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| Bristol Gate Concentrated Canadian Equity ETF | TSX:BGC | Toronto | Exchange Traded Fund |
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Centerra Gold Inc. (TSX:CG) today reported net earnings of $29.8 million or
$0.13 per common share on revenues of $152.2 million compared to a net loss of
$79.6 million or $0.36 per common share based on revenues of $104.3 million in
the same quarter last year. In the second quarter of 2009 the Company's, loss
before unusual items totaling $49.3 million, was $30.3 million or $0.14 per
common share.
In addition, Centerra announced that its Board of Directors declared a dividend
of Cdn$0.06 per common share payable on September 8, 2010 to shareholders of
record on August 18, 2010. The ex-dividend date for the dividend will be August
16, 2010.
Consolidated gold production for the second quarter of 2010 totaled 121,728
ounces at a total cash cost of $616 per ounce produced compared to 110,457
ounces at a total cash cost of $667 per ounce produced in the corresponding
quarter of 2009. The 10% increase in gold production in the second quarter of
2010 is a result of higher production at both of the Company's operations. Cash
provided by operations, net of working capital changes, was $76.5 million
compared to cash used by operations of $17.3 million in the second 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 civil and political unrest in the Kyrgyz Republic during the quarter did not
cause any interruption in operations at the Kumtor mine. A national referendum
was successfully held in the Kyrgyz Republic on June 27, 2010, which approved a
new constitution and the appointment of Mrs. Roza Otunbayeva as President of the
Kyrgyz Republic for a transition period until December 31, 2011. Parliamentary
elections are expected to take place in October 2010.
Second Quarter Highlights
-- Consolidated gold production of 121,728 ounces
-- Cash provided by operations of $76.5 million or $0.33 per share
-- Maintain consolidated gold production guidance for 2010
-- Strong cash balances and no debt
Commentary
"It appears that stability has returned to the Kyrgyz Republic after the
referendum held in June, and we continue to monitor the political situation in
the country. We are pleased with the performance of both operations during the
quarter as we produced more gold than expected. However due to the expectation
that we will be processing lower grades at Kumtor, the third quarter will be our
weakest quarter from a production standpoint. In view of the continuing
unresolved regulatory issues in Mongolia, we are removing from our 2010 gold
production guidance any 2010 production from the Boroo heap leach operation and
the Gatsuurt project. Even with this change, because of the strong operational
performance at Kumtor and Boroo, our consolidated production guidance remains
unchanged," said Steve Lang, President and CEO of Centerra Gold.
"I am also pleased to announce that the Board of Directors has declared an
inaugural annual dividend, which is part of the Company's long-term strategy to
increase shareholder value. The Company intends to provide a dividend yield
which is consistent with the yield of comparable companies' dividend rates. The
dividend will be evaluated annually by the Board in relation to the Company's
cash balances, operating cash flows and capital investment requirements," he
concluded.
Financial and Operating Summary
Revenues for the second quarter of 2010 were $152.2 million compared to $104.3
million during the same period one year ago. Second quarter 2010 revenue
reflects a 10% increase in ounces sold (126,797 ounces versus 115,308 ounces)
and a 33% increase in realized gold price ($1,200 per ounce in the second
quarter of 2010 versus $905 per ounce in the second quarter of 2009) in the
period.
Gold production for the second quarter of 2010 was 121,728 ounces compared to
110,457 ounces reported in the second quarter of 2009. This increase reflects
higher gold production at both of the Company's mines for the period. At Kumtor,
higher production was the result of processing higher grade material and higher
associated recoveries. Production at Boroo was higher in the second quarter 2010
due to increased recoveries in the mill partially offset by lower average mill
head grades. The 2009 comparative period at Boroo reflects the operational
shutdowns from the labor strike and the suspension of the main operating
licenses for six weeks in 2009. The heap leach operation at Boroo remained idle
during the quarter.
Centerra's total cash cost per ounce of gold produced was $616 in the second
quarter compared to $667 in the second quarter of 2009. The year-over-year
decrease in unit cash costs was primarily due to higher gold production (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 June 30, 2010, issued in conjunction with this news release.)
Cash provided by operations was $76.5 million for the second quarter of 2010
compared to a use of cash by operations of $17.3 million for the prior year
second quarter. The increase reflects increased earnings as a result of higher
gold sales volumes as well as the positive impact of reduced working capital
levels.
Capital expenditures spent and accrued in the second quarter of 2010 amounted to
$54.7 million of which $12.9 million was spent on sustaining capital projects.
Growth capital totaled $41.8 million which related mainly the purchase of haul
trucks at Kumtor ($17.8 million), the SB Zone underground development at Kumtor
($8.6 million) and spending on site development and road construction for the
Gatsuurt project ($11.9 million). Capital expenditures in the comparative
quarter of 2009 totalled $17.7 million, consisting of $11.1 million of
sustaining capital and $6.6 million of growth capital.
Exploration expenditures for the second quarter were $6.9 million dollars
compared to $4.1 million in the second quarter of 2009 reflecting increased
activity at Kumtor, Gatsuurt and on the Company's exploration joint ventures.
Centerra's cash and cash equivalents and short-term investments at the end of
June 2010 increased to $399.8 million, compared to cash and short-term
investments of $322.9 million at December 31, 2009.
Other Corporate Developments
Inaugural Annual Dividend
As part of the Company's long-term strategy to maximize shareholder value, the
Company's Board of Directors has authorized a dividend of Cdn$0.06 per common
share, payable on September 8, 2010 to shareholders of record at the close of
business on August 18, 2010. The ex-dividend date for the dividend will be
August 16, 2010. It is the intention of the Board of Directors to review the
amount of the dividend on an annual basis depending upon the Company's cash
balances, operating cash flows, anticipated capital requirements for future
growth and the yields of comparable companies' dividend rates.
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. In June further serious unrest occurred in southern
Kyrgyzstan. Operations at the Kumtor mine were not affected by these events. A
national referendum sponsored by the interim Government was held on June 27,
2010 to approve a new constitution and the appointment of Mrs. Roza Otunbayeva
as President of the Kyrgyz Republic for a transition period until December 31,
2011. The referendum proposals received wide support in the Kyrgyz Republic.
Following the referendum Mrs. Otunbayeva was inaugurated as President and a new
cabinet council or transitional Government was formed. It is expected that this
transitional Government will operate until Parliamentary elections are held and
a new Government formed. The Government has indicated that these Parliamentary
elections will take place in October 2010. While the political and civil
conditions appear to have stabilized, 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.
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.
As a result of the recent events in the Kyrgyz Republic, there was a delay in
Kyrgyzaltyn communicating to Centerra's board the identity of its nominees.
Kyrgyzaltyn has recently informed Centerra of its two proposed nominees and
therefore the board of directors of Centerra expects to add those nominees to
the board shortly.
Mongolia
Mongolian Regulatory Matters
The regulatory conditions in Mongolia have not changed substantially since
Centerra's first quarter report. The following discussion summarizes the current
status of Mongolian regulatory matters affecting Centerra.
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.
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
The legislative conditions in Mongolia have not changed substantially since
Centerra's first quarter report. The following discussion summarizes the current
status of certain Mongolian legislation that may affect Centerra, including its
Gatsuurt project and other Mongolian mineral licenses.
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. While the Company has continued to receive permits and
approvals in connection with the road construction to Gatsuurt and for
construction of surface facilities at the project, there is a risk that further
approvals or commissioning of the project could be delayed as a result of the
Water and Forest Law.
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.
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
terminated. On July 2, 2010, the Company closed the sale of its REN interest to
Homestake for cash proceeds of $35.2 million. In connection with the termination
of the Rye Patch agreement, Centerra U.S. paid Rye Patch a break fee of $0.25
million.
As at June 30, 2010, the net book value of the REN property was nil (December
31, 2009- Nil) because all exploration activities on the property were expensed
as incurred.
Operations Update
Kumtor
At the Kumtor mine, gold production was 90,050 ounces in the second quarter of
2010 representing an 11% increase from the same quarter in 2009. The increase in
production is the result of higher grades and higher recoveries in the second
quarter of 2010. The mill head grade averaged 2.74 g/t with a recovery of 77.5%
in the second quarter of 2010, compared to 2.60 g/t with a recovery of 66.0% in
the same quarter of 2009. During the quarter, ore tonnage mined increased 19%
year-over-year as mining continued in the higher grade SB Zone in the Central
Pit. Mill throughput of 1.4 million tonnes was essentially flat compared to the
same period last year.
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. During
the latter portion of the second quarter of 2010, as expected, the high movement
area did begin to accelerate, however the offloading plan and the de-watering
program carried out during the year has slowed the ice movement up to 40 % when
compared to the same period last year.
Total cash cost per ounce, a non-GAAP measure of production efficiency,
decreased to $639 in the second quarter of 2010 from $723 in the second quarter
of 2009. The year-over-year decrease in unit cash costs was due to the higher
gold production and lower operating costs in 2010. Mining costs decreased 6% to
$30.6 million in the second quarter of 2010 due to due to lower expenditures on
maintenance materials and supplies offset by higher diesel costs ($1.8 million
or $0.55 per litre). Milling costs in 2010 increased 10% to $14.7 million due to
increased maintenance materials and supplies; the scheduled mill maintenance
shutdown and increased costs for electricity. This was partially offset by the
lower cost and lower consumption of grinding media. Total cash cost per ounce
produced 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.
Exploration expenditures totaled $2.7 million for the second quarter of 2010, a
$0.4 million increase from the $2.3 million reported in the second quarter 2009.
This is primarily a result of the increase in the amount of drilling completed
in the second quarter.
Capital expenditures in the second quarter of 2010 totalled $39.5 million
compared to $17.4 million for the same period in the prior year. This consisted
of $11.2 million of sustaining capital, predominantly spent on the heavy duty
equipment overhaul program ($4.7 million), replacement of four dozers ($2.1
million) and shear key, buttress and tailing dam construction ($2.0 million).
Growth capital investment totalled $28.3 million spent mainly on the purchase of
CAT 789 haul trucks ($17.8 million) and underground development of the declines
for SB and Stockwork Zones ($8.5 million).
The SB Zone underground decline (Decline #1) has now advanced a total of 724
metres. During the quarter the decline advancement continued and drill and
remuck bays were established and it is now expected that exploration drilling
will commence in the later part of the third quarter while delineation drilling
of the SB Zone is planned to commence in the fourth quarter of 2010.
The Stockwork Zone underground decline (Decline #2) has advanced a total of 312
metres. Decline #2 will facilitate the access to the Stockwork Zone and the SB
Zone for further exploration and delineation drilling. The second heading in
Decline #2 for the exploration and delineation drilling program for the
Stockwork Zone has been established and is advancing toward the north. Drill
bays will be established along the 400 meter access drift. Exploration and
delineation drilling of the Stockwork Zone resource is expected to commence late
in the third quarter of 2010 and continue into 2011.
Boroo/Gatsuurt
At the Boroo mine, gold production was 31,678 ounces in the second quarter of
2010 compared to 28,990 ounces in the second quarter of 2009. The higher gold
production is the result of increased recoveries partially offset by lower
average mill head grades, 2.05 g/t in second quarter 2010 versus 2.48 g/t in the
second quarter 2009. Recoveries improved in the second quarter of 2010 to 74.9%
compared to 68.7% for the same period last year due to less refractory ore. In
the comparative 2009 quarter, gold production was impacted by the operational
shutdown as a result of a strike commencing May 26th and a six week license
suspension commencing June 12th, 2009.
Heap leach operations at Boroo remain under care and maintenance pending
issuance of the final heap leach operating permit.
Total cash cost per ounce produced, a non-GAAP measure of production efficiency,
was $549 in the second quarter of 2010 compared to $511 in the second quarter of
2009. The year-over-year increase in unit cash costs was due to the higher
operating costs in 2010, partially offset by higher gold production. The
increase in the unit cash cost of $38 per ounce results from increased costs
($81/ounce) partially offset by an increase in ounces produced ($43/ounce).
Mining costs increased 44% to $5.5 million in the second quarter of 2010 due to
higher diesel costs which increased costs $0.3 million ($0.86 per litre vs.
$0.69 per litre in 2009); milling costs were 32% higher at $5.4 million
primarily due to higher costs for electricity, reagents and grinding media;
royalties increased by $0.9 million due to higher sales revenue achieved from
both a higher gold price and higher volumes produced. Total cash cost per ounce
produced 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.
During the second quarter of 2010, exploration expenditures in Mongolia
increased to $1.5 million from $0.5 million in the same period of 2009. Capital
expenditures spent and accrued at Boroo in the second quarter of 2010 were $3.2
million compared to $0.1 million the same quarter of 2009. This consisted of
$1.6 million of sustaining capital, predominantly spent on heavy equipment
component change outs. Growth capital investment totalled $1.6 million spent on
raising the tailings dam.
At the Gatsuurt project, $11.9 million of growth capital was spent and accrued
in the quarter primarily related to completing the road construction ($6.6
million) to access the Gatsuurt project and connect it with the Boroo mill
facilities and for the purchase of ore haul trucks ($2.3 million). A further
$3.0 million was spent on the engineering and construction of the Boroo
bio-oxidation facility for processing Gatsuurt and other sulphide ores. During
the quarter the road construction to the Gatsuurt project was completed.
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/CG730figures.pdf or visit the Company's web
site at: www.centerragold.com.
Kyrgyz Republic
During the second quarter of 2010, exploration drilling programs continued in
the Kumtor Central Pit and regional exploration drilling continued on the Kumtor
concession area at the Northeast, Muzdusuu, Petrov areas and the Southwest
Deposit.
A second exploration license covering the Koendy Project area was obtained on
June 14, 2010, covering a 15 kilometre north-eastern extension of the same
structure covered by the Karasay exploration license.
Kumtor Pit
In the second quarter of 2010, eight drill holes were completed and two holes
were in progress at quarter-end. Four holes were completed to test the down dip
extension of the Stockwork Zone. All holes intersected significant widths of low
grade mineralization. Hole D1412 drilled on section 142 returned the best
intercepts of 4.4 g/t Au over 5.3 metres, 3.4 g/t Au over 12.9 metres, 4.3 g/t
Au over 14.8 metres including 7.5 g/t Au over 5.8 metres and 1.4 g/t Au over 5.0
metres. This drilling has defined the lower limits of the Stockwork Zone. No
further drilling of the Stockwork Zone is planned from surface. Infill drilling
from underground of the higher grade portion of the Stockwork Zone is planned
for the fourth quarter of 2010.
