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| Share Name | Share Symbol | Market | Type |
|---|---|---|---|
| Manitou Capital Corp | TSXV:MOU | TSX Venture | Common Stock |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0 | - |
Hot Features
Premium
This news release contains forward-looking information that is subject to the
risk factors and assumptions set out on page 32 and in our Cautionary Note
Regarding Forward-looking Information on page 39. It should be read in
conjunction with the Company's audited financial statements and notes thereto
for the year ended December 31, 2013 and the associated Management's Discussion
and Analysis. The consolidated financial statements of Centerra are prepared in
accordance with International Accounting Standard 34, as issued by the
International Accounting Standards Board and the Company's accounting policies
as described in note 3 of its annual consolidated financial statements for the
year ended December 31, 2013. All figures are in United States dollars.
To view the 2013 Management's Discussion and Analysis and the Audited Financial
Statements and Notes for the year-ended December 31, 2013, please visit the
following link: http://media3.marketwire.com/docs/CG2013-YEMDA.pdf.
Centerra Gold Inc. (TSX:CG) today reported net earnings of $106.6 million or
$0.45 per common share (basic) in the fourth quarter of 2013. This compares to a
net loss of $70.7 million or $0.30 per common share (basic) for the same period
in 2012 after a charge of $180.7 million in the fourth quarter of 2012 for the
de-recognition of the underground assets at the Kumtor mine.
2013 Fourth Quarter Highlights
-- Full year gold production and costs were better than guidance.
-- Produced 362,234 ounces of gold in the fourth quarter, including 348,130
ounces at Kumtor and 14,104 ounces at Boroo.
-- Increased revenues to $468.9 million compared to $368.5 million in the
same quarter of 2012.
-- All-in sustaining costs per ounce sold(1) were $433 in fourth quarter
and $818 for the full year.
-- All-in costs per ounce sold(1) were $474 in the fourth quarter and $920
for the full year.
-- Increased indicated resources at the Oksut project in Turkey by 60% to
1.1 million contained ounces of gold.
-- Proven and probable gold reserves total 10.2 million ounces of contained
gold.
-- Cash provided by operations was $359.5 million compared to $209.1
million in the fourth quarter of 2012.
-- Entered into a non-binding Heads of Agreement with the Kyrgyz Republic
in connection with the potential restructuring of the Kumtor project,
replaces MOU signed in September 2013.
For the full year, the Company recorded net earnings of $157.7 million or $0.67
per share (basic), compared to a net loss of $143.7 million or $0.61 per share
(basic) in 2012. The increase in earnings in 2013 reflects significantly more
ounces produced and sold (ounces sold increased 78% over 2012), a $4.8 million
write-down of the exploration inventory at Kumtor following the closure of the
exploration program and the adoption, in the first quarter of 2013, of a new
accounting policy (IFRIC 20). Adoption of IFRIC 20 resulted in retroactively
capitalizing approximately $40 million of previously expensed stripping costs in
2012 thereby reducing the loss in 2012. The Company's 2012 results have been
restated as described in note 5 to the Company's 2013 annual financial
statements. The additional capitalized stripping costs in 2012 was fully
amortized in 2013, resulting in the Company's actual depreciation, depletion and
amortization (DD&A) exceeding the prior DD&A guidance of February 20, 2013.
Production increases in 2013 were reported at both of the Company's operations,
but these increases were partially offset by 20% lower realized gold prices in
2013. The 2012 results reflected a charge for the de-recognition of the
underground assets at Kumtor of $180.7 million and the negative impact on
production of the acceleration of ice and waste in the high movement area above
the SB Zone which delayed the release of ore and required a re-design of the
production plan in early 2012.
Consolidated gold production in 2013 totaled 690,720 ounces compared to 387,076
ounces in the prior year. Production increases in 2013 were reported at both
operations; Kumtor recorded a 90% increase in ounces poured, while Boroo poured
26% more ounces in 2013. During the year, Kumtor processed higher grades and
achieved higher recoveries and Boroo benefited from a full year of heap leach
production (which resumed operation in October 2012). In 2012 the lower gold
production was primarily due to the revised mine plan at Kumtor, which resulted
from the accelerated ice and waste movements in the pit wall above the SB Zone.
Commentary
Ian Atkinson, President and CEO of Centerra stated, "Both operations exceeded
their production guidance in 2013, mainly as a result of a strong fourth quarter
at Kumtor and better than expected annual production from the heap leach
operation at Boroo. Centerra's performance in 2013 was well within its third
quarter operating cash costs guidance, and performed better than its prior
all-in cash costs(1) per ounce produced guidance partly due to Boroo, which
exceeded expectations, and to Kumtor's strong production in the fourth quarter
of 2013, which enabled it to exceed its guidance. From a financial standpoint,
in the fourth quarter of 2013, the Company had strong net earnings of $106.2
million or $0.45 per share. Cash provided by operations was approximately $360
million during the fourth quarter and our cash and short-term investments grew
to over $425 million net of our debt at year-end."
"On February 5, 2014, we published our updated reserves and resources in which
we reported that we successfully converted the majority of the inferred
resources to indicated resources at the Oksut project in Turkey through our
in-fill drilling during the year and we continued to expand the resource, which
now totals 1.1 million contained ounces of gold in the indicated category with
an average grade of 1.2 g/t. The Company expects to complete a preliminary
economic assessment in the first quarter of 2014 and if such assessment is
positive, we expect to commence a feasibility study later in the year."
"In 2014, we are expecting consolidated gold production to be in the 595,000 to
645,000 ounce range and our expected consolidated all-in sustaining costs per
ounce sold(1) for 2014 to be within a range of $875 to $950 and our expected
consolidated all-in costs to be $989 to $1,074 per ounce sold(1)."
On December 24, 2014, Centerra entered into a non-binding Heads of Agreement
(the "HOA") with the Government of the Kyrgyz Republic and Kyrgyzaltyn JSC
("Kyrgyzaltyn") in connection with a potential restructuring transaction under
which Kyrgyzaltyn would exchange its 32.7% equity interest in Centerra for a 50%
interest in a joint venture company that would own the Kumtor Project. On
February 6, 2014, after their review of the HOA, the Kyrgyz Parliament adopted a
resolution which appears to support the concept of the restructuring described
in the HOA but also contains a number of recommendations that are materially
inconsistent with the terms of the HOA. Among other things, the resolution calls
for further audits of the Kumtor operation and for the Government and the
General Prosecutor's Office to continue pursuing claims for environmental and
economic damages, which the Company disputes. The Company has not yet received
an official copy of the Parliamentary resolution. The Company expects to
continue its discussions with the Government regarding a potential restructuring
transaction to resolve all outstanding concerns relating to the Kumtor Project.
