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| Name | Symbol | Market | Type |
|---|---|---|---|
| Bristol Gate Concentrated Canadian Equity ETF | TSX:BGC | Toronto | Exchange Traded Fund |
| Price Change | % Change | Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
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Hot Features
Premium
Centerra Gold Inc. (TSX:CG) today reported net earnings of $122.1 million or
$0.52 per share on revenues of $255.5 million compared to a net loss of $20.3
million or $0.09 per common share based on revenues of $98.4 million in the same
quarter last year.
Consolidated gold production for the first quarter of 2010 totaled 211,039
ounces at a total cash cost of $340 per ounce produced compared to 103,204
ounces at a total cash cost of $871 per ounce produced in the corresponding
quarter of 2009. The significant increase in gold production in the first
quarter of 2010 is a result of the mining and processing of higher grade
material and achieving higher recoveries at the Kumtor mine. Cash provided by
operations, net of working capital changes was $82.4 million compared to $10.8
million in the first quarter of 2009. (Total cash cost is a non-GAAP measure and
is discussed under "Non-GAAP Measures" in the Management's Discussion and
Analysis issued in conjunction with this news release.)
The recent civil and political unrest in the Kyrgyz Republic has not caused any
interruption in production at the Kumtor mine.
First Quarter Highlights
- Consolidated gold production of 211,039 ounces at a total cash cost of
$340 per ounce
- Cash provided by operations of $82.4 million
- Cash and short-term investments increased to $384.2 million; no debt
- Consolidated gold production guidance for 2010 remains unchanged
- Exploration at Gatsuurt identifies new oxide gold mineralization
Commentary
"While we are pleased with the results of the first quarter, I would like to
express our condolences to all those who lost family members or who were injured
during the events of recent weeks in the Kyrgyz Republic," said Steve Lang,
President and CEO of Centerra Gold. "Centerra is committed to work with the
government of the Kyrgyz Republic and has offered to provide humanitarian aid
and support," he concluded.
Financial and Operating Summary
Revenues for the first quarter of 2010 were $255.5 million compared to $98.4
million during the same period one year ago. First quarter 2010 revenue reflects
a 114% increase in ounces sold and a 22% increase in realized gold price ($1,112
per ounce in the first quarter of 2010 versus $915 per ounce in the first
quarter of 2009) in the period. The increase in ounces sold reflects the higher
production available for sale in the 2010 quarter and the destocking from the
inventory built-up at the end of 2009.
Gold production for the first quarter was 211,039 ounces compared to 103,204
ounces reported in the first quarter of 2009. Gold production at Kumtor was
significantly higher for the period which more than offset lower production at
Boroo. At Kumtor, production was higher than anticipated due to the processing
of higher grade stockpiles established in the fourth quarter of 2009 and
extracting more ore than expected from the benches mined in the first quarter of
2010. Production at Boroo was lower in the first quarter 2010 mainly due to the
heap leach operation remaining idle during the quarter.
Centerra's total cash cost per ounce of gold produced was $340 in the first
quarter compared to $871 in the first quarter of 2009. The year-over-year
decrease in unit cash costs was primarily due to the increased production at
Kumtor and lower operating costs at both sites (see "Operations Update"). (Total
cash cost is a non-GAAP measure and is discussed under "Non-GAAP Measures" in
the Management's Discussion and Analysis for the three months ended March 31,
2010, issued in conjunction with this news release.)
Cash provided by operations was $82.4 million for the first quarter of 2010
compared to $10.8 million for the prior year first quarter. The increase
reflects increased earnings as a result of higher gold volumes and prices and
lower operating costs, partially offset by the negative impact of higher working
capital levels in 2010.
Capital expenditures spent and accrued in the first quarter of 2010 amounted to
$29.2 million of which $6.8 million was spent on sustaining capital projects.
Growth capital totaled $22.4 million which related mainly to the SB Zone
underground development at Kumtor ($8.9 million), the purchase of haul trucks at
Kumtor ($7.7 million) and spending on development of the Gatsuurt project ($5.5
million).
Exploration expenditures for the first quarter were $5.1 million dollars
compared to $5.6 million in the first quarter of 2009 reflecting lower drilling
activity at Kumtor.
Centerra's cash and cash equivalents and short-term investments at the end of
March 2010 increased to $384.2 million, compared to cash and short-term
investments of $322.9 million at December 31, 2009.
Other Corporate Developments
Kyrgyz Republic
In early April 2010, civil unrest in the Kyrgyz Republic resulted in the ousting
of President Kurmanbek Bakiyev and the formation of an interim government by
opposition groups. Production at the Kumtor mine has not been affected by these
events. However, the political situation in the Kyrgyz Republic continues to
evolve and there can be no assurances that future political developments will
not have an adverse impact on the Company's assets or operations.
On April 13, 2010, Kyrgyzaltyn JSC ("Kyrgyzaltyn"), the Kyrgyz Republic
state-owned shareholder of the Company and owner of the Kara-Balta refinery
which purchases Kumtor's gold dore, notified the Company that due to the civil
unrest in the Kyrgyz Republic and a moratorium on certain transactions imposed
by the governmental authorities, Kyrgyzaltyn had been forced to defer the sale
of gold to its off-take bank. The restrictions on Kyrgyzaltyn's sale of gold to
its off-take bank have been lifted and the Company has now received full payment
of the balance outstanding.
Pursuant to a restated shareholders agreement dated as of June 6, 2009 between
Kyrgyzaltyn and Centerra, so long as Kyrgyzaltyn and its affiliates continue to
hold 10% or more of Centerra's outstanding shares, Centerra has agreed to
include in Centerra's proposed slate of directors to be nominated for election
at each annual or special meeting at which directors are to be elected, two
board nominees designated by Kyrgyzaltyn, at least one of whom must be
independent of the Kyrgyz Government, within the meaning of applicable
securities laws in Canada. Should Kyrgyzaltyn and its affiliates own less than
10% but more than 5% of Centerra's outstanding shares, Centerra has agreed to
include in the slate of directors one nominee of Kyrgyzaltyn who shall not be
required to be independent. Kyrgyzaltyn currently owns approximately 33% of
Centerra's outstanding shares and accordingly is entitled to two board nominees
to be included in Centerra's annual general meeting of shareholders scheduled
for May 19, 2010 (the "AGM"). As of the date hereof, the identity of the
Kyrgyzaltyn nominees for the upcoming year has not been communicated to
Centerra's board of directors. As a result of the recent events in the Kyrgyz
Republic, there may be some further delay in Kyrgyzaltyn communicating to
Centerra's board the identity of its nominees. Accordingly, the board of
directors of Centerra expects to appoint two nominees of Kyrgyzaltyn to the
board on or after the date of the AGM once the identities are communicated.
Mongolia
On April 23, 2010, President Elbegdorj issued an order temporarily suspending
the issuance and transfer of mineral licenses. The order appears to be aimed at
limiting speculation and other abuses and non-compliance by license holders.
According to a statement released by the President's office, the order will
remain in effect until amendments to minerals laws are implemented to remedy
such abuses. Centerra does not expect that its operations or its existing mining
and exploration licenses, including the Boroo and Gatsuurt licenses, will be
affected by the order.
Mongolian Regulatory Matters
On June 12, 2009, the main operating licenses at the Company's Boroo mine were
suspended by the Minerals Resources Authority of Mongolia ("MRAM") following
extensive inspections of the Boroo mine operation conducted by the Mongolian
General Department of Specialized Inspection ("SSIA"). While the suspension was
lifted on July 27, 2009, several issues arising from the inspection continue to
be discussed by Centerra and the Mongolian regulatory authorities. On October
23, 2009, Centerra received a very significant claim for compensation from the
SSIA in respect of certain mineral reserves, including state alluvial reserves
covered by the Boroo mine licenses, that are recorded in the Mongolian state
reserves registry, but for which there are no or incomplete records or reports
of mining activity. Centerra disputes the claim. While Centerra cannot give
assurances, it believes settlement will be concluded through negotiation and
will not result in a material impact. In addition, the SSIA inspections raised a
concern about the production and sale of gold from the Boroo heap leach
facility. The heap leach facility was operated under a temporary permit from
June 2008 until the expiry of the temporary permit in April 2009 and Boroo Gold
Company Ltd. ("BGC") paid all relevant royalties and taxes with respect to gold
produced from the heap leach facility during that period. BGC believes that it
had all necessary permits to carry out its heap leach activities and that any
regulatory concerns are unfounded. BGC is continuing its effort to obtain a
final permit for the operation of its heap leach facility at the Boroo mine.
Centerra understands that this matter has been referred to the Mongolian
Ministry of Mineral Resources and Energy for review but has received no official
notice of any concern.
Under the stability agreement relating to the Boroo mine between the Company and
the Government of Mongolia, signed July 6, 1998, as amended (the "Boroo
Stability Agreement"), the Company is permitted to offset any value added taxes
("VAT") that it pays against other taxes payable in respect of its Boroo mine
operation. In 2009, the Mongolian Ministry of Finance indicated that, despite
the Boroo Stability Agreement, Centerra would no longer be permitted to offset
its VAT payments. This decision was challenged by Centerra and in November 2009,
Centerra was notified by Ministry of Finance officials that VAT payments up to
August 31, 2009 could be offset. Despite this, recovery of any VAT payments from
September 1, 2009 onwards continues to be subject to negotiations with the
Ministry of Finance.
On November 2, 2009, Centerra received a letter from the Mongolian Ministry of
Finance re-iterating some of the issues raised by the SSIA and indicating that
the Boroo Stability Agreement would be terminated if such issues were not
resolved within a period of 120 days from the date of the letter. The Company
has held discussions with the Ministry of Finance regarding such concerns and
has received no further notice from the Ministry of Finance with respect to the
possible termination of the Boroo Stability Agreement. While the Company
believes that the issues raised by the Ministry of Finance and the SSIA will be
resolved through negotiations without a material impact on the Company, there
can be no assurance that this will be the case.
Mongolian Legislation
In July 2009, the Mongolian Parliament enacted legislation that would prohibit
mineral prospecting, exploration and mining in water basins and forest areas in
the territory of Mongolia and provides for the revocation of licenses affecting
such areas (the "Water and Forest Law"). The Company understands that, prior to
the revocation of any licenses, the Mongolian government will undertake physical
surveys and consult with local officials to determine which, if any, existing
licenses will be subject to the new law. The legislation provides a specific
exemption for "mineral deposits of strategic importance", and accordingly, the
main Boroo mining licenses will not be subject to the law. The Company's
Gatsuurt licenses and its other exploration license holdings in Mongolia are
currently not exempt. In March 2010, the Company received a letter from MRAM
stating that certain of its mining and exploration licenses, including the
Gatsuurt mining licenses, could be revoked under the Water and Forest Law. The
letter requested that the Company submit an estimate of expenses incurred in
relation to each license and the compensation that it would expect to receive if
such licenses were to be revoked. The Company has provided a detailed estimate
to MRAM for all potentially affected licenses. The Company has submitted a draft
Investment Agreement for the Gatsuurt Project to the Ministry of Mineral
Resources and Energy ("MMRE"). In April 2010, the Company received a letter from
the MMRE indicating that the Gatsuurt licenses are within the area designated on
a preliminary basis where minerals mining is prohibited under the Water and
Forest Law. The letter also stated that the MMRE will communicate with the
Company regarding the investment agreement when the MMRE has more clarity on the
impact of the law. The Company is reasonably confident that the economic and
development benefits resulting from its exploration and development activities
will ultimately result in the law having a limited impact on the Company's
Mongolian activities.
In August 2009, the Government of Mongolia repealed its windfall profit tax of
68% in respect of gold sales at a price in excess of US$850 an ounce, with the
repeal to take effect on January 1, 2011. The windfall profit tax will be
applicable to the Gatsuurt project (but not the Boroo project).
Other
On February 4, 2010, Centerra Gold (U.S.) Inc. ("Centerra U.S."), a wholly-owned
subsidiary of Centerra, signed a purchase agreement with Rye Patch Gold Corp.
and its U.S. subsidiary, Rye Patch Gold US Inc. (collectively "Rye Patch") for
the sale of Centerra U.S.'s interest in the REN project in Nevada, subject to
the joint venture project partner, Homestake Mining Company of California
("Homestake"), a subsidiary of Barrick Gold Corporation, waiving its pre-emptive
right to acquire Centerra U.S.'s interest. On April 8, 2010, Homestake elected
to exercise its pre-emptive right to acquire Centerra Gold U.S. Inc.'s 64%
interest in the REN joint venture for $35.2 million. As a result of Homestake's
election to purchase the Centerra U.S. interest, Rye Patch's agreement with
Centerra will terminate. Rye Patch is entitled to receive a break fee of $0.25
million from Centerra U.S. upon completion of Homestake's acquisition of the
Centerra U.S. interest which is expected to close on or before July 7, 2010. On
closing, Centerra will transfer the joint venture interest to Homestake. The
Company will record a gain on sale for the value of the proceeds received, less
any related expenses.
As at March 31, 2010, the net book value of REN's property is nil (December 31,
2009- Nil) because all exploration activities on this property were expensed as
incurred.
Operations Update
Kumtor
At the Kumtor mine, gold production was 180,562 ounces in the first quarter of
2010 representing a 187% increase from the same quarter in 2009. The significant
increase in production in the first quarter of 2010 is the result of the
continuation of mining the higher grade SB Zone in the Central Pit, processing
of the high-grade stockpile established at the end of 2009 (430,000 tonnes at
4.3 g/t gold) and achieving higher recoveries. During the quarter, ore tonnage
increased 164% year-over-year due to more ore being exposed in the SB Zone in
the fourth quarter of 2009 and first quarter of 2010 compared to the first
quarter of 2009. The mill head grade averaged 4.90 g/t with a recovery of 76.7%
in the first quarter of 2010, compared to 1.92 g/t with a recovery of 70.8% in
the same quarter of 2009. Due to 2009 delays in mine sequencing, some of the ore
originally scheduled to be mined and stockpiled by the end of 2009 was actually
mined in the first quarter of 2010 and fed directly to the mill.
During the quarter, the planned removal of ice and waste from the southeast
section of the high wall in the SB Zone continued. The rate of movement of waste
and ice from this area slowed during the first quarter of 2010 as a result of
the offloading, as well as cold weather causing the material to freeze. The mine
operations department increased its focus on mining ice and the removal of waste
in the central pit using dedicated unload zones and wider benches at the top of
the central pit.
Total cash cost per ounce, a non-GAAP measure of production efficiency,
decreased to $305 in the first quarter of 2010 from $1,035 in the first quarter
of 2009. The year-over-year decrease in unit cash costs was due to the
substantially higher gold production and lower operating costs in 2010. Mining
costs decreased 24% to $30.0 million in the first quarter of 2010 due to due to
lower expenditures on maintenance materials and supplies, reduced costs for
dewatering supplies and decreased costs for diesel fuel. Other favorable
variances include decreased spending on blasting supplies, explosives and drill
bits. While milling costs in 2010 increased 8% to $13.5 million due to increased
consumption and costs for sodium cyanide and carbon, increased costs for
electricity partially offset by price savings on grinding media. Total cash cost
per ounce produced is a non-GAAP measure and is discussed under "Non-GAAP
Measures".
Exploration expenditures totaled $1.8 million for the first quarter of 2010, a
decrease from the $3.3 million reported in the first quarter 2009. This is
primarily a result of the decrease in the amount of drilling completed in the
first quarter.
Capital expenditures in the first quarter of 2010 totalled $23.4 million
compared to $21.8 million in the prior year. This consisted of $6.5 million of
sustaining capital, predominantly spent on the heavy duty equipment overhaul
program ($4.2 million), expansion of the waste dump ($0.8 million) and
replacement of four dozers ($0.7 million). Growth capital investment totalled
$16.9 million spent mainly on the purchase of CAT 789 haul trucks ($7.7
million), underground development of decline #1, SB Zone underground ($3.8
million), underground development of decline #2, Stockwork Zone ($3.9 million)
and the purchase of capital equipment for decline #2 ($1.2 million).
The SB Zone underground decline (Decline #1) has advanced a total of 680 metres.
During the quarter poor ground conditions were encountered slowing the decline
advancement. The poor ground was primarily associated with faulting and
additional work was carried out to implement the necessary ground support. The
decline advancement is now back on its planned schedule. Exploration drilling is
expected to commence in the second quarter and delineation drilling of the SB
Zone is planned for the third and fourth quarters of 2010.
The Stockwork Zone underground decline (Decline #2) has advanced a total of 222
metres of which 195 metres were accomplished in 2010. Decline #2 will facilitate
the access to the Stockwork Zone and the SB Zone for further exploration and
delineation drilling of the two resources (SB Zone and Stockwork Zone) in 2010.
Boroo/Gatsuurt
At the Boroo mine, gold production was 30,477 ounces in the first quarter of
2010 compared to 40,183 ounces in the first quarter of 2009. The lower gold
production is the result of lower mill head grades, 1.90 g/t in first quarter
2010 versus 2.34 g/t in the first quarter 2009 and the heap leach operation
remaining idle during the first quarter 2010, pending issuance of the final
operating permit by the Mongolian Government. In the comparative 2009 quarter,
heap leach production was 9,292 poured ounces of gold. Recoveries improved in
the quarter to 72.8% compared to 65.7% last year due to the mill feed which
consisted of less refractory ore.
Heap leach operations at Boroo remain under care and maintenance. The Company
continues to work with the Mongolian authorities to obtain the final heap leach
operating permit.
Total cash costs per ounce produced, a non-GAAP measure of production
efficiency, increased to $551 in the first quarter of 2010 from $479 in the
first quarter of 2009. The impact of lower production in 2010 increased cash
cost by approximately $152 per ounce. This was partially offset by lower
operating cash costs of $79 per ounce. Total cash cost per ounce produced is a
non-GAAP measure and is discussed under "Non-GAAP Measures".
During the first quarter of 2010, exploration expenditures in Mongolia increased
to $1.2 million from $0.3 million in the same period of 2009. Capital
expenditures in the first quarter of 2010 were unchanged at $0.2 million
compared to the same quarter of 2009.