Four holes were completed to test the Southwest Extension of the SB Zone with
three of the holes returning significant results. Holes D1409 and D1416 returned
significant intercepts that lie within the KS 10 pit design that will have a
positive impact on the resource model. Hole D1409, drilled on section -18,
intersected significant widths of mineralization including 6.2 g/t Au over 61.4
metres, which includes higher grade intercepts of 23.9 g/t Au over 5.0 metres
and 15.5 g/t Au over 8.4 metres. Hole D1416, drilled 50 metres up-dip of D1409
on the same section -18, intersected 3.0 g/t Au over 5.2 metres, 2.0 g/t Au over
6.8 metres, 1.13 g/t Au over 10.2 metres, 3.4 g/t Au over 30.1 metres and 2.3
g/t Au over 3.3 metres.
Hole D1421 drilled on section -30 intersected high grade mineralization with an
uncut intercept of 44.4 g/t Au over 21.7 metres including 124.1 g/t Au over 6.5
metres, 19.5 g/t Au over 5.8 metres and 8.3 g/t Au over 3.3 metres. With the
higher grade gold values cut to 60g/t Au the high-grade intercept averages 23.6
g/t Au over 21.7 metres including 55.6 g/t Au over 6.5 metres, 18.3 g/t Au over
5.8 metres and 8.3 g/t Au over 3.3 metres.
This high grade intercept is located approximately 40 metres along strike and 90
metres up dip from the high-grade intercept reported in the third quarter of
2009 in hole D 1352 which returned an uncut intercept of 84.0 g/t Au over 26.4
metres, including 327.4 g/t Au over 6.2 metres, or with the higher gold values
cut to 60 g/t Au, an intercept of 19.4g/t Au over 26.4 metres, including 52.2
g/t Au over 6.2 metres.
Additional drilling of the Southwest Extension of the SB Zone and the SB Zone
will be completed in the third quarter should suitable access be available with
mining activities in this area of the pit.
True widths for the mineralized zones are typically from 70% to 95% of the
stated intercept.
Regional Exploration
Regional exploration drilling continued in the second quarter of 2010 at
Northeast prospect, the Muzdusuu area and the Southwest Deposit.
Northeast Area
During the second quarter of 2010 four holes were completed at the Northeast
prospect and a further two holes are in progress. All holes were designed to
follow up on the mineralization intersected by prior drilling, which identified
a near-surface zone of mineralization. Drilling was conducted at approximately
80 metre spacing in order to test the strike extent of near surface
mineralization and continues to return encouraging results. The best results
were in hole DN1422A, drilled on section 402 to test for mineralization down dip
of DN1419 which intersected 9.2 g/t Au over 9.0 metres including 25.9 g/t Au
over 2.8 metres.
Hole DN1396, drilled on section 382, designed to test the down dip extensions of
previously reported mineralization, returned intercepts of 1.7 g/t Au over 4.0
metres, 2.7g/t Au over 4.1 metres, 3.7 g/t Au over 5.2 metres and 1.7 g/t Au
over 3.7metres. Hole DN1420, drilled on section 430 to test for a near surface
northeast extension of known high grade mineralization on section 426,
intersected 3.1 g/t Au over 4.0 metres. Hole DN1419, drilled on section 402, was
designed to test for near surface mineralization in between areas of known
mineralization and the hole intersected a wide zone of alteration but no
significant mineralization.
Drilling in the third quarter will focus on 40 metres spaced infill drilling to
define the potential for a near surface open pit resource and as well as 80-160
metres spaced drilling to test for high-grade mineralization at depth.
Southwest Deposit
Five drill holes were completed during the second quarter and two holes were
stopped due to technical difficulties and one hole is in progress.
The wide-spaced drilling in the second quarter was testing for zones of
high-grade mineralization below the open pit. All holes intersected broad zones
of alteration with relatively narrow zones of low to moderate grade
mineralization.
Muzdusuu Area
Four holes were completed in the second quarter and one drill hole is in progress.
All holes were drilled to test strong geochemical and geophysical anomalies
identified in 2009 which were interpreted to be associated with potentially
mineralized structures and carbonate stratigraphy in the footwall of the main
Kumtor structures. Of the four holes completed, only one hole intersected any
significant mineralization, 3.9 g/t Au over 4.0 metres within the footwall
limestone stratigraphy. The other holes intersected non-mineralized
Neogene-Paleogene fragmental sediments in the structural footwall of the
limestone.
Further drilling is planned in the third quarter to test the strongest
geochemical anomaly and other geophysical targets.
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
Exploration work in the second quarter was conducted at the Gatsuurt, Ulaan
Bulag, and Sumber properties in the Yeroogol trend and at the Altan Tsagaan
Ovoo, Munhkahan and Tuvshinshire properties in Eastern Mongolia.
Gatsuurt Project
Following the success of the first quarter drilling program at the Central Zone
deposit a second drill program was designed to test for the occurrence of gently
dipping structures along strike to the southwest on the eastern side of the
Central Zone deposit. The program was also designed to test for the continuity
of the mineralization beyond the eastern wall of the proposed Central Zone pit.
A 30 x 30 metre drill program was completed in May and June. The program
confirmed the presence of gently dipping structures and mineralized zones within
the granitic package in the eastern wall of the Central Zone deposit over a
strike length of 180 metres.
Additional drilling is planned in the third quarter to fill in the remaining
gaps in the 30 x 30 metre grid and also test for further extensions of the newly
identified mineralized zones.
Ulaan Bulag
A preliminary evaluation of the first quarter 2010 drill results was completed
in April indicating that the Nuga Zone at the Ulaan Bulag prospect has a
potential oxide open pit resource.
An additional nine holes were complete in June to define the southern and
western extensions of the Nuga Zone. A preliminary economic analysis of the Nuga
Zone will be completed to determine if a mineable resource can be developed for
trucking to the Boroo processing facilities located 15 kilometres to the
northwest.
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/CG730figures.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 April 28, 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 unchanged from
prior guidance. While it is expected that the higher than anticipated production
realized at Kumtor in the first and second quarters may be partially offset by
lower production in the third quarter of 2010. The Company continues to expect
that during the fourth quarter Kumtor will produce approximately 40% of its 2010
production.
At Boroo/Gatsuurt, gold production is forecast to be 110,000 to 130,000 ounces,
which is unchanged from prior guidance.
While the Company believes it has met all the regulatory pre-conditions for the
issuance of the final heap leach operating permit, its issuance continues to be
delayed. Due to these continued delays in obtaining the final permit, the
Company has removed any heap leach production from this year's production
guidance. If the final operating permit is received, resumption of heap leach
operations at Boroo would add approximately 3,000 to 4,000 ounces per month to
production.
Additionally, the current production guidance does not include any gold
production from Gatsuurt. While the Company has continued to receive permits and
approvals in connection with the road construction to Gatsuurt and for
construction of surface facilities at the project, there is a risk that further
approvals or commissioning of the project could be delayed as a result of the
Water and Forest Law, see "Other Corporate Developments, Mongolian Legislation".
Due to the potential for delays in receiving the required approvals for the
Gatsuurt project, Boroo has initiated an alternative plan that is expected to
allow the Boroo operation to achieve the production within the forecasted range
of ounces produced. The processing of remaining mine ores by the Boroo mill, in
conjunction with, the processing of stockpiled lower grade ores will allow the
operation to meet its production guidance. The mining of refractory ores from
Pit 3 and Pit 6 will provide mill feed in the fourth quarter of 2010 and into
first quarter of 2011. Mill recoveries of this material, though low, allow the
ores to be mined and processed and remain profitable.
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 April 28, 2010. 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.
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 total cash cost for 2010 reflects no production from both the heap leach
operation and Gatsuurt 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" in the
Management's Discussion and Analysis issued in conjunction with this news
release.
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. 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 $241.1 million, including
$48.9 million of sustaining capital and $192.2 million of growth capital. This
represents a decrease of $4.1 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 $ 153.1 $ 43.6
----------------------------------------------------------------------------
Boroo mine $ 0.5 $ 4.9
----------------------------------------------------------------------------
Gatsuurt project $ 38.6 0
----------------------------------------------------------------------------
Other 0 $ 0.4
----------------------------------------------------------------------------
Consolidated Total $ 192.2 $ 48.9
----------------------------------------------------------------------------
Kumtor Capital
At Kumtor, the largest growth capital expenditure will be for the North Wall
Expansion project, estimated at $92.7 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 is acquiring seven new
CAT 789 haul trucks for a total cost of $19.8 million. As of the end of June
2010, Kumtor had received five and commissioned four out of the seven trucks. It
is expected that the remaining two trucks will be delivered in the third and
fourth 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 $38.4 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.
At Gatsuurt, expected 2010 growth capital spending is forecasted at $38.6
million down from $42.0 million in the prior guidance. Pre-stripping of the
sulphide ores initially planned to be carried out in 2010 for $9.2 million have
now been partially deferred with only $2.9 million of the total being spent in
2010 as a result of the decision to delay the construction of the Boroo
bio-oxidation facility for processing Gatsuurt and other sulphide ores. The
previous estimate of the engineering costs of the Boroo bio-oxidation facility
of $5.0 million has been increased to $8.0 million.
The Company has implemented a phased approach to the development of the Gatsuurt
orebody consisting of an oxide project component followed by a sulphide project
component. The Company expects that the capital for the development of the
deeper sulphide ores at Gatsuurt will be invested following successful
commissioning of the Gatsuurt oxide project and after the Company signs an
acceptable investment agreement for Gatsuurt with the Government of Mongolia.
Drilling results at Gatsuurt have identified additional oxide mineralization
which is likely to extend the oxide operating life for the mine, further
delaying the requirement for capital investment in the bio-oxidation plant.
Other growth capital spending at Gatsuurt includes completion of the Gatsuurt
site infrastructure including the haul road between Gatsuurt and Boroo ($9.6
million), purchase of haul trucks to be used for hauling of ore from the
Gatsuurt site to the Boroo mill ($5.3 million), and the expansion of the
existing Boroo tailings facility to contain Gatsuurt oxide and sulphide tailings
($4.8 million).
Administration
Annual estimated corporate and administration expenses remains at $41 million.
Production, cost and capital forecasts for 2010 are forward-looking information
and are based on key assumptions and subject to material risk factors that could
cause actual results to differ materially and which are discussed under the
heading "Material Assumptions" and "Cautionary Note Regarding Forward-looking
Information".
Sensitivities
Centerra's revenues, earnings and cash flows for the remaining six months of
2010 are sensitive to changes in certain variables and the Company has estimated
their impact on revenues, net earnings and cash from operations.
----------------------------------------------------------------------------
Impact on ($ millions)
---------------------------------------------
Earnings before
Change Costs Revenues Cash flow income tax
----------------------------------------------------------------------------
Gold Price $50/oz 2.9 17.4 14.5 15.2
----------------------------------------------------------------------------
Diesel Fuel (1) 10% 3.6 - 3.6 3.6
----------------------------------------------------------------------------
Kyrgyz som 1 som 1.0 - 1.0 1.0
----------------------------------------------------------------------------
Mongolian tugrik 25 tugrik 0.2 - 0.2 0.2
----------------------------------------------------------------------------
Canadian dollar 10 cents 1.6 - 1.6 1.6
----------------------------------------------------------------------------
(1) 10% change in diesel fuel price equals $10/oz.
Material Assumptions
Material assumptions or factors used to forecast production and costs include
the following:
-- a gold price of $1,100 per ounce,
-- exchange rates:
-- $1USD:$1.02 CAD
-- $1USD:45.50 Kyrgyz Som
-- $1USD:1,380 Mongolian Tugrik
-- $1USD:0.78 Euro
-- diesel fuel price assumption:
-- $0.74/litre at Kumtor(i)
-- $0.84/litre at Boroo
(i)The assumed diesel price of $0.74/litre at Kumtor includes a customs export
duty imposed by the Russian authorities on the diesel fuel exported to the
Kyrgyz Republic. Russia imposed a customs duty of $193.50 per tonne on gasoline
and diesel fuel exports to the Kyrgyz Republic that went into effect on April 1,
2010. The Company estimates that the introduction of this new export duty will
increase operating costs at Kumtor by approximately $7 million.
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 $76 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 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, 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 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 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 tailing dam, 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. 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 July 29, 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 second quarter conference call on Friday,
July 30, 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)
756-3565 or International participants dial +1 (212) 231-2901. 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 Friday August 6, 2010 by calling (416) 626-4100
or (800) 558-5253 and using passcode 21474193.
Additional information on Centerra is available on the Company's web site at
www.centerragold.com and at SEDAR at www.sedar.com.
MDA and Financial Statements and Notes follow
Centerra Gold Inc.
Management's Discussion and Analysis ("MD&A")
For the period ended June 30, 2010
The following discussion has been prepared as of July 29, 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 and six month
periods ended June 30, 2010 in comparison with those as at June 30, 2009. This
discussion should be read in conjunction with the unaudited interim consolidated
financial statements and the notes of the Company for the three and six month
periods ended June 30, 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 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
Highlights
Three-Month Period Ended June 30, 2010 Compared with the Three-Month Period
Ended June 30, 2009
Six-Month Period Ended June 30, 2010 Compared with the Six-Month Period
Ended June 30, 2009
Mine Operations
Other Financial Information - Related Party Transactions
Quarterly Results - Last Eight Quarters
Other Corporate Developments
Critical Accounting Estimates
Changes in Accounting Policies
Status of Centerra's Transition to International Financial Reporting
Standards ("IFRS")
Outlook for 2010
Non-GAAP Measures
Caution Regarding Forward-Looking Information
Consolidated Financial Results
Centerra's consolidated financial results for the three and six month periods
ended June 30, 2010 reflect 100% interests in the Kumtor and Boroo mines, and
the Gatsuurt project.
Highlights
----------------------------------------------------------------------------
Three Months Ended June 30 Six Months Ended June 30
----------------------------------------------------------------------------
Financial and
Operating Summary 2010 2009 % Change 2010 2009 % Change
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue - $
millions 152.2 104.3 46% 407.7 202.8 101%
----------------------------------------------------------------------------
Cost of sales - $
millions (1) 63.0 82.0 (23%) 120.3 151.2 (20%)
----------------------------------------------------------------------------
Earnings (loss)
before unusual
items - $ millions
(2) 29.8 (30.3) (198%) 151.9 (50.5) (401%)
----------------------------------------------------------------------------
Unusual items - $
millions - (49.3) (100%) - (49.3) (100%)
----------------------------------------------------------------------------
Net earnings (loss)
- $ millions 29.8 (79.6) (137%) 151.9 (99.9) (252%)
----------------------------------------------------------------------------
Earnings (loss) per
common share - $
basic and diluted 0.13 (0.36) (136%) 0.65 (0.46) (241%)
----------------------------------------------------------------------------
Cash provided by
operations - $
millions 76.5 (17.3) (542%) 158.8 (6.4) (2581%)
----------------------------------------------------------------------------
Capital
expenditures - $
millions 54.7 17.7 209% 83.8 40.0 110%
----------------------------------------------------------------------------
Weighted average
common shares
outstanding -
basic (thousands) 234,992 220,472 7% 234,926 217,354 8%
----------------------------------------------------------------------------
Weighted average
common shares
outstanding -
diluted
(thousands) 235,567 220,472 7% 235,512 217,354 8%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Average gold spot
price - $/oz 1,197 922 30% 1,152 915 26%
----------------------------------------------------------------------------
Average realized
gold price - $/oz 1,200 905 33% 1,143 906 26%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Gold sold - ounces 126,797 115,308 10% 356,636 223,900 59%
----------------------------------------------------------------------------
Cost of sales -
$/oz sold 497 710 (30%) 337 675 (50%)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Gold produced -
ounces 121,728 110,457 10% 332,767 213,661 56%
----------------------------------------------------------------------------
Total cash cost -
$/oz produced(3)
(4)(5) 616 667 (8%) 441 740 (40%)
----------------------------------------------------------------------------
Total production
cost - $/oz
produced(3)(5) 758 856 (11%) 558 950 (41%)
----------------------------------------------------------------------------
(1) Cost of sales for 2010 and its comparative year excludes regional
office administration.