However, the Company continues to maintain that any agreement to resolve matters
must be fair to all of Centerra's shareholders. Any definitive agreement for a
potential restructuring remains subject to required approvals in the Kyrgyz
Republic, including Government and Parliament of the Kyrgyz Republic, as well as
Centerra Special Committee and Board approval, and compliance with all
applicable legal and regulatory requirements and approvals, including a formal
independent valuation and shareholder approval. See "Other Corporate
Developments - Kyrgyz Republic" for further details on these developments.
As at December 31, 2013, the Company had $76 million outstanding debt under its
$150 million revolving credit facility with the European Bank for Reconstruction
and Development ("EBRD") leaving a balance of $74 million undrawn at December
31, 2013. Repayment of the $76 million outstanding was subsequently extended to
August 11, 2014 or, at the Company's discretion, repayment of the loan may be
further extended until February 2015.
Cash, cash equivalents and short-term investments at the end of 2013 increased
to $501.5 million from $382.1 million at December 31, 2012.
Changes in Presentation of Non-GAAP Financial Performance Measures
In 2013, the Company adopted non-GAAP performance measures, "all-in cash
costs(1)", which were based on production. In June 2013, the World Gold Council
(WGC) published guidelines for reporting all-in sustaining costs(1) and all-in
costs(1) performance measures. Centerra reviewed the recommended measures and
assessed their impact from adoption on its reporting. The WGC measures are
similar to Centerra's former presentation of all-in cash costs(1) except that
they include accretion expense, allocate social development costs and
exploration spending to the operating sites and are based on sales of gold
rather than production. The following discussion presents a detailed calculation
for both measures and reconciles the transition from the old measures to the new
measures that have now been adopted.
The new measures have limitations as an analytical tool as they may be distorted
in periods where significant capital investments are being made to expand for
future growth or where significant cash mining costs are being expended on
stripping to benefit future periods. These new measures should therefore not be
considered in isolation, or as a substitute for, analysis of our results as
reported under GAAP.
Unit Cash Costs(1) - Old Measure
The following table calculates Centerra's actual all-in cash costs using the
Company's calculation methodology as presented in the first three quarters of
2013 and also compares the annual result with the Company's most recent cost
guidance for 2013 presented in its third quarter 2013 public disclosures.
----------------------------------------------------------------------------
2013 Year - Actual
----------------------------------------------------------------------------
$ millions, except as noted Consolidated(7) Kumtor Boroo
----------------------------------------------
All-in Cash Costs:
Mining (2) 58.5 58.5 -
Milling 94.0 70.8 23.1
Leaching 10.6 - 10.6
Site support 68.1 60.0 8.1
Regional administration 23.7 18.1 5.8
Royalties 9.4 - 9.4
Management fees and other (0.3) 0.6 (0.9)
Refining fees 3.8 3.5 0.3
By-product credits (4.3) (3.8) (0.5)
----------------------------------------------
Operating cash costs(1) $ 263.5 $ 207.7 $ 55.9
Capitalized stripping and ice
unload - cash 201.3 201.3 -
----------------------------------------------
Operating cash costs and
capitalized stripping 464.8 409.0 55.9
Sustaining capital (cash)(1)
(3) 57.7 49.7 7.4
Growth capital (cash) -
including Gatsuurt(1) (4) 39.9 39.2 -
----------------------------------------------
Operating cash costs including
capital 562.4 497.8 63.4
----------------------------------------------
Corporate and other cash costs 68.1 - -
----------------------------------------------
All-in Cash Costs - pre-tax(1) $ 630.5 $ 497.8 $ 63.4
----------------------------------------------
Revenue-based tax and income
tax 126.3 113.5 12.8
----------------------------------------------
All-in Cash Costs - including
taxes(1) $ 756.8 $ 611.4 $ 76.1
----------------------------------------------------------------------------
Ounces poured 690,720 600,402 90,318
Operating cash costs - $/oz
produced(1) (5) $ 382 $ 346 $ 619
----------------------------------------------
All-in Cash Costs (pre-tax) -
$/oz produced(1) (6) $ 913 $ 829 $ 702
----------------------------------------------
All-in Cash Costs (including
taxes) - $/oz produced(1) $ 1,096 $ 1,018 $ 843
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2013 Full Year Cost Guidance
(reported October 2013):
Ounces poured 635,000 - 550,000 - approx
685,000 600,000 85,000
Operating cash costs - $/oz
produced(1) $ 375 - $400 $ 330 - $360 approx $680
All-in Cash Costs (pre-tax)
- $/oz produced(1) $ 930 - $1,000 $ 820 - $895 approx $775
----------------------------------------------------------------------------
(1) Non-GAAP measure see discussion under "Non-GAAP Measures".
(2) Excludes capitalized stripping and abnormal mining costs.
(3) Sustaining capital(1) is a capital expenditure necessary to maintain
existing levels of production. The sustaining capital(1) expenditures
maintain the existing mine fleet, mill and other facilities so that
they function at levels consistent from year to year.
(4) Growth capital(1) is capital expended to expand the business or
operations by increasing productive capacity beyond current levels of
performance.
(5) Operating cash costs(1) include mine operating costs such as mining,
processing, administration, royalties and operating taxes (except at
Kumtor where revenue-based taxes are excluded), but exclude
depreciation, depletion and amortization (DD&A), reclamation costs,
financing costs, capital expenditures and exploration. Certain amounts
of stock-based compensation have been excluded as well. Operating cash
costs per ounce produced is calculated by dividing operating cash costs
by the ounces produced.
(6) All-in cash costs per ounce produced(1) includes operating cash
costs(1), capitalized stripping, sustaining and growth capital(1),
corporate general and administrative expenses, global exploration
expenses and social development costs. The measure is presented
including and excluding revenue-based taxes at Kumtor and income taxes
at Boroo.
