production guidance for Kumtor for the year to 520,000 – 560,000 ounces. We also lowered our expected all-in sustaining costs*** by 6% at Kumtor to $692 per ounce sold.”

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 September 30, 2016, has produced approximately 10.70 million ounces or 333.9 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 North America, Asia 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 November 17, 2016, Kyrgyzstan’s interests were estimated at $ 395 million.

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