(2) Earnings (loss) before unusual items is a non-GAAP measure and is
discussed under "Non-GAAP Measures".
(3) Total cash cost and total production cost are non-GAAP measures and
are discussed under "Non-GAAP Measures".
(4) 2009 includes the costs incurred during the strike and shutdown at
Boroo of $3.3 million. Excluding these costs, the 2009 second quarter and
six months cash cost per ounce produced would be $637 and $725,
respectively.
(5) As a result of Kumtor's Restated Investment Agreement, total cash cost
and total production cost per ounce measures for both years exclude
production and revenue-based taxes.
Three-Month Period Ended June 30, 2010 Compared with the Three-Month Period
Ended June 30, 2009
Gold Production and Revenue
Revenue in the second quarter of 2010 increased to $152.2 million from $104.3
million in the same quarter last year reflecting higher realized gold prices and
more ounces sold. Gold production for the quarter was 121,728 ounces compared to
110,457 ounces reported in the second quarter of 2009. The overall increase in
gold production reflects higher production at both operations. Kumtor's increase
mainly reflects higher ore grades and higher associated recoveries, while
Boroo's comparative results reflect the operational shutdowns from the strike
and the suspension by the Mongolian government of the main operating licenses in
the second quarter 2009. Heap leach operations at Boroo remained idle during the
second quarter 2010 pending issuance of a final operating permit by the
government authorities. See "Mine Operations - Kumtor" and "Mine Operations -
Boroo".
Centerra realized an average gold price of $1,200 per ounce for the second
quarter of 2010, an increase from the $905 per ounce realized in the same
quarter of 2009. Since 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 $1,197
per ounce for the second quarter of 2010 ($922 per ounce for the same period in
2009).
Cost of Sales
Cost of sales in the second quarter of 2010 was $63.0 million, compared to $82.0
million in the same quarter of 2009 resulting from reduced quarter over quarter
cost of sales at Kumtor. The primary reason for this reduction in the current
quarter at Kumtor relates to the sale of lower cost ounces that were in process
at the end of March 2010. High grades and recoveries at Kumtor in the first
quarter of 2010 resulted in a high production of gold, some of which remained in
inventory at the end of the first quarter. Since the Company's operating cost to
produce these ounces is the same in periods of high grade as it is in periods of
lower grade, the unit cost of gold produced in high grade periods is lower (more
ounces, same cost). These lower cost ounces coming from the inventory at the end
of March 2010 were sold in the second quarter of 2010 thereby helping to lower
the cost of sales for the period. In addition, lower cash operating costs in the
second quarter 2010 at Kumtor, the elimination of production based taxes
resulting from the restated investment agreement with the Kyrgyz Republic and a
second quarter 2009 charge to cost of sales for inventory revaluation at Kumtor
all contributed to the quarter over quarter improvement in cost of sales. This
was partially offset by higher cost of sales at Boroo due mainly to higher
operating costs.
Cost of sales per ounce sold decreased to $497 from $710 for the same period in
2009. This reflects the lower cost ounces in inventory from the first quarter,
the removal of production taxes and reduced operating costs at Kumtor, partially
offset by higher costs at Boroo. Cost of sales per ounce sold is a non-GAAP
measure and is discussed under "Non-GAAP Measures".
The Company's total cash cost per ounce produced was $616, down from $667 in the
second quarter of 2009. This decrease is primarily due to higher production at
Kumtor and 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".
Mine Standby Costs
During the second quarter of 2009, Boroo's operations were temporarily shutdown
due a labour dispute, followed by the suspension of its main operating licenses
by the Mongolian authorities. The operating licenses for the mine and mill were
reinstated on July 27, 2009. Boroo incurred fixed costs of approximately $3.3
million during the strike and operational shutdown.
Depreciation, Depletion and Amortization
Consolidated depreciation, depletion and amortization for the second quarter of
2010 decreased to $17.0 million from $25.7 million in the same quarter of 2009,
mainly due to an increase in mine ore reserves and an extension of the mine life
in late 2009 at Kumtor leading to slower amortization of assets depreciated on
the unit of production method. On a per unit basis, depreciation, depletion and
amortization for the second quarter of 2010 was $134 per ounce sold compared to
$223 per ounce sold in the same quarter of 2009.
Accretion and Reclamation Expense
Accretion and reclamation expense of $0.6 million in the second quarter of 2010
compares to $0.7 million in the same quarter of 2009.
Exploration
Exploration costs in the second quarter of 2010 increased to $6.9 million from
$4.1 million in the same quarter of 2009 mainly reflecting increased drilling
activity at Kumtor, Gatsuurt, Ulaan Bulag and the Company's joint venture
projects.
Capital Expenditures
Capital expenditures spent and accrued of $54.7 million in the second quarter of
2010 included $12.9 million of sustaining capital and $41.8 million invested in
growth capital related mainly to the SB Zone underground development at Kumtor
($8.5 million), the expansion of the mobile fleet at Kumtor ($17.8 million) and
spending at the Gatsuurt project on mine development and road construction
($11.9 million). Capital expenditures in the comparative quarter of 2009
totalled $17.7 million, consisting of $11.1 million of sustaining capital and
$6.6 million of growth capital.
Corporate Administration
Corporate administration costs for the second quarter of 2010 were $6.6 million
compared to $7.7 million in the same quarter of 2009. The decrease is primarily
due to the impact on share-based compensation of a 12% decrease in the share
price in the second quarter 2010 (the share price increased by 18% in the same
period of 2009).
Revenue-based Tax - Kumtor
Revenue-based taxes are payable to the Kyrgyz Government under the Restated
Investment Agreement 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 totaled $15.4 million in the second quarter of 2010. The new
revenue-based tax took effect from April 30, 2009 and for the months of May and
June 2009 totalled $5.3 million: the increase in the 2010 quarter reflects one
additional month of charges and higher sales.
Income Tax Expense
The Company recorded an income tax expense of $6.1 million during the three
month period ended June 30, 2010 compared to $0.1 million for the same period of
2009.
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 June 30, 2010, Boroo recorded an income tax
expense of $6.1 million ($0.1 million for the three month ended June 30, 2009).
The lower income tax provision in the comparative quarter of 2009 reflects the
lower earnings primarily due to the impact of the strike and shutdown, as well
as the tax impact of USD/Mongolian tugrik currency movements. While the impact
of currency movements on tax expense in 2010 has been limited, the 2009
comparative period witnessed a significant weakening of the Mongolian Tugrik in
the first quarter, followed by the strengthening in the second quarter which
required the recording of a tax recovery of $2.4 million in the second quarter
of 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 no income
tax expense was recorded by Kumtor in the second quarter 2010, or the comparable
quarter in 2009.
Unusual Items
The total amount of unusual items expensed in the second quarter 2009 was $49.3
million, resulting from the Agreement on New Terms (the "Agreement") reached
with the Kyrgyz Republic (the "Government").
The unusual items amount reflects the settlement by the Company, as prescribed
by the Agreement, which included the issuance of common shares to the
Government, the settlement of legal claims, a tax settlement going back to
January 1, 2008 and various legal and related costs incurred by the Company.
Net Earnings
Net earnings for the second quarter of 2010 was $29.8 million, or $0.13 per
share, compared to a loss after unusual items of $79.6 million or $0.36 per
share for the same period in 2009, reflecting higher realized prices, higher
sales volumes, lower operating costs and the impact of unusual items in 2009.
Cash Flow
Cash provided by operations was $76.5 million for the second quarter of 2010
compared to a use of cash in the same quarter of 2009 of $17.3 million,
primarily reflecting increased earnings as a result of higher gold prices and
higher volumes as well as the positive impact of reduced working capital levels.
Cash used in investing activities in the second quarter of 2010 was $39.7
million reflecting an advance on the purchase of capital equipment of $5.2
million and capital additions of $57.1 million, reduced by $22.6 million from
short term investments which matured in the quarter. Capital additions include
$12.9 million spent on sustaining capital projects and $44.2 million invested on
growth projects. Expenditures on growth projects were mainly for Kumtor's SB
Zone underground development ($8.5 million), the expansion of the truck fleet to
address the ice and waste haulage at Kumtor ($17.8 million) and mine development
work at the Gatsuurt project ($11.9 million) while sustaining capital was $11.2
million at Kumtor and $1.7 million at Boroo.
Six-Month Period Ended June 30, 2010 Compared with the Six-Month Period Ended
June 30, 2009
Gold Production and Revenue
Revenue for the first six months of 2010 increased by $205 million, or 101%, to
$407.7 million compared to $202.8 million in revenue in the same period of 2009
due primarily to higher production levels and an increase in the average spot
price of gold. Gold production of 332,767 ounces in the six months of 2010 was
higher than the 213,663 ounces reported in the same period of 2009 mainly as a
result of the increased production at Kumtor due to higher grades and increased
recoveries. Boroo recorded lower production in 2010 due to the idling of the
heap leach process resulting from lower grades and the expiry of the temporary
heap leach operating permit which was effective from May 1, 2009. The average
realized gold price for the first six months of 2010 was $1,143 per ounce
compared to $906 per ounce in the same period of 2009 reflecting higher spot
prices for gold. See "Mine Operations - Kumtor" and "Mine Operations - Boroo".
Cost of Sales
Cost of sales in the first half of 2010 was $120.3 million, compared to $151.2
million in the same period of 2009. The reduction year over year is primarily
due to the impact at Kumtor of lower operating costs in the first half 2010
which lowered unit costs produced and also from the selling of lower cost ounces
which were in process at the end of December 2009. High grades and recoveries in
the fourth quarter of 2009 resulted in a high production of gold, some of which
remained in inventory at the end of the year (see the "Consolidated Financial
Statements" June 30, 2010 Note 3 - Inventory). Since the Company's operating
cost to produce these ounces is the same in periods of high grade as it is in
periods of lower grade, the unit cost of gold produced in high grade periods is
lower (more ounces, same cost). These lower cost ounces coming from the
inventory at the end of 2009 were sold in the first half of 2010 thereby helping
to lower the cost of sales for the period. The impact of the agreement signed
with the Kyrgyz government which removed production-based taxes from cost of
sales beginning April 30, 2009 also had a positive effect in the year over year
comparison ($8.7 million of production taxes were charged against cost of sales
in the first half of 2009).
The Company's total cash cost per ounce produced for the six months ended June
30, 2010 was $441, down from $740 in the same period in 2009. This decrease is
primarily due to the increased production levels in 2010. Excluding the costs
incurred during the shutdown at Boroo in 2009, total cash cost per ounce
produced for the first six months of 2009 would be $725.
Revenue-based Tax - Kumtor
Revenue-based tax totaled $46.6 million in the first half of 2010. The new
revenue-based tax took effect from April 30, 2009 and for the months of May and
June 2009 totalled $5.3 million.
Income Tax Expense
The Company recorded an income tax expense of $6.9 million during the six month
period ended June 30, 2010 compared to $11.3 million for the same period of
2009.
As a result of the agreement signed with the Kyrgyz government in 2009, Kumtor
ceased being liable for income tax: in the first six months of 2009, Kumtor
recorded an income tax recovery of $2.9 million (nil in the same period of
2010). Boroo recorded a tax expense of $6.9 million in the first six months of
2010 compared to $14.1 million in the same period of 2009. While the impact of
currency movements on tax expense in 2010 has been limited, the significant
weakening of the Mongolian Tugrik in the first quarter of 2009, followed by the
strengthening in the second quarter of 2009 is the material contributing factor
to the variance in Boroo's tax expense when compared to 2009.
Net Earnings and Unusual Items
Net earnings in the first six months of 2010 was $151.9 million, or $0.65 per
share, compared to a net loss of $99.9 million, or $0.46 per share, for the same
period in 2009. The increase primarily reflects higher sales and production, a
reduction to cost of sales and the impact of unusual items in 2009.
The total amount of unusual items expensed in regards to the signing and
settlement of the Restated Investment Agreement with the Kyrgyz government was
$49.3 million which was recorded in the second quarter 2009 (see disclosures in
the second quarter 2009 MD&A).
Capital Expenditures
Capital expenditures spent and accrued of $83.8 million in the first half of
2010 included $17.8 million of sustaining capital and $64.0 million invested in
growth capital related mainly to the SB Zone underground development at Kumtor
($17.4 million), the expansion of the mobile fleet at Kumtor ($25.5 million) and
spending at the Gatsuurt project on mine development and road construction
($17.3 million). Capital expenditures in the comparative period of 2009 totalled
$40.0 million, consisting of $28.1 million of sustaining capital and $11.9
million of growth capital.
Cash Flow
Cash flow provided by operations for the first six months of 2010 was $158.8
million compared to a use of cash of $6.4 million in the same period of 2009
reflecting higher net earnings in 2010 and $22.4 million of tax settlement and
pre-tax payments made by Kumtor in June 2009 under the Restated Investment
Agreement. Cash used in investing activities totaled $98.0 million in the six
months of 2010 compared to $24.6 million used in investing activities in the
prior year. Spending in 2010 includes $78.2 million on capital projects ($42.4
million in 2009) and an increase in short-term investments of $14.7 million
(2009 was partially offset by a reduction in short-term investments of $17.8
million). The spending on capital projects relates mainly to the underground
project at Kumtor and development work at Gatsuurt.
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 $30.3 million as at June 30, 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 July 29, 2010, Centerra had 235,145,969 shares issued and outstanding. In
addition, at the same date, the Company had 1,527,414 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.
The shares outstanding include the issuance on June 11, 2009 of 18,232,615
common shares of Centerra as contemplated by the restated investment agreement
for the Kumtor project. These shares were issued from treasury on June 11, 2009,
at the closing share price of $6.62 (Cdn. $7.30) to Kyrgyzaltyn. As a result,
the Company recorded an addition to share capital of $120.7 million in June
2009.