(7) Consolidated numbers may not add across the columns as corporate
entities are not presented in this table, given these are not
significant.
The following table reconciles the prior reported measure of consolidated all-in
cash costs(1) to the new all-in sustaining costs(1) and all-in costs(1) measures
for the Company's 2013 actual results.
----------------------------------------------------------------------------
$ millions, except as noted 2013 Year - Consolidated Actual (2)
----------------------------------------------------------------------------
Old Measures New WGC Measures
----------------------------------------------------------------------------
All-in
All-in Cash Sustaining All-in
Costs(1) Costs(1) Costs(1)
---------------------------------------
Operating cash costs and capitalized
stripping 464.8 464.8 464.8
Sustaining capital (cash) (1) 57.7 57.7 57.7
Growth capital (cash)(1) 39.9 39.9
-------------
Operating cash costs including
capital 562.3
-------------
Corporate and General Administration 30.3 30.3 30.3
Exploration and business development 29.6 29.6
Community investments (social
development costs) 6.4 6.4 6.4
Other expenses 1.9 1.9
-------------
All-in Cash Costs - pre-tax(1) $ 630.5
-------------
Changes in Inventories 10.0 10.0
Reclamation expense 0.9 0.9
-------------
All-in Sustaining Costs(1) $ 570.1
--------------------------
All-in Costs(1) $ 641.4
Revenue-based tax and Income tax 126.3 126.3
-------------
All-in Cash Costs - including
taxes(1) $ 756.8
------------- -------------
All-in Costs (including taxes)(1) $ 767.7
---------------------------------------
Ounces poured 690,720
Ounces sold 696,818 696,818
----------------------------------------------------------------------------
Operating cash cost - $/oz produced
(1) $ 382
All-in Cash Costs (pre-tax) - $/oz
produced (1) $ 913
All-in Cash Costs (including taxes) -
$/oz produced(1) $ 1,096
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
All-in Sustaining Costs - $/oz
sold(1) $ 818
All-in Costs - $/oz sold(1) $ 920
All-in Costs (including taxes) - $/oz
sold(1) $ 1,102
----------------------------------------------------------------------------
The impact of this change in presentation of the Company's all-in cost
performance measures was not a significant change from its previously reported
measure for the reported periods. As presented in the above table, the
consolidated all-in cash costs (pre-tax) per ounce produced(1) (old measure) for
2013 was $913, as compared to the consolidated all-in costs per ounce sold(1)
(new measure) of $920. At Kumtor, all-in cash costs (pre-tax) per ounce
produced(1) (old measure) for 2013 was $829, as compared to the all-in costs per
ounce sold(1) (new measure) of $853, while at Boroo, all-in cash costs (pre-tax)
per ounce produced(1) (old measure) for 2013 was $701, as compared to the all-in
costs per ounce sold(1) (new measure) of $765. For a detailed breakdown of the
all-in unit costs(1) by operation please refer to the Company's year-end MD&A.
The Company believes that this change in presentation brings the Company's
performance measure reporting more in-line with the rest of the gold industry
and may provide investors with better comparability in assessing performance
against other gold producers. It may also help investors to assess the ability
of Centerra to generate cash flow for use in investing and other activities.
"All-in cash costs(1)", "all-in sustaining costs(1)", "all-in costs(1)" and
"all-in costs (including taxes)(1)" are intended to provide additional
information only and do not have standardized definitions under IFRS and should
not be considered as a substitute for measures of performance prepared in
accordance with IFRS (see discussion under "Non-GAAP Measures"). The all-in
costs measure is presented including and excluding revenue-based taxes at Kumtor
and income taxes at Boroo. An investor may choose instead to treat revenue-based
taxes as a royalty and include this amount as part of the all-in sustaining
costs measure.
These measures are not representative of all of the Company's cash expenditures
as they do not include interest costs or dividend payments.
Any references to all-in costs(1) or all-in sustaining costs(1) (whether on a
unit basis or not) in the remainder of this news release are under the
definitions as developed by the World Gold Council (see discussion under
"Non-GAAP Measures").
Financial and Operating Summary
Consolidated Highlights
----------------------------------------------------------------------------
Three Months Ended Year Ended
December 31 December 31
----------------------------------------------------------------------------
Financial and % %
Operating Summary 2013 2012(5) Change 2013 2012(5) Change
----------------------------------------------------------------------------
Revenue - $ millions 468.9 368.5 27% 944.4 660.7 43%
----------------------------------------------------------------------------
Cost of sales - $
millions (1) 271.8 167.9 62% 559.2 383.3 46%
----------------------------------------------------------------------------
Abnormal mining costs
- $ millions - 8.9 100% - 24.8 100%
----------------------------------------------------------------------------
Regional office
administration - $
millions 6.2 5.6 11% 23.7 21.0 13%
----------------------------------------------------------------------------
Revenue-based taxes -
$ millions 62.9 44.5 41% 113.5 74.7 52%
----------------------------------------------------------------------------
Other operating
expenses - $ millions 1.9 4.8 (60%) 8.3 34.3 (76%)
----------------------------------------------------------------------------
Loss on de-recognition
of UG - $ millions - 180.7 100% - 180.7 100%
----------------------------------------------------------------------------
Exploration - $
millions 8.8 11.5 (24%) 29.6 37.9 (22%)
----------------------------------------------------------------------------
Corporate
administration - $
millions 8.1 8.8 (8%) 30.6 27.0 13%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Earnings (loss) before
income taxes - $
millions 107.6 (65.5) 264% 170.8 (132.0) 229%
----------------------------------------------------------------------------
Income tax expense - $
millions 1.0 5.2 (81%) 13.1 11.7 12%
----------------------------------------------------------------------------
Net earnings (loss) -
$ millions 106.6 (70.7) 251% 157.7 (143.7) 210%
----------------------------------------------------------------------------
Earnings (loss) per
common share - $
basic 0.45 (0.30) 250% 0.67 (0.61) 210%
----------------------------------------------------------------------------
Earnings(loss) per
common share - $
diluted 0.44 (0.30) 247% 0.64 (0.61) 205%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash provided by
operations - $
millions 359.5 209.1 72% 483.9 173.4 179%
----------------------------------------------------------------------------
Capital expenditures -
$ millions 86.7 86.4 0% 376.6 464.0 (19%)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted average
common shares
outstanding - basic
(thousands) (2) 236,388 236,339 0% 236,382 236,369 0%
----------------------------------------------------------------------------
Weighted average
common shares
outstanding - diluted
(thousands) (2) 236,646 236,339 0% 236,663 236,369 0%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Average gold spot
price(4) - $/oz 1,276 1,721 (26%) 1,411 1,669 (15%)
----------------------------------------------------------------------------
Average realized gold
price(3) - $/oz 1,271 1,711 (26%) 1,355 1,692 (20%)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Gold produced - ounces 362,234 219,316 65% 690,720 387,076 78%
----------------------------------------------------------------------------
Gold sold - ounces 368,954 215,361 71% 696,818 390,533 78%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cost of sales (3) -
$/oz sold 737 780 (6%) 803 982 (18%)
----------------------------------------------------------------------------
Adjusted operating
costs(3)- $/oz sold 247 366 (33%) 402 747 (46%)
----------------------------------------------------------------------------
All-in sustaining
costs(3)- $/oz sold 433 664 (35%) 818 1,449 (44%)
----------------------------------------------------------------------------
All-in costs(3) - $/oz
sold 474 850 (44%) 920 1,991 (54%)
----------------------------------------------------------------------------
All-in costs including
taxes (3)- $/oz sold 644 1,087 (41%) 1,102 2,212 (50%)
----------------------------------------------------------------------------
(1) Cost of sales excludes regional office administration.