At the Gatsuurt project, $5.5 million of growth capital was spent in the quarter
primarily related to the construction of the road to access the Gatsuurt project
and connect it with the Boroo mill facilities. To date approximately 65% of the
55 kilometre road has been constructed. The road is projected to be completed by
June 2010.
Exploration Update
To view the graphics, maps/drill sections and complete drill results discussed
in this news release, please visit the following link:
http://media3.marketwire.com/docs/centerradata428.pdf or visit the Company's web
site at: www.centerragold.com.
Kyrgyz Republic
During the first quarter of 2010, exploration drilling programs continued in the
Kumtor Central Pit. Regional exploration drilling continued on the Kumtor
concession area at the Northeast and Muzdusuu.
Kumtor Pit
In the first quarter of 2010, one drill hole was completed and three holes were
in progress at quarter-end. Drill hole D1389 drilled on Section -10 was designed
to test the Kumtor structure at the 3,000 metre elevation 500 metres vertically
below the current pit design. The drill hole intersected low-grade
mineralization, 2.2 g/t Au over 7.0 metres at the 3,000 metre elevation with
weak alteration over a 300 metre interval from the 3,200 metre elevation to the
bottom of the hole. The hole was stopped at a depth of 1,292 metres due to
technical difficulties and did not test the entire Kumtor structural zone.
The results are encouraging. The targeted Kumtor structural zone was intersected
in the expected position, 800 metres down dip and 500 metres along strike of the
nearest drill holes. This indicates that the Kumtor structure continues to depth
with untested potential both down dip and along strike of known mineralized
zones.
Drilling in the second quarter will test the SB Zone at the 3,300 metre
elevation and holes are also planned to test for down dip extensions of the
Stockwork Zone. Drilling on the Southwest Extension of the SB Zone is also
planned if mining activity permits.
Decline Exploration
No underground exploration drilling was undertaken in the first quarter.
Drilling in decline #1 is expected to resume in the second quarter of 2010.
Drilling in the second decline is expected for the third quarter as decline #2
should be advanced sufficiently.
Regional Exploration
Regional exploration drilling continued in the first quarter of 2010 at
Northeast, Muzdusuu. No drilling was conducted at the Southwest or Sarytor areas
due to high avalanche risk after heavy snowfalls in February and March.
Northeast Area
During the first quarter of 2010 one hole was completed at the Northeast
prospect to follow up on the high grade mineralization intersected in drilling
completed in the fourth quarter of 2009. Drill hole DN1400A intersected
mineralization grading 4.0 g/t Au over 10.8 metres, including 10.9 g/t Au over
3.5 metres, and 2.3g/t Au over 9.2 metres and 5.1 g/t Au over 19.8 metres,
including 15.6 g/t Au over 3.0 metres. The continuity of the high grade
mineralization is considered to be encouraging and additional drilling will be
carried out in the second quarter to define the strike and dip extent of the
mineralization.
True widths for the mineralized zones are typically from 70% to 95% of the
stated intercept.
A complete listing of the drill results and supporting maps for the Kumtor pit
and Northeast area have been filed on the System for Electronic Document
Analysis and Retrieval ('SEDAR') at www.sedar.com and are available at the
Company's web site at: www.centerragold.com.
Mongolia
During the first quarter of 2010, exploration work in Mongolia included drilling
programs at the Gatsuurt project and the Ulaan Bulag prospect.
Gatsuurt Project
During the fourth quarter of 2009 a drill program was carried out to test a
target immediately to the east of the planned Central Zone pit. The drilling was
at approximately 60 metre centers and returned promising results. In the first
quarter of 2010 a 30 by 30 metre infill drill program was completed and the
results continue to be encouraging.
The mineralization appears to be associated with relatively steep west dipping
structures and flat granite bodies. The eastern border is controlled by
relatively steep west-dipping fault, and the mineralization bottom is controlled
by the relatively flat lying granite - sediment contact.
The Gatsuurt data base is being reviewed to determine if there are other targets
on the South slope of the Gatsuurt Central zone similar to the new zone that has
been identified that would warrant testing.
A complete listing of the drill results and supporting maps for the Gatsuurt
drilling have been filed on the System for Electronic Document Analysis and
Retrieval ('SEDAR') at www.sedar.com and are available at the Company's web site
at: www.centerragold.com.
Ulaan Bulag Prospect
A resource delineation program was started in late December 2009, after the
mining license was issued by the Mongolian Mineral Authorities. During the first
quarter of 2010, a 30 by 30 metre spaced drill program targeted the Nuga Zone,
where earlier RC drilling has identified a low-grade oxidized resource.
Drilling results continue to be encouraging and additional drilling is being
planned to follow up on these results.
United States (Nevada)
REN Joint Venture
On April 8, 2010 Barrick/Homestake elected to exercise their pre-emptive right
to acquire Centerra Gold U.S. Inc.'s 64% interest in the REN joint venture for a
cash payment of $35.2 million (see "Other Corporate Developments - Other").
To view the graphics, maps/drill sections and complete drill results discussed
in this news release, please visit the following link:
http://media3.marketwire.com/docs/centerradata428.pdf or visit the Company's web
site at: www.centerragold.com.
Outlook for 2010
2010 Production
Centerra's 2010 consolidated gold production is forecast to be in the 640,000 to
700,000 ounce range, which is unchanged from the prior guidance disclosed in the
Company's news release of February 23, 2010.
Gold production for the full year 2010 at the Kumtor mine in the Kyrgyz Republic
is forecast to be between 530,000 to 570,000 ounces, which is higher than the
prior guidance of 520,000 to 560,000 ounces based on incremental ounces mined in
the first quarter. This excludes any production from the nearby Sarytor deposit,
which will be mined in 2012 and 2013.
It is expected that the higher than anticipated production realized at Kumtor in
the first quarter, which resulted from the processing of higher grade stockpiles
established in the fourth quarter of 2009 and extracting more ore than expected
from the benches mined in the first quarter, may be partially offset by lower
production in the second and third quarters of 2010. Centerra still expects to
produce approximately 43% of its annual production in the fourth quarter. The
second and third quarters of 2010 will have lower production due primarily to
the sequence of mining in the Kumtor pit as well as the anticipated change of
the ball mill ring gear and a scheduled replacement of the SAG mill liner at the
end of the second quarter at the Kumtor mill.
At Boroo/Gatsuurt, gold production is forecast to be 110,000 to 130,000 ounces,
which is slightly lower than prior guidance of February 23, 2010 of 120,000 to
140,000 ounces due the delays in obtaining the final heap leach operating
permit. The forecast assumes that:
- the Company has received the final operating permit for the Boroo heap
leach facility by July 2010 allowing it to restart the heap leach within
days of receiving the permit. Approximately 28,000 ounces of gold
production is planned from the heap leach in 2010 and,
- all permitting and commissioning requirements for Gatsuurt are in place
by mid-2010 in order to allow for the commencement of processing of
Gatsuurt oxide ore in the second half of 2010 (expected production of
approximately 50,000 ounces of gold from the Gatsuurt project).
Failing the receipt of the required approvals for Gatsuurt in a timely manner,
an alternative plan can be initiated that will allow the Boroo operation to
achieve the production within the forecasted range of ounces produced.
These production estimates are based on certain assumptions. See "Material
Assumptions" below.
2010 Total Cash Cost per Ounce
Total cash cost in 2010 is expected to be between $460 and $505 per ounce
produced, which is unchanged from the prior guidance of February 23, 2010. Total
cash cost is a non-GAAP measure and is discussed under "Non-GAAP Measures".
Total cash cost for 2010 for Kumtor is expected to be in the range of $430 to
$460 per ounce produced, which is unchanged from the prior guidance.
Boroo/Gatsuurt total cash cost for 2010 reflects the Gatsuurt start-up and is
expected to be $590 to $690 per ounce produced, which is unchanged from the
prior guidance.
Centerra's production and unit costs are forecast as follows:
----------------------------------------------------------------------------
2010 Production Forecast 2010 Total Cash Cost(1)
(ounces of gold) ($ per ounce produced)
----------------------------------------------------------------------------
Kumtor 530,000 - 570,000 430 - 460
----------------------------------------------------------------------------
Boroo 110,000 - 130,000 590 - 690
----------------------------------------------------------------------------
Consolidated 640,000 - 700,000 460 - 505
----------------------------------------------------------------------------
(1) Total cash cost is a non-GAAP measure. See "Non-GAAP Measures below.
These cost estimates are based on certain assumptions. See "Material
Assumptions" below.
2010 Exploration Expenditures
Exploration expenditures of $30 million are planned for 2010, and the
exploration plan is unchanged from the prior guidance. The 2010 program will
continue the aggressive exploration work at the Kumtor mine with $12.6 million
of planned expenditures to test for additional open pit and underground
resources. In Mongolia, $2.7 million is allocated for target definition work and
drill programs on our large land holdings. In addition, drilling and generative
programs will be continued in Russia ($2.7 million), Turkey ($3.2 million) and
Nevada ($2.5 million) with drilling programs continuing on the four joint
ventures and two projects generated in 2008 and on the four new joint ventures
acquired in 2009.
Generative programs will continue in Central Asia, Russia, China, Turkey and the
U.S. to increase the pipeline of projects that are being developed to meet the
longer term growth targets of Centerra.
2010 Capital Expenditures
The capital expenditures for 2010 are estimated to be $245.2 million, including
$49.1 million of sustaining capital and $196.1 million of growth capital. This
represents a decrease of $19.2 million from prior guidance primarily due to the
timing of expenditures in growth capital at Gatsuurt.
Capital expenditures include:
----------------------------------------------------------------------------
2010 Growth Capital 2010 Sustaining Capital
Projects (millions of dollars) (millions of dollars)
----------------------------------------------------------------------------
Kumtor mine $153.6 $43.8
----------------------------------------------------------------------------
Boroo mine $0.5 $4.9
----------------------------------------------------------------------------
Gatsuurt project $42.0 0
----------------------------------------------------------------------------
Other 0 $0.4
----------------------------------------------------------------------------
Consolidated Total $196.1 $49.1
----------------------------------------------------------------------------
Kumtor Capital
At Kumtor, the largest growth capital expenditure will be for the North Wall
Expansion project, estimated at $92.6 million primarily for purchases of mining
and auxiliary support equipment to renew and expand the mining fleet. The
equipment has been ordered and is expected to be delivered in the fourth quarter
of 2010 and the first quarter of 2011. To increase haulage capacity to manage
the ice/waste movement in the high movement area, Kumtor has started the process
of acquiring seven new CAT 789 haul trucks for a total cost of $18.2 million. It
is expected that the trucks will be delivered in the second and third quarters
of 2010. The underground growth capital for developing the SB Zone and Stockwork
Zone, as well as for delineation drilling and capital purchases, is estimated to
be $41.1 million in 2010.
Boroo & Gatsuurt Capital
At Boroo, 2010 sustaining capital expenditures are expected to be $4.9 million,
primarily for the purchase of new ball and SAG mill gears ($2.1 million) and
mobile equipment component change-outs ($1.9 million). These expenditures are
based on operational needs and also assume the receipt of the required approvals
for Gatsuurt in a timely manner from the Mongolian regulatory authorities.
At Gatsuurt, expected 2010 growth capital spending is forecasted at $42.0
million down from $73.8 million in the prior guidance. The decrease in capital
spending is due to a decision to delay the engineering and construction of the
Boroo bio-oxidation facility for processing Gatsuurt and other sulphide ores.
This decision was made due to issues involving Gatsuurt's commissioning with the
Mongolian Government and the drilling results at Gatsuurt which has identified
additional oxide mineralization which may extend the oxide operating life at
Gatsuurt, delaying the need for the bio-oxidation plant. As a result of this
decision, the capital spending in 2010 for the engineering and construction of
the Boroo bio-oxidation facility has been scaled down to $5.0 million from $40
million reported in the previous guidance.
Other growth capital spending at Gatsuurt includes completion of the Gatsuurt
site infrastructure including the haul road between Gatsuurt and Boroo ($8.5
million), purchase of haul trucks to be used for hauling of ore from the
Gatsuurt site to the Boroo mill ($5.8 million), pre-stripping of the Gatsuurt
orebody ($9.2 million), expansion of the existing Boroo tailings facility to
contain Gatsuurt oxide and sulphide tailings ($4.8 million).
The Company has implemented a phased approach to the development of the Gatsuurt
orebody consisting of an oxide project component and a sulphide project
component. It is anticipated that the Gatsuurt oxide ores will begin to be
processed through the Boroo facility in the third quarter of 2010. The balance
of the capital for the development of the deeper sulphide ores at Gatsuurt may
only be invested if the Company is successful in obtaining an acceptable
investment agreement for Gatsuurt with the Government of Mongolia.
Administration
Annual corporate and administration expenses have been revised to amount to
approximately $41 million in 2010, which is $7 million higher than the prior
guidance in the fourth quarter 2009 mainly due to higher anticipated stock-based
compensation resulting from the increased Centerra share price.
Production, cost and capital forecasts for 2010 are forward-looking information
and are based on key assumptions and subject to material risk factors that could
cause actual results to differ materially and which are discussed under the
heading "Material Assumptions" and "Cautionary Note Regarding Forward-looking
Information".
Sensitivities
Centerra's revenues, earnings and cash flows for the remaining nine months of
2010 are sensitive to changes in certain variables and the Company has estimated
their impact on revenues, net earnings and cash from operations.
----------------------------------------------------------------------------
Impact on
Change ($ millions)
----------------------------------------------
Earnings before
Costs Revenues Cash flow income tax
----------------------------------------------------------------------------
Gold Price $50/oz 4.5 23.4 18.0 18.9
----------------------------------------------------------------------------
Diesel Fuel (1) 10% 4.1 - 4.1 4.1
----------------------------------------------------------------------------
Kyrgyz som 1 som 1.2 - 1.2 1.2
----------------------------------------------------------------------------
Mongolian tugrik 25 tugrik 0.2 - 0.2 0.2
----------------------------------------------------------------------------
Canadian dollar 10 cents 2.5 - 2.5 2.5
----------------------------------------------------------------------------
(1) 10% change in diesel fuel price equals $9/oz.
Material Assumptions
Material assumptions or factors used to forecast production and costs include
the following:
- a gold price of $1,050 per ounce,
- exchange rates:
- $1USD:$1.04 CAD
- $1USD:44 Kyrgyz Som
- $1USD:1,390 Mongolian Tugrik
- $1USD:0.71 Euro
- diesel fuel price assumption:
- $0.74/litre at Kumtor
- $0.85/litre at Boroo
Diesel fuel is sourced from separate Russian suppliers for both sites and only
loosely correlates with world oil prices. The diesel fuel price assumptions were
made when the price of oil was approximately $81 per barrel.
Other important assumptions on which the Company's production, cost and capital
guidance is based include the following:
- Political and civil unrest in the Kyrgyz Republic does not impact
operations, including movement of supplies, gold shipments and people to
the Kumtor mine,
- grades and recoveries at Kumtor will remain consistent with the life-of-
mine plan to achieve the forecast gold production,
- the dewatering and depressurization programs at Kumtor continue to
produce the expected results and the water management system works as
planned,
- the remedial plan to deal with the Kumtor waste and ice movement is
successful, see "Kumtor Mine - Remedial Plan to Manage the High Movement
Area" in the Company's December 7, 2009 news release,
- the equipment to execute the Company's remedial plan to manage the high
movement area at Kumtor is available for purchase and is delivered on
time,
- no unplanned delays in or interruption of scheduled production from our
mines, including due to civil unrest, natural phenomena, labour,
regulatory or political disputes, equipment breakdown or other
developmental and operational risks,
- certain issues at Boroo raised by the General Department of Specialized
Inspection ("SSIA") concerning state alluvial reserves, the production
and sale of gold from the Boroo heap leach facility and other matters
will be resolved through negotiation without material adverse impact on
the Company, see "Mongolian Regulatory Matters",
- Boroo ore does not become more refractory in nature than anticipated,
affecting mill recoveries,
- no further suspension of Boroo's operating licenses,
- Boroo receives the final operating permit for the heap leach facility by
July 2010,
- permitting and commissioning requirements for mining activities at
Gatsuurt are in place by mid-2010 in order to allow for the commencement
of processing of Gatsuurt oxide ore in the timeframe planned,
- the commitment of capital for developing the Gatsuurt sulphides is
dependent on signing an acceptable investment agreement with the
Government of Mongolia,
- the development of Gatsuurt will be exempt from the new forest and water
basin legislation in Mongolia, see "Mongolian Legislation", and
- all necessary permits, licences and approvals are received in a timely
manner.
Production and cost forecasts and capital estimates are forward-looking
information and are based on key assumptions and subject to material risk
factors. If any event arising from these risks occurs, the Company's business,
prospects, financial condition, results of operations or cash flows could be
adversely affected. Additional risks and uncertainties not currently known to
the Company, or that are currently deemed immaterial, may also materially and
adversely affect the Company's business operations, prospects, financial
condition, and results of operations or cash flows. See the sections entitled
"Recent Developments" and "Risk Factors" in the Company's most recently filed
annual information form, available on SEDAR at www.sedar.com and see also the
discussion below under the heading "Cautionary Note Regarding Forward-looking
Information".
Qualified Person
The new drilling results for Kumtor in this news release and on Centerra's
website and the other scientific and technical information in this news release
were prepared in accordance with the standards of the Canadian Institute of
Mining, Metallurgy and Petroleum and National Instrument 43-101 - Standards of
Disclosure for Mineral Projects ("NI 43-101") and were reviewed, verified and
compiled by Centerra's geological and mining staff under the supervision of Ian
Atkinson, Certified Professional Geologist, Centerra's Vice-President,
Exploration, who is the qualified person for the purpose of NI 43-101.
The Kumtor deposit is described in Centerra's most recently filed Annual
Information Form (the "AIF") and a technical report dated December 16, 2009
prepared in accordance with NI 43-101. The AIF and technical report have been
filed on SEDAR at www.sedar.com. The technical report describes the exploration
history, geology and style of gold mineralization at the Kumtor deposit. Sample
preparation, analytical techniques, laboratories used and quality
assurance-quality control protocols used during the drilling programs at the
Kumtor site are described in the technical report.