Gold hedges
The Company had no gold hedges in place in the second quarter of 2010 and no
deferred charges were recognized.
Credit and Liquidity
As at June 30, 2010, the Company has no outstanding loans.
The Company has entered into contracts to purchase capital equipment and
operational supplies totalling $115.3 million as at June 30, 2010 (Kumtor $112.1
million, Boroo $0.7 million and Centerra Gold Mongolia LLC, a subsidiary of
Centerra, $2.4 million). The Kumtor commitment is primarily for the purchase of
mobile equipment for future expansion, including 22 CAT 789 haul trucks,
totalling approximately $75 million. These contracts are expected to be settled
over the next twelve months.
Cash and cash equivalents and short-term investments were $399.8 million at the
end of the second 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 operational business plan for
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 $1,244 per ounce on June 30, 2010. For the
second quarter of 2010, the gold price averaged $1,197 per ounce compared to
$922 per ounce for the same period in 2009. The average gold price for the first
six months of 2010 was $1,152 per ounce compared to $915 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. Countries in which
the Company explores include Turkey, Russia, China, the United States, the
Kyrgyz Republic and Mongolia. Centerra's corporate head office is in Toronto,
Canada. During the six-month period ending June 30, 2010, approximately $147
million of operating and capital costs were incurred by Centerra in currencies
other than the U.S. dollar out of a total of $353 million in costs incurred. For
the six-month period, the percentage of Centerra's non-U.S. dollar costs, by
currency was, on average, as follows: 37% in Mongolian tugriks, 30% in Kyrgyz
soms, 15% in Canadian dollars, 15% in euro, and 3% in other currencies. On
average, from the December 31, 2009 currency rate, the Mongolian tugrik
appreciated by 2.4% over the U.S. dollar, whilst the Kyrgyz som depreciated
against the U.S. dollar by approximately 2.4%. The Canadian dollar appreciated
by 1.7% whereas the euro depreciated by 8.1% against the U.S. dollar. The
estimated impact of these movements over the six-month period to June 30, 2010
has been to reduce costs by approximately $1.3 million, after accounting for the
som, tugrik and Canadian dollars held at the beginning of the year.
For information on forward-looking information see "Caution Regarding
Forward-Looking Information".
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 Six Months Ended
June 30 June 30
----------------------------------------------------------------------------
Kumtor Operating % %
Results 2010 2009 Change 2010 2009 Change
----------------------------------------------------------------------------
Revenue - $ millions 109.8 74.3 48% 333.1 131.6 153%
----------------------------------------------------------------------------
Gold sold - ounces 91,204 82,294 11% 291,971 144,490 102%
----------------------------------------------------------------------------
Average realized gold
price - $/oz 1,204 903 33% 1,141 911 25%
----------------------------------------------------------------------------
Cost of sales - $
millions 48.7 70.7 (31%) 95.7 119.3 (20%)
----------------------------------------------------------------------------
Cost of sales - $/oz
sold 533 859 (38%) 328 826 (60%)
----------------------------------------------------------------------------
Tonnes mined - 000s 28,654 29,968 (4%) 56,191 58,608 (4%)
----------------------------------------------------------------------------
Tonnes ore mined - 000s 791 664 19% 2,179 1,190 83%
----------------------------------------------------------------------------
Tonnes milled - 000s 1,434 1,454 (1%) 2,900 2,820 3%
----------------------------------------------------------------------------
Average mill head grade
- g/t (1) 2.74 2.60 5% 3.83 2.27 69%
----------------------------------------------------------------------------
Recovery - % 77.5 66.0 17% 77.0 68.0 13%
----------------------------------------------------------------------------
Gold produced - ounces 90,050 81,467 11% 270,612 144,488 87%
----------------------------------------------------------------------------
Total cash cost - $/oz
(2)(3) 639 723 (12%) 416 859 (52%)
----------------------------------------------------------------------------
Total production cost -
$/oz (2)(3) 764 890 (14%) 515 1,059 (51%)
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Capital expenditures -
$ millions 39.5 17.4 127% 62.9 39.1 61%
----------------------------------------------------------------------------
Boroo Operating Results
----------------------------------------------------------------------------
Revenue - $ millions 42.4 30.0 41% 74.6 71.2 5%
----------------------------------------------------------------------------
Gold sold - ounces 35,593 33,014 8% 64,665 79,410 (19%)
----------------------------------------------------------------------------
Average realized gold
price - $/oz 1,191 910 31% 1,153 897 29%
----------------------------------------------------------------------------
Cost of sales - $
millions 14.3 11.3 27% 24.6 31.9 (23%)
----------------------------------------------------------------------------
Cost of sales - $/oz
sold 404.0 339.0 19% 379.0 401.0 (5%)
----------------------------------------------------------------------------
Total Tonnes mined -
000s 2,969 2,243 32% 6,062 6,017 1%
----------------------------------------------------------------------------
Tonnes mined heap leach
- 000s 577 511 13% 1,355 1,722 (21%)
----------------------------------------------------------------------------
Tonnes ore mined direct
mill feed -000's 736 445 65% 1,873 1,066 76%
----------------------------------------------------------------------------
Tonnes ore milled -
000s 615 397 55% 1,238 1,018 22%
----------------------------------------------------------------------------
Average mill head grade
- g/t (1) 2.05 2.48 (17%) 1.98 2.40 (18%)
----------------------------------------------------------------------------
Recovery - % 74.9 68.7 9% 73.9 66.9 10%
----------------------------------------------------------------------------
Gold produced - ounces 31,678 28,990 9% 62,155 69,173 (10%)
----------------------------------------------------------------------------
Total cash cost - $/oz
(2)(4) 549 511 7% 550 492 12%
----------------------------------------------------------------------------
Total production cost -
$/oz (2) 744 762 (2%) 744 723 3%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capital expenditures -
$ millions (Boroo) 3.2 0.1 3100% 3.4 0.4 750%
----------------------------------------------------------------------------
Capital expenditures -
$ millions (Gatsuurt) 11.9 0.2 5850% 17.3 0.4 4225%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(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 years are shown
excluding operating and revenue-based taxes.
(4) 2009 includes $3.3 million of costs incurred during the strike and
shutdown. Excluding these costs the second quarter and six months cash
cost per ounce produced at Boroo would be $396 and $444, respectively.
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 7.5 million ounces of gold. During the second
quarter 2010, Kumtor experienced one lost-time accident and two class I
environmental incidents.
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 high
movement area did begin to accelerate during the latter portion of the second
quarter as expected. The offloading plan and the de-watering program during the
year have significantly slowed the ice movement up to 40 % when comparing to the
same time period last year. 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.
The SB Zone underground decline (Decline #1) has now advanced a total of 724
metres. During the quarter the decline advancement continued and drill and
remuck bays were established and it is now expected that exploration drilling
will commence in the latter part of the third quarter while delineation drilling
of the SB Zone is planned to commence in the fourth quarter of 2010.
The Stockwork Zone underground decline (Decline #2) has advanced a total of 312
metres. Decline #2 will facilitate the access to the Stockwork Zone and the SB
Zone for further exploration and delineation drilling. The second heading in
decline #2 for the exploration and delineation drilling program for the
Stockwork Zone has been established and is advancing toward the north. Drill
bays will be established along the 400 metre access drift. Exploration and
delineation drilling of the Stockwork Zone resource is expected to commence late
in the third quarter of 2010 and continue into 2011.
Three-Month Period Ended June 30, 2010 Compared with the Three-Month Period
Ended June 30, 2009
Revenue and Gold Production
Revenue in the second quarter of 2010 increased to $109.8 million from $74.3
million in the second quarter of 2009 primarily as a result of the higher sales
volumes (91,204 ounces in the second quarter of 2010 compared to 82,293 ounces
in the same period of 2009) and an increased average realized gold price. The
average realized price in the second quarter 2010 was $1,204 per ounce compared
to $903 per ounce in the same period of 2009.
Kumtor produced 90,050 ounces of gold in the second quarter of 2010 compared to
81,467 ounces of gold in the second quarter of 2009. The increase in production
resulted from higher ore grades and recoveries. Actual mill head grade for the
second quarter of 2010 was 2.74 g/t and a recovery of 77.5%, versus 2.60 g/t and
a recovery of 66.0% for the same period in 2009. Tonnes processed remained
consistent with the same period of 2009.
Total volume mined in the second quarter of 2010 was 28.7 million tonnes. This
represents a shortfall of 1.3 million tonnes (4%) compared to the same period in
2009 primarily as a result of longer hauls. Cycle times have increased with the
longer hauls and in order to improve shovel utilization and lower mining costs,
some shovels have been idled. Near the end of the second quarter, four of the
seven new CAT 789 trucks were commissioned and contributed to increased daily
mine production.
Cost of Sales
Cost of sales at Kumtor in the second quarter 2010 were $48.7 million compared
to $70.7 million in the same quarter of 2009. This is a reduction of $22.0
million (31%) compared to the same quarter in 2009.
The primary reason for this reduction in the current quarter relates to the sale
of lower cost ounces that were in process at the end of March 2010. The first
quarter of 2010 saw significantly higher grades and recoveries than the
comparable periods last year, contributing to lower operating cash costs per
ounce in the first and second quarters of 2010 (73% and 12% better than the
respective periods in 2009). In addition, lower cash operating costs in the
second quarter 2010 ($1.1 million), the elimination of production based taxes
resulting from the restated investment agreement ($3.2 million in 2009) and a
second quarter 2009 charge to cost of sales for inventory revaluation ($3.3
million) all contributed to the quarter over quarter improvement in cost of
sales.
Operating cash costs at Kumtor decreased by $1.1 million for the second quarter
2010 compared to the same quarter of 2009. This variance can be explained as
follows:
Mining costs for the second quarter of 2010 were $30.6 million. This is a
reduction of $1.9 million (6%) compared to the same quarter in 2009. This was
due to lower maintenance materials and supplies costs ($1.4 million)
predominantly with the CAT 777 trucks and the CAT shovels, lower tire and
undercarriage costs ($0.9 million) and lower maintenance lubrication costs due
to lower lube costs and usage per unit ($0.7 million). This was partially offset
by higher diesel costs ($1.8 million) due to unfavorable price variances
compared to the second quarter 2009 and higher camp catering costs ($0.7
million).
Milling costs for the second quarter of 2010 were $14.7 million. This is an
additional $1.4 million (10%) of expenditure when compared to the second quarter
of 2009. This was primarily due to higher maintenance materials and supplies
costs ($1.7 million) predominantly a result of the scheduled mill maintenance
shutdown as well as higher electricity costs ($0.4 million). This was partially
offset by lower grinding media costs due to both favorable pricing and reduced
consumptions ($0.6 million) and lower reagents cost ($0.3 million).
Site administration costs for the second quarter of 2010 were $8.8 million. This
is an increase of $0.2 million (2%) compared to the same quarter of 2009, mainly
due to higher insurance costs.
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 sale per ounce sold for the second quarter 2010
decreased to $533 per ounce compared to $859 per ounce for the same period in
2009. This is mainly due to the increased sales volume in the quarter.
Total cash cost per ounce produced in the second quarter 2010 was $639 per ounce
compared to $723 per ounce for the same period in 2009, mainly as a result of
the higher production. Total cash cost per ounce produced is a non-GAAP measure
and is discussed under "Non-GAAP Measures".
Kumtor Regional Administration
Bishkek administration costs for the second quarter 2010 were $3.3 million. This
is an increase of $0.2 million (6%) compared to the same quarter 2009.
Depreciation and Amortization
Depreciation, depletion and amortization decreased by $7.4 million over the same
period in 2009. This was mainly due to an increase in mine ore reserves and an
extension of the mine life in late 2009 leading to slower amortization of assets
depreciated on the unit of production method. In addition, there was a decrease
in depreciable capital additions in the second quarter of 2010 in comparison
with the same period of 2009.
Revenue-Based Tax
Revenue-based tax totaled $15.4 million in the second quarter of 2010. The new
revenue-based tax took effect from April 30, 2009 and for the months of May and
June 2009 totalled $5.3 million: the increase in the 2010 quarter reflects one
additional month of charges and higher sales.
Exploration
Exploration costs at Kumtor for the second quarter 2010 were $2.7 million. This
is an increase of $0.4 million (19%) compared to the second quarter of 2009
mainly due to increased drilling activities.
Capital Expenditures
Capital expenditures in the second quarter of 2010 were $39.5 million compared
to $17.4 million in the same quarter of 2009. In 2010, this consisted of $11.2
million of sustaining capital, predominantly spent on the heavy duty equipment
overhaul program ($4.7 million), replacement of 4 dozers ($2.1 million), shear
key buttress and tailings dam construction ($2.0 million), the 2010 waste dump
expansion ($0.6 million) and other projects totaling ($1.8 million). Growth
capital investment totaled $28.3 million spent mainly on CAT 789 haul truck
purchases ($17.8 million), underground development of the declines for the SB
and Stockwork zones ($8.5 million), camp expansion ($0.8 million), purchase of a
grader ($0.7 million) and other smaller projects ($0.5 million).
Six-Month Period Ended June 30, 2010 Compared with the Six-Month Period Ended
June 30, 2009
Revenue and Gold Production
Revenue for the first six months of 2010 increased to $333.1 million from $131.6
million in same period of 2009 primarily as a result of higher sales volumes
(291,971 ounces for the six months of 2010 compared to 144,490 ounces in the
same period of 2009). Kumtor produced 270,612 ounces of gold for the six months
of 2010 compared to 144,488 ounces of gold in the same period of 2009. The
increase results primarily from higher ore grades, higher recovery and higher
throughput. The ore grade averaged 3.83 g/t with a recovery of 77% for the six
month period of 2010, compared to 2.27 g/t with a recovery of 68% in the same
period of 2009.
The average realized gold price for the first six months of 2010 was $1,141 per
ounce compared to $911 per ounce in the same period in 2009.
The higher average realized gold price per ounce for both the three and six
month periods in 2010 was due to higher gold spot prices.
Cost of Sales
Cost of sales at Kumtor for the first six months of 2010 was $95.7 million
compared to $119.3 million in the same period of 2009. This is a reduction of
$23.6 million (20%) compared to the first six months of 2009 mainly as a result
of lower unit costs.
The reduction for the first six months year over year is primarily due to the
impact of the lower operating costs in the first half of 2010 and from the
selling of lower cost ounces which were in process at the end of December 2009
resulting from a high production, low cost fourth quarter in 2009 which saw
significantly higher grades and recoveries. The first six months of 2010 also
benefited from the new agreement with the Kyrgyz which eliminated production
taxes from cost of sales ($8.7 million was charged in the first six months of
2009). The first half 2009 cost of sales was also charged with an additional
$6.7 million of production costs as a result of an inventory revaluation.