(2) As of December 31, 2013, the Company had 236,390,219 common shares
issued and outstanding.
(3) Adjusted operating costs per ounce sold, all-in sustaining costs per
ounce sold, all-in costs per ounce sold, all-in costs (including taxes)
per ounce sold, as well as average realized price per ounce sold and
cost of sales per ounce sold, are non-GAAP measures and are discussed
under "Non-GAAP Measures".
(4) Average for the period as reported by the London Bullion Market
Association (US dollar Gold P.M. Fix Rate).
(5) The 2012 comparative period was restated as a result of the adoption of
IFRIC 20.
Fourth Quarter of 2013 compared to Fourth Quarter of 2012
-- Gold production for the fourth quarter of 2013 was 362,234 ounces
compared to 219,316 ounces in the same quarter of 2012. The increased
gold production in the fourth quarter of 2013 reflects 84% higher
production at Kumtor as compared to the same quarter in 2012. In the
fourth quarter of 2013, Kumtor produced 58% of its annual gold
production as a result of the higher grades mined and milled.
-- All-in sustaining costs per ounce sold(1) were $433 in the fourth
quarter of 2013 compared to $664 in the comparative quarter of 2012. The
decrease in the 2013 period results mainly from significantly higher
production at Kumtor, partially offset by higher operating costs.
-- All-in costs per ounce sold(1) were $474 in the fourth quarter of 2013
compared to $850 in the same quarter of 2012. The decrease reflects the
increased ounces sold from higher production and lower capital
requirements at Kumtor in the 2013 quarter, partially offset by
increased costs associated with the larger truck fleet.
-- Revenues in the fourth quarter of 2013 increased by $100.4 million to
$468.9 million from $368.5 million in the same period last year mainly
as a result of 71% higher ounces sold, partially offset by 26% lower
realized gold price. The average realized gold price(1) in the fourth
quarter of 2013 was $1,271 per ounce, a 26% decrease from $1,711 per
ounce realized in the same quarter of 2012.
-- Cost of sales for the fourth quarter of 2013 was $271.8 million compared
to $167.9 million in the same quarter of 2012. The increase reflects
significantly more ounces sold at Kumtor, higher depreciation of
capitalized stripping at Kumtor, higher operating costs due to increased
consumption of reagents, cyanide and power from increased throughput and
head grades at Kumtor's mill and volume increases due to the increased
use of consumables for the expanded fleet at Kumtor.
DD&A included in costs of sales for the fourth quarter of 2013 of $188.7
million increased by $92.8 million compared to the same period last
year, due in part to the processing and sale of more ounces in the
fourth quarter of 2013 at Kumtor, partially offset by fewer ounces at
Boroo. The fourth quarter of 2013 at Kumtor reflects the higher
depletion of the capitalized stripping associated with cut-back 15,
compared to cutback 14B that was mined in the comparative period. During
the fourth quarter of 2013, Kumtor depleted the majority of the 142
million tonnes associated with cut-back 15, compared to 61 million
tonnes from cut-back 14B in the comparative period. The increased DD&A
charge was partially offset by mining and stockpiling greater ounces
from cut-back 15 that will defer recognition of DD&A until the ounces
are produced in 2014.
-- There were no abnormal mining costs in the fourth quarter of 2013
compared to $8.9 million in the comparative period of 2012. Abnormal
mining costs represent the cost of removing the ice and waste from the
high movement unload zone necessitated by the unexpected ice movement.
-- Other operating expenses for the fourth quarter of 2013 totaled $1.9
million compared to $4.8 million in the same quarter of 2012. Costs in
the fourth quarter of 2012 included $2.9 million for the closure of the
underground development project at Kumtor. Approximately $1.9 million
was spent in the fourth quarter in 2013 and 2012 for ongoing sustainable
development projects in both the Kyrgyz Republic and Mongolia.
-- A charge of $180.7 million was recorded in the fourth quarter of 2012 to
reflect the de-recognition of the underground assets at Kumtor. This
results from the decision in early November 2012 to expand the open pit
at Kumtor and as a result consume a major portion of the underground
infrastructure.
-- Exploration expenditures for the fourth quarter of 2013 were $8.8
million compared to $11.6 million in the same quarter of 2012 mainly
reflecting a cessation of drilling activities at Kumtor and on-going
drilling programs at the Oksut project in Turkey and the ATO Project in
Mongolia. All exploration drilling at Kumtor ceased in the third quarter
of the year and there are no future plans for exploration work within
the mining concession area or on a regional scope. As a result, the
Company recognized a $4.8 million write-down of the exploration
inventory in the fourth quarter.
-- Cash provided by operations was $359.5 million in the fourth quarter of
2013 compared to $209.1 million in the same period of 2012. The increase
over 2012 reflects increased earnings from higher production and ounces
sold and a reduction in working capital levels, partially offset by
lower realized gold prices and higher operating costs.