The Gatsuurt deposit is described in the Company's most recently filed Annual
Information Form (the "AIF") and in a technical report dated May 9, 2006
prepared in accordance with NI 43-101. The AIF and technical report have been
filed on SEDAR at www.sedar.com. The technical report describes the exploration
history, geology and style of gold mineralization at the Gatsuurt deposit.
Sample preparation, analytical techniques, laboratories used and quality
assurance-quality control protocols used during the drilling programs at the
Gatsuurt project are the same as, or similar to, those described in the
technical report.
Cautionary Note Regarding Forward-looking Information
This news release and the documents referred to herein contain statements which
are not statements of current or historical facts and are "forward looking
information" within the meaning of applicable Canadian securities laws. Such
forward looking information involves risks, uncertainties and other factors that
could cause actual results, performance, prospects and opportunities to differ
materially from those expressed or implied by such forward looking information.
Wherever possible, words such as "believe", "expect", "anticipate",
"contemplate", "target", "plan", "intends", "continue", "budget", "forecast",
"projections", "estimate", "may", "will", "schedule", "potential", "strategy"
and other similar expressions have been used to identify forward looking
information. These forward-looking statements relate to, among other things,
Centerra's expectations regarding future growth, results of operations
(including, without limitation, future production and sales, and operating and
capital expenditures), performance (both operational and financial), business
and political environment and business prospects (including the timing and
development of new deposits and the success of exploration activities) and
opportunities.
Although the forward-looking information in this news release reflects
Centerra's current beliefs as of the date of this news release based on
information currently available to management and based upon what management
believes to be reasonable assumptions, Centerra cannot be certain that actual
results, performance, achievements, prospects and opportunities, either
expressed or implied will be consistent with such forward-looking information.
Forward looking information is necessarily based upon a number of estimates and
assumptions that, while considered reasonable by Centerra, are inherently
subject to significant political, business, economic and competitive
uncertainties and contingencies. Known and unknown factors could cause actual
results to differ materially from those projected in the forward looking
information.
Factors that could cause actual results or events to differ materially from
current expectations include, among other things: risks relating to the recent
political and civil unrest in the Kyrgyz Republic, risks related to the creep of
ice and waste movement into the Kumtor open-pit, the resolution of issues at the
Boroo mine raised by the Mongolian SSIA concerning alluvial reserves and matters
relating to the suspension of the Boroo licenses in June 2009, the potential
impact of Mongolian legislation prohibiting mineral activity in water basins and
forest areas on the Gatsuurt project, the threatened termination of the
stability agreement with the Mongolian Government in relation to the Boroo mine,
the receipt of a final permit to operate the heap leach operation at the Boroo
mine, fluctuations in gold prices, replacement of mineral reserves, reduction in
reserves related to geotechnical risks, ground movements, political risk,
nationalization risk, changes in laws and regulations, political civil unrest,
labour unrest, legal compliance costs, reserve and resource estimates,
production estimates, exploration and development activities, competition,
operational risks, environmental, health and safety risks, costs associated with
reclamation and decommissioning, defects in title, seismic activity, cost and
availability of labour, material and supplies, increases in production and
capital costs, permitting and construction to raise the tailings dam height and
increase the capacity of the existing Kumtor tailings facility, the ability to
renew and obtain licenses, permits and other rights, illegal mining, enforcement
of legal rights, decommissioning and reclamation cost estimates, future
financing and personnel and the receipt of all permitting and commissioning
requirements for the Gatsuurt mine by mid-2010. In addition, material
assumptions used to forecast production and costs include those described above
under the heading "Material Assumptions". There may be other factors that cause
results, assumptions, performance, achievements, prospects or opportunities in
future periods not to be as anticipated, estimated or intended. See "Risk
Factors" in the Company's most recently filed AIF and Annual Management's
Discussion and Analysis available on SEDAR at www.sedar.com.
Furthermore, market price fluctuations in gold, as well as increased capital or
production costs or reduced recovery rates may render ore reserves containing
lower grades of mineralization uneconomic and may ultimately result in a
restatement of reserves. The extent to which resources may ultimately be
reclassified as proven or probable reserves is dependent upon the demonstration
of their profitable recovery. Economic and technological factors which may
change over time always influence the evaluation of reserves or resources.
Centerra has not adjusted mineral resource figures in consideration of these
risks and, therefore, Centerra can give no assurances that any mineral resource
estimate will ultimately be reclassified as proven and probable reserves.
Centerra's mineral reserve and mineral resource figures are estimates and
Centerra can provide no assurances that the indicated levels of gold will be
produced or that Centerra will receive the gold price assumed in determining its
mineral reserves. Such estimates are expressions of judgment based on knowledge,
mining experience, analysis of drilling results and industry practices. Valid
estimates made at a given time may significantly change when new information
becomes available. While Centerra believes that these mineral reserve and
mineral resource estimates are well established and the best estimates of
Centerra's management, by their nature mineral reserve and mineral resource
estimates are imprecise and depend, to a certain extent, upon analysis of
drilling results and statistical inferences which may ultimately prove
unreliable. If Centerra's reserve or reserve estimates for its properties are
inaccurate or are reduced in the future, this could have an adverse impact on
Centerra's future cash flows, earnings, results or operations and financial
condition.
Centerra estimates the future mine life of its operations. Centerra can give no
assurance that mine life estimates will be achieved. Failure to achieve these
estimates could have an adverse impact on Centerra's future cash flows,
earnings, results of operations and financial condition.
There can be no assurances that forward-looking information and statements will
prove to be accurate, as many factors and future events, both known and unknown
could cause actual results, performance or achievements to vary or differ
materially from the results, performance or achievements that are or may be
expressed or implied by such forward-looking statements contained in this news
release. Accordingly, all such factors should be considered carefully when
making decisions with respect to Centerra, and prospective investors should not
place undue reliance on forward-looking information. Forward-looking information
is as of April 28, 2010. Centerra assumes no obligation to update or revise
forward-looking information to reflect changes in assumptions, changes in
circumstances or any other events affecting such forward-looking information,
except as required by applicable law.
About Centerra
Centerra is a gold mining company focused on operating, developing, exploring
and acquiring gold properties primarily in Asia, the former Soviet Union and
other emerging 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.
Conference Call
Centerra invites you to join its 2010 first quarter conference call on Thursday,
April 29, 2010 at 11:00 am Eastern Time. The call is open to all investors and
the media. To join the call, please dial toll-free in North America (800)
668-4115 or International participants dial (416) 359-1270. Alternatively, an
audio feed web cast will be available on www.centerragold.com. A recording of
the call will be available on www.centerragold.com shortly after the call and
via telephone until midnight on Thursday, May 6, 2010 by calling (416) 626-4100
or (800) 558-5253 and using passcode 21464281.
Additional information on Centerra is available on the Company's web site at
www.centerragold.com and at SEDAR at www.sedar.com.
Centerra Gold Inc.
Management's Discussion and Analysis ("MD&A")
For the period ended March 31, 2010
The following discussion has been prepared as of April 28, 2010, and is intended
to provide a review of the financial position and results of operations of
Centerra Gold Inc. ("Centerra" or the "Company") for the three month period
ended March 31, 2010 in comparison with those as at March 31, 2009. This
discussion should be read in conjunction with the unaudited interim consolidated
financial statements and the notes of the Company for the three month period
ended March 31, 2010. This MD&A should also be read in conjunction with the
Company's audited annual consolidated financial statements for the three years
ended December 31, 2009, the related MD&A included in the 2009 Annual Report,
and the 2009 Annual Information Form. The financial statements of Centerra are
prepared in accordance with Canadian generally accepted accounting principles
("GAAP") and, unless otherwise specified, all dollar amounts are in United
States dollars. The Company's 2009 Annual Report and 2009 Annual Information
Form are available at www.centerragold.com and on the System for Electronic
Document Analysis and Retrieval ("SEDAR") at www.sedar.com.
TABLE OF CONTENTS
Consolidated Financial Results 20
Highlights 20
Three Month Period Ended March 31, 2010 compared with the Three Month
Period Ended March 31, 2009 20
Mine Operations 25
Other Financial Information - Related Party Transactions 30
Quarterly Results - Last Eight Quarters 31
Status of Centerra's Transition to International Financial Reporting
Standards ("IFRS") 36
Caution Regarding Forward-Looking Information 45
Consolidated Financial Results
Centerra's consolidated financial results for the three month period ended March
31, 2010 reflect 100% interests in the Kumtor and Boroo mines, and the Gatsuurt
project.
Highlights
----------------------------------------------------------------------------
Three Months Ended March 31
----------------------------------------------------------------------------
Financial and Operating Summary 2010 2009 % Change
----------------------------------------------------------------------------
Revenue - $ millions 255.5 98.4 160%
----------------------------------------------------------------------------
Cost of sales - $ millions (1) 57.3 69.3 (17%)
----------------------------------------------------------------------------
Net earnings (loss) - $ millions 122.1 (20.3) 702%
----------------------------------------------------------------------------
Earnings (loss) per common share - $ basic
and diluted 0.52 (0.09) 678%
----------------------------------------------------------------------------
Cash provided by operations - $ millions 82.4 10.8 660%
----------------------------------------------------------------------------
Capital expenditures - $ millions 29.2 22.3 31%
----------------------------------------------------------------------------
Weighted average common shares outstanding
- basic (thousands) 234,857 216,318 9%
----------------------------------------------------------------------------
Weighted average common shares outstanding
- diluted (thousands) 235,660 216,318 9%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Average gold spot price - $/oz 1,109 908 22%
----------------------------------------------------------------------------
Average realized gold price - $/oz 1,112 915 22%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Gold sold - ounces 229,839 107,621 114%
----------------------------------------------------------------------------
Cost of sales - $/oz sold 249 644 (61%)
----------------------------------------------------------------------------
Gold produced - ounces 211,039 103,204 104%
----------------------------------------------------------------------------
Total cash cost - $/oz produced(2) (3) 340 871 (61%)
----------------------------------------------------------------------------
Total production cost - $/oz produced(2)
(3) 442 1,103 (60%)
----------------------------------------------------------------------------
(1) Cost of sales for 2010 and its comparative year excludes regional
office administration.
(2) Total cash cost and total production cost are non-GAAP measures and are
discussed under "Non-GAAP Measures".
(3) As a result of Kumtor's Restated Investment Agreement, total cash cost
and total production cost per ounce measures for both 2010 and 2009
exclude operating and revenue-based taxes.
Three Month Period Ended March 31, 2010 compared with the Three Month Period
Ended March 31, 2009
Revenue and Gold Production
Revenue in the first quarter of 2010 increased to $255.5 million from $98.4
million in the same quarter last year reflecting higher ounces sold and higher
realized gold prices. Gold sold for the period totalled 229,839 ounces compared
to 107,621 ounces in the first quarter of 2009. The increase in ounces sold
reflects the higher production from Kumtor available for sale in the 2010
quarter and the destocking from the inventory built-up at the end of 2009, also
from Kumtor. Gold production for the quarter was 211,039 ounces compared to
103,204 ounces reported in the first quarter of 2009. Kumtor recorded a
significant increase in production in the first quarter 2010 compared to the
same period last year. This results from continued mining and processing of the
high grade ores from the SB Zone, processing of the higher grade stockpile and
in-circuit inventory established at the end of 2009 (approximately 55,000 ounces
at 8.2 g/t compared to 24,000 ounces at 4.5 g/t processed in the first quarter
2009 from December 2008 inventory) and achieving higher recoveries. Ore tonnage
increased significantly year over year due to more ore being exposed in the SB
Zone in the fourth quarter of 2009 and first quarter of 2010. Production at
Boroo was lower in the first quarter 2010 mainly due to the heap leach operation
remaining idled during the quarter (heap leach was in full operation in the
first quarter 2009). See "Mine Operations - Kumtor" and "Mine Operations -
Boroo".
Centerra realized an average gold price of $1,112 per ounce for the first
quarter of 2010, an increase from the $915 per ounce realized in the same
quarter in 2009. Centerra's gold production is not hedged and gold is sold at
the prevailing spot price. The average realized gold price in the quarter
reflects the continued strength of the spot gold price, which averaged $1,109
per ounce for the first quarter of 2010 ($908 per ounce for the same period in
2009).
Cost of Sales
Cost of sales in the first quarter of 2010 was $57.3 million, compared to $69.3
million in the same quarter of 2009 resulting from year over year reductions at
both Kumtor and Boroo. This reflects the elimination of production taxes at
Kumtor resulting from the Restated Investment Agreement which introduced in its
place a revenue-based tax (effective April 30, 2009): the production taxes
included in costs of sales for the first quarter 2009 were approximately $5
million. In addition, operating costs were reduced at both sites, partially
offset by lower production rates at Boroo. In addition, Kumtor benefited from
the significant tonnes and higher grades of ore mined in the fourth quarter of
2009. This resulted in the build-up of lower cost inventories which were
processed and sold in the first quarter of this year.
Cost of sales per ounce sold decreased to $249 compared to $644 for the same
period in 2009 mainly as a result of significantly higher sales volumes and
lower operating costs in the first quarter 2010.
Operating cash costs for the first quarter of 2010 compared to 2009 are lower at
both sites due to the reduced expenditures on maintenance, dewatering supplies
and diesel at Kumtor as well as lower costs at Boroo resulting from the
cessation of heap leach activities.
The Company's total cash cost per ounce produced was $340, down from $871 in the
first quarter of 2009. This decrease is primarily due to increased production at
Kumtor and lower operating costs at both sites. This was partially offset by
fewer ounces produced at Boroo. Total cash cost per ounce produced is a non-GAAP
measure and is discussed under "Non-GAAP Measures". See "Mine Operations -
Kumtor" and "Mine Operations - Boroo".
Depreciation, Depletion and Amortization
Consolidated depreciation, depletion and amortization for the first quarter of
2010 remained virtually unchanged at $21.3 million compared to $21.8 million in
the first quarter of the prior year. Higher depreciation resulting from the
increased production in the first quarter of 2010 was offset by the impact of
the additional reserves announced at the end of the 2009 year, especially at
Kumtor, which lessened the charge in the first quarter 2010 from the assets
depreciated on a unit of production basis. Depreciation, depletion and
amortization for the first quarter of 2010 was $93 per ounce sold compared to
$202 per ounce sold in the same quarter of 2009, reflecting the higher sales
volume in 2010, the impact in the first quarter 2010 from the new reserve
announcement and the increased depreciation in 2009 from 2008 pre-stripping of
pit 3 at Boroo.
Accretion and Reclamation Expense
Accretion and reclamation expense of $0.6 million remained unchanged in the
first quarter of 2010 and 2009.
Exploration
Exploration costs in the first quarter of 2010 decreased to $5.1 million from
$5.6 million in the same quarter of 2009 mainly reflecting lower drilling
activity at Kumtor.
Capital Expenditures
Capital expenditures spent and accrued of $29.2 million in the first quarter of
2010 included $6.8 million of sustaining capital and $22.4 million invested in
growth capital related mainly for the SB Zone underground development at Kumtor
($8.9 million), the purchase of haul trucks at Kumtor ($7.7 million) and
spending on development of the Gatsuurt project ($5.5 million).
Corporate Administration
Corporate administration costs for the first quarter of 2010 were $11.0 million
compared to $5.0 million in the same quarter of 2009. The increase is primarily
due to the impact of a 23% increase in the share price in the first quarter 2010
on share-based compensation. The share price remained unchanged in the same
period of 2009.
Revenue-based Tax - Kumtor
The Restated Investment Agreement became effective for accounting purposes on
April 30, 2009. Under the agreement, taxes on revenue are charged at a rate of
13% of gross revenue, with an additional contribution of 1% of gross revenue to
the Issyk-Kul Oblast Development Fund. Revenue-based tax totalled $31.3 million
for the first quarter of 2010.
Income Tax Expense
The Company recorded an income tax expense of $0.8 million during the three
month period ended March 31, 2010 ($11.2 million in the three month period ended
March 31, 2009).
Kumtor
Effective April 30, 2009 Kumtor became subject to a new tax regime pursuant to
which income taxes and other taxes were replaced by taxes computed by reference
to Kumtor's revenue. As a result of the Restated Investment Agreement, income
taxes were not applicable to Kumtor in the first quarter of 2010 (income tax
recovery of $2.9 million was recorded in the first quarter of 2009).
Boroo
The corporate income tax rate for Boroo for 2009 and subsequent years is 25% of
taxable income in excess of 3 billion Tugriks (about $2.1 million at the
exchange rate at the balance sheet date), and 10% for income up to that amount.
The income tax provision for Boroo in the first quarter of 2010 of $0.8 million
compares to an income tax provision of $14.1 million in the first quarter of
2009. This reduction primarily reflects the income tax impact of the
strengthening of the Mongolian Tugrik (MNT) in the first quarter of 2010 against
the United States Dollar (USD). This resulted in an unrealized taxable loss on
USD monetary assets for Mongolian income tax purposes for which a benefit was
recorded. The MNT weakened in the first quarter of 2009 resulting in an
unrealized taxable gain on USD monetary assets for Mongolian income tax
purposes.
Net Earnings
Net earnings for the first quarter of 2010 were $122.1 million, or $0.52 per
share, compared to a loss of $20.3 million or $0.09 per share for the same
period in 2009, reflecting higher sales volumes at Kumtor, higher realized gold
prices and lower operating costs partially offset by reduced gold production at
Boroo.
Cash Flow
Cash provided by operations was $82.4 million for the first quarter of 2010
compared to $10.8 million for the same quarter of 2009, primarily reflecting
increased earnings as a result of higher gold volumes and prices and lower
operating costs, partially offset by the negative impact of higher working
capital levels in 2010.
Cash used in investing activities in the first quarter of 2010 was $58.3 million
reflecting primarily the purchase of $37.3 million of short-term investments and
capital additions of $21.0 million. Capital additions include $6.8 million spent
on sustaining capital projects and $14.2 million invested in growth projects.
Expenditures in growth projects were mainly for Kumtor's underground development
and road construction to the Gatsuurt project, while sustaining capital was $6.5
million at Kumtor and $0.3 million at Boroo and corporate.
As at March 31, 2010, the Company has entered into contracts to purchase capital
equipment and operational supplies totalling $171.8 million (Kumtor $168.5
million, Gatsuurt $3.3 million). These contracts are expected to be settled over
the next twelve months.