Operating cash costs at Kumtor decreased by $11.1 million for the first six
months of 2010 compared to the same period in 2009. This variance can be
explained as follows:
Mining costs for the first six months of 2010 were $60.7 million. This is a
reduction in costs of $11.5 million (16%) compared to the same period in 2009.
This arose primarily due to lower maintenance materials and supplies costs ($4.5
million), lower expenditures on CAT 777 and CAT 785 haul trucks ($1.8 million),
CAT 5130 shovels ($1.4 million), track dozers ($0.95 million). This is partially
due to a more comprehensive overhaul program which has reduced break downs and
unscheduled maintenance.
Other favorable variances are lower dewatering supplies costs ($3.3 million),
lower lubricants costs due to 25% lower usage as a result of a successful oil
sampling program ($1.3 million), lower tire costs ($1.0 million) mainly due to
significantly lower tire consumption for the period (192 tires compared to 296
tires), lower national premiums ($0.97 million), equipment services ($0.9
million), engineering and consulting costs ($0.9 million) and lower blasting and
explosives costs ($0.7 million) which resulted mainly from a favorable price
variance.
This was partially offset by unfavorable variances on camp cost allocations
($1.3 million), maintenance ($1.0 million) and diesel costs ($0.8 million).
Milling costs for the first six months of 2010 were $28.2 million. This is an
additional $2.4 million (9%) when compared to the same period in 2009. This was
primarily due to higher maintenance materials and supplies costs ($1.6 million)
which included additional liner costs of $0.5 million and higher electricity
costs ($1.0 million). Other unfavorable variances include higher reagents cost
($0.8 million) predominantly a result of higher consumption rates and prices for
sodium cyanide. This was partially offset by a favorable price variance for
grinding media ($1.1 million).
Site administration costs for the first six months of 2010 were $16.6 million.
This is a reduction of $2.7 million (14%) when compared to the same period 2009
primarily as a result of allocating camp catering costs to other departments
($2.8 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 six months of 2010
decreased to $328 per ounce compared to $826 per ounce for the same period in
2009. This was mainly due to higher sales volumes and the decrease in cash
operating costs.
Total cash cost per ounce produced in the first six months of 2010 was $416
compared to $859 per ounce for the same period in 2009, predominantly due to
higher production which contributed to the significant reduction and to lower
production costs. Total cash cost per ounce produced is a non-GAAP measure and
is discussed under "Non-GAAP Measures".
Kumtor Regional Administration
Bishkek Administration costs for the first six months of 2010 were $6.6 million,
$0.4 million or 6% lower than the same period 2009.
Depreciation and Amortization
Depreciation, depletion and amortization decreased by $4.3 million over the same
period of 2009 mainly due to an extension to the life of mine in late 2009
leading to slower amortization of assets depreciated on the units of production
method. In addition, there was a decrease in depreciable capital additions in
the first half of 2010 in comparison with the same period of 2009. This was
partially offset by higher mine and mill production in the first half of 2010
leading to an increase in depreciation for mining and milling assets depreciated
on a unit of production basis.
Revenue-based Tax - Kumtor
Revenue-based tax totaled $46.6 million in the first half of 2010. The new
revenue-based tax took effect from April 30, 2009 and for the first half of 2009
totalled $5.3 million.
Exploration
Exploration costs for the first six months of 2010 were $4.6 million, $1.0
million or 18% lower than the same period 2009. The variance reflects reduced
drilling activity in the first six months of 2010 which resulted in lower costs
mainly for contractor labour services ($0.5 million) and materials and supplies
($0.4 million).
Capital Expenditures
Capital expenditures for the first six months of 2010 were $62.9 million
compared to $39.1 million in the same period of 2009. This consisted of $17.8
million of sustaining capital, predominately spent on the heavy duty equipment
overhaul program ($8.8 million). Other sustaining capital expenditures included
the replacement of 4 dozers ($2.8 million), shear key buttress and tailings dam
construction ($2.2 million), the 2010 waste dump expansion ($1.4 million) and
other projects totaling ($2.6 million). Growth capital investment totaled $45.1
million spent mainly on the purchase of CAT 789 haul trucks ($25.5 million),
expenditures on the underground development ($14.9 million), the purchase of
capital equipment for the underground ($2.5 million), camp expansion ($0.8
million), purchase of a grader ($0.7 million) and other smaller projects ($0.6
million).
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
were four level I environmental incidents (non-reportable).
During the quarter the road to the Gatsuurt deposit was completed.
Three-Month Period Ended June 30, 2010 Compared with the Three-Month Period
Ended June 30, 2009
Revenue and Gold Production
Revenue in the second quarter of 2010 increased to $42.4 million from $30.0
million in the second quarter of 2009 primarily as a result of 8% higher ounces
sold (35,593 in the second quarter of 2010, compared to 33,014 ounces sold in
the same period of 2009) and an increase in the realized gold price. Boroo
produced 31,678 ounces of gold in the second quarter of 2010 compared to 28,990
ounces of gold in the second quarter of 2009. The milling operation experienced
increased recovery which was partially offset by lower ore grades. The heap
leach operation remained idle during the second quarter 2010 awaiting issuance
of the final operating permit from the Mongolian government. In the comparative
2009 quarter, heap leach production was 9,370 ounces. The milling ore grade
averaged 2.05 g/t with a recovery of 74.9% in the second quarter of 2010,
compared to 2.48 g/t with a recovery of 68.7% in the same quarter of 2009.
Recovery was improved by the feed ratio that contained a less refractory ore in
the second quarter 2010 compared to the same quarter in 2009.
The average realized gold price per ounce in the second quarter of 2010 was
$1,191 compared to $910 in the same period of 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 increased in the second quarter of 2010 to $14.3 million compared
to $11.3 million in same period of 2009. The increase results primarily from
higher operating costs and higher royalties incurred of roughly $3.4 million.
Operating cash costs at Boroo increased by $3.2 million compared to the same
period in 2009. This increase reflects the reduced production and costs in 2009
as a result of the strike and shutdown which occurred from the end of May and
throughout June 2009. Although the strike was settled at the beginning of June,
the suspension was only resolved July 27, 2009.
The year over year operating cost variance can be explained as follows:
Mining costs for the second quarter 2010 were $5.5 million, $1.7 million or 44%
higher than the same quarter in 2009. This primarily results from higher diesel
and blasting costs. Diesel unit cost increased to $0.86 per liter in the second
quarter of 2010 compared to $0.69 per liter in the same period of 2009 which
increased costs by $0.3 million. Diesel and blasting materials variance amounted
to $0.5 million and $0.3 million respectively, which is primarily a result of
the suspension of mining operation in the second quarter of 2009. Additionally,
higher maintenance costs of $0.5 million were incurred in the second quarter
2010 compared to the same period in 2009, primarily as a result of the ageing
fleet.
Milling costs for the second quarter 2010 were $5.4 million, $1.3 million or 32%
higher than the same quarter in 2009. This primarily results from higher costs
for electricity, reagents and grinding media. Electricity unit costs increased
to $0.056 per kilowatt hour in the second quarter of 2010 compared to $0.047 per
kilowatt hour in the same period of 2009, which resulted in a cost increase of
$0.2 million. Consumption levels in the second quarter 2010 were higher
primarily as a result of the suspension of operations in the comparative quarter
of 2009. The increase in consumption of electricity, reagents and grinding media
amounted to approximately $0.7 million of additional costs. Additionally, higher
maintenance related costs of $0.4 million were incurred in the second quarter
2010 compared to the same period in 2009, largely because of more maintenance
work being performed at the grinding mill and crusher.
Costs associated with heap leaching activities were $0.6 million or 59% 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 for the second quarter 2010 were $2.0 million, $0.1
million or 8% higher than the same quarter in 2009.
Royalties increased by $0.9 million, primarily due to higher sales revenue
achieved for the second quarter of 2010 compared to the same period in 2009.
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 second quarter of 2010
increased to $404 compared to $339 for the same period in 2009 mainly as a
result of higher operating costs.
Total cash cost per ounce produced in the second quarter 2010 was $549 compared
to $511 per ounce for the same period in 2009. The increase in the unit cash
cost of $38 per ounce results from increased costs noted above ($81/ounce)
partially offset by an increase in ounces produced ($43/ounce). Total cash cost
per ounce produced is a non-GAAP measure and is discussed under "Non-GAAP
Measures".
Mine Standby Costs
Fixed costs totalling $3.3 million were classified as standby costs during the
second quarter of 2009 due to the suspension of the Company's main operating
licenses by the Mongolian authorities.
Boroo Regional Administration
Regional administration costs for the second quarter 2010 were $1.7 million,
$0.6 million or 26% lower than the same quarter in 2009. This is mainly due to
$0.5 million less social development funding and donations in the second quarter
2010.
Depreciation and Amortization
Depreciation, depletion and amortization in the second quarter 2010 totaled $5.5
million, a decrease of $1.2 million or 18% as compared to the same period in
2009. This was mainly due to an increase in mine ore reserves and an extension
of the mine life in late 2009 leading to slower amortization of assets
depreciated on the unit of production method in the second quarter of 2010. In
addition the second quarter 2010 included lower amortization of pit 3
pre-stripping costs than the comparative quarter of 2009.
Exploration
Exploration expenditures in Mongolia increased to $1.5 million in the second
quarter of 2010 from $0.5 million in the same period of 2009. This is primarily
due to additional drilling activities performed at Gatsuurt and other projects
in the country.
Capital Expenditures
Capital expenditures spent and accrued at Boroo in the second quarter of 2010
increased to $3.2 million ($0.1 million in the same period of 2009) which
included $1.6 million of sustaining capital mainly for heavy equipment component
change-outs required for the ageing fleet. Growth capital totalled $1.6 million
which was incurred to lift the main tailings dam wall to accommodate future
production including Gatsuurt oxide ores. At Gatsuurt, $11.9 million was spent
and accrued in the second quarter 2010 for building the road and mine
development, of which $2.3 million was spent for future delivery of haul trucks,
as compared to the same quarter in 2009 where $0.2 million was spent and
accrued.
Six-Month Period Ended June 30, 2010 Compared with the Six-Month Period Ended
June 30, 2009
Revenue and Gold Production
Revenue in the first six months of 2010 increased to $74.6 million from $71.2
million in the same period of 2009 primarily as a result of higher average
realized gold price per ounce of $1,153 in the first half of 2010 compared to
$897 in the same period of 2009.
The impact of the higher average realized gold price per ounce on revenue was
partially offset by fewer ounces sold (64,665 in the first six months 2010,
compared to 79,410 ounces sold in the same period of 2009). Boroo produced
62,155 ounces of gold in the first six months of 2010 compared to 69,173 ounces
of gold in the same period of 2009. During the first half of 2010, the milling
operation achieved increased recovery which was partially offset by lower ore
grades. The ore grade averaged 1.98 g/t with a recovery of 73.9% in the first
six months of 2010, compared to 2.40 g/t with a recovery of 66.9% in the same
period of 2009. Recovery was improved by the feed ratio that contained a less
refractory ore in the first six months of 2010 compared to the same period in
2009. The heap leach operation remained idle in the first six months of 2010,
pending issuance of the final permitting by the Mongolian government
authorities. In the first six months of 2009, heap leach production totalled
18,663 ounces.
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 six months of 2010 to $24.6 million
compared to $31.9 million in same period of 2009. The decrease results primarily
from the lower ounces sold in the first six months of 2010 ($ million) partially
offset by higher operating costs and royalties.
Operating cash costs at Boroo increased by $0.7 million over the first six
months of 2009. This increase can be explained as follows:
Mining costs for the first six months of 2010 were $11.2 million, $1.7 million
or 18% higher than the same period in 2009. This primarily results from
increased diesel costs at an average of $0.84 per liter in the first half of
2010 compared to $0.69 per liter in the same period of 2009 ($0.5 million) and
higher consumption ($0.6 million) resulting from the increased distances as
mining progresses deeper in pit 3. Additionally, higher maintenance costs of
$0.8 million was incurred in the first half of 2010 compared to the same period
in 2009, primarily as a result of the ageing fleet.
Milling costs for the first six months of 2010 were $10.5 million, $1.0 million
or 11% higher than the same quarter in 2009. This is primarily a result of the
higher electricity costs incurred. Electricity unit cost increased to $0.055 per
kilowatt hour per liter in the first six months of 2010 compared to $0.047 per
kilowatt hour in the same period of 2009 resulting in an increase in cost of
$0.3 million. In addition, consumption of electricity in the mill in the 2010
period was higher mainly due to the production shutdown in the comparative year
($0.3 million). Maintenance costs increased by $0.4 million compared to the same
period in 2009 due to increased maintenance performed at the mill crusher,
grinding and decant line.
Costs for heap leaching activities were $2.5 million lower than the same period
in 2009 due to the expiry of the temporary operating permit for the heap leach
operation effective May 1, 2009.
Site administration costs for the first six months of 2010 were $4.0 million,
$0.1 million or 4% higher than the same quarter in 2009.
Royalties increased by $0.2 million, primarily due to higher sales revenue
achieved for the first six months of 2010 compared to the same period in 2009.
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 $379 in the first six
months of 2010 compared to $401 in the same period of 2009, mainly reflecting
higher inventory balance movement in the first six months of 2010 compared to
the same period in 2009.
Total cash cost per ounce produced in the first six months of 2010 was $550
compared to $492 per ounce for the same period in 2009. The increase in the unit
cash cost of $58 per ounce results from the lower ounce production, mainly from
the lower grades ($56/ounce) and increased operating costs noted above
($2/ounce). Total cash cost per ounce produced is a non-GAAP measure and is
discussed under "Non-GAAP Measures".
Mine Standby Costs
Standby costs at the Boroo mine during the first half of 2009 totalled $3.3
million as a result of the operation's suspension due to a labour dispute and a
temporary suspension of the main mining license by the Mongolian authorities.
Although the main operating license was re-instated on July 27, 2009, the heap
leach operation continues to be on care and maintenance pending issuance of
final permits.
Boroo Regional Administration
Regional administration costs in the first six months of 2010 were $3.3 million,
$0.5 million or 14% lower than the same period in 2009. This is mainly due to
lower spending in the 2010 period on social development projects and donations.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization in the first six months of 2010 totaled
$9.9 million, a decrease of $4.6 million or 32% as compared to the same period
in 2009. This was mainly due to an increase in mine ore reserves and an
extension of the mine life in late 2009 leading to slower amortization of assets
depreciated on the unit of production method in the first half of 2010. In
addition the first half of 2010 included lower amortization of pit 3
pre-stripping costs than the first half of 2009.
Exploration
Exploration expenditures in Mongolia increased to $2.7 million in the first six
months of 2010 from $0.8 million in the same period of 2009. This is primarily
due to additional drilling activities performed at Gatsuurt, Ulaan Bulag and
Tsagaan Ovoo projects.