-- Capital expenditures spent and accrued in the fourth quarter of 2013
were $86.7 million, which included sustaining capital(1) of $10 million,
growth capital(1) of $5.9 million and $70.8 million of capitalized
stripping costs. Capital expenditures in the same quarter of 2012 were
$86.4 million, which included $11.6 million for sustaining capital(1)
and $24.5 million for growth capital(1) and capitalized stripping of
$50.3 million.
Full Year 2013 compared to Full Year 2012
-- Gold production for 2013 totaled 690,720 ounces compared to 387,076
ounces in the prior year. Kumtor recorded a 90% increase in ounces
poured year-over-year, while Boroo poured 26% more ounces in 2013 due to
the heap leach operating for the full year. The lower ounces poured in
2012 were mainly due to the revised mine plan at Kumtor, necessitated by
the accelerated ice and waste movements in the SB Zone.
-- All-in sustaining costs per ounce sold(1) for 2013 was $818. This
compares to all-in sustaining costs(1) of $1,449 per ounce sold in 2012.
The decrease is mainly due to higher production and sales at both sites
(significantly higher at Kumtor), lower spending on social development
costs and lower mine stand-by costs.
-- All-in costs per ounce sold(1) for 2013 was $920, and includes all cash
costs related to gold production, except for revenue-based taxes in the
Kyrgyz Republic. This compares to all-in costs(1) of $1,991 per ounce
sold in 2012. The decrease is mainly due to higher production at both
sites (significantly higher at Kumtor), lower spending on growth
capital(1), partially offset by higher operating costs and higher
spending on capitalized stripping and ice and waste unload costs.
Capital expenditures excluding capitalized stripping costs decreased by
$111.9 million from $209.5 million ($536 per ounce) in 2012 to $97.6
million ($140 per ounce) in 2013 as the Kumtor mine completed the major
portion of its mining fleet expansion during 2012.
-- Revenues for 2013 were $944.4 million, an increase of $283.6 million
compared to the same period of 2012 due to a 78% increase in ounces sold
partially offset by a 20% decrease in the average realized gold
price(1). Gold sold was 696,818 ounces in 2013 compared to the 390,533
ounces reported in 2012. The increase reflects higher gold production at
both Kumtor and Boroo. The average realized gold price(1) for 2013 was
$1,355 per ounce compared to $1,692 per ounce in the same period of 2012
reflecting lower spot prices for gold throughout the year.
-- Cost of sales was $559.2 million in 2013 compared to $383.3 million in
2012, reflecting the significantly higher ounces sold in 2013. The
volumes in 2012 were significantly reduced as a result of the revised
mine plan at Kumtor which led to the suspension of milling activities
for part of the year. Cost of sales in 2013 included an increase in DD&A
of $167 million, mainly due to higher ounces sold. Cost of sales in 2012
also included a charge of $7.2 million representing a metal
reconciliation variance between the gold content estimated in the
stockpiles and the gold actually recovered through processing at Kumtor.
DD&A associated with sales increased to $309 million in 2013 from $142.1
million in 2012 as a result of higher volumes and increased depreciation
for the expanded mobile fleet at Kumtor. In addition, the Company
incurred higher amortization of capitalized stripping costs at Kumtor of
about $40 million resulting from the adoption of IFRIC 20. The adoption
of IFRIC 20 resulted in operating costs that were previously expensed in
2012 in the amount of about $40 million being capitalized as stripping
costs in 2012. The 2012 results have therefore been restated as
described in Note 5 to the 2013 Audited Financial Statements. These
newly capitalized costs were then amortized during 2013 as the ore in
the related cutback was mined, increasing 2013 DD&A expense by
approximately $40 million.
-- The Company recorded $24.8 million of abnormal mining costs at Kumtor in
2012 (nil for 2013) representing the cost of removing the ice and waste
from the high movement unload zone. The costs associated with this
unloading activity resulted in a significant amount of mining costs
which did not relate to the production of inventory in the period and
were expensed immediately as abnormal mining costs.
-- Other operating expenses for 2013 totaled $8.3 million compared to $34.3
million in 2012. The 2013 amount includes spending on social development
programs (corporate social responsibility ("CSR") programs) of $6.3
million ($26.2 million in 2012) and $1.5 million spent on closure costs
for the underground project at Kumtor ($7.8 million in 2012). CSR
spending in 2013 was $6.2 million in the Kyrgyz Republic and $0.1
million in Mongolia. In 2012, $24 million was spent on CSR projects in
the Kyrgyz Republic, including $21 million as a contribution to a
national micro-credit financing program, and $2.2 million in Mongolia,
including an additional contribution by Boroo to the Ulaanbaatar
maternity hospital of $1.1 million. A decision was made in 2012 to close
the underground project at Kumtor which resulted in closure costs being
incurred in 2012 and 2013.
-- Exploration expenditures in 2013 were $29.6 million compared to $37.9
million in 2012. Exploration expenditures in 2013 decreased from 2012
mainly due to the suspension of all exploration programs in the Kyrgyz
Republic in the second half of 2013.
-- The Company recorded a charge of $180.7 million in the fourth quarter of
2012 to reflect the de-recognition of the underground assets at Kumtor
following the decision to expand the open pit, as announced on November
7, 2012. The larger open pit is expected to partially consume the
declines rendering them unusable for future mining activities.
-- Cash provided from operations for 2013 totaled $483.9 million compared
to $173.4 million in 2012, primarily as a result of significantly higher
earnings at both operations in 2013, especially at Kumtor, partially
offset by an increase in working capital levels.
-- Capital expenditures spent and accrued in 2013 were $376.6 million as
compared to $464.0 million in the prior year. Sustaining capital(1) in
2013 was $58.2 million (including $49.7 million at Kumtor and $7.9
million at Boroo), compared to $44.0 million in 2012 (including $40.8
million at Kumtor and $2.6 million at Boroo). Growth capital(1),
excluding capitalized stripping, was $39.9 million in 2013, compared to
$168.4 million the prior year, primarily reflecting $39.2 million of
spending at Kumtor mainly on the infrastructure relocation project
($19.1 million), fleet expansion ($17.7 million) and spending at
Gatsuurt of $0.7 million for maintenance of the site. Capitalized
stripping in 2013 totaled $278.6 million ($201.3 million cash), as
compared to $251.7 million ($196.7 million cash) in the prior year,
spent on stripping activities in cut-backs and in the unload areas at
Kumtor.