Cash and cash equivalents and short-term investments were $384.2 million at the
end of the first quarter of 2010, compared to cash and cash equivalents and
short-term investments of $322.9 million at December 31, 2009. The Company
believes it has sufficient cash to carry out its capital and operational
business plan for 2010.
Credit and Liquidity
As at March 31, 2010, the Company has no outstanding loans. A $10 million
revolving credit facility arranged in 2007 is available for future use until its
expiry May 30, 2010.
A significant factor in determining profitability and cash flow from the
Company's operations is the price of gold. The spot market gold price based on
the London PM fix was approximately $1,116 per ounce on March 31, 2010. For the
first quarter of 2010, the gold price averaged $1,109 per ounce compared to $908
per ounce for the same period in 2009.
The Company receives its revenues through the sale of gold in U.S. dollars. The
Company has operations in the Kyrgyz Republic and Mongolia, and its corporate
head office is in Toronto, Canada. During the three-month period ending March
31, 2010, approximately $74.4 million of operating and capital costs were
incurred by Centerra in currencies other than U.S. dollars out of a total of
$174 million costs incurred. For the three-month period, the percentage of
Centerra's non-U.S. dollar costs, by currency was, on average, as follows: 34%
in Mongolian Tugriks, 30% in Kyrgyz soms, 18% in Canadian dollars, 15% in Euro,
and 3% in other currencies. On average, from the December 31, 2009 currency
rate, the Tugrik appreciated by 0.5% over the U.S. Dollar, the Kyrgyz Som
depreciated against the U.S. Dollar by approximately 1.0%, the Canadian Dollar
appreciated by 1.2% and the Euro depreciated by 3.5% against the U.S. Dollar.
The estimated impact of these movements over the three-month period to March 31,
2010 has been to reduce costs by approximately $0.4 million, after accounting
for the Som, Tugrik and Canadian Dollars held at the beginning of the year.
Asset Retirement Obligations
The total future asset retirement obligations were estimated by management based
on the Company's ownership interest in all mines and facilities, estimated costs
to reclaim the mine sites and facilities, and the estimated timing of the costs
to be incurred in future periods.
The Company has estimated the net present value of the total asset retirement
obligations to be $30.2 million as at March 31, 2010 (December 31, 2009 - $29.7
million). These payments are expected to be made over the 2010 to 2017 period.
The Company used weighted average credit risk-adjusted rates of 6.99% at Kumtor
and 8% at Boroo to calculate the present value of the asset retirement
obligations.
Share capital and share options
As of April 29, 2010, Centerra had 234,857,228 shares issued and outstanding. In
addition, at the same date, the Company had 1,816,155 share options outstanding
under its share option plan with exercise prices between Cdn$4.68 and Cdn$14.29
per share, and with expiry dates between 2013 and 2017.
During the quarter, in lieu of the normal issuance of stock options, the Board
of Directors issued special performance share units. These units were designed
to deliver the same value to the holder as regular stock options.
Gold hedges
The Company had no gold hedges in place in the first quarter of 2010 and no
deferred charges were recognized.
Mine Operations
Centerra owns 100% of the Kumtor and Boroo mines and therefore all operating and
financial results are on a 100% basis.
----------------------------------------------------------------------------
Three Months Ended March 31
----------------------------------------------------------------------------
Kumtor Operating Results 2010 2009 % Change
----------------------------------------====================================
Revenue - $ millions 223.3 57.3 290%
----------------------------------------------------------------------------
Gold sold - ounces 200,767 62,196 223%
----------------------------------------------------------------------------
Average realized gold price - $/oz 1,112 921 21%
----------------------------------------------------------------------------
Cost of sales - $ millions 47.1 48.6 (3%)
----------------------------------------------------------------------------
Cost of sales - $/oz sold 235 782 (70%)
----------------------------------------------------------------------------
Tonnes mined - 000s 27,538 28,640 (4%)
----------------------------------------------------------------------------
Tonnes ore mined - 000s 1,387 525 164%
----------------------------------------------------------------------------
Tonnes milled - 000s 1,466 1,366 7%
----------------------------------------------------------------------------
Average mill head grade - g/t (1) 4.90 1.92 155%
----------------------------------------------------------------------------
Recovery - % 76.7 70.8 8%
----------------------------------------------------------------------------
Gold produced - ounces 180,562 63,021 187%
----------------------------------------------------------------------------
Total cash cost - $/oz produced (2) (3) 305 1,121 (73%)
----------------------------------------------------------------------------
Total production cost - $/oz produced
(2) (3) 391 1,364 (71%)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capital expenditures - $ millions 23.4 21.8 7%
----------------------------------------------------------------------------
Boroo Operating Results
----------------------------------------------------------------------------
Revenue - $ millions 32.2 41.2 (22%)
----------------------------------------------------------------------------
Gold sold - ounces 29,072 45,425 (36%)
----------------------------------------------------------------------------
Average realized gold price - $/oz 1,106 906 22%
----------------------------------------------------------------------------
Cost of sales - $ millions 10.1 20.6 (51%)
----------------------------------------------------------------------------
Cost of sales - $/oz sold 348 454 (23%)
----------------------------------------------------------------------------
Total Tonnes mined - 000s 3,094 3,528 (12%)
----------------------------------------------------------------------------
Tonnes mined heap leach - 000s 778 1,212 (36%)
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Tonnes ore mined direct mill feed -000's 1,137 621 83%
----------------------------------------------------------------------------
Tonnes ore milled - 000s 624 621 0%
----------------------------------------------------------------------------
Average mill head grade - g/t (1) 1.90 2.34 (19%)
----------------------------------------------------------------------------
Recovery - % 72.8 65.7 11%
----------------------------------------------------------------------------
Gold produced - ounces 30,477 40,183 (24%)
----------------------------------------------------------------------------
Total cash cost - $/oz produced (2) 551 479 15%
----------------------------------------------------------------------------
Total production cost - $/oz produced
(2) 745 696 7%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capital expenditures - $ millions
(Boroo) 0.17 0.24 (29%)
----------------------------------------------------------------------------
Capital expenditures - $ millions
(Gatsuurt) 5.49 0.17 3189%
----------------------------------------------------------------------------
(1) g/t means grams of gold per tonne.
(2) Total cash cost and total production cost are non-GAAP Measures and are
discussed under "Non-GAAP Measures".
(3) As a result of Kumtor's Restated Investment Agreement, total cash cost
and total production cost per ounce measures for both 2010 and 2009 are
shown excluding operating and revenue-based taxes.
Kumtor
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 1997 and has produced about 7.4 million ounces of gold. During the first
quarter 2010, Kumtor experienced one lost-time accident, five level I and one
level II environmental incidents (non reportable).
The planned unloading of ice and waste from the southeast section of the high
wall in the SB zone continued during the quarter. The rate of movement of waste
and ice from this area slowed during the first quarter of 2010 as a result of
the offloading, as well as the effect of cold weather, causing the material to
freeze and the movement to slow. The mine operations department increased its
focus on mining ice and the removal of waste in the central pit using dedicated
unload zones and wider benches at the top of the central pit.
Due to 2009 delays in sequencing, some of the ore originally scheduled to be
mined and stockpiled by the end of 2009 was actually mined in the first quarter
of 2010 and fed directly to the mill.
Production from Kumtor in the first quarter of 2010 was higher than anticipated
due to the processing of higher grade stockpiles established in the fourth
quarter of 2009 and the extraction of more ore than expected from the benches
mined in the first quarter of 2010.
Revenue and Gold Production
Revenue in the first quarter of 2010 increased to $223.3 million from $57.3
million in the first quarter of 2009 primarily as a result of the higher
realized gold price and higher sales volumes (200,767 ounces in the first
quarter of 2010 compared to 62,196 ounces in the same period of 2009). Kumtor
produced 180,562 ounces of gold in the first quarter of 2010 compared to 63,021
ounces of gold in the first quarter of 2009. The increase results primarily from
higher ore grades, increased volumes of high grade ores from the pit and
stockpiles, an increased recovery and increased tonnage through the mill. The
ore grade averaged 4.90 g/t with a recovery of 76.7% in the first quarter of
2010, compared to 1.92 g/t with a recovery of 70.8% in the same quarter of 2009.
The average realized gold price in the first quarter of 2010 was $1,112 per
ounce compared to $921 per ounce in the same period in 2009.
Cost of Sales
Cost of sales at Kumtor in the first quarter of 2010 was $47.1 million compared
to $48.6 million for the same quarter of 2009. The decrease year over year
results primarily from the elimination of production taxes as a result of the
new agreement signed with the Kyrgyz Government in June 2009 and lower mining
and site administration costs partially offset by increased milling costs.
Operating cash costs at Kumtor decreased by $10.0 million for the first quarter
2010 compared to the same quarter of 2009, after the removal, for comparative
purposes, of production taxes in the first quarter of 2009. This variance can be
explained as follows:
Mining costs for first quarter 2010 were $30.0 million, $9.6 million or 24%
lower than the same quarter in 2009. This was due primarily to lower
expenditures on maintenance materials and supplies ($3.1 million) mainly for CAT
shovels, drills, tractor dozers, and 785 haul trucks. Similarly, reduced costs
for dewatering supplies ($2.6 million), diesel fuel ($1.0 million mainly due to
favorable price variances) and lower labour costs ($0.7 million) helped lower
the operating costs. Other favorable variances include decreased spending on
supplies for blasting ($1.1 million) and lower lubrication costs for equipment
($0.6 million).
Milling costs for the first quarter 2010 were $13.5 million, $1.0 million or 8%
higher than the same quarter in 2009. This was primarily due to increased costs
for electricity ($0.6 million), sodium cyanide and carbon ($1.1 million) due to
unfavorable price and consumption variances. This was partially offset by price
savings on grinding media ($0.6 million) and lower cyclone costs ($0.3 million).
Site administration costs for the first quarter 2010 were $7.8 million, $1.9
million or 19% lower than the same quarter in 2009, primarily as a result of a
reallocation of camp catering costs ($1.4 million) starting in 2010 and lower
wages and premiums ($0.5 million).
The ultimate impact of these cost changes on the reported results for cost of
sales is dependant on the relative levels of capital and operating activities
and the buildup or drawdown of inventories during the periods presented. On a
unit cost basis, cost of sales per ounce sold for the first three months of 2010
decreased to $235 compared to $782 for the same period in 2009. The major reason
for the decrease is due to the increased sales volumes in 2010.
Total cash cost per ounce produced in the first quarter 2010 was $305 compared
to $1,035 per ounce for the same period in 2009 due to lower operating costs in
2010 and substantially higher production. Total cash cost per ounce produced is
a non-GAAP measure and is discussed under "Non-GAAP Measures".
Kumtor Regional Administration
Regional administration costs for Kumtor in the first quarter of 2010 were $3.3
million, which is virtually unchanged from the $3.5 million spent in the first
quarter of 2009.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization increased by $3.0 million to $16.8
million over the same period of 2009. The increase mainly reflects the higher
volumes of gold sold in the first quarter of 2010, partially offset by the
impact on assets depreciated on units of production from the increase in the
reserves at Kumtor announced at the end of 2009.
Exploration
Exploration costs for the first quarter of 2010 were $1.8 million, $1.5 million
or 44% lower than the same period in 2009 mainly due to reduced drilling
activity, which had the effect of reducing spending on labour and associated
costs ($0.6 million), as well as reduced consumption of consumables ($0.6
million) and fuel ($0.4 million) for the 2010 period.
Capital Expenditures
Amounts spent and accrued on capital in the first quarter of 2010 were $23.4
million compared to $21.8 million in the same quarter of 2009. In 2010, this
consisted of $6.5 million of sustaining capital, predominantly for the heavy
duty equipment overhaul program ($4.2 million), expansion of the waste dump
($0.8 million) and the replacement of 4 dozers ($0.7 million). The growth
capital investment totalled $16.9 million spent mainly on the purchase of CAT
789 haul trucks ($7.7 million), decline 1 SB Zone underground development ($3.8
million), decline 2 Stockwork Zone underground development ($3.9 million) and
the purchase of capital equipment for decline 2 ($1.2 million).
The SB Zone underground decline (Decline #1) has advanced a total of 680 metres.
During the quarter poor ground conditions were encountered slowing the decline
advancement. The poor ground was primarily associated with faulting and
additional work was carried out to implement the necessary ground support. The
decline advancement is now back on its planned schedule. Exploration drilling is
expected to resume in the second quarter and delineation drilling of the SB Zone
is planned for the third and fourth quarters of 2010.
The Stockwork Zone underground decline (Decline #2) has advanced a total of 222
metres of which 195 metres were accomplished in 2010. Decline #2 will facilitate
the access to the Stockwork Zone and the SB Zone for further drilling of the
resources and exploration of the mineralized structures.
Boroo and Gatsuurt
The Boroo open pit mine, located in Mongolia, was the first hard rock gold mine
in Mongolia. To date it has produced approximately 1.4 million ounces of gold
since beginning of operation in 2004. During the first quarter of 2010, there
was one lost-time accident, six level I and three level II environmental
incidents (non-reportable).
During the quarter work continued on the road to the Gatsuurt deposit. To date
approximately 65% of the 55 km road has been constructed. The road is projected
to be completed by June, 2010.
Revenue and Gold Production
Revenue in the first quarter of 2010 decreased to $32.2 million from $41.2
million in the first quarter of 2009 primarily as a result of 40% lower ounces
sold (29,072 in the first quarter of 2010, compared to 53,636 ounces sold in the
same period of 2009), partially offset by increased gold prices. Boroo produced
30,477 ounces of gold in the first quarter of 2010 compared to 40,183 ounces of
gold in the first quarter of 2009. The milling operation experienced lower ore
grades which were partially offset by increased recovery. The heap leach
operation remained idle during the first quarter 2010, pending issuance of the
final permitting by the Mongolian government authorities. In the comparative
2009 quarter, heap leach production was 9,292 poured ounces. The ore grade
averaged 1.90 g/t with a recovery of 72.8% in the first quarter of 2010,
compared to 2.34 g/t with a recovery of 65.7% in the same quarter of 2009.
Recovery was improved by the feed ratio that contained a less refractory ore in
2010 compared to 2009.
The average realized gold price per ounce in the first quarter of 2010 was
$1,106 compared to $906 in the same period in 2009.
Heap leach operations at Boroo remain under care and maintenance. The Company
continues to work with the Mongolian authorities to obtain the final heap leach
operating permit. See "Other Corporate Developments- Mongolia".
Cost of Sales
Cost of sales decreased in the first quarter of 2010 to $10.1 million compared
to $20.6 million in same period of 2009. The decrease results primarily from
lower ounces sold in the first quarter of 2010 (24,564 ounces) which reduced
cost of sales by approximately $11.0 million. In addition operating costs were
lower primarily as a result of heap leach operations being under care and
maintenance in the first quarter of 2010 compared to full operation in the same
period of 2009.
Operating cash costs at Boroo decreased by $2.5 million compared to the same
period in 2009. This variance can be summarized as follows:
Mining costs remained constant at $5.7 million for the first quarter year-over-year.
Milling costs for the first quarter 2010 were $5.1 million, $0.2 million or 4%
lower than the same quarter in 2009 primarily due to lower consumable costs.
Costs for heap leaching activities were $1.6 million or 69% lower than the same
period in 2009. As a result of the expiry of the temporary operating permit for
the heap leach operation in April 2009, no further cyanide has been added to the
heap leach pad since that date.
Site administration costs remained constant at $1.9 million for the first
quarter in both years.
The ultimate impact of these cost changes on the reported results for cost of
sales is dependant on the relative levels of capital and operating activities
and the buildup or drawdown of inventories during the periods presented. On a
unit cost basis, cost of sales per ounce sold decreased to $348 in the first
quarter of 2010 compared to $454 in the same quarter in 2009, mainly reflecting
the lower costs.
Total cash cost per ounce produced in the first quarter 2010 was $551 compared
to $479 per ounce for the same period in 2009. The impact of lower gold
production increased unit cash costs by approximately $152 per ounce. This was
partially offset by lower operating cash costs of $79 per ounce. Total cash cost
per ounce produced is a non-GAAP measure and is discussed under "Non-GAAP
Measures".
Boroo Regional Administration
Regional administration costs at Boroo were unchanged for the first quarter 2010
compared to the same quarter in 2009 at $1.6 million.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization in the first quarter 2010 totaled $4.4
million, a decrease of $3.3 million or 43% lower than the same period in 2009.
The reduction results mainly from the lower sales and production volumes in the
first quarter 2010, the increased depreciation in 2009 from the pre-stripping
activity in pit 3 in 2008, as well as the impact of the new reserves announced
at the end of 2009.
Exploration
Exploration expenditures in Mongolia increased to $1.2 million in the first
quarter of 2010 from $0.3 million in the same period of 2009. This is primarily
due to additional drilling activities performed on the Gatsuurt and Ulaan Bulag
exploration licenses.
Capital Expenditures
Capital expenditures spent and accrued at Boroo in the first quarter of 2010
decreased to $0.17 million compared to $0.24 million in the same period of 2009.
At Gatsuurt, $5.5 million was spent and accrued in the first quarter 2010 on
road building and mine development, compared to $0.2 million spent in the prior
year same quarter.
Other Financial Information - Related Party Transactions
Kyrgyzaltyn JSC and the Government of the Kyrgyz Republic
Effective June 11, 2009, revenues from the Kumtor mine are subject to a
management fee of $1.00 per ounce (inclusive of taxes) based on sales volumes
(previously $1.50 per ounce), payable to Kyrgyzaltyn JSC ("Kyrgyzaltyn"), which
holds approximately 33% of the outstanding common shares of Centerra.
The table below summarizes the management fees and concession payments paid and
accrued by Kumtor Gold Company ("KGC"), a subsidiary of the Company, to
Kyrgyzaltyn or the Government of the Kyrgyz Republic, and the amounts paid and
accrued by Kyrgyzaltyn to KGC according to the terms of the Gold and Silver
Sales Agreement between Kumtor Operating Company ("KOC", a subsidiary of the
Company), Kyrgyzaltyn and the Kyrgyz Republic.