Capital Expenditures
Capital expenditures spent and accrued at Boroo in the first six months of 2010
increased to $3.4 million ($0.4 million in the same period of 2009) which
included $1.8 million of sustaining capital mainly for heavy equipment component
change-outs required for the ageing fleet. Growth capital at Boroo totalled $1.6
million which was incurred in the second quarter to lift the main tailings dam
wall to accommodate future production including Gatsuurt oxide ores. At
Gatsuurt, $17.3 million was spent and accrued in the first half of 2010 on road
building and mine development.
Other Financial Information - Related Party Transactions
Kyrgyzaltyn 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 $1.50 per ounce), payable to Kyrgyzaltyn JSC ("Kyrgyzaltyn"), which
holds approximately 33% of the outstanding common shares of Centerra.
The table below summarizes the management fees and concession payments paid and
accrued by Kumtor Gold Company ("KGC"), a subsidiary of the Company, to
Kyrgyzaltyn or the Government of the Kyrgyz Republic, and the amounts paid and
accrued by Kyrgyzaltyn to KGC according to the terms of a Restated Gold and
Silver Sales Agreement between Kumtor Operating Company ("KOC", a subsidiary of
the Company), Kyrgyzaltyn and the Kyrgyz Republic.
----------------------------------------------------------------------------
Three months ended Six months ended
($ thousands) June 30 June 30
----------------------------------------------------------------------------
2010 2009 2010 2009
----------------------------------------------------------------------------
Management fees paid by KGC
to Kyrgyzaltyn 91 116 292 209
----------------------------------------------------------------------------
Concession payments paid by
KGC to Kyrgyz Republic - (365) - (116)
----------------------------------------------------------------------------
Total 91 (249) 292 93
----------------------------------------------------------------------------
Gross gold and silver sales
from KGC to Kyrgyzaltyn 110,193 74,689 334,405 132,297
----------------------------------------------------------------------------
Deduct: refinery and
financing charges (417) (391) (1,298) (729)
----------------------------------------------------------------------------
Net sales revenue received by
KGC from Kyrgyzaltyn 109,776 74,298 333,107 131,568
----------------------------------------------------------------------------
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 a Gold and
Silver Sales Agreement that was amended and restated effective June 6, 2009.
Under this amended and restated agreement Kyrgyzaltyn is required to pay for
gold within 12 calendar days of shipment from the Kumtor mill 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 2,850,000
shares of Centerra owned by Kyrgyzaltyn, the value of which fluctuates with the
market price.
As at June 30, 2010, the Company had a receivable of $16.3 million from
Kyrgyzaltyn (December 31, 2009 - $37.9 million).
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, partially 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.
----------------------------------------------------------------------------
$ millions, except per
share data 2010 2009 2008
----------------------------------------------------------------------------
Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3
----------------------------------------------------------------------------
Revenue 152 255 324 159 104 98 241 139
----------------------------------------------------------------------------
Earnings (loss) before
unusual items 30 122 140 20 (30) (20) 43 17
----------------------------------------------------------------------------
Net earnings (loss) 30 122 140 20 (80) (20) 43 17
----------------------------------------------------------------------------
Earnings (loss) per
share before unusual
items (basic and
diluted) 0.13 0.52 0.60 0.09 (0.14) (0.09) 0.20 0.08
----------------------------------------------------------------------------
Earnings (loss) per
share (basic and
diluted) 0.13 0.52 0.60 0.09 (0.36) (0.09) 0.20 0.08
----------------------------------------------------------------------------
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. In June further serious unrest occurred in southern
Kyrgyzstan. Operations at the Kumtor mine were not affected by these events. A
national referendum sponsored by the interim Government was held on June 27,
2010 to approve a new constitution and the appointment of Mrs. Roza Otunbayeva
as President of the Kyrgyz Republic for a transition period until December 31,
2011. The referendum proposals received wide support in the Kyrgyz Republic.
Following the referendum Mrs. Otunbayeva was inaugurated as President and a new
cabinet council or transitional Government was formed. It is expected that this
transitional Government will operate until Parliamentary elections are held and
a new Government formed. The Government has indicated that these Parliamentary
elections will take place in October 2010. While the political and civil
conditions appear to have stabilized, 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.
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.
As a result of the recent events in the Kyrgyz Republic, there was a delay in
Kyrgyzaltyn communicating to Centerra's board the identity of its nominees.
Kyrgyzaltyn has recently informed Centerra of its two proposed nominees and
therefore the board of directors of Centerra expects to add those nominees to
the board shortly.
Mongolia
Mongolian Regulatory Matters
The regulatory conditions in Mongolia have not changed substantially since
Centerra's first quarter report. The following discussion summarizes the current
status of Mongolian regulatory matters affecting Centerra.
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.
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
The legislative conditions in Mongolia have not changed substantially since
Centerra's first quarter report. The following discussion summarizes the current
status of certain Mongolian legislation that may affect Centerra, including its
Gatsuurt project and other Mongolian mineral licenses.
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. While the Company has continued to receive permits and
approvals in connection with the road construction to Gatsuurt and for
construction of surface facilities at the project, there is a risk that further
approvals or commissioning of the project could be delayed as a result of the
Water and Forest Law.
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.
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
terminated. On July 2, 2010, the Company closed the sale of its REN interest to
Homestake for cash proceeds of $35.2 million. In connection with the termination
of the Rye Patch agreement, Centerra U.S. paid Rye Patch a break fee of $0.25
million.
In the third quarter 2010, the Company will record a gain on sale for the value
of the proceeds received, less any related expenses, including the break fee to
Rye Patch.
As at June 30, 2010, the net book value of the REN property was nil (December
31, 2009- Nil) because all exploration activities on the property were expensed
as incurred.
For information on forward-looking information see "Caution Regarding
Forward-looking Information".
Critical Accounting Estimates
Centerra prepares its consolidated financial statements in accordance with
Canadian 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 adopted during the three months and six
months ended June 30, 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 previously disclosed, 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. During the second quarter 2010, the IFRS
opening balance sheet was presented to the Company's Audit Committee of the
Board. The Company plans to release the quantified impact from the opening
balance sheet in the Company's third quarter MD&A after the completion of the
review by the Company's Audit Committee.
During the second quarter 2010, the Company commenced work on the conversion of
its first quarter 2010 financial statements to IFRS standards. The converted
financial statements have been discussed with the Company's Audit Committee. The
Company is working with its auditors during the conversion process.
Full auditor attestation of the 2010 converted IFRS statements will be provided
at the conclusion of the annual audit of the 2010 financial statements which is
scheduled to be completed during the first quarter of 2011.
The release of the quantified impact in the third 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
accounting policies and could also result in the transition plan being different
from those communicated.
In the second quarter 2010, the Company completed the modification of its
consolidation and financial reporting systems. With the completion, the Company
is now capable of dual processing and reporting of its financial information
under current Canadian and IFRS standards.
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.
A review of complete, annual IFRS-compliant financial statement notes
disclosures is scheduled with the Company's Audit Committee of the Board during
the fourth quarter of 2010.
The Company continues to monitor the project's progress and the potential impact
on internal controls. At this point in the project, the Company does not
anticipate any significant impact on internal controls.
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
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 April 28, 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 unchanged from
prior guidance. While it is expected that the higher than anticipated production
realized at Kumtor in the first and second quarters may be partially offset by
lower production in the third quarter of 2010. The Company continues to expect
that during the fourth quarter Kumtor will produce approximately 40% of its 2010
production.
At Boroo/Gatsuurt, gold production is forecast to be 110,000 to 130,000 ounces,
which is unchanged from prior guidance.
While the Company believes it has met all the regulatory pre-conditions for the
issuance of the final heap leach operating permit, its issuance continues to be
delayed. Due to these continued delays in obtaining the final permit, the
Company has removed any heap leach production from this year's production
guidance. If the final operating permit is received, resumption of heap leach
operations at Boroo would add approximately 3,000 to 4,000 ounces per month to
production.
Additionally, the current production guidance does not include any gold
production from Gatsuurt. While the Company has continued to receive permits and
approvals in connection with the road construction to Gatsuurt and for
construction of surface facilities at the project, there is a risk that further
approvals or commissioning of the project could be delayed as a result of the
Water and Forest Law, see "Other Corporate Developments, Mongolian Legislation".
Due to the potential for delays in receiving the required approvals for the
Gatsuurt project, Boroo has initiated an alternative plan that is expected to
allow the Boroo operation to achieve the production within the forecasted range
of ounces produced. The processing of remaining mine ores by the Boroo mill, in
conjunction with, the processing of stockpiled lower grade ores will allow the
operation to meet its production guidance. The mining of refractory ores from
Pit 3 and Pit 6 will provide mill feed in the fourth quarter of 2010 and into
first quarter of 2011. Mill recoveries of this material, though low, allow the
ores to be mined and processed and remain profitable.
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 April 28, 2010. 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.
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 total cash cost for 2010 reflects no production from both the heap leach
operation and Gatsuurt 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" in the
Management's Discussion and Analysis issued in conjunction with this news
release.
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. 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 $241.1 million, including
$48.9 million of sustaining capital and $192.2 million of growth capital. This
represents a decrease of $4.1 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 $ 153.1 $ 43.6
----------------------------------------------------------------------------
Boroo mine $ 0.5 $ 4.9
----------------------------------------------------------------------------
Gatsuurt project $ 38.6 0
----------------------------------------------------------------------------
Other 0 $ 0.4
----------------------------------------------------------------------------
Consolidated Total $ 192.2 $ 48.9
----------------------------------------------------------------------------
Kumtor Capital
At Kumtor, the largest growth capital expenditure will be for the North Wall
Expansion project, estimated at $92.7 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 is acquiring seven new
CAT 789 haul trucks for a total cost of $19.8 million. As of the June 30, 2010,
Kumtor had received five and commissioned four out of the seven trucks. It is
expected that the remaining two trucks will be delivered in the third and fourth
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 $38.4 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.
At Gatsuurt, expected 2010 growth capital spending is forecasted at $38.6
million down from $42.0 million in the prior guidance, Pre-stripping of the
sulphide ores initially planned to be carried out in 2010 for $9.2 million have
now been partially deferred with only $2.9 million of the total being spent in
2010 as a result of the decision to delay the construction of the Boroo
bio-oxidation facility for processing Gatsuurt and other sulphide ores, The
previous estimate of the engineering costs of the Boroo bio-oxidation facility
of $5.0 million has been increased to $8.0 million.
The Company has implemented a phased approach to the development of the Gatsuurt
orebody consisting of an oxide project component followed by a sulphide project
component. The Company expects that the capital for the development of the
deeper sulphide ores at Gatsuurt will be invested following successful
commissioning of the Gatsuurt oxide project and after the Company signs an
acceptable investment agreement for Gatsuurt with the Government of Mongolia.
Drilling results at Gatsuurt have identified additional oxide mineralization
which is likely to extend the oxide operating life for the mine, further
delaying the requirement for capital investment in the bio-oxidation plant.
Other growth capital spending at Gatsuurt includes completion of the Gatsuurt
site infrastructure including the haul road between Gatsuurt and Boroo ($9.6
million), purchase of haul trucks to be used for hauling of ore from the
Gatsuurt site to the Boroo mill ($5.3 million), and the expansion of the
existing Boroo tailings facility to contain Gatsuurt oxide and sulphide tailings
($4.8 million).
Administration
Annual estimated corporate and administration expenses remains at $41 million.
Production, cost and capital forecasts for 2010 are forward-looking information
and are based on key assumptions and subject to material risk factors that could
cause actual results to differ materially and which are discussed under the
heading "Material Assumptions" and "Cautionary Note Regarding Forward-looking
Information".
Sensitivities
Centerra's revenues, earnings and cash flows for the remaining six months of
2010 are sensitive to changes in certain variables and the Company has estimated
their impact on revenues, net earnings and cash from operations.
----------------------------------------------------------------------------
Impact on ($ millions)
---------------------------------------------
Earnings before
Change Costs Revenues Cash flow income tax
----------------------------------------------------------------------------
Gold Price $50/oz 2.9 17.4 14.5 15.2
----------------------------------------------------------------------------
Diesel Fuel (1) 10% 3.6 - 3.6 3.6
----------------------------------------------------------------------------
Kyrgyz som 1 som 1.0 - 1.0 1.0
----------------------------------------------------------------------------
Mongolian tugrik 25 tugrik 0.2 - 0.2 0.2
----------------------------------------------------------------------------
Canadian dollar 10 cents 1.6 - 1.6 1.6
----------------------------------------------------------------------------
(1) 10% change in diesel fuel price equals $10/oz.
Material Assumptions
Material assumptions or factors used to forecast production and costs include
the following:
-- a gold price of $1,100 per ounce,
-- exchange rates:
-- $1USD:$1.02 CAD
-- $1USD:45.50 Kyrgyz Som
-- $1USD:1,380 Mongolian Tugrik
-- $1USD:0.78 Euro
-- diesel fuel price assumption:
-- $0.74/litre at Kumtor(i)
-- $0.84/litre at Boroo
(i)The assumed diesel price of $0.74/litre at Kumtor includes a customs export
duty imposed by the Russian authorities on the diesel fuel exported to the
Kyrgyz Republic. Russia imposed a customs duty of $193.50 per tonne on gasoline
and diesel fuel exports to the Kyrgyz Republic that went into effect on April 1,
2010. The Company estimates that the introduction of this new export duty will
increase operating costs at Kumtor by approximately $7 million.
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 $76 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 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, 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".
