Centerra Gold Inc. (Centerra) and Kumtor Gold Company (KGC) have summed up their operating results in the third quarter of 2017. In the first nine months of 2017, KGC produced 404,584 ounces¹ or 12,583.98 kg of gold and contributed more than 6.8 billion soms in taxes and mandatory payments.

Gold Production and Sales

During the third quarter of 2017, Kumtor produced 138,561 ounces of gold compared to 166,030 ounces of gold in the comparative period of 2016.
Gold sales in the third quarter of 2017 were 99,514 ounces, or 3.10 tonnes. Total revenues from gold sales in the third quarter of 2017 were $124.3 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 costs (on a sales basis) for the third quarter of 2017 decreased by $18.5 million to $26.7 million, as compared to the same quarter of 2017, reflecting 41% more tonnage moved including significant amount of waste removal in cut-back 18 of the Central pit which was capitalized in the third quarter of 2017. Including capitalized stripping, operating costs were $57.5 million compared to $83.9 million in the comparative third quarter of 2016. The increase in the major components of operating costs (mining, milling and site support) before changes in inventory is explained below.

Mining costs, including capitalized stripping, totaled $49.2 million in the third quarter of 2017, which was $4.7 million higher than the comparative quarter of 2016. Increased costs for the third quarter of 2017includes higher diesel costs ($1.8 million) mainly due to increased purchase price, higher blasting costs ($1.3 million) primarily due to increased blasting volumes, higher labour cost ($1.2 million) due to a new collective bargaining agreement and strengthening of the local currency. In addition higher maintenance cost ($0.7 million) resulted from additional repair work required on the 785 haul trucks.

Milling costs increased to $19.5 million in the third quarter of 2017, as compared to $16.1 million in the comparative quarter of 2016. The higher milling costs were due to comprehensive maintenance work during the planned total shutdown for the SAG, ball and regrind mills liners performed during the third quarter of 2017, whereas only SAG mill reline work occurred in the comparative period in 2016. During the shutdown, Kumtor took the opportunity to replace other mill components to boilers, derrick screens, and on the crusher.

Site support costs in the third quarter of 2017 totaled $10.5 million compared to $10.1 million in the comparative quarter in 2016. Site support costs increased slightly due to higher contractors costs for a major site clean-up initiative.

Other Cost movements:

DD&A associated with sales, decreased to $27.8 million in the third quarter of 2017, from $51.3 million in the comparative quarter of 2016, a 46% decrease. The decrease in 2017 is primarily due to 40% fewer ounces sold in the third quarter of 2017.

All-in sustaining costs on a by-product basis per ounce sold, which excludes revenue-based tax, was $807 for the third quarter of 2017 compared to $555 in the third quarter of 2016, representing an increase of 45%, primarily as a result of 40% fewer ounces sold. The third quarter of 2017 also includes the new environmental fee ($2.0 million accrued not yet paid) for the Nature Development Fund as a result of the comprehensive settlement agreement reached with the Kyrgyz Republic Government (impact $20 per ounce). Including revenue-based taxes, all-in sustaining costs on a by-product basis per ounce sold was $983 for the third quarter of 2017 compared to $742 in the same period of 2016. The increase is due to the higher all-in sustaining costs.

Operating Results of the Kumtor Project

 