----------------------------------------------------------------------------
Three months ended
($ thousands) March 31
----------------------------------------------------------------------------
2010 2009
----------------------------------------------------------------------------
Management fees paid by KGC to Kyrgyzaltyn 201 93
----------------------------------------------------------------------------
Concession payments paid by KGC to Kyrgyz Republic - 249
----------------------------------------------------------------------------
Total 201 342
----------------------------------------------------------------------------
Gross gold and silver sales from KGC to Kyrgyzaltyn 224,212 57,608
----------------------------------------------------------------------------
Deduct: refinery and financing charges (881) (338)
----------------------------------------------------------------------------
Net sales revenue received by KGC from Kyrgyzaltyn 223,331 57,270
----------------------------------------------------------------------------
Gold produced by the Kumtor mine is purchased at the mine site by Kyrgyzaltyn
for processing at its refinery in the Kyrgyz Republic pursuant to the Restated
Gold and Silver Sales Agreement entered into between KOC, Kyrgyzaltyn and the
Government of the Kyrgyz Republic. Under this agreement Kyrgyzaltyn is required
to pay for gold within 12 calendar days after delivery at a price that is fixed
based on the London PM fixed price of gold on the London Bullion Market. The
obligations of Kyrgyzaltyn are partially secured by a pledge of a portion of the
Centerra shares owned by Kyrgyzaltyn, the value of which fluctuates with the
market price.
As at March 31, 2010, the Company had a receivable of $58.7 million from
Kyrgyzaltyn (December 31, 2009 - $37.9 million). Subsequent to March 31, 2010,
the balance receivable from Kyrgyzaltyn of $58.7 million was paid in full.
Quarterly Results - Last Eight Quarters
Over the last eight quarters, Centerra's results reflect the positive impact of
rising gold prices, increased gold production at Kumtor, offset by rising cash
costs. In 2009, production at Kumtor was impacted by the unplanned mining of ice
and the removal of waste in the vicinity of the central pit. Unusual items of
$49.3 million were recorded in the second quarter of 2009 as a result of the
ratification of the revised taxation arrangements with the Kyrgyz Republic. The
results for the second quarter of 2008 reflect the impact from unusual items of
$42.2 million of gains as the impact on the ultimate shares to be issued to the
Kyrgyz Government was adjusted to the market price of Centerra shares.
----------------------------------------------------------------------------
$ millions, except per
share data 2010 2009 2008
----------------------------------------------------------------------------
Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2
----------------------------------------------------------------------------
Revenue 255 324 159 104 98 241 139 143
----------------------------------------------------------------------------
Earnings (loss) before
unusual items 122 140 20 (30) (20) 43 17 14
----------------------------------------------------------------------------
Net earnings (loss) 122 140 20 (80) (20) 43 17 56
----------------------------------------------------------------------------
Earnings (loss) per share
before unusual items
(basic and diluted) 0.52 0.60 0.09 (0.14) (0.09) 0.20 0.08 0.06
----------------------------------------------------------------------------
Earnings (loss) per share
(basic and diluted) 0.52 0.60 0.09 (0.36) (0.09) 0.20 0.08 0.26
----------------------------------------------------------------------------
Other Corporate Developments
Kyrgyz Republic
In early April 2010, civil unrest in the Kyrgyz Republic resulted in the ousting
of President Kurmanbek Bakiyev and the formation of an interim government by
opposition groups. Production at the Kumtor mine has not been affected by these
events. However, the political situation in the Kyrgyz Republic continues to
evolve and there can be no assurances that future political developments will
not have an adverse impact on the Company's assets or operations.
On April 13, 2010, Kyrgyzaltyn, the Kyrgyz Republic state-owned shareholder of
the Company and owner of the Kara-Balta refinery which purchases Kumtor's gold
dore, notified the Company that due to the civil unrest in the Kyrgyz Republic
and a moratorium on certain transactions imposed by the governmental authorities
Kyrgyzaltyn had been forced to defer the sale of gold to its off-take bank. The
restrictions on Kyrgyzaltyn's sale of gold to its off-take bank have been lifted
and the Company has now received full payment of the balance outstanding.
Pursuant to a restated shareholders agreement dated as of June 6, 2009 between
Kyrgyzaltyn and Centerra, so long as Kyrgyzaltyn and its affiliates continue to
hold 10% or more of Centerra's outstanding shares, Centerra has agreed to
include in Centerra's proposed slate of directors to be nominated for election
at each annual or special meeting at which directors are to be elected, two
board nominees designated by Kyrgyzaltyn, at least one of whom must be
independent of the Kyrgyz Government, within the meaning of applicable
securities laws in Canada. Should Kyrgyzaltyn and its affiliates own less than
10% but more than 5% of Centerra's outstanding shares, Centerra has agreed to
include in the slate of directors one nominee of Kyrgyzaltyn who shall not be
required to be independent. Kyrgyzaltyn currently owns approximately 33% of
Centerra's outstanding shares and accordingly is entitled to two board nominees
to be included in Centerra's annual general meeting of shareholders scheduled
for May 19, 2010 (the "AGM"). As of the date hereof, the identity of the
Kyrgyzaltyn nominees for the upcoming year has not been communicated to
Centerra's board of directors. As a result of the recent events in the Kyrgyz
Republic, there may be some further delay in Kyrgyzaltyn communicating to
Centerra's board the identity of its nominees. Accordingly, the board of
directors of Centerra expects to appoint two nominees of Kyrgyzaltyn to the
board on or after the date of the AGM once the identities are communicated.
Mongolia
On April 23, 2010, President Elbegdorj issued an order temporarily suspending
the issuance and transfer of mineral licenses. The order appears to be aimed at
limiting speculation and other abuses and non-compliance by license holders.
According to a statement released by the President's office, the order will
remain in effect until amendments to minerals laws are implemented to remedy
such abuses. Centerra does not expect that its operations or its existing mining
and exploration licenses, including the Boroo and Gatsuurt licenses, will be
affected by the order.
Mongolian Regulatory Matters
On June 12, 2009, the main operating licenses at the Company's Boroo mine were
suspended by the Minerals Resources Authority of Mongolia ("MRAM") following
extensive inspections of the Boroo mine operation conducted by the Mongolian
General Department of Specialized Inspection ("SSIA"). While the suspension was
lifted on July 27, 2009, several issues arising from the inspections continue to
be discussed by Centerra and the Mongolian regulatory authorities. On October
23, 2009, Centerra received a very significant claim for compensation from the
SSIA in respect of certain mineral reserves, including state alluvial reserves
covered by the Boroo mine licenses, that are recorded in the Mongolian state
reserves registry, but for which there are no or incomplete records or reports
of mining activity. Centerra disputes the claim. While Centerra cannot give
assurances, it believes settlement will be concluded through negotiation and
will not result in a material impact. In addition, the SSIA inspections raised a
concern about the production and sale of gold from the Boroo heap leach
facility. The heap leach facility was operated under a temporary permit from
June 2008 until the expiry of the temporary permit in April 2009 and Boroo Gold
Company Ltd ("BGC") paid all relevant royalties and taxes with respect to gold
produced from the heap leach facility during that period. BGC believes that it
had all necessary permits to carry out its heap leach activities and that any
regulatory concerns are unfounded. BGC is continuing its effort to obtain a
final permit for the operation of its heap leach facility at the Boroo mine.
Centerra understands that this matter has been referred to the Mongolian
Ministry of Mineral Resources and Energy for review but has received no official
notice of any concern.
Under the stability agreement relating to the Boroo mine between the Company and
the Government of Mongolia, signed July 6, 1998, as amended (the "Boroo
Stability Agreement"), the Company is permitted to offset any value added taxes
("VAT") that it pays against other taxes payable in respect of its Boroo mine
operation. In 2009, the Mongolian Ministry of Finance indicated that, despite
the Boroo Stability Agreement, Centerra would no longer be permitted to offset
its VAT payments. This decision was challenged by Centerra and in November 2009,
Centerra was notified by Ministry of Finance officials that VAT payments up to
August 31, 2009 could be offset. Despite this, recovery of any VAT payments from
September 1, 2009 onwards continues to be subject to negotiations with the
Ministry of Finance.
On November 2, 2009, Centerra received a letter from the Mongolian Ministry of
Finance re-iterating some of the issues raised by the SSIA and indicating that
the Boroo Stability Agreement would be terminated if such issues were not
resolved within a period of 120 days from the date of the letter. The Company
has held discussions with the Ministry of Finance regarding such concerns and
has received no further notice from the Ministry of Finance with respect to the
possible termination of the Boroo Stability Agreement. While the Company
believes that the issues raised by the Ministry of Finance and the SSIA will be
resolved through negotiations without a material impact on the Company, there
can be no assurance that this will be the case.
Mongolian Legislation
In July 2009, the Mongolian Parliament enacted legislation that would prohibit
mineral prospecting, exploration and mining in water basins and forest areas in
the territory of Mongolia and provides for the revocation of licenses affecting
such areas (the "Water and Forest Law"). The Company understands that, prior to
the revocation of any licenses, the Mongolian Government will undertake physical
surveys and consult with local officials to determine which, if any, existing
licenses will be subject to the new law. The legislation provides a specific
exemption for "mineral deposits of strategic importance", and accordingly, the
main Boroo mining licenses will not be subject to the law. The Company's
Gatsuurt licenses and its other exploration license holdings in Mongolia are
currently not so exempt. In March 2010, the Company received a letter from MRAM
stating that certain of its mining and exploration licenses, including the
Gatsuurt mining licenses, could be revoked under the Water and Forest Law. The
letter requested that the Company submit an estimate of expenses incurred in
relation to each license and the compensation that it would expect to receive if
such licenses were to be revoked. The Company has provided a detailed estimate
to MRAM for all potentially affected licenses. The Company has submitted a draft
Investment Agreement for the Gatsuurt Project to the Ministry of Mineral
Resources and Energy ("MMRE"). In April, 2010, the Company received a letter
from the MMRE indicating that the Gatsuurt licenses are within the area
designated on a preliminary basis where minerals mining is prohibited under the
Water and Forest Law. The letter also stated that the MMRE will communicate with
the Company regarding the investment agreement when the MMRE has more clarity on
the impact of the law. The Company is reasonably confident that the economic and
development benefits resulting from its exploration and development activities
will ultimately result in the law having a limited impact on the Company's
Mongolian activities.
In August 2009, the Government of Mongolia repealed its windfall profit tax of
68% in respect of gold sales at a price in excess of US$850 an ounce, with the
repeal to take effect on January 1, 2011. The windfall profit tax will be
applicable to the Gatsuurt project (but not the Boroo project).
Other
On February 4, 2010, Centerra Gold (U.S.) Inc. ("Centerra U.S."), a wholly-owned
subsidiary of Centerra, signed a purchase agreement with Rye Patch Gold Corp.
and its U.S. subsidiary, Rye Patch Gold US Inc. (collectively "Rye Patch") for
the sale of Centerra U.S.'s interest in the REN project in Nevada, subject to
the joint venture project partner, Homestake Mining Company of California
("Homestake"), a subsidiary of Barrick Gold Corporation, waiving its pre-emptive
right to acquire Centerra U.S.'s interest. On April 8, 2010 Homestake elected to
exercise its pre-emptive right to acquire Centerra U.S.'s 64% interest in the
REN joint venture for $35.2 million. As a result of Homestake's election to
purchase the Centerra U.S. interest, Rye Patch's agreement with Centerra U.S.
will terminate. Rye Patch is entitled to receive a break fee of $0.25 million
from Centerra U.S. upon completion of Homestake's acquisition of the Centerra
U.S. interest which is expected to close on or before July 7, 2010. On closing,
Centerra U.S. will transfer the joint venture interest to Homestake. The Company
will record a gain on sale for the value of the proceeds received, less any
related expenses.
As at March 31, 2010 the net book value of REN's property is nil (December 31,
2009- Nil) since all exploration activities on this property were expensed as
incurred.
Critical Accounting Estimates
Centerra prepares its consolidated financial statements in accordance with
Canadian Generally Accepted Accounting Principles ("GAAP"). In doing so,
management is required to make various estimates and judgments in determining
the reported amounts of assets and liabilities, revenues and expenses for each
year presented and in the disclosure of commitments and contingencies.
Management bases its estimates and judgments on its own experience, guidelines
established by the Canadian Institute of Mining, Metallurgy and Petroleum and
various other factors believed to be reasonable under the circumstances. In
reference to the Company's significant accounting policies as described in note
3 to the December 31, 2009 Consolidated Financial Statements management believes
the following critical accounting policies reflect its more significant
estimates and judgments used in the preparation of the consolidated financial
statements.
Inventories of broken ore, heap leach ore, in-circuit gold and gold dore are
valued at the lower of average production cost and net realizable value, while
consumable supplies and spares are valued at the lower of weighted-average cost
and replacement cost. Determination of realizable value or replacement costs
requires estimates to be made for costs to complete and sell inventory.
Management periodically makes estimates regarding whether an allowance is
necessary for slow moving or obsolete consumable supplies and spares
inventories.
Depreciation and depletion of property, plant and equipment directly involved in
mining and milling operations is primarily calculated using the "unit of
production" method. This method allocates the cost of an asset to each period
based on current period production as a portion of total lifetime production or
a portion of estimated recoverable ore reserves. Estimates of lifetime
production and amounts of recoverable reserves are subject to judgment and could
change significantly over time. If actual reserves prove to be significantly
different than the estimates, there would be a material impact on the amounts of
depreciation and depletion charged to earnings.
Mobile equipment and other administrative-type assets are depreciated according
to the straight-line method, based on an estimate of their useful lives.
Significant decommissioning and reclamation activities are often not undertaken
until substantial completion of the useful lives of productive assets.
Regulatory requirements and alternatives with respect to these activities are
subject to change over time. A significant change to either the estimated costs
or recoverable reserves would result in a material change in the amount charged
to earnings.
If it is determined that carrying values of property, plant and equipment cannot
be recovered, then the asset is written down to fair value. Similarly, Centerra
tests goodwill at least annually for impairment to ensure that the fair value
remains greater than or equal to book value. Any excess of book value over fair
value is charged to income in the period in which the impairment is determined.
Recoverability and fair value assessments are dependent upon assumptions and
judgments regarding future prices, costs of production, sustaining capital
requirements and economically recoverable ore reserves and resources. A material
change in assumptions may significantly impact the potential impairment of these
assets.
The Company uses the asset and liability method of accounting for future income
taxes. Under this method, current income taxes are recognized for the estimated
income taxes payable for the current year. Future income tax assets and
liabilities are recognized for temporary differences between the tax and
accounting bases of assets and liabilities, calculated using the currently
enacted or substantively enacted tax rates anticipated to apply in the period
that the temporary differences are expected to reverse. Future income tax
inflows and outflows are subject to estimation in terms of both timing and
amount of future taxable earnings. Should these estimates change, the carrying
value of income tax assets or liabilities may change.
Grants under our stock-based compensation plans are accounted for in accordance
with the fair-value-based method of accounting. For stock-based compensation
plans that will settle through the issuance of equity such as stock options, the
fair value of stock options is estimated on the date of grant using the
Black-Scholes option pricing model, while for the cash-settled stock-based
compensation, fair value is determined based on the market value of the
Company's common shares at the reporting date. In addition, option valuation
models require the input of certain assumptions including expected share price
volatility.
Changes in Accounting Policies
There were no new accounting policies issues in and effective for the first
quarter 2010.
New Pronouncements
The Canadian Institute of Chartered Accountants issued three accounting
standards in January 2009 which take effect January 1, 2011: Section 1582,
Business Combinations, Section 1601, Consolidated Financial Statements and
Section 1602, Non-Controlling interests.
Section 1582 replaces section 1581 and establishes standards for the accounting
of a business combination. It provides the Canadian equivalent to the
International Financial Reporting Standards ("IFRS") 3 - Business Combinations.
The section applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after January 1, 2011.
Sections 1601 and 1602 together replace section 1600, Consolidated Financial
Statements. Section 1601, establishes standards for the preparation of
consolidated financial statements. Section 1601 applies to interim and annual
consolidated financial statements relating to fiscal years beginning on or after
January 1, 2011. Section 1602 establishes standards for accounting of a
non-controlling interest in a subsidiary in consolidated financial statements
subsequent to a business combination. It is equivalent to the corresponding
provisions of IFRS lAS 27 - Consolidated and Separate Financial Statements and
applies to interim and annual consolidated financial statements relating to
fiscal years beginning on or after January 1, 2011.
The Company does not anticipate that the adoption of these standards will impact
its financial results.
Status of Centerra's Transition to International Financial Reporting Standards
("IFRS")
As discussed in the Company's 2009 annual MD&A, the IFRS project is now in its
final phase, the implementation phase. During the first quarter 2010, the
Company initiated work to quantify its opening balance sheet as of January 1,
2010 under IFRS, applying the IFRS1 elections/exemptions and accounting policies
it selected during the development work performed in 2009. Work on the IFRS
opening balance sheet is continuing and will be reviewed with the Company's
Audit Committee of the Board and with its auditors, with the intent to release
the quantified impact from the opening balance sheet in the Company's third
quarter MD&A.
The release of the quantified impact in the second quarter will be dependent on
and subject to any further standards development and additional guidance as
issued by the International Accounting Standards Board ("IASB") and the Canadian
Accounting Standards Boards ("ASB") as well as regulatory developments as issued
by the Canadian Securities Administrators, which may affect the extent, timing,
nature or disclosure of the Company's adoption of IFRS.
Further, changes in regulation or economic conditions at the date of the
changeover or throughout the project could result in changes in elections or
selections and to the transition plan being different from those communicated.
The Company is continuing its efforts to modify its system of records to
accommodate the seamless preparation of IFRS statements and expects to have such
changes completed by the end of the second quarter.
The Company does anticipate a significant increase in disclosure resulting from
the adoption of IFRS and is continuing to assess the level of disclosure
required as well as systems changes that may be necessary to gather and process
the information.
Centerra is monitoring the impact of the IFRS conversion on various functional
activities of the Company. Training of the IFRS requirements with all management
levels concerned including Directors and other related parties are continuing.
IFRS training program requirements for other stakeholders of the Company are
being assessed.