Operations Update - Summary of Key Operating Results
----------------------------------------------------------------------------
Three Months Ended Year Ended
December 31 December 31
----------------------------------------------------------------------------
% %
Kumtor Operating Results 2013 2012(4) Change 2013 2012(4) Change
----------------------------------------------------------------------------
Revenue - $ millions 448.9 317.8 41% 810.9 533.6 52%
----------------------------------------------------------------------------
Cost of sales - $
millions (1) 255.1 140.0 82% 473.0 306.9 54%
----------------------------------------------------------------------------
Cost of sales - $/oz
sold (3) 722 753 (4%) 786 974 (19%)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Tonnes mined - 000s 46,866 38,185 23% 176,693 147,610 20%
----------------------------------------------------------------------------
Tonnes ore mined - 000s 4,194 4,463 (6%) 7,289 4,955 47%
----------------------------------------------------------------------------
Tonnes milled - 000s 1,460 1,547 (6%) 5,596 4,756 18%
----------------------------------------------------------------------------
Average mill head grade
- g/t 8.88 5.13 73% 4.26 2.79 53%
----------------------------------------------------------------------------
Recovery - % 84.1 77.7 8% 79.3 75.6 5%
----------------------------------------------------------------------------
Gold produced - ounces 348,130 189,438 84% 600,402 315,238 90%
----------------------------------------------------------------------------
Gold sold - ounces 353,252 185,936 90% 601,887 314,987 91%
----------------------------------------------------------------------------
Average realized gold
price(3) - $/oz sold 1,271 1,709 (26%) 1,347 1,694 (20%)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Adjusted operating costs
(3) - $/oz sold 217 322 (33%) 357 727 (51%)
----------------------------------------------------------------------------
All-in sustaining costs
(3)- $/oz sold 388 618 (37%) 775 1,483 (48%)
----------------------------------------------------------------------------
All-in costs (3)- $/oz
sold 407 783 (48%) 853 2,064 (59%)
----------------------------------------------------------------------------
All-in costs including
taxes (3)- $/oz sold 585 1,023 (43%) 1,042 2,301 (55%)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capital expenditures
(sustaining) - $
millions 9.6 10.5 (9%) 49.7 40.8 22%
----------------------------------------------------------------------------
Capital expenditures
(growth) (2) - $
millions 5.8 24.0 (76%) 39.2 167.7 (77%)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Boroo Operating Results
----------------------------------------------------------------------------
Revenue - $ millions 20.0 50.6 (61%) 133.4 127.2 5%
----------------------------------------------------------------------------
Cost of sales - $
millions (1) 16.7 27.9 (40%) 86.2 76.4 13%
----------------------------------------------------------------------------
Cost of sales - $/oz
sold (3) 1,064 948 12% 908 1,011 (10%)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Tonnes mined - 000s - - - 6,195 (100%)
----------------------------------------------------------------------------
Tonnes mined heap leach
- 000s - - - 143 (100%)
----------------------------------------------------------------------------
Tonnes stacked heap
leach - 000s 271 456 (41%) 2,644 456 480%
----------------------------------------------------------------------------
Tonnes leached - 000s 560 904 (38%) 4,248 904 370%
----------------------------------------------------------------------------
Tonnes milled - 000s 593 581 2% 2,394 2,382 1%
----------------------------------------------------------------------------
Average mill head grade
- g/t 0.80 2.07 (61%) 1.12 1.32 (15%)
----------------------------------------------------------------------------
Recovery - % 58.3 58.3 0% 57.6 64.0 (10%)
----------------------------------------------------------------------------
Gold produced - ounces 14,104 29,878 (53%) 90,318 71,838 26%
----------------------------------------------------------------------------
Gold sold - ounces 15,702 29,425 (47%) 94,931 75,546 26%
----------------------------------------------------------------------------
Average realized gold
price(3) - $/oz sold 1,272 1,720 (26%) 1,406 1,684 (17%)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Adjusted operating costs
(3) - $/oz sold 901 641 41% 683 832 (18%)
----------------------------------------------------------------------------
All-in sustaining costs
(3)- $/oz sold 931 655 42% 765 946 (19%)
----------------------------------------------------------------------------
All-in costs (3)- $/oz
sold 931 672 39% 765 952 (20%)
----------------------------------------------------------------------------
All-in costs including
taxes (3) - $/oz sold 934 892 5% 899 1,108 (19%)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capital expenditures
(Boroo) (2) - $
millions 0.4 0.7 (43%) 7.9 2.9 172%
----------------------------------------------------------------------------
Capital expenditures
(Gatsuurt) - $ millions 0.1 0.1 0% 0.7 0.4 75%
----------------------------------------------------------------------------
(1) Cost of sales excludes regional office administration.
(2) Excludes capitalized stripping.
(3) Adjusted operating costs per ounce sold, all-in sustaining costs per
ounce sold, all-in costs per ounce sold, all-in costs (including taxes)
per ounce sold, as well as average realized gold price per ounce sold
and cost of sales per ounce sold, are non-GAAP measures and are
discussed under "Non-GAAP Measures".
(4) The 2012 comparative period was restated as a result of the adoption of
IFRIC 20.
Kumtor
At the Kumtor mine, gold production was 348,130 ounces in the fourth quarter of
2013, which represents 58% of the mine's annual production, compared to 189,438
ounce in the same quarter in 2012. The increase in production for the fourth
quarter of 2013 was due to processing high-grade SB Zone ore available from
cutback 15. During the fourth quarter of 2013, Kumtor fully mined the remaining
4.2 million tonnes of ore in cut-back 15 at an average grade of 4.46 g/t. Mill
head grades for the fourth quarter of 2013 were 8.88 g/t with a recovery of
84.1%, versus 5.13 g/t and a recovery of 77.7% for the same quarter in 2012.
Cost of sales per ounce sold(1) for the fourth quarter of 2013, which includes
the impact of DD&A, decreased to $722 per ounce compared to $753 per ounce for
the same period in 2012. The decrease on a per ounce basis reflects the higher
production achieved from the higher grades of cut-back 15, partially offset by
higher depreciation costs associated with the significantly greater capitalized
stripping required to access ounces in cut-back 15.