Non-GAAP Measures
This MD&A 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 produced is
calculated by dividing total cash costs by gold ounces produced for the relevant
period. Total production cost per ounce produced includes total cash cost plus
depreciation, depletion and amortization divided by gold ounces produced for the
relevant period. Cost of sales per ounce sold is calculated by dividing cost of
sales by gold ounces sold for the relevant period. Total cash cost and total
production cost per ounce produced, as well as cost of sales per ounce sold, 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 produced, total production
cost per ounce produced and cost of sales per ounce sold 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
RECONCILIATION Three months ended Six months ended
(unaudited) June 30, June 30,
($ millions, unless otherwise
specified) 2010 2009 2010 2009
-----------------------------------------------
Centerra:
-----------------------------
Cost of sales, as reported $ 63.0 $ 82.0 $ 120.3 $ 151.2
Adjust for:
Refining fees & by-product
credits 0.1 0.1 0.1 0.3
Regional Office
administration 5.0 5.8 9.9 10.9
Mining Standby Costs - 3.3 - 3.3
Operating taxes excluded
(1) - (3.2) - (8.7)
Non-operating costs (0.1) (3.9) 0.1 (5.9)
Inventory movement 7.0 (10.4) 16.5 7.0
-----------------------------------------------
Total cash cost - 100% $ 75.0 $ 73.7 $ 146.9 $ 158.1
Depreciation, Depletion,
Amortization and Accretion 17.4 25.9 39.2 47.8
Inventory movement - non-
cash - (5.0) (0.4) (2.9)
-----------------------------------------------
Total production cost - 100% $ 92.4 $ 94.6 $ 185.7 $ 203.0
Ounces poured - 100% (000) 121.8 110.5 332.8 213.7
Total cash cost per ounce $ 616 $ 667 $ 441 $ 740
Total production cost per
ounce $ 758 $ 856 $ 558 $ 950
Kumtor:
-----------------------------
Cost of sales, as reported $ 48.7 $ 70.7 $ 95.7 $ 119.3
Adjust for:
Refining fees & by-product
credits - 0.1 0.2
Regional Office
administration 3.3 3.5 6.6 7.1
Mining Standby Costs - - - -
Operating taxes excluded
(1) - (3.2) - (8.7)
Non-operating costs - (3.7) 0.3 (5.7)
Inventory movement 5.6 (8.5) 10.0 11.9
-----------------------------------------------
Total cash cost - 100% $ 57.6 $ 58.9 $ 112.6 $ 124.1
Depreciation, Depletion,
Amortization and Accretion $ 11.6 $ 18.7 $ 28.7 $ 32.6
Inventory movement - non-
cash $ (0.4) $ (5.1) $ (1.9) $ (3.7)
-----------------------------------------------
Total production cost - 100% $ 68.8 $ 72.5 $ 139.4 $ 153.0
Ounces poured - 100% (000) 90.1 81.5 270.6 144.5
Total cash cost per ounce $ 639 $ 723 $ 416 $ 859
Total production cost per
ounce $ 764 $ 890 $ 515 $ 1,059
Boroo:
-----------------------------
Cost of sales, as reported $ 14.3 $ 11.3 $ 24.6 $ 31.9
Adjust for:
Refining fees & by-product
credits 0.1 - 0.1 0.1
Regional Office
administration 1.7 2.3 3.3 3.8
Mining Standby Costs - 3.3 - 3.3
Operating taxes excluded
(1) - - - -
Non-operating costs (0.1) (0.2) (0.2) (0.2)
Inventory movement 1.4 (1.9) 6.5 (4.9)
-----------------------------------------------
Total cash cost - 100% $ 17.4 $ 14.8 $ 34.3 $ 34.0
Depreciation, Depletion,
Amortization and Accretion 5.8 7.2 10.5 15.2
Inventory movement - non-
cash 0.4 0.1 1.5 0.8
-----------------------------------------------
Total production cost - 100% $ 23.6 $ 22.1 $ 46.3 $ 50.0
Ounces poured - 100% (000) 31.7 29.0 62.2 69.2
Total cash cost per ounce $ 549 $ 511 $ 550 $ 492
Total production cost per
ounce $ 744 $ 762 $ 744 $ 723
(1) Kumtor's production taxes under the previous regime are removed in the
comparative year since these were replaced with a revenue-based tax in
April 2009 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 tailing dam, 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. 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 Annual Information Form 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 July 29, 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 Second Quarter Ended June 30, 2010
(Unaudited)
(Expressed in United States Dollars)
Centerra Gold Inc.
Consolidated Balance Sheets
(Expressed In Thousands of United
States Dollars)
June 30, December 31,
2010 2009
----------------------------------------------------------------------------
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 239,180 $ 176,904
Short-term investments 160,667 145,971
Amounts receivable 24,971 44,281
Current portion of future income tax
asset 1,016 1,555
Inventories (note 3) 165,918 151,822
Prepaid expenses 9,554 11,718
---------------------------------------
601,306 532,251
Property, plant and equipment 425,913 380,979
Other assets 5,152 -
Goodwill 129,705 129,705
Long-term receivables and other 7,546 6,554
Long-term inventories (note 3) 25,567 23,120
Future income tax asset - 1,418
---------------------------------------
593,883 541,776
---------------------------------------
Total assets $ 1,195,189 $ 1,074,027
---------------------------------------
---------------------------------------
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued
liabilities $ 44,146 $ 49,178
Taxes payable 9,680 35,066
Current portion of provision for
reclamation (note 4) 8,274 8,169
Current portion of future income tax
liability 4,415 7,662
---------------------------------------
66,515 100,075
Provision for reclamation (note 4) 22,043 21,533
Shareholders' equity (note 5)
Share capital 648,137 646,081
Contributed surplus 34,602 34,298
Retained earnings 423,892 272,040
---------------------------------------
1,106,631 952,419
---------------------------------------
Total liabilities and shareholders'
equity $ 1,195,189 $ 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 Six Months Ended
June 30, June 30, June 30, June 30,
2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue from Gold Sales $ 152,172 $ 104,345 $ 407,658 $ 202,774
---------------------------------------------------
Expenses
Cost of sales (1) 63,014 81,915 120,266 151,173
Mine standby costs - 3,343 - 3,343
Regional office
administration 4,973 5,787 9,917 10,862
Depreciation, depletion
and amortization 17,037 25,707 38,368 47,494
Accretion and
reclamation expense
(note 4) 551 713 1,105 1,288
Revenue based taxes
(note 6(a)) 15,369 5,280 46,635 5,280
Exploration and business
development 7,135 4,333 12,656 10,026
Other (income) and
expenses 1,689 (276) 2,403 (112)
Corporate administration 6,559 7,698 17,576 12,700
---------------------------------------------------
116,327 134,500 248,926 242,054
---------------------------------------------------
Earnings (loss) before
unusual items and income
taxes 35,845 (30,155) 158,732 (39,280)
Unusual items-Kyrgyz
settlement - (49,333) - (49,333)
---------------------------------------------------
Earnings (loss) before
income taxes 35,845 (79,488) 158,732 (88,613)
Income tax expense (note
6 (b)) 6,080 98 6,880 11,259
---------------------------------------------------
Net earnings (loss) and
comprehensive income
(loss) $ 29,765 $ (79,586) $ 151,852 $ (99,872)
---------------------------------------------------
---------------------------------------------------
Basic and diluted net
earnings (loss) per
common share (note 5) $ 0.13 $ (0.36) $ 0.65 $ (0.46)
---------------------------------------------------
---------------------------------------------------
(1) Excludes
depreciation, depletion
and amortization
expenses 16,916 25,468 38,121 46,974
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 Six Months Ended
June 30, June 30, June 30, June 30,
2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating activities
Net earnings (loss) $ 29,765 $ (79,586) $ 151,852 $ (99,872)
Items not involving
cash:
Depreciation,
depletion and
amortization 17,037 25,707 38,368 47,494
Accretion and
reclamation expense 551 713 1,105 1,288
Loss on disposal of
property plant and
equipment 847 217 990 537
Stock based
compensation
expense 427 456 883 815
Unusual items-Kyrgyz
settlement - 31,616 - 31,616
Future income tax
(recovery) expense 1,054 (2,448) (1,291) 3,373
Long-term inventory (898) (1,086) (2,447) (3,469)
Other operating
items (838) 504 (1,521) (1,157)
-------------------------------------------------------
47,945 (23,907) 187,939 (19,375)
Decrease (increase)
in working capital 28,509 6,633 (29,130) 12,940
-------------------------------------------------------
Cash provided by
operations 76,454 (17,274) 158,809 (6,435)
-------------------------------------------------------
Investing activities
Additions to
property, plant and
equipment (57,171) (18,706) (78,207) (42,426)
Short-term
investments
(purchased) matured 22,627 - (14,696) 17,781
Proceeds from
disposition of
property, plant and
equipment 2 - 44 2
Advance for long-
term assets (5,152) - (5,152) -
-------------------------------------------------------
Cash used in
investing (39,694) (18,706) (98,011) (24,643)
-------------------------------------------------------
Financing activities
Issuance of common
shares for cash 1,478 1,944 1,478 1,944
-------------------------------------------------------
Cash provided by
(used in) financing 1,478 1,944 1,478 1,944
-------------------------------------------------------
Increase in cash and
cash equivalents
during the period 38,238 (34,036) 62,276 (29,134)
Cash and cash
equivalents at
beginning of the
period 200,942 154,485 176,904 149,583
-------------------------------------------------------
Cash and cash
equivalents at end
of the period $ 239,180 $ 120,449 $ 239,180 $ 120,449
-------------------------------------------------------
-------------------------------------------------------
Supplemental
disclosure with
respect to cash
flows
Cash and cash
equivalents consist
of :
Cash $ 95,314 $ 41,194 $ 95,314 $ 41,194
Cash equivalents 143,866 79,255 143,866 79,255
-------------------------------------------------------
$ 239,180 $ 120,449 $ 239,180 $ 120,449
-------------------------------------------------------
-------------------------------------------------------
Additions to
property,plant and
equipment
Capital
expenditures
during the period $ 54,670 $ 17,737 $ 83,824 $ 40,043
Reduction
(increase) to
accruals included
in additions to
PP&E 2,501 969 (5,617) 2,383
-------------------------------------------------------
Additions to
property, plant
and equipment $ 57,171 $ 18,706 $ 78,207 $ 42,426
-------------------------------------------------------
-------------------------------------------------------
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)
----------------------------------------------------------------------------
Number of
Common Contributed Retained
Shares Amount Surplus Earnings Total
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance at
December
31, 2008 216,318,188 $ 523,107 $ 32,904 $ 211,727 767,738
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
compensation
expense - - 814 - 814
Net loss for
the period - - - (99,872) (99,872)
----------------------------------------------------------------------------
Balance at
June 30,
2009 234,857,228 $ 646,081 $ 33,388 $ 111,855 791,325
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance at
December
31, 2009 234,857,228 $ 646,081 $ 34,298 $ 272,040 $ 952,419
Common
shares
issued on
exercise of
stock
options 288,741 2,056 (579) - 1,477
Stock-based
compensation
expense - - 883 - 883
Net earnings
for the
period - - - 151,852 151,852
----------------------------------------------------------------------------
Balance at
June 30,
2010 235,145,969 $ 648,137 $ 34,602 $ 423,892 $1,106,631
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The accompanying notes form an integral part of these unaudited interim
consolidated financial statements.
Centerra Gold Inc.
Notes to 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 June 30, 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 policies adopted during the three months and six
months ended June 30, 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
significantly impact its financial results.
3. Inventories
----------------------------------------------------------------------------
(Thousands of US$) June 30, 2010 December 31, 2009
----------------------------------------------------------------------------
Stockpiles $ 59,200 $ 50,234
Gold in-circuit 19,553 5,045
Heap leach in circuit 3,152 4,908
Gold dore 3,633 8,818
----------------------------------------------------------------------------
85,538 69,005
Supplies 105,947 105,937
----------------------------------------------------------------------------
191,485 174,942
Less: Long-term inventory (heap
leach) (25,567) (23,120)
----------------------------------------------------------------------------
Total inventories-current portion $ 165,918 $ 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 Six Months Ended
(Thousands of US$) June 30/10 June 30/09 June 30/10 June 30/09
----------------------------------------------------------------------------
Balance, beginning of
period $ 30,222 $ 31,243 $ 29,702 $ 32,780
Liabilities settled (456) (457) (490) (595)
Revisions in cost - - - (1,974)
Accretion expense 551 713 1,105 1,288
----------------------------------------------------------------------------
Balance, end of
period 30,317 31,499 30,317 31,499
Less: current portion (8,274) (3,888) (8,274) (3,888)
----------------------------------------------------------------------------
$ 22,043 $ 27,611 $ 22,043 $ 27,611
----------------------------------------------------------------------------
During the first quarter ended March 31, 2009, the Company revised its previous
closure costs based on an 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. The number of additional shares for
inclusion in diluted earnings per share is determined using the treasury stock
method, whereby stock options, whose exercise price is less than the average
market price of the Company's common shares, are assumed to be exercised and the
proceeds plus the amount of fair value of the stock options not yet recognized
in income as expense are used to purchase common shares at the average market
price for the period. The incremental number of common shares issued under stock
options and warrants is included in the calculation of diluted earnings per
share.
Potential common shares from the exercise of stock options 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) June 30/10 June 30/09
----------------------------------------------------------------------------
Basic weighted average number of common
shares outstanding 234,992 220,472
Effect of stock options 575 -
----------------------------------------------------------------------------
Diluted weighted average number of
common shares outstanding 235,567 220,472
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Six Months Ended
(Thousands of shares) June 30/10 June 30/09
----------------------------------------------------------------------------
Basic weighted average number of common
shares outstanding 234,926 217,354
Effect of stock options 586 -
----------------------------------------------------------------------------
Diluted weighted average number of
common shares outstanding 235,512 217,354
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended Six Months Ended
(Thousands of shares) June 30/10 June 30/09 June 30/10 June 30/09
----------------------------------------------------------------------------
Anti-dilutive number of
common share equivalents
excluded (a) 45 1,852 50 1,701
----------------------------------------------------------------------------
(a) Common share equivalents consist of stock options granted to eligible
employees of the Company.
b. Stock-Based Compensation
The impact of Stock-Based Compensation is summarized as follows:
----------------------------------------------------------------------------
(Millions of US$ Number
except as outstanding
indicated) June 30/10 Expense/(Income)
----------------------------------------------
Three months ended Six months ended
----------------------------------------------
June 30/10 June 30/09 June 30/10 June 30/09
----------------------------------------------------------------------------
(i) Centerra
stock options 1,527,414 $ 0.4 $ 0.5 $ 0.9 $ 0.8
(ii) Centerra
-PSU (1) 1,519,132 0.7 0.8 4.6 1.0
(iii) Centerra
annual-PSU 163,386 0.5 1.4 1.5 1.9
(iv) Deferred
share units 397,075 (0.6) 0.4 0.7 0.4
(v) Cameco stock
options - - 0.4 - 0.4
----------------------------------------------------------------------------
$ 1.0 $ 3.5 $ 7.7 $ 4.5
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------
(Millions of US$ Number
except as outstanding
indicated) June 30/10 Liability
----------------------
June 30/10 Dec 31/09
----------------------------------------------------
(i) Centerra
stock options 1,527,414 $ - $ -
(ii) Centerra
-PSU (1) 1,519,132 9.7 6.2
(iii) Centerra
annual-PSU 163,386 1.1 6.3
(iv) Deferred
share units 397,075 4.4 3.8
(v) Cameco stock
options - - 1.3
----------------------------------------------------
$ 15.2 $ 17.6
----------------------------------------------------
----------------------------------------------------
(1) Centerra performance share units (PSU).