Unaudited ($ millions, except as noted) Three Months Ended June 30 Six Months Ended June 30
2017 2016 % Change 2017 2016 % Change
Revenue from gold sales to Kyrgyzaltyn – $ millions2 124.3 218.7 (43%) 457.1 452 1%
Cost of sales – $millions 54.5 96.5 (44%) 207.1 244.4 (15%)
Cost of sales – $/oz sold 548 585 (6%) 561 689 (19%)
Tonnes mined – 000s 49,251 34,838 41% 131,108 108,856 20%
Tonnes ore mined – 000s 2,465 3,970 (38%) 2,477 8,687 (71%)
Tonnes milled – 000s 1,505 1,571 (4%) 4,578 4,722 (3%)
Average mill head grade – g/t 3.47 4.11 (16%) 3.51 3.01 17%
Mill Recovery – % 80.50% 81.40% (1%) 78.60% 77.00% 2%
Gold produced – ounces1 138,561 166,030 (17%) 404,584 350,199 16%
Gold produced – kg 4309.73 5164.11 (17%) 12,583.98 10,892.41 16%
Gold sold – ounces1 99,514 164,847 (40%) 369,431 354,500 4%
Gold sold – kg 3095.23 5127.32 (40%) 11,490.60 11,026.19 4%
Average realized gold price4$/oz sold 1,249 1,327 (6%) 1,237 1,275 (3%)
Capital expenditures (sustaining)4 cash 15.5 13 19% 44.2 49.6 (11%)
Capital expenditures (growth)4 –  cash 5.2 3.2 63% 11 13.3 (17%)
Capital expenditures (stripping)4 cash 30.8 38.7 (20%) 125 78.4 59%
Operating costs (on a sales basis)4  – $/oz sold 268 274 (2%) 274 350 (22%)
Adjusted operating costs4$/oz sold 338 303 11% 321 390 (18%)
Gold – All-in sustaining costs on a by-product basis – $/oz sold4 807 555 45% 782 695 12%

1 – One Troy ounce equals to 31.103 48 grammes.
2 – Unless specified otherwise, all dollar figures in this news release are in US dollars.
3 – Numbers may not add up due to rounding
4 – Adjusted operating costs, all-in sustaining costs on a by-product basis (including and excluding taxes), cash provided by operations before changes in working capital, as well as average realized gold price per ounce sold and capital expenditures (sustaining and growth) are non-GAAP measures and are discussed under “Non-GAAP Measures”.

Payments to the Kyrgyz National Budget and Mandatory Contributions

During the third quarter of 2017, contributions to the national budget in taxes, deductions to the Social Fund and other mandatory payments have totaled 2 billion soms.

Kumtor’s Contributions in Taxes and Mandatory Payments for the First Nine Months of 2017

  USD*
Q1 2017 Q2 2017 Q3 2017
Gross Proceeds Tax  23,168,141  27,041,241  22,671,153
Issyk-Kul Development Fund  1,389,468  2,472,792  1,743,935
Pollution tax  310,000  –  –
Employee Income tax  1,245,567  1,173,336  987,757
Social Insurance Fund  5,673,426  4,984,932  4,811,394
Customs  148,828  139,379  95,362
Tax on nonresident companies  168,592  152,640  84,533
Other taxes and mandatory payments  114,487  236,483  62,131
Total  32,218,509  36,200,803  30,456,265
US$ official exchange rate to the Kyrgyz Soms as of end of Quarter  68.6069  69.1367  68.6585
Equivalent of payments effected in Kyrgyz Soms  2,210,412,018  2,502,804,052  2,091,081,501

* – Numbers may not add up due to rounding

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

Commentary
Scott Perry CEO of Centerra Gold stated, “During the third quarter both of our operating sites completed the deployment of our Company-wide safety leadership program “Work Safe, Home Safe” with every employee. For the rest of the year we will continue to deploy the program at the balance of our sites, so that by year-end every Centerra employee will have received training.”
“In the quarter, we achieved an important milestone when we reached a comprehensive settlement agreement with the Government of the Kyrgyz Republic to resolve all of the outstanding matters affecting the Kumtor Project. The settlement provides for the lifting of all restrictions on the freedom of movement of Kumtor employees as well as the restrictions on the ability of Kumtor to distribute funds to Centerra. The agreement also provides business certainty for future mining operations at the Kumtor Project, as it preserves all rights of Centerra and Kumtor under the Kumtor Project Agreements.”

***
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, 2017, has produced approximately 11.389 million ounces or 354.257 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 a leading Canadian-based gold producer and is one of the largest Western-based gold producers in Central Asia. Centerra’s principal operations are the Kumtor Project located in the Kyrgyz Republic and the Mount Milligan Mine located in British Columbia, Canada.
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 16, 2017, Kyrgyzstan’s interests were estimated at $ 454 million.

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