All-in sustaining cost per ounce sold(1) was $388 in the fourth quarter of 2013
compared to $618 in the comparative quarter of 2012. The decrease results mainly
from the significantly higher production, partially offset by higher operating
costs in the current period.
All-in costs per ounce sold (pre tax)(1) were $407 in the fourth quarter of 2013
compared to $783 in the same quarter of 2012 reflecting the higher production
and lower capital requirements in the 2013 quarter.
Exploration expenditures for the fourth quarter of 2013 were $0.8 million,
compared to $2.9 million for the fourth quarter of 2012. During the fourth
quarter of 2013, no exploration drilling was conducted at Kumtor as the Company
ceased exploration activities. In the fourth quarter, the Company recorded a
$4.8 million write-down of the exploration inventory at Kumtor.
Capital expenditures spent and accrued in the fourth quarter of 2013 were $15.4
million which includes $9.6 million of sustaining capital(1), $5.8 million
invested in growth capital(1) mainly for relocating infrastructure and $70.8
million for capitalized stripping. Capital expenditures the comparative quarter
of 2012 totaled $34.5 million, consisting of $10.5 million for sustaining
capital(1) and $24.0 million for growth capital(1) excluding $50.3 million of
capitalized stripping.
Boroo
At the Boroo mine in the fourth quarter of 2013, gold production was 14,104
ounces, compared to 29,877 ounces in the same period of 2012. The lower
production was mainly due processing ore with a lower average mill head grade,
0.80 g/t in the fourth of 2013 compared to processing higher grade ore from Pit
6 with an average mill head grade of 2.07 g/t in the fourth quarter of 2012. In
addition lower ounces were poured from the heap leach operation (5,786 ounces
vs. 7,486 ounces) as a result of maintenance performed on the heap leach pond in
the fourth quarter of 2013.
Cost of sales per ounce sold(1) for the fourth quarter of 2013, which includes
the impact of DD&A, increased to $1,064 per ounce compared to $948 per ounce for
the same period in 2012. The increase on a per ounce basis reflects the higher
operating cost incurred to produce and sell lower grade stockpile ore, as Boroo
is reaching the end of its mine life.
All-in sustaining costs per ounce sold(1) were $931 in the fourth quarter of
2013 compared to $655 in the comparative quarter of 2012. The increase results
mainly from the lower production resulting in a 47% reduction in gold sales.
All-in costs per ounce sold (pre tax)(1) were $931 in the fourth quarter of 2013
compared to $672 in the same quarter of 2012 reflects the lower production and
resulting reduction in gold sales.
During the fourth quarter of 2013 exploration expenditures in Mongolia decreased
to $1.9 million from $3.0 million in the same period in 2012. The majority of
the exploration work in the fourth quarter 2013 was conducted at the ATO
property in eastern Mongolia.
Capital expenditures spent and accrued at Boroo and Gatsuurt in the fourth
quarter of 2013 were $0.5 million compared to $0.8 million in the same period of
2012. Capital expenditures in 2013 relate to $0.4 million of sustaining
capital(1) at Boroo and $0.1 million at Gatsuurt.
----------------
(1) Non-GAAP measure, see discussion under "Non-GAAP Measures".
(2) Numbers may not add due to rounding
Non-GAAP Measures
On June 27, 2013, the World Gold Council (WGC) released guidance regarding the
non-GAAP measures "All-In Sustaining Costs" and "All-In Costs". The Company has
reviewed the WGC's recommended measures and assessed their impact. The Company
has adopted the WGC's measures and has modified its calculation of its "all- in
cash cost" measure to conform to the industry's standard following its review.
Going forward, the Company will restate the comparative periods and will provide
a reconciliation of these new non-GAAP measures to the most comparable GAAP
measure.
This news release contains the following non-GAAP financial measures: all-in
sustaining costs per ounce sold; all-in costs per ounce sold; all-in costs
including taxes per ounce sold; adjusted operating costs per ounce sold; cost of
sales per ounce sold; sustaining capital; growth capital; and average realized
gold price. These financial measures do not have any standardized meaning
prescribed by GAAP and are therefore unlikely to be comparable to similar
measures presented by other issuers, even against other issuers who may also be
applying the WGC guidelines.
Management believes that the use of these non-GAAP measures will assist
analysts, investors and other stakeholders of the Company in understanding the
costs associated with producing gold, understanding the economics of gold
mining, assessing our operating performance, our ability to generate free cash
flow from current operations and to generate free cash flow on an overall
Company basis, and for planning and forecasting of future periods. However, the
new measures do have limitations as analytical tools as they may be influenced
by the point in the life cycle of a specific mine, and the level of additional
exploration or expenditure a company has to make. Accordingly, these non-GAAP
measures should therefore not be considered in isolation, or as a substitute
for, analysis of our results as reported under GAAP.
Definitions
The following is a description of the Non-GAAP measures used in this new
release. The definitions are consistent with the WGC's guidance on these
non-GAAP measures:
-- Operating costs include mine operating costs such as mining, processing,
site support, royalties and operating taxes (except at Kumtor where
revenue-based taxes are excluded), but exclude depreciation, depletion
and amortization (DD&A), reclamation costs, financing costs, capital
development and exploration.
-- Adjusted operating costs per ounce sold include operating costs,
regional office administration, social development costs related to
current operations, refining fees and by-product credits.
-- All-in sustaining costs per ounce sold include adjusted operating costs,
the cash component of capitalized stripping costs, regional office
administration costs, accretion expenses, and sustaining capital. The
measure incorporates costs related to sustaining production.
-- All-in costs per ounce sold include all-in sustaining costs and
additional costs for growth capital, corporate general and
administrative expenses, global exploration expenses and social
development costs not related to current operations.
-- All-in cost per ounce sold exclude the following:
-- Working capital (except for adjustments to inventory on a sales
basis).
-- All financing charges (including capitalized interest).
-- Costs related to business combinations, asset acquisitions and asset
disposals.
-- Other non-operating income and expenses including interest income,
bank charges, and foreign exchange gains and losses.
-- All-in costs including taxes per ounce sold measure includes revenue-
based taxes at Kumtor and income taxes at Boroo.