Outlook for 2010
Production
Centerra's 2010 consolidated gold production is forecast to be in the 640,000 to
700,000 ounce range, which is unchanged from the prior guidance disclosed in the
Company's news release of February 23, 2010.
Gold production for the full year 2010 at the Kumtor mine in the Kyrgyz Republic
is forecast to be between 530,000 to 570,000 ounces, which is higher than the
prior guidance of 520,000 to 560,000 ounces based on incremental ounces mined in
the first quarter. This excludes any production from the nearby Sarytor deposit,
which will be mined in 2012 and 2013.
It is expected that the higher than anticipated production realized at Kumtor in
the first quarter, which resulted from the processing of higher grade stockpiles
established in the fourth quarter of 2009 and extracting more ore than expected
from the benches mined in the first quarter, may be partially offset by lower
production in the second and third quarters of 2010. Centerra still expects to
produce approximately 43% of its annual production in the fourth quarter. The
second and third quarters of 2010 will have lower production due primarily to
the sequence of mining in the Kumtor pit as well as the anticipated change of
the ball mill ring gear and a scheduled replacement of the SAG mill liner at the
end of the second quarter at the Kumtor mill.
At Boroo/Gatsuurt, gold production is forecast to be 110,000 to 130,000 ounces,
which is slightly lower than prior guidance of February 23, 2010 due the delays
in obtaining the final heap leach operating permit. The forecast assumes that:
- the Company has received the final operating permit for the Boroo heap leach
facility by July 2010 allowing it to restart the heap leach process within days
of receiving the permit. Approximately 28,000 ounces of gold production is
planned from heap leaching in 2010 and,
- all permitting and commissioning requirements for Gatsuurt are in place by
mid-2010 in order to allow for the commencement of processing of Gatsuurt oxide
ore in the second half of 2010 (expected production of approximately 50,000
ounces of gold from the Gatsuurt project).
Failing the receipt of the required approvals for Gatsuurt in a timely manner,
an alternative plan can be initiated that will allow the Boroo operation to
achieve the production within the forecasted range of ounces produced.
These production estimates are based on certain assumptions. See "Material
Assumptions" below.
Cash cost per ounce
Total cash cost in 2010 is expected to be between $460 and $505 per ounce
produced, which is unchanged from the prior guidance of February 23, 2010. Total
cash cost is a non-GAAP measure and is discussed under "Non-GAAP Measures".
Total cash cost for 2010 for Kumtor is expected to be in the range of $430 to
$460 per ounce produced, which is unchanged from the prior guidance.
Boroo/Gatsuurt total cash cost for 2010 reflects the Gatsuurt start-up and is
expected to be $590 to $690 per ounce produced, which is unchanged from the
prior guidance.
Centerra's production and unit costs are forecast as follows:
---------------------------------------------------------------------------
2010 Production Forecast 2010 Total Cash Cost(1)
(ounces of gold) ($ per ounce produced)
---------------------------------------------------------------------------
Kumtor 530,000 - 570,000 430 - 460
---------------------------------------------------------------------------
Boroo / Gatsuurt 110,000 - 130,000 590 - 690
---------------------------------------------------------------------------
Consolidated 640,000 - 700,000 460 - 505
---------------------------------------------------------------------------
(1) Total cash cost is a non-GAAP measure. See "Non-GAAP Measures below.
These cost estimates are based on certain assumptions. See "Material
Assumptions" below.
Exploration
Exploration expenditures of $30 million are forecast for 2010, and the
exploration plan is unchanged from the prior guidance. The 2010 program will
continue the aggressive exploration work at the Kumtor mine with $12.6 million
of planned expenditures to test for additional open pit and underground
resources. In Mongolia, $2.7 million is allocated for target definition work and
drill programs on our large land holdings. In addition, drilling and generative
programs will be continued in Russia ($2.7 million), Turkey ($3.2 million) and
Nevada ($2.5 million) with drilling programs continuing on the four joint
ventures and two projects generated in 2008 and on the four new joint ventures
acquired in 2009.
Generative programs will continue in Central Asia, Russia, China, Turkey and the
U.S. to increase the pipeline of projects that are being developed to meet the
longer term growth targets of Centerra.
Capital Expenditures
The capital expenditures for 2010 are estimated to be $245.2 million, including
$49.1 million of sustaining capital and $196.1 million of growth capital. This
represents a decrease of $31.3 million from prior guidance primarily due to the
timing of expenditures in growth capital at Gatsuurt.
Growth capital includes:
----------------------------------------------------------------------------
Projects
(millions of
dollars) 2010 Growth Capital Forecast 2010 Sustaining Capital Forecast
----------------------------------------------------------------------------
Kumtor $153.6 $43.8
----------------------------------------------------------------------------
Boroo $0.5 $4.9
----------------------------------------------------------------------------
Gatsuurt $42.0 0
----------------------------------------------------------------------------
Other 0 0.4
----------------------------------------------------------------------------
Consolidated
Total $196.1 $49.1
----------------------------------------------------------------------------
Kumtor Capital
At Kumtor, the largest growth capital expenditure will be for the North Wall
Expansion project, estimated at $92.6 million primarily for purchases of mining
and auxiliary support equipment to renew and expand the mining fleet. The
equipment has been ordered and is expected to be delivered in the fourth quarter
of 2010 and the first quarter of 2011. To increase haulage capacity to manage
the ice/waste movement in the high movement area, Kumtor has started the process
of acquiring seven new CAT 789 haul trucks for a total cost of $18.2 million. It
is expected that the trucks will be delivered in the second and third quarters
of 2010. The underground growth capital for developing the SB Zone and Stockwork
Zone, as well as for delineation drilling and capital purchases, is estimated to
be $41.1 million in 2010.
Boroo & Gatsuurt Capital
At Boroo, 2010 sustaining capital expenditures are expected to be $4.9 million,
primarily for the purchase of new ball and SAG mill gears ($2.1 million) and
mobile equipment component change-outs ($1.9 million). These expenditures are
based on operational needs and also assume the receipt of the required approvals
for Gatsuurt in a timely manner from the Mongolian regulatory authorities.
At Gatsuurt, expected 2010 growth capital spending is forecasted at $42.0
million down from $73.8 million in the prior guidance. The decrease in capital
spending is due to a decision to delay the engineering and construction of the
Boroo bio-oxidation facility for processing Gatsuurt and other sulphide ores.
This decision was made due to issues involving Gatsuurt's commissioning with the
Mongolian Government and the drilling results at Gatsuurt which has identified
additional oxide mineralization which may extend the oxide operating life at
Gatsuurt, delaying the need for the bio-oxidation plant. As a result of this
decision, the capital spending in 2010 for the engineering and construction of
the Boroo bio-oxidation facility has been scaled down to $5.0 million from $40
million reported in the previous guidance.
Other growth capital spending at Gatsuurt includes completion of the Gatsuurt
site infrastructure including the haul road between Gatsuurt and Boroo ($8.5
million), purchase of haul trucks to be used for hauling of ore from the
Gatsuurt site to the Boroo mill ($5.8 million), pre-stripping of the Gatsuurt
orebody ($9.2 million), expansion of the existing Boroo tailings facility to
contain Gatsuurt oxide and sulphide tailings ($4.8 million).
The Company has implemented a phased approach to the development of the Gatsuurt
orebody consisting of an oxide project component and a sulphide project
component. It is anticipated that the Gatsuurt oxide ores will begin to be
processed through the Boroo facility in the third quarter of 2010. The balance
of the capital for the development of the deeper sulphide ores at Gatsuurt may
only be invested if the Company is successful in obtaining an acceptable
investment agreement for Gatsuurt with the Government of Mongolia.
Administration
Annual corporate and administration expenses have been revised to amount to
approximately $41 million in 2010, which is $7 million higher than the prior
guidance in the fourth quarter 2009 mainly due to higher anticipated stock-based
compensation resulting from the increased Centerra share price.
Production, cost and capital forecasts for 2010 are forward-looking information
and are based on key assumptions and subject to material risk factors that could
cause actual results to differ materially and which are discussed under the
heading "Material Assumptions" and "Cautionary Note Regarding Forward-looking
Information".
Sensitivities
Centerra's revenues, earnings and cash flows for the remaining nine months of
2010 are sensitive to changes in certain variables, and the Company has
estimated their impact on revenues, net earnings and cash from operations.
----------------------------------------------------------------------------
Impact on
Sensitivities Change ($ millions)
--------------------------------------------
Earnings before
Costs Revenues Cash flow income tax
----------------------------------------------------------------------------
Gold Price $50/oz 4.5 23.4 18.0 18.9
----------------------------------------------------------------------------
Diesel Fuel (1) 10% 4.1 - 4.1 4.1
----------------------------------------------------------------------------
Kyrgyz som 1 som 1.2 - 1.2 1.2
----------------------------------------------------------------------------
Mongolian tugrik 25 tugriks 0.2 - 0.2 0.2
----------------------------------------------------------------------------
Canadian dollar 10 cents 2.5 - 2.5 2.5
----------------------------------------------------------------------------
(1) a 10% change in diesel fuel price equals $9/oz produced
Material Assumptions
Material assumptions or factors used to forecast production and costs include
the following:
- a gold price of $1,050 per ounce,
- exchange rates:
- $1USD:$1.04CAD
- $1USD:44 Kyrgyz Som
- $1USD:1,390 Mongolian Tugrik
- $1USD:0.71 Euro
- diesel price assumption:
- $0.74/litre at Kumtor
- $0.85/litre at Boroo
Diesel fuel is sourced from separate Russian suppliers for both sites and only
loosely correlates with world oil prices. The diesel fuel price assumptions were
made when the price of oil was approximately $81 per barrel.
Other important assumptions on which the Company's production, cost and capital
guidance is based include the following:
- political and civil unrest in the Kyrgyz Republic does not impact operations,
including movement of supplies, gold shipments and people to the Kumtor mine,
- grades and recoveries at Kumtor will remain consistent with the life-of-mine
plan to achieve the forecast gold production,
- the dewatering and depressurization programs at Kumtor continue to produce the
expected results and the water management system works as planned,
- the remedial plan to deal with the Kumtor waste and ice movement is
successful, see "Kumtor Mine - Remedial Plan to Manage the High Movement Area"
in the Company's December 7, 2009 news release,
- the equipment to execute the Company's remedial plan to manage the high
movement area at Kumtor is available for purchase and is delivered on time,
- no unplanned delays in or interruption of scheduled production from our mines,
including due to natural phenomena, labour or regulatory disputes, equipment
breakdown or other developmental and operational risks,
- certain issues at Boroo raised by the General Department of Specialized
Inspection ("SSIA") concerning state alluvial reserves, the production and sale
of gold from the Boroo heap leach facility and other matters will be resolved
through negotiation without material adverse impact on the Company, see
"Mongolian Regulatory Matters",
- Boroo ore does not become more refractory in nature than anticipated,
affecting mill recoveries,
- no further suspension of Boroo's operating licenses,
- Boroo receives the final operating permit for the heap leach facility by July
1, 2010,
- permitting and commissioning requirements for mining activities at Gatsuurt
are in place by mid-2010 in order to allow for the commencement of processing of
Gatsuurt oxide ore in the timeframe planned,
- the commitment of capital for developing the Gatsuurt sulphides is dependent
on signing an acceptable investment agreement with the Government of Mongolia,
- the development of Gatsuurt will be exempt from the new forest and water basin
legislation in Mongolia, see "Mongolian Legislation", and
- all necessary permits, licenses and approvals are received in a timely manner.
Production and cost forecasts and capital estimates are forward-looking
information and are based on key assumptions and subject to material risk
factors. If any event arising from these risks occurs, the Company's business,
prospects, financial condition, results of operations or cash flows could be
adversely affected. Additional risks and uncertainties not currently known to
the Company, or that are currently deemed immaterial, may also materially and
adversely affect the Company's business operations, prospects, financial
condition, results of operations or cash flows. See the sections entitled
"Recent Developments" and "Risk Factors" in the Company's most recently filed
annual information form, available on SEDAR at www.sedar.com and see also the
discussion below under the heading "Cautionary Note Regarding Forward-looking
Information".
For further discussion of the factors that could cause actual results to differ
materially, please refer to "Risk Factors" in Centerra's 2009 Annual
Management's Discussion and Analysis and to Centerra's 2009 Annual Information
Form including the section titled "Risk Factors", available on SEDAR at
www.sedar.com. For information on forward-looking information see "Caution
Regarding Forward-Looking Information".
Non-GAAP Measures
This news release presents information about total cash cost of production of an
ounce of gold and total production cost per ounce of gold for the operating
properties of Centerra. Except as otherwise noted, total cash cost per ounce is
calculated by dividing total cash costs by gold ounces produced for the relevant
period. Total production cost per ounce includes total cash cost plus
depreciation, depletion and amortization divided by gold ounces produced for the
relevant period. Total cash cost and total production cost per ounce are
non-GAAP measures.
Total cash costs include mine operating costs such as mining, processing,
administration, royalties and production taxes (except at Kumtor where
revenue-based taxes and production taxes are excluded), but exclude
amortization, reclamation costs, financing costs, capital development and
exploration. Certain amounts of stock-based compensation have been excluded as
well. Total production costs includes total cash cost plus depreciation,
depletion and amortization. Total cash cost per ounce and total production cost
per ounce have been included because certain investors use this information to
assess performance and also to determine the ability of Centerra to generate
cash flow for use in investing and other activities. The inclusion of total cash
cost per ounce and total production cost per ounce may enable investors to
better understand year-over-year changes in production costs, which in turn
affect profitability and cash flow.
Net earnings before unusual items is a non-GAAP measure. It has been included
because certain investors use this information to assess how the Company would
perform when items not considered to be usual in nature are excluded. This may
enable investors to better understand year-over-year changes in income.
Centerra Gold Inc.
TOTAL CASH COST & TOTAL PRODUCTION COST Three months ended
RECONCILIATION (unaudited) March 31,
($ millions, unless otherwise specified) 2010 2009
----------------------
Centerra:
----------------------------------------------------
Cost of sales, as reported $ 57.3 $ 69.3
Adjust for: Refining fees & by-product credits 0.2 -
Regional Office administration 4.9 5.0
Mining Standby Costs - -
Operating taxes excluded (1) - (5.4)
Non-operating costs (0.1) (2.0)
Inventory movement 9.5 17.5
----------------------
Total cash cost - 100% $ 71.8 $ 84.4
Depreciation, Depletion, Amortization and
Accretion 21.6 22.1
Inventory movement - non-cash (0.1) 1.9
----------------------
Total production cost - 100% $ 93.3 $ 108.4
Ounces poured - 100% (000) 211.1 103.2
Total cash cost per ounce $ 340 $ 819
Total production cost per ounce $ 442 $ 1,051
Kumtor:
----------------------------------------------------
Cost of sales, as reported $ 47.1 $ 48.6
Adjust for: Refining fees & by-product credits 0.2 -
Regional Office administration 3.3 3.5
Mining Standby Costs - -
Operating taxes excluded (1) - (5.4)
Non-operating costs - (1.9)
Inventory movement 4.4 20.4
----------------------
Total cash cost - 100% $ 55.0 $ 65.2
Depreciation, Depletion, Amortization and
Accretion $ 16.9 $ 14.1
Inventory movement - non-cash $ (1.3) $ 1.2
----------------------
Total production cost - 100% $ 70.6 $ 80.5
Ounces poured - 100% (000) 180.6 63.0
Total cash cost per ounce $ 305 $ 1,035
Total production cost per ounce $ 391 $ 1,278
Boroo:
----------------------------------------------------
Cost of sales, as reported $ 10.2 $ 20.7
Adjust for: Refining fees & by-product credits - -
Regional Office administration 1.6 1.5
Mining Standby Costs - -
Operating taxes excluded (1) - -
Non-operating costs (0.1) (0.1)
Inventory movement 5.1 (2.9)
----------------------
Total cash cost - 100% $ 16.8 $ 19.2
Depreciation, Depletion, Amortization and
Accretion 4.7 8.0
Inventory movement - non-cash 1.2 0.7
----------------------
Total production cost - 100% $ 22.7 $ 27.9
Ounces poured - 100% (000) 30.5 40.2
Total cash cost per ounce $ 551 $ 479
Total production cost per ounce $ 745 $ 696
(1) Kumtor's operating taxes under the previous regime are removed in both
years since these were replaced with a revenue-based tax combining income
and operating taxes from the previous regime.
Qualified Person
The scientific and technical information in this document was prepared in
accordance with National Instrument 43-101 - Standards of Disclosure for Mineral
Projects ("NI 43-101") and was reviewed, verified and compiled by Centerra's
geological and mining staff under the supervision of Ian Atkinson, Certified
Professional Geologist, Centerra's Vice-President, Exploration, who is the
qualified person for the purpose of NI 43-101.
Caution Regarding Forward-Looking Information
This Management's Discussion and Analysis and the documents referred to herein
contain statements which are not statements of current or historical facts and
are "forward looking information" within the meaning of applicable Canadian
securities laws. Such forward looking information involves risks, uncertainties
and other factors that could cause actual results, performance, prospects and
opportunities to differ materially from those expressed or implied by such
forward looking information. Wherever possible, words such as "believe",
"expect", "anticipate", "contemplate", "target", "plan", "intends", "continue",
"budget", "forecast", "projections", "estimate", "may", "will", "schedule",
"potential", "strategy" and other similar expressions have been used to identify
forward looking information. These forward-looking statements relate to, among
other things, Centerra's expectations regarding future growth, results of
operations (including, without limitation, future production and sales, and
operating and capital expenditures), performance (both operational and
financial), business and political environment and business prospects (including
the timing and development of new deposits and the success of exploration
activities) and opportunities.
Although the forward-looking information in this Management's Discussion and
Analysis reflects Centerra's current beliefs as of the date of this Management's
Discussion and Analysis based on information currently available to management
and based upon what management believes to be reasonable assumptions, Centerra
cannot be certain that actual results, performance, achievements, prospects and
opportunities, either expressed or implied will be consistent with such
forward-looking information. Forward looking information is necessarily based
upon a number of estimates and assumptions that, while considered reasonable by
Centerra, are inherently subject to significant political, business, economic
and competitive uncertainties and contingencies. Known and unknown factors could
cause actual results to differ materially from those projected in the forward
looking information.