Movements in the number of options and units year-to-date are summarized as follows:
----------------------------------------------------------------------------
Number
outstanding
Dec 31/09 Issued Exercised
----------------------------------------------------------------------------
(i) Centerra stock options 1,816,155 - (288,741)
(ii) Centerra -PSU 1,201,677 529,328 (99,434)
(iii) Centerra annual- PSU 420,870 174,559 (421,739)
(iv) Deferred share units 375,216 33,772 (11,913)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Number Number
Expired/ outstanding Vested June
Forfeited(1) June 30/10 30/10
----------------------------------------------------------------------------
(i) Centerra stock options - 1,527,414 901,670
(ii) Centerra -PSU (112,439) 1,519,132 -
(iii) Centerra annual- PSU (10,304) 163,386 81,693
(iv) Deferred share units - 397,075 397,075
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) 112,439 units from the Centerra PSU 2007 series expired.
The terms of Centerra's performance share unit plan for the regularly issued
series in 2010 (282,171 units issued) were modified from the standard terms
described in the December 31, 2009 audited annual consolidated financial
statements and notes thereto as follows:
Vesting - 50% of the units granted in any particular year vest on
December 31 of the second year, and the remaining 50% vest on
December 31 of the third year.
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 the tax
provisions of this agreement, which has 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. In determining the
revenue based tax for 2008 and 2009, full credit was received for taxes paid
with respect to those years under the prior tax regime. Separate presentation of
the revenue-based taxes has been made in the financial statements starting in
the second quarter of 2009.
During the three months and six months ended June 30, 2010, the revenue based
tax expensed by Kumtor was $15.4 million and $46.6 million respectively ($5.3
million for both the three months and six months ended June 30, 2009,
recognizing the credits granted for taxes paid under the prior regime).
b. Corporate Income Taxes
The Company recorded income tax expense of $6.1 million and $6.9 million for the
three months and six months ended June 30, 2010 ($0.1 million and $11.3 million
for the three and six months ended June 30, 2009).
Boroo
The income tax rate for Boroo is 25% of taxable income in excess of 3 billion
Tugriks (approximately $2.2 million as at the balance sheet date), and 10% for
income up to that amount.
During the three months and six months ended June 30, 2010, Boroo recorded
income tax expense of $6.1 million and $6.9 million respectively ($0.1 million
and $14.1 million for the three months and six months ended June 30, 2009).
Kumtor
On April 30, 2009 Kumtor became subject to a tax regime pursuant to which income
taxes, and other taxes, were replaced by taxes computed by reference to Kumtor's
revenue (as discussed in 6(a) above). As a result, the income tax provision for
Kumtor for the three months and six months ended June 30, 2010 is Nil. During
the three months and six months ended June 30, 2009, Kumtor was subjected to 10%
income tax rate computed on earnings and 2% of net income as a contribution to
Issyk-Kul Social Fund. As a result of the subjection to income tax and
contribution to Issyk-Kul Social Fund, Kumtor recorded Nil and recovery of tax
of Nil and $2.9 million for the three months and six months ended June 30, 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.'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, the agreement between Rye Patch and
Centerra U.S. was terminated.
Subsequent to the reporting period ended June 30, 2010, the sale of Centerra
U.S's interest in the REN project to Homestake for cash proceeds of $35.2
million was completed on July 2, 2010. In the third quarter 2010, the Company
will record a gain on sale for the value of the proceeds received, less any
related expenses, including a break fee paid by Centerra U.S. to Rye Patch of
$0.25 million.
As at June 30, 2010 the net book value of REN's property is nil (December 31,
2009- Nil) since all exploration activities on the property were expensed as
incurred.
8. Commitments and Contingencies
Commitments
As at June 30, 2010, the Company had entered into contracts to purchase capital
equipment and operational supplies totalling $115.3 million (Kumtor $112.1
million, Boroo $0.7 million and Centerra Gold Mongolia LLC , a subsidiary of
Centerra, $2.4 million). These are expected to be settled over the next twelve
months.
Contingencies - Mongolia
Mongolian Regulatory Matters
The regulatory conditions in Mongolia have not changed substantially since
Centerra's first quarter report. The following discussion summarizes the current
status of Mongolian regulatory matters affecting Centerra.
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.
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
The legislative conditions in Mongolia have not changed substantially since
Centerra's first quarter report. The following discussion summarizes the current
status of certain Mongolian legislation that may affect Centerra, including its
Gatsuurt project and other Mongolian mineral licenses.
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. While the Company has
continued to receive permits and approvals in connection with the road
construction to Gatsuurt and for construction of surface facilities at the
project, there is a risk that further approvals or commissioning of the project
could be delayed as a result of the Water and Forest Law.
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.
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 $1.00 per
ounce based on sales volumes, payable to Kyrgyzaltyn JSC ("Kyrgyzaltyn"), a
shareholder of the Company and a state-owned entity of the Kyrgyz Republic.
The table below summarizes 100% of the management fees and concession payments
paid and accrued by Kumtor Gold Company to Kyrgyzaltyn or the Government of the
Kyrgyz Republic and the amounts paid and accrued by Kyrgyzaltyn to Kumtor
according to the terms of a Gold and Silver Sales Agreement between Kumtor
Operating Company ("KOC"), Kyrgyzaltyn and the Government of the Kyrgyz Republic
and which was restated in June 2009.
----------------------------------------------------------------------------
Three Months Ended
(Thousands of US$) June 30/10 June 30/09
----------------------------------------------------------------------------
Management fees to Kyrgyzaltyn $ 91 $ 116
Concession payments to the Kyrgyz
Republic - (365)
----------------------------------------------------------------------------
$ 91 $ (249)
----------------------------------------------------------------------------
Gross gold and silver sales to
Kyrgyzaltyn $ 110,193 $ 74,689
Deduct: refinery and financing
charges (417) (391)
----------------------------------------------------------------------------
Net sales revenue received from
Kyrgyzaltyn $ 109,776 $ 74,298
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Six Months Ended
(Thousands of US$) June 30/10 June 30/09
----------------------------------------------------------------------------
Management fees to Kyrgyzaltyn $ 292 $ 209
Concession payments to the Kyrgyz
Republic - (116)
----------------------------------------------------------------------------
$ 292 $ 93
----------------------------------------------------------------------------
Gross gold and silver sales to
Kyrgyzaltyn $ 334,405 $ 132,297
Deduct: refinery and financing
charges (1,298) (729)
----------------------------------------------------------------------------
Net sales revenue received from
Kyrgyzaltyn $ 333,107 $ 131,568
----------------------------------------------------------------------------
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 Gold and
Silver Sale Agreement that was amended and restated, effective June 6, 2009,
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 amended and restated Gold and Silver Sales Agreement,
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 June 30, 2010, $16.3 million was
outstanding under these arrangements (December 31, 2009 - $37.9 million).
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 months and six
months ended June 30, 2010, Cdn $1.7 million and Cdn $6.7 million of such
forward contracts were executed (Cdn $2.3 million and Cdn $5.7 million for three
months and six months ended June 30, 2009). These forward contracts all expire
in 2010 and the fair value is determined based on mark-to-market valuation
approach. The closing exchange rate is a quoted rate obtained from observable
market data for the particular foreign currency, and therefore is classified
within Level 2 of the fair value hierarchy. Level 2 of the fair value hierarchy
is defined as inputs, other than the quoted market prices in active markets,
which are observable, either directly and/or indirectly.
There were twelve forward contracts, to purchase a total of Cdn $3.5 million,
outstanding at June 30, 2010 (December 31, 2009 -Nil).
The exposure of the Company's financial assets and liabilities to currency risk
as at June 30, 2010 are as follows:
----------------------------------------------------------------------------
Kyrgyz Mongolian Canadian
(Thousands of US$) Som Tugrik Dollar
----------------------------------------------------------------------------
Financial Assets
Cash and cash equivalents $ 136 $ 427 $ 7,224
Amounts receivables 92 3,763 333
----------------------------------------------------------------------------
$ 228 $ 4,190 $ 7,557
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Financial Liabilities
Accounts payable and
accrued liabilities $ 4,616 $ 4,592 $ 15,123
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
British Russian European
(Thousands of US$) Pound Ruble Euro
----------------------------------------------------------------------------
Financial Assets
Cash and cash equivalents $ - $ 1 $ 13,253
Amounts receivables 10 164
----------------------------------------------------------------------------
$ - $ 11 $ 13,417
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Financial Liabilities
Accounts payable and
accrued liabilities $ 5 $ - $ 1,181
----------------------------------------------------------------------------
----------------------------------------------------------------------------
A strengthening of the U.S. Dollar by 5% against the Canadian Dollar, the Kyrgyz
Som, European Euro and the Mongolian Tugrik at June 30, 2010, with all other
variables held constant would have lead to additional before tax net income of
$0.02 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 and six months ended June 30, 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 $2.4 million
and $36.3 million.
The Company manages counterparty credit risk in respect of short-term
investments by maintaining bank accounts with highly-rated U.S. and Canadian
banks and investing only in highly-rated Canadian and U.S. Government bills,
term deposits or banker's acceptances with highly-rated financial institutions
and corporate direct credit issues that can be promptly liquidated.
At the balance sheet date, approximately 15 % of the Company's liquid assets
were held with HSBC, 13% with Bank of Nova Scotia, 4% were held with Bank of New
York, 4% were held with the Royal Bank of Canada, and 3% with Citigroup. The
remainder of cash and cash equivalents, and short-term investments were held in
government securities, term deposits, banker's acceptances and highly-rated
corporate direct credit issues.
11. Segmented Information
Centerra has three reportable segments. The Kyrgyz Republic segment involves the
operations of the Kumtor Gold Project and local exploration and development
activities, and the Mongolian segment involves the operations of the Boroo Gold
Project, development of the Gatsuurt Project and local exploration activities.
The North American segment involves the head office located in Toronto, loans to
each of the mine operations, as well as exploration activities on North American
projects.
Geographic Segmentation of Revenue
All production from the Kumtor Gold Project was sold to the Kyrgyzaltyn refinery
in the Kyrgyz Republic while production from the Boroo Gold Project was sold to
a refinery that is located in Ontario, Canada.
Three months ended June 30, 2010
----------------------------------------------------------------------------
Kyrgyz North
($ millions) Republic Mongolia America Total
----------------------------------------------------------------------------
Revenue $ 109.8 $ 42.4 $ - $ 152.2
Expenses
Cost of sales 48.7 14.3 - 63.0
Regional office
administration 3.3 1.7 - 5.0
Depreciation, depletion
and amortization 11.4 5.5 0.1 17.0
Accretion and
reclamation expense 0.2 0.3 - 0.5
Revenue based taxes 15.4 - - 15.4
Exploration and
business development 2.7 1.5 2.9 7.1
Interest and other 1.8 (0.2) 0.1 1.7
Administration 0.5 0.1 6.0 6.6
----------------------------------------------------------------------------
Earnings (loss) before
income taxes 25.8 19.2 (9.1) 35.9
Income tax expense 6.1
----------------------------------------------------------------------------
Net earnings 29.8
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capital expenditure for
the period $ 39.6 $ 15.0 $ 0.1 $ 54.7
----------------------------------------------------------------------------
Three months ended June 30, 2009
----------------------------------------------------------------------------
Kyrgyz North
($ millions) Republic Mongolia America Total
----------------------------------------------------------------------------
Revenue $ 74.3 $ 30.0 $ - $ 104.3
Expenses
Cost of sales 70.7 11.3 - 82.0
Mine standby costs - 3.3 - 3.3
Regional office
administration 3.5 2.3 - 5.8
Depreciation,
depletion and
amortization 18.8 6.6 0.3 25.7
Accretion and
reclamation expense 0.3 0.4 - 0.7
Revenue based taxes 5.3 - - 5.3
Exploration and
business
development 2.3 0.5 1.5 4.3
Interest and other
(income) 0.3 (1.1) 0.5 (0.3)
Administration 0.6 0.5 6.6 7.7
----------------------------------------------------------------------------
Earnings (loss)
before unusual items
and income taxes (27.5) 6.2 (8.9) (30.2)
Unusual items-Kyrgyz
settlement (49.3)
----------------------------------------------------------------------------
Loss before income
taxes (79.5)
Income tax expense 0.1
----------------------------------------------------------------------------
Net loss $ (79.6)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capital expenditure
for the period $ 17.4 $ 0.3 $ - $ 17.7
----------------------------------------------------------------------------
Six months ended June 30, 2010
----------------------------------------------------------------------------
Kyrgyz North
($ millions) Republic Mongolia America Total
----------------------------------------------------------------------------
Revenue $ 333.1 $ 74.6 $ - $ 407.7
Expenses
Cost of sales 95.7 24.6 - 120.3
Regional office
administration 6.6 3.3 - 9.9
Depreciation, depletion
and amortization 28.2 9.9 0.3 38.4
Accretion and
reclamation expense 0.5 0.6 - 1.1
Revenue based taxes 46.6 - - 46.6
Exploration and
business development 4.6 2.7 5.4 12.7
Interest and other 2.5 (0.1) - 2.4
Administration 1.0 0.1 16.4 17.5
----------------------------------------------------------------------------
Earnings (loss) before
income taxes 147.4 33.5 (22.1) 158.8
Income tax expense 6.9
----------------------------------------------------------------------------
Net earnings 151.9
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capital expenditure for
the period $ 62.9 $ 20.7 $ 0.2 $ 83.8
----------------------------------------------------------------------------
Assets (excluding
Goodwill) $ 607.5 $ 427.3 $ 30.7 $ 1,065.5
----------------------------------------------------------------------------
Six months ended June
30, 2009
----------------------------------------------------------------------------
Kyrgyz North
($ millions) Republic Mongolia America Total
----------------------------------------------------------------------------
Revenue $ 131.6 $ 71.2 $ - $ 202.8
Expenses
Cost of sales 119.3 31.9 - 151.2
Mine standby costs - 3.3 - 3.3
Regional office
administration 7.1 3.8 - 10.9
Depreciation,
depletion and
amortization 32.5 14.5 0.5 47.5
Accretion and
reclamation expense 0.6 0.7 - 1.3
Revenue based taxes 5.3 - - 5.3
Exploration and
business
development 5.8 0.8 3.4 10.0
Interest and other
(income) (0.1) (1.0) 1.0 (0.1)
Administration 1.2 0.9 10.6 12.7
----------------------------------------------------------------------------
Earnings (loss)
before unusual items
and income taxes (40.1) 16.3 (15.5) (39.3)
Unusual items-Kyrgyz
settlement (49.3)
----------------------------------------------------------------------------
Loss before income
taxes (88.6)
Income tax expense 11.3
----------------------------------------------------------------------------
Net loss $ (99.9)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capital expenditure
for the period $ 39.1 $ 0.8 $ 0.1 $ 40.0
----------------------------------------------------------------------------
Assets(excluding
Goodwill) $ 430.3 $ 273.2 $ 23.5 $ 727.0
----------------------------------------------------------------------------
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