Factors that could cause actual results or events to differ materially from
current expectations include, among other things: risks relating to the recent
political and civil unrest in the Kyrgyz Republic, risks related to the creep of
ice and waste movement into the Kumtor open-pit, the resolution of issues at the
Boroo mine raised by the Mongolian SSIA concerning alluvial reserves and matters
relating to the suspension of the Boroo licenses in June 2009, the potential
impact of Mongolian legislation prohibiting mineral activity in water basins and
forest areas on the Gatsuurt project, the threatened termination of the
stability agreement with the Mongolian Government in relation to the Boroo mine,
the receipt of a final permit to operate the heap leach operation at the Boroo
mine, fluctuations in gold prices, replacement of mineral reserves, reduction in
reserves related to geotechnical risks, ground movements, political risk,
nationalization risk, changes in laws and regulations, political civil unrest,
labour unrest, legal compliance costs, reserve and resource estimates,
production estimates, exploration and development activities, competition,
operational risks, environmental, health and safety risks, costs associated with
reclamation and decommissioning, defects in title, seismic activity, cost and
availability of labour, material and supplies, increases in production and
capital costs, permitting and construction to raise the tailings dam height and
increase the capacity of the existing Kumtor tailings facility, the ability to
renew and obtain licenses, permits and other rights, illegal mining, enforcement
of legal rights, decommissioning and reclamation cost estimates, future
financing and personnel and the receipt of all permitting and commissioning
requirements for the Gatsuurt mine by mid-2010. In addition, material
assumptions used to forecast production and costs include those described above
under the heading "Material Assumptions". There may be other factors that cause
results, assumptions, performance, achievements, prospects or opportunities in
future periods not to be as anticipated, estimated or intended. See "Risk
Factors" in the Company's most recently filed AIF and Annual Management's
Discussion and Analysis available on SEDAR at www.sedar.com.
Furthermore, market price fluctuations in gold, as well as increased capital or
production costs or reduced recovery rates may render ore reserves containing
lower grades of mineralization uneconomic and may ultimately result in a
restatement of reserves. The extent to which resources may ultimately be
reclassified as proven or probable reserves is dependent upon the demonstration
of their profitable recovery. Economic and technological factors which may
change over time always influence the evaluation of reserves or resources.
Centerra has not adjusted mineral resource figures in consideration of these
risks and, therefore, Centerra can give no assurances that any mineral resource
estimate will ultimately be reclassified as proven and probable reserves.
Centerra's mineral reserve and mineral resource figures are estimates and
Centerra can provide no assurances that the indicated levels of gold will be
produced or that Centerra will receive the gold price assumed in determining its
mineral reserves. Such estimates are expressions of judgment based on knowledge,
mining experience, analysis of drilling results and industry practices. Valid
estimates made at a given time may significantly change when new information
becomes available. While Centerra believes that these mineral reserve and
mineral resource estimates are well established and the best estimates of
Centerra's management, by their nature mineral reserve and mineral resource
estimates are imprecise and depend, to a certain extent, upon analysis of
drilling results and statistical inferences which may ultimately prove
unreliable. If Centerra's reserve or reserve estimates for its properties are
inaccurate or are reduced in the future, this could have an adverse impact on
Centerra's future cash flows, earnings, results or operations and financial
condition.
Centerra estimates the future mine life of its operations. Centerra can give no
assurance that mine life estimates will be achieved. Failure to achieve these
estimates could have an adverse impact on Centerra's future cash flows,
earnings, results of operations and financial condition.
There can be no assurances that forward-looking information and statements will
prove to be accurate, as many factors and future events, both known and unknown
could cause actual results, performance or achievements to vary or differ
materially from the results, performance or achievements that are or may be
expressed or implied by such forward-looking statements contained in this
Management's Discussion and Analysis. Accordingly, all such factors should be
considered carefully when making decisions with respect to Centerra, and
prospective investors should not place undue reliance on forward-looking
information. Forward-looking information is as of April 28, 2010. Centerra
assumes no obligation to update or revise forward-looking information to reflect
changes in assumptions, changes in circumstances or any other events affecting
such forward-looking information, except as required by applicable law.
Centerra Gold Inc.
Consolidated Financial Statements
For the Quarter Ended March 31, 2010
(Unaudited)
(Expressed in United States Dollars)
Centerra Gold Inc.
Consolidated Balance Sheets
(Expressed In Thousands of United States Dollars)
March 31, December 31,
2010 2009
----------------------------------------------------------------------------
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 200,942 $ 176,904
Short-term investments 183,294 145,971
Amounts receivable 65,973 44,281
Current portion of future income tax asset 1,241 1,555
Inventories (note 3) 154,550 151,822
Prepaid expenses 17,800 11,718
-------------------------
623,800 532,251
Property, plant and equipment 388,691 380,979
Goodwill 129,705 129,705
Long-term receivables and other 7,560 6,554
Long-term inventories (note 3) 24,669 23,120
Future income tax asset 830 1,418
-------------------------
551,455 541,776
-------------------------
Total assets $ 1,175,255 $ 1,074,027
-------------------------
-------------------------
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 44,472 $ 49,178
Taxes payable 21,184 35,066
Current portion of provision for reclamation (note
4) 8,221 8,169
Current portion of future income tax liability 4,415 7,662
-------------------------
78,292 100,075
Provision for reclamation (note 4) 22,001 21,533
Shareholders' equity (note 5)
Share capital 646,081 646,081
Contributed surplus 34,754 34,298
Retained earnings 394,127 272,040
-------------------------
1,074,962 952,419
-------------------------
Total liabilities and shareholders' equity $ 1,175,255 $ 1,074,027
-------------------------
-------------------------
Commitments and contingencies (note 8)
The accompanying notes form an integral part of these unaudited interim
consolidated financial statements.
Centerra Gold Inc.
Consolidated Statements of Earnings and
Comprehensive Income
(Unaudited)
(Expressed In Thousands of United States Dollars)
Three Months Ended
March 31, March 31,
2010 2009
----------------------------------------------------------------------------
Revenue from Gold Sales $ 255,486 $ 98,429
---------------------------
Expenses
Cost of sales (1) 57,252 69,258
Regional office administration 4,944 5,075
Depreciation, depletion and amortization 21,331 21,787
Accretion and reclamation expense (note 4) 554 575
Revenue based taxes (note 6(a)) 31,266 -
Exploration and business development 5,521 5,693
Other (income) and expenses 714 164
Corporate administration 11,017 5,002
---------------------------
132,599 107,554
---------------------------
Earnings (loss) before income taxes 122,887 (9,125)
Income tax expense (note 6 (b)) 800 11,161
---------------------------
Net earnings (loss) and comprehensive income
(loss) $ 122,087 $ (20,286)
---------------------------
Basic and diluted net earnings (loss) per common
share (note 5) $ 0.52 $ (0.09)
---------------------------
(1) Excludes depreciation, depletion and
amortization expenses 21,206 21,227
The accompanying notes form an integral part of these unaudited interim
consolidated financial statements.
Centerra Gold Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(Expressed In Thousands of United States Dollars)
Three Months Ended
March 31, March 31,
2010 2009
----------------------------------------------------------------------------
Operating activities
Net earnings (loss) $ 122,087 $ (20,286)
Items not involving cash:
Depreciation, depletion and amortization 21,331 21,787
Accretion and reclamation expense 554 575
Loss on disposal of plant and equipment 143 320
Stock based compensation expense 456 359
Future income tax (recovery) expense (2,345) 5,821
Long-term inventory (1,549) (2,384)
Other operating items (683) (1,661)
---------------------------------
139,994 4,531
Decrease (increase) in working capital (57,639) 6,308
---------------------------------
Cash provided by operations 82,355 10,839
---------------------------------
Investing activities
Additions to property, plant and equipment (21,036) (23,720)
Short-term investments (purchased) matured (37,323) 17,781
Proceeds from disposition of
property,plant and equipment 42 2
---------------------------------
Cash used in investing (58,317) (5,937)
---------------------------------
Financing activities
---------------------------------
Cash provided by (used in) financing - -
---------------------------------
Increase in cash and cash equivalents
during the period 24,038 4,902
Cash and cash equivalents at beginning of
the period 176,904 149,583
---------------------------------
Cash and cash equivalents at end of the
period $ 200,942 $ 154,485
---------------------------------
---------------------------------
Supplemental disclosure with respect to
cash flows
Cash and cash equivalents consist of :
Cash $ 62,770 $ 35,841
Cash equivalents 138,172 118,644
---------------------------------
$ 200,942 $ 154,485
Investment in property,plant and equipment
Capital expenditures during the period $ 29,154 $ 22,306
Reduction (increase) to accruals included
in additions to PP&E (8,118) 1,414
---------------------------------
Additions to property, plan and equipment $ 21,036 $ 23,720
---------------------------------
The accompanying notes form an integral part of these unaudited interim
consolidated financial statements.
Centerra Gold Inc.
Consolidated Statements of Shareholders' Equity
(Unaudited)
(Expressed In Thousands of United States Dollars)
----------------------------------------------------------------------------
Conting-
ent
Number of Common Contri-
Common Shares buted Retained
Shares Amount Issuable Surplus Earnings Total
----------------------------------------------------------------------------
Balance at
December
31, 2008 216,318,188 $ 523,107 $ - $ 32,904 $ 211,727 767,738
Stock-
based
compensat
ion
expense - - - 359 - 359
Net loss
for the
period - - - - (20,286) (20,286)
----------------------------------------------------------------------------
Balance at
March 31,
2009 216,318,188 $ 523,107 $ - $ 33,263 $ 191,441 747,811
Common
shares
issued
for
Agreement
on New
Terms 18,232,615 120,700 - - - 120,700
Common
shares
issued on
exercise
of stock
options 306,425 2,274 - (330) - 1,944
Stock-
based
compensat
ion
expense - - - 455 - 455
Net loss
for the
period - - - - (79,586) (79,586)
----------------------------------------------------------------------------
Balance at
June 30,
2009 234,857,228 $ 646,081 $ - $ 33,388 $ 111,855 791,324
Stock-
based
compensat
ion
expense - - - 455 - 455
Net
earnings
for the
period - - - - 20,230 20,230
----------------------------------------------------------------------------
Balance at
September
30, 2009 234,857,228 $ 646,081 $ - $ 33,843 $ 132,085 $ 812,009
Stock-
based
compensat
ion
expense - - - 455 - 455
Net
earnings
for the
period - - - - 139,955 139,955
----------------------------------------------------------------------------
Balance at
December
31, 2009 234,857,228 $ 646,081 $ - $ 34,298 $ 272,040 $ 952,419
Stock-
based
compensat
ion
expense - - - 456 - 456
Net
earnings
for the
period - - - - 122,087 122,087
----------------------------------------------------------------------------
Balance at
March 31,
2010 234,857,228 $ 646,081 $ - $ 34,754 $ 394,127 $ 1,074,962
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The accompanying notes form an integral part of these unaudited interim
consolidated financial statements.
Centerra Gold Inc.
Notes to the Consolidated Financial Statements (Unaudited)
(Expressed in thousands of United States Dollars)
1. Basis of Presentation
These unaudited interim consolidated financial statements of Centerra Gold Inc.
("Centerra" or the "Company") have been prepared by management in accordance
with accounting principles generally accepted in Canada ("Canadian GAAP").
Certain information and note disclosures normally included in the annual
consolidated financial statements prepared in accordance with Canadian GAAP have
been condensed or excluded. As a result, these unaudited interim consolidated
financial statements do not contain all disclosures required to be included in
the annual consolidated financial statements and should be read in conjunction
with the most recent audited annual consolidated financial statements and notes
thereto for the year ended December 31, 2009.
These financial statements have been prepared on the basis of accounting
principles applicable to a going concern which assumes that the Company will be
able to continue in operation for the foreseeable future and will be able to
realize its assets and discharge its liabilities in the normal course of
business. The operating cash flow and profitability of the Company are affected
by various factors, including the amount of gold produced and sold, the market
price of gold, operating costs, interest rates, environmental costs and the
level of exploration activity and other discretionary costs and activities. The
Company is also exposed to fluctuations in currency exchange rates, interest
rates, political risk and varying levels of taxation. The Company seeks to
manage the risks associated with its business; however, many of the factors
affecting these risks are beyond the Company's control.
As at March 31, 2010 and December 31, 2009, Centerra held a 100% interest in the
Kumtor mine, the Boroo mine, and the Gatsuurt property.
2. Significant Accounting Policies:
These unaudited interim consolidated financial statements are prepared following
accounting policies consistent with the Company's audited annual consolidated
financial statements and notes thereto for the year ended December 31, 2009.
There were no new accounting polices adopted during the three months ended March
31, 2010.
New Pronouncements
The CICA issued three new accounting standards in January 2009 which take effect
January 1, 2011: Section 1582, Business Combinations, Section 1601, Consolidated
Financial Statements and Section 1602, Non-Controlling interests.
Section 1582 replaces section 1581 and establishes standards for the accounting
of a business combination. It provides the Canadian equivalent to International
Financial Reporting Standards ("IFRS") 3, Business Combinations. Section 1582
applies prospectively to business combinations for which the acquisition date is
on or after the beginning of the first annual reporting period beginning on or
after January 1, 2011.
Sections 1601 and 1602 together replace section 1600, Consolidated Financial
Statements. Section 1601 establishes standards for the preparation of
consolidated financial statements. Section 1601 applies to interim and annual
consolidated financial statements relating to fiscal years beginning on or after
January 1, 2011.
Section 1602 establishes standards for accounting of a non-controlling interest
in a subsidiary in consolidated financial statements subsequent to a business
combination. It is equivalent to the corresponding provisions of IFRS IAS 27 -
Consolidated and Separate Financial Statements and applies to interim and annual
consolidated financial statements relating to fiscal years beginning on or after
January 1, 2011.
The Company does not anticipate that the adoption of these standards will impact
its financial results.
3.Inventories
March 31, December 31,
(Thousands of US$) 2010 2009
--------------------------------------------------------------------------
Stockpiles $ 61,539 $ 50,234
Gold in-circuit 7,230 5,045
Heap leach in circuit 4,492 4,908
Gold dore 5,167 8,818
--------------------------------------------------------------------------
78,428 69,005
Supplies 100,791 105,937
----------------------------------------------------------------------------
179,219 174,942
Less: Long-term inventory (heap leach) (24,669) (23,120)
--------------------------------------------------------------------------
Total inventories-current portion $ 154,550 $ 151,822
----------------------------------------------------------------------------
4. Asset Retirement Obligations
The following table reconciles the Company's discounted liability for asset
retirement obligations: the discount rates used to discount the obligations to
their present value are unchanged from the rates disclosed at the end of 2009.
----------------------------------------------------------------------------
Three Months Ended
(Thousands of US$) Mar 31/10 Mar 31/09
----------------------------------------------------------------------------
Balance, beginning of period $ 29,702 $ 32,780
Liabilities settled (34) (138)
Revisions in cost - (1,974)
Accretion expense 554 575
----------------------------------------------------------------------------
Balance, end of period 30,222 31,243
Less: current portion (8,221) (3,795)
----------------------------------------------------------------------------
$ 22,001 $ 27,448
----------------------------------------------------------------------------
During the first quarter ended March 31, 2009, the Company revised its previous
closure cost update performed in December 2008 at the Boroo mine site. As a
result a decrease to the present value of the closure cost estimate of $2.0
million at Boroo was recorded during the first quarter of 2009.
5. Shareholders' Equity
a. Earnings (Loss) Per Share
The basic net earnings (loss) per share is computed by dividing the net earnings
(loss) applicable to common shares by the weighted average number of common
shares outstanding during the year.
The diluted net earnings (loss) per share is computed by dividing the net
earnings (loss) applicable to common shares by the weighted average number of
common shares outstanding during the year, plus the effects of dilutive common
share equivalents such as stock options and contingent common shares issuable
(classified as equity). The diluted net earnings (loss) per share is calculated
using the treasury method, where the exercise of options is assumed to be at the
beginning of the period the proceeds from the exercise of options, and the
amount of compensation expense measured but not yet recognized in income are
assumed to be used to purchase common shares of the Company at the average
market price during the period; and the incremental number of common shares (the
difference between the number of shares assumed issued and the number of shares
assumed purchased) is included in the denominator of the diluted earnings per
share computation.
Stock options to purchase common shares are not included in the computation of
diluted net earnings (loss) per share in years when net losses are recorded
given that they are anti-dilutive.
----------------------------------------------------------------------------
Three Months
Ended
(Thousands of shares) Mar 31/10 Mar 31/09
----------------------------------------------------------------------------
Basic weighted average number of common shares
outstanding 234,857 216,318
Effect of stock options 730 -
----------------------------------------------------------------------------
Diluted weighted average number of common shares
outstanding 235,587 216,318
----------------------------------------------------------------------------
Anti-dilutive number of common share equivalents
excluded (thousands) (a) 45 1,830
----------------------------------------------------------------------------
(a) Common share equivalents consist of stock options granted to eligible
employees of the Company.
For the three months ended March 31, 2009 all potentially dilutive stock options
have been excluded from the dilutive calculation as they would have all been
anti dilutive because of the loss for the period.
b. Stock-Based Compensation
The impact of Stock-Based Compensation is summarized as follows:
----------------------------------------------------------------------------
Expense/(Income)
------------------
Three months
ended Liability
---------------------------------------
Number
(Millions of US$ except outstanding March March March
as indicated) March 31/10 31/10 31/09 31/10 Dec 31/09
----------------------------------------------------------------------------
(i) Centerra stock
options 1,816,155 $ 0.5 $ 0.3 $ - $ -
(ii) Centerra -PSU (1) 1,517,996 3.9 0.2 9.0 6.2
(iii) Centerra annual-PSU
(2) 164,327 1.0 0.5 0.7 6.3
(iv) Deferred share units 395,494 1.3 - 5.2 3.8
(v) Cameco stock options - - - - 1.3
----------------------------------------------------------------------------
$ 6.7 $ 1.0 $ 14.9 $ 17.6
----------------------------------------------------------------------------
(1) Centerra performance share units.
(2) Centerra Annual performance share units
Movements in the number of options and units year-to-date are summarized as follows:
----------------------------------------------------------------------------
Number Cancelled/ Number Number
outstanding Issued Exercised Forfeited outstanding Vested
Dec 31/09 (1) March 31/10 March 31/10
----------------------------------------------------------------------------
(i)
Centerra
stock
options 1,816,155 - - - 1,816,155 762,496
(ii)
Centerra
-PSU 1,201,677 528,192 (99,434) (112,439) 1,517,996 -
(iii)
Centerra
annual-
PSU 420,870 164,327 (420,867) (3) 164,327 40,519
(iv)
Deferred
share
units 375,216 20,278 - - 395,494 395,494
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) 112,439 units from the Centerra PSU 2007 series were cancelled, as the
performance multiplier applied on payout was below the payout threshold
The terms of Centerra's performance share unit (PSU) plan for the regularly
issued series in 2010 (282,171 units issued) were modified from the standard
terms described in the December 31, 2009 annual disclosures as follows:
Vesting - 50% of granted units vest two years after December 31 of
the year of grant
- 50% of granted units vest three years after December 31 of
the year of grant
Multiplier - maximum adjustment factor by which granted units are
multiplied increased from 1.5 to 2.0
The units issued during the first quarter of 2010 under Centerra's PSU plan also
include 246,021 "special" performance share units. Distinguishing these
"special" units from the regularly issued PSU series is the fact that the
"special" units vest one third at the end of each year of their three year term
and carry a multiplier factor of 1.0.
6. Taxes
a. Revenue Based Taxes
Revenue based taxes are payable to the Kyrgyz government under the Restated
Investment Agreement between the Company and the Kyrgyz government which
received the approval of the Kyrgyz Parliament on April 30, 2009.
Under this agreement, with retroactive effect to January 1, 2008, taxes are
payable monthly at a rate of 13% of gross revenue. In addition, effective from
January 1, 2009 a contribution is made monthly to the Issyk-Kul Oblast
Development Fund in the amount of 1% of gross revenue. Full credit was received
for taxes paid under the prior tax regime in 2008 and 2009. Separate
presentation of the new revenue-based taxes was made in the financial statements
starting in the second quarter 200
During the three months ended March 31, 2010, the revenue-based tax expensed by
Kumtor was $31.3 million.
b. Corporate Income Taxes
The Company recorded income tax expense of $0.8 million for the three month
period ended March 31, 2010 ($11.2 million three months ended March 31, 2009).
Kumtor
Effective April 30 2009 Kumtor became subject to a tax regime pursuant to which
income and other taxes, were replaced by taxes computed by reference to Kumtor's
revenue. As a result, the income tax provision for Kumtor for the three months
ended March 31, 2010 is nil. An income tax recovery of $2.9 million was recorded
for the three month period ended March 31, 2009, as Kumtor was still subject to
the prior tax regime, which had an income tax rate of 10% plus 2% of net income
as a contribution to the Issyk-Kul Social Fund.
Boroo
The income tax rate for Boroo is 25% of taxable income in excess of 3 billion
Tugriks (about $2.2 million as at the balance sheet date), and 10% for income up
to that amount.
During the three month period ended March 31, 2010, Boroo recorded income tax
expense of $0.8 million ($14.1 million for the three months ended March 31,
2009).
7. Disposal of interest in REN Property
On February 4, 2010, Centerra Gold (U.S.) Inc. ("Centerra U.S."), a wholly-owned
subsidiary of Centerra, signed a purchase agreement with Rye Patch Gold Corp.
and its U.S. subsidiary, Rye Patch Gold US Inc. (collectively "Rye Patch") for
the sale of Centerra U.S.'s interest in the REN project in Nevada, subject to
the joint venture project partner, Homestake Mining Company of California
("Homestake"), a subsidiary of Barrick Gold Corporation, waiving its pre-emptive
right to acquire Centerra U.S.'s interest. On April 8, 2010 Homestake elected to
exercise its pre-emptive right to acquire Centerra U.S. 64% interest in the REN
joint venture for $35.2 million. As a result of Homestake's election to purchase
the Centerra U.S. interest, Rye Patch's agreement with Centerra U.S. will
terminate. Rye Patch is entitled to receive a break fee of $0.25 million from
Centerra U.S. upon completion of Homestake's acquisition of the Centerra
interest which is expected to close on or before July 7, 2010. On closing,
Centerra U.S. will transfer the joint venture interest to Homestake. The Company
will record a gain on sale for the value of the proceeds received, less any
related expenses.
As at March 31, 2010 the net book value of REN's property is nil (December 31,
2009- Nil) because all exploration activities on this property were expensed as
incurred.
8. Commitments and Contingencies
Commitments
As at March 31, 2010, the Company had entered into contracts to purchase capital
equipment and operational supplies totalling $171.8 million (Kumtor $168.5
million, Centerra Gold Mongolia LLC, a subsidiary of Centerra, $3.3 million).
These are expected to be settled over the next twelve months.
Contingencies - Mongolia
Mongolian Regulatory Matters
On June 12, 2009, the main operating licenses at the Company's Boroo mine were
suspended by the Minerals Resources Authority of Mongolia ("MRAM") following
extensive inspections of the Boroo mine operation conducted by the Mongolian
General Department of Specialized Inspection ("SSIA"). While the suspension was
lifted on July 27, 2009, several issues arising from the inspections continue to
be discussed by Centerra and the Mongolian regulatory authorities. On October
23, 2009, Centerra received a very significant claim for compensation from the
SSIA in respect of certain mineral reserves, including state alluvial reserves
covered by the Boroo mine licenses, that are recorded in the Mongolian state
reserves registry, but for which there are no or incomplete records or reports
of mining activity. Centerra disputes the claim. While Centerra cannot give
assurances, it believes settlement will be concluded through negotiation and
will not result in a material impact. In addition, the SSIA inspections raised a
concern about the production and sale of gold from the Boroo heap leach
facility.
Contingencies - Mongolia
The heap leach facility was operated under a temporary permit from June 2008
until the expiry of the temporary permit in April, 2009 and Boroo Gold Company
Ltd ("BGC") paid all relevant royalties and taxes with respect to gold produced
from the heap leach facility during that period. BGC believes that it had all
necessary permits to carry out its heap leach activities and that any regulatory
concerns are unfounded. BGC is continuing its effort to obtain a final permit
for the operation of its heap leach facility at the Boroo mine. Centerra
understands that this matter has been referred to the Mongolian Ministry of
Mineral Resources and Energy for review but has received no official notice of
any concern.
Under the stability agreement relating to the Boroo mine between the Company and
the Government of Mongolia, signed July 6, 1998, as amended (the "Boroo
Stability Agreement"), the Company is permitted to offset any value added taxes
("VAT") that it pays against other taxes payable in respect of its Boroo mine
operation. In 2009, the Mongolian Ministry of Finance indicated that, despite
the Boroo Stability Agreement, Centerra would no longer be permitted to offset
its VAT payments. This decision was challenged by Centerra and in November 2009,
Centerra was notified by Ministry of Finance officials that VAT payments up to
August 31, 2009 could be offset. Despite this, recovery of any VAT payments from
September 1, 2009 onwards continues to be subject to negotiations with the
Ministry of Finance.
On November 2, 2009, Centerra received a letter from the Mongolian Ministry of
Finance re- iterating some of the issues raised by the SSIA and indicating that
the Boroo Stability Agreement would be terminated if such issues were not
resolved within a period of 120 days from the date of the letter. The Company
has held discussions with the Ministry of Finance regarding such concerns and
has received no further notice from the Ministry of Finance with respect to the
possible termination of the Boroo Stability Agreement. While the Company
believes that the issues raised by the Ministry of Finance and the SSIA will be
resolved through negotiations without a material impact on the Company, there
can be no assurance that this will be the case.
Contingencies - Mongolia
Mongolian Legislation
In July 2009, the Mongolian Parliament enacted legislation that would prohibit
mineral prospecting, exploration and mining in water basins and forest areas in
the territory of Mongolia and provides for the revocation of licenses affecting
such areas (the "Water and Forest Law"). The Company understands that, prior to
the revocation of any licenses, the Mongolian Government will undertake physical
surveys and consult with local officials to determine which, if any, existing
licenses will be subject to the new law. The legislation provides a specific
exemption for "mineral deposits of strategic importance", and accordingly, the
main Boroo mining licenses will not be subject to the new law. The legislation
provides a specific exemption for "mineral deposits of strategic importance",
and accordingly, the main Boroo mining licenses will not be subject to the law.
The Company's Gatsuurt licenses and its other exploration license holdings in
Mongolia are currently not so exempt. In March 2010, the Company received a
letter from MRAM stating that certain of its mining and exploration licenses,
including the Gatsuurt mining licenses, could be revoked under the Water and
Forest Law. The letter requested that the Company submit an estimate of expenses
incurred in relation to each license and the compensation that it would expect
to receive if such licenses were to be revoked. The Company has provided a
detailed estimate to MRAM for all potentially affected licenses. The Company has
submitted a draft Investment Agreement for the Gatsuurt Project to the Ministry
of Mineral Resources and Energy ("MMRE"). In April, 2010, the Company received a
letter from the MMRE indicating that the Gatsuurt licenses are within the area
designated on a preliminary basis where minerals mining is prohibited under the
Water and Forest Law. The letter also stated that the MMRE will communicate with
the Company regarding the investment agreement when the MMRE has more clarity on
the impact of the law. The Company is reasonably confident that the economic and
development benefits resulting from its exploration and development activities
will ultimately result in the law having a limited impact on the Company's
Mongolian activities.
In August 2009, the Government of Mongolia repealed its windfall profit tax of
68% in respect of gold sales at a price in excess of US$850 an ounce, with the
repeal to take effect on January 1, 2011. The windfall profit tax will be
applicable to the Gatsuurt project (but not the Boroo project).
9. Related Party Transactions
Kyrgyzaltyn and the Government of the Kyrgyz Republic
Revenues from the Kumtor gold mine are subject to a management fee of $1.00 per
ounce based on sales volumes, payable to Kyrgyzaltyn JSC ("Kyrgyzaltyn"), a
shareholder of the Company and a state-owned entity of the Kyrgyz Republic.
The table below summarizes 100% of the management fees and concession payments
paid and accrued by Kumtor Gold Company to Kyrgyzaltyn or the Government of the
Kyrgyz Republic and the amounts paid and accrued by Kyrgyzaltyn to Kumtor
according to the terms of a Gold and Silver Sales Agreement between Kumtor
Operating Company ("KOC"), Kyrgyzaltyn and the Government of the Kyrgyz Republic
and which was restated in June 2009.
----------------------------------------------------------------------------
Three Months Ended
(Thousands of US$) Mar 31/10 Mar 31/09
----------------------------------------------------------------------------
Management fees to Kyrgyzaltyn $ 201 $ 93
Concession payments to the Kyrgyz Republic - 249
----------------------------------------------------------------------------
$ 201 $ 342
----------------------------------------------------------------------------
Gross gold and silver sales to Kyrgyzaltyn $ 224,212 $ 57,608
Deduct: refinery and financing charges (881) (338)
----------------------------------------------------------------------------
Net sales revenue received from Kyrgyzaltyn $ 223,331 $ 57,270
----------------------------------------------------------------------------
Gold produced by the Kumtor mine is purchased at the mine site by Kyrgyzaltyn
for processing at its refinery in the Kyrgyz Republic pursuant to an original
Gold and Silver Sale Agreement historically entered into between KOC,
Kyrgyzaltyn and the Government of the Kyrgyz Republic. Under these original
arrangements, Kyrgyzaltyn was required to prepay for all gold delivered to it,
based on the price of gold on the London Bullion Market on the same day on which
KOC provides notice that a consignment is available for purchase.
Pursuant to the Agreement on New Terms, the Gold and Silver Sales Agreement was
amended with new terms. Effective June 11, 2009, Kyrgyzaltyn is required to pay
for gold delivered within 12 days from the date of shipment. Default interest is
accrued on any unpaid balance after the permitted payment period of 12 days.
The obligations of Kyrgyzaltyn are partially secured by a pledge of 2,850,000
shares of Centerra owned by Kyrgyzaltyn. As at March 31, 2010, $58.7 million was
outstanding under these arrangements (December 31, 2009 - $37.9 million).
Subsequent to March 31, 2010, the balance receivable from Kyrgyzaltyn of $58.7
million was paid in full.
10. Financial Risk Exposure and Risk management
a. Currency Risk
As required, the Company either makes purchases at the prevailing spot price to
fund corporate activities or enters into short-term forward contracts to
purchase Canadian Dollars, or other currencies. During the three-month period
ended March 31, 2010, Cdn $4.9 million of such forward contracts were executed
(December 31, 2009 - Cdn $6.3 million). There were twelve forward contracts, to
purchase a total of Cdn $3.3 million, outstanding at March 31, 2010 (December
31, 2009-Nil).
The exposure of the Company's financial assets and liabilities to currency risk
as at March 31, 2010 are as follows:
----------------------------------------------------------------------------
(Thousands of US$) Kyrgyz Mongolian Canadian British
Som Tugrik Dollar Pound
------------------------------------------------
Financial Assets
----------------------------
Cash and cash equivalents $ 112 $ 277 $ 5,609 $ -
Amounts receivables 84 1,641 1,010
----------------------------------------------------------------------------
$ 196 $ 1,918 $ 6,619 $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Financial Liabilities
----------------------------
Accounts payable and
accrued liabilities $ 4,656 $ 4,818 $ 15,957 $ 13
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------
(Thousands of US$) Russian European Australian
Rubble Euro Dollar
------------------------------------
Financial Assets
----------------------------
Cash and cash equivalents $ 29 $ 14,339 $ -
Amounts receivables - 453 -
----------------------------------------------------------------
$ 29 $ 14,792 $ -
----------------------------------------------------------------
----------------------------------------------------------------
Financial Liabilities
----------------------------
Accounts payable and
accrued liabilities $ 10 $ - $ 196
----------------------------------------------------------------
----------------------------------------------------------------
A strengthening of the U.S. Dollar by 5% against the Canadian Dollar, the Kyrgyz
Som and the Mongolian Tugrik at March 31, 2010, with all other variables held
constant would have lead to additional before tax net income of $0.1 million as
a result of a change in value of the financial assets and liabilities
denominated in those currencies.
b. Concentration of Credit Risk
To partially mitigate exposure to potential credit risk related to Kumtor sales,
the Company has an agreement in place whereby Kyrgyzaltyn has pledged 2,850,000
of Centerra common shares as security against unsettled gold shipments, in the
event of default on payment (Note 9). Based on movements of Centerra's share
price, and the value of individual or unsettled gold shipments, over the course
of the three months ended March 31, 2010, the maximum exposure during the
period, reflecting the shortfall in the value of the security as compared to the
value of any unsettled shipments, was approximately $36.3 million.
The Company manages counterparty credit risk, in respect of short-term
investments, by maintaining bank accounts with highly-rated U.S. and Canadian
banks and investing only in highly-rated Canadian and U.S. Government bills,
term deposits or banker's acceptances with highly-rated financial institutions
and corporate direct credit issues that can be promptly liquidated.
At the balance sheet date, approximately 19% of the Company's liquid assets were
held with Bank of New York bank, 8% with HSBC and 4% with Citigroup. The
remainder of cash and cash equivalents, and short-term investments were held in
government securities, term deposits, banker's acceptances and highly-rated
corporate direct credit issues.
11. Segmented Information
Centerra has three reportable segments. The Kyrgyz Republic segment involves the
operations of the Kumtor Gold Project and local exploration and development
activities, and the Mongolian segment involves the operations of the Boroo Gold
Project, development of the Gatsuurt Project and local exploration activities.
The North American segment involves the head office located in Toronto, loans to
each of the mine operations, as well as exploration activities on North American
projects.
Geographic Segmentation of Revenue
All production from the Kumtor Gold Project was sold to the Kyrgyzaltyn refinery
in the Kyrgyz Republic while production from the Boroo Gold Project was sold to
a refinery that is located in Ontario, Canada.
Three months ended March 31, 2010
----------------------------------------------------------------------------
($ millions) Kyrgyz North
Republic Mongolia America Total
----------------------------------------------------------------------------
Revenue $ 223.3 $ 32.2 $ - $ 255.5
Expenses
Cost of sales 47.1 10.2 - 57.3
Regional office administration 3.3 1.6 - 4.9
Depreciation, depletion and
amortization 16.8 4.4 0.1 21.3
Accretion and reclamation expense 0.3 0.3 - 0.6
Revenue based taxes 31.3 - - 31.3
Exploration and business
development 1.9 1.2 2.4 5.5
Interest and other 0.6 0.1 - 0.7
Corporate administration 0.5 - 10.5 11.0
----------------------------------------------------------------------------
Earnings (loss) before income taxes 121.5 14.4 (13.0) 122.9
Income tax expense 0.8
----------------------------------------------------------------------------
Net profit $ 122.1
----------------------------------------------------------------------------
Capital expenditures for the period $ 23.4 $ 5.7 $ 0.1 $ 29.2
----------------------------------------------------------------------------
Assets (excluding Goodwill) $ 592.9 $ 411.2 $ 41.5 $1,045.6
----------------------------------------------------------------------------
Three months ended March 31, 2009
----------------------------------------------------------------------------
($ millions) Kyrgyz North
Republic Mongolia America Total
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Revenue $ 57.3 $ 41.1 $ - $ 98.4
Expenses
Cost of sales 48.6 20.7 - 69.3
Regional office administration 3.5 1.5 - 5.0
Depreciation, depletion and
amortization 13.8 7.7 0.3 21.8
Accretion 0.3 0.3 - 0.6
Revenue based taxes - - - -
Exploration and business
development 3.4 0.3 2.0 5.7
Interest and other (0.4) 0.1 0.4 0.1
Corporate administration 0.6 0.4 4.0 5.0
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Earnings (loss) before income taxes (12.5) 10.1 (6.7) (9.1)
Income tax expense 11.2
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Net loss $ (20.3)
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Capital expenditures for the period $ 21.8 $ 0.4 $ 0.1 $ 22.3
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Assets (excluding Goodwill) $ 327.8 $ 357.6 $ 97.8 $ 783.2
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