-- Capital expenditures (Sustaining) is a capital expenditure necessary to
maintain existing levels of production. The sustaining capital
expenditures maintain the existing mine fleet, mill and other facilities
so that they function at levels consistent from year to year.
-- Capital expenditures (Growth) is capital expended to expand the business
or operations by increasing productive capacity beyond current levels of
performance.
-- Average realized gold price is calculated by dividing revenue derived
from gold sales by the number of ounces sold.
Adjusted Operating Cost per Ounce Sold, All-in Sustaining Costs per Ounce Sold
and All-in Costs per Ounce Sold and All-in Costs per Ounce Sold (including and
excluding taxes) are non-GAAP measures and can be reconciled as follows:
----------------------------------------------------------------------------
Year ended Fourth Quarter ended
(unaudited) December 31, December 31,
($ millions, unless otherwise
specified) 2013 2012 2013 2012
--------------------------------------------
Kumtor:
Cost of sales, as reported $ 473.0 $ 306.9 $ 255.1 $ 140.0
Less: Non-cash component 282.0 121.0 185.0 84.9
--------------------------------------------
Cost of sales, cash component $ 191.0 $ 185.9 $ 70.1 $ 55.1
Adjust for:
Regional office administration 18.1 15.5 4.8 4.2
Mine stand-by costs - 4.6 - -
Refining fees 3.5 1.9 2.0 1.3
By-product credits (3.8) (2.9) (2.0) (1.9)
Social development costs
related to current operations 6.2 24.0 1.9 1.3
--------------------------------------------
Adjusted Operating Costs $ 215.0 $ 229.0 $ 76.8 $ 59.9
Accretion expense 0.6 0.6 0.2 0.2
Capitalized stripping and ice
unload 201.3 196.7 50.6 44.2
Capital expenditures
(sustaining) 49.7 40.8 9.6 10.5
--------------------------------------------
All-in Sustaining Costs $ 466.6 $ 467.1 $ 137.2 $ 114.9
Capital expenditures (growth) 39.2 165.2 5.8 25.4
Exploration expense 6.1 11.3 0.8 2.9
Other project costs not
related to current operations 1.5 6.6 0.1 2.4
--------------------------------------------
All-in Costs $ 513.4 $ 650.2 $ 143.9 $ 145.6
Revenue-based taxes 113.5 74.7 62.9 44.5
--------------------------------------------
All-in Costs (including taxes) $ 627.0 $ 724.9 $ 206.8 $ 190.1
--------------------------------------------
Ounces sold (000) 601.9 315.0 353.3 185.9
Adjusted Operating Costs per
ounce sold $ 357 $ 727 $ 217 $ 322
All-in Sustaining Costs per
ounce sold $ 775 $ 1,483 $ 388 $ 618
All-in Costs per ounce sold $ 853 $ 2,064 $ 407 $ 783
All-in Costs (including taxes)
per ounce sold $ 1,042 $ 2,301 $ 585 $ 1,023
Boroo:
Cost of sales, as reported $ 86.2 $ 76.4 $ 16.7 $ 27.9
Less: Non-cash component 27.1 21.1 3.7 11.0
--------------------------------------------
Cost of sales, cash component $ 59.2 $ 55.3 $ 13.0 $ 16.9
Adjust for:
Regional office administration 5.7 5.5 1.4 1.5
Mine stand-by costs - - - -
Refining fees 0.3 0.3 0.1 0.1
By-product credits (0.5) (0.4) (0.0) (0.2)
Social development costs
related to current operations 0.1 2.2 (0.2) 0.6
--------------------------------------------
Adjusted Operating Costs $ 64.8 $ 62.9 $ 14.1 $ 18.9
Accretion expense 0.3 0.2 0.1 0.0
Capitalized stripping - 6.3 - -
Capital expenditures
(sustaining) 7.4 2.1 0.4 0.4
--------------------------------------------
All-in Sustaining Costs $ 72.6 $ 71.5 $ 14.6 $ 19.3
Capital expenditures
(growth) - 0.3 - 0.3
Exploration expense - 0.2 - 0.2
Other project costs not
related to current
operations - - - -
--------------------------------------------
All-in Costs $ 72.6 $ 71.9 $ 14.6 $ 19.8
Income taxes 12.7 11.7 0.1 6.5
--------------------------------------------
All-in Costs (including taxes) $ 85.3 $ 83.7 $ 14.7 $ 26.3
--------------------------------------------
Ounces sold (000) 94.9 75.5 15.7 29.4
Adjusted Operating Costs per
ounce sold $ 683 $ 832 $ 901 $ 641
All-in Sustaining Costs per
ounce sold $ 765 $ 946 $ 931 $ 655
All-in Costs per ounce sold $ 765 $ 952 $ 931 $ 672
All-in Costs (including taxes)
per ounce sold $ 899 $ 1,108 $ 934 $ 892
----------------------------------------------------------------------------
2) Consolidated
----------------------------------------------------------------------------
Year ended Fourth Quarter ended
(unaudited) December 31, December 31,
($ millions, unless otherwise
specified) 2013 2012 2013 2012
--------------------------------------------
Centerra:
Cost of sales, as reported $ 559.2 $ 383.3 $ 271.8 $ 167.9
Less: Non-cash component 309.0 142.1 188.7 95.9
--------------------------------------------
Cost of sales, cash component $ 250.2 $ 241.2 $ 83.1 $ 72.0
Adjust for:
Regional office administration 23.7 21.0 6.1 5.6
Mine stand-by costs - 4.6 - -
Refining fees 3.8 2.1 2.1 1.4
By-product credits (4.3) (3.3) (2.1) (2.1)
Social development costs
related to current operations 6.4 26.2 1.7 1.9
--------------------------------------------
Adjusted Operating Costs $ 279.9 $ 291.9 $ 91.0 $ 78.8
Corporate General
Administrative costs 30.0 26.8 7.7 8.7
Accretion expense 0.9 0.8 0.2 0.2
Capitalized stripping and ice
unload 201.3 203.0 50.6 44.2
Capital expenditures
(sustaining) 57.7 43.5 10.0 11.1
--------------------------------------------
All-in Sustaining Costs $ 569.8 $ 565.9 $ 159.6 $ 143.0
Capital expenditures (growth) 39.9 166.1 5.9 26.0
Exploration and Business
Development 29.5 38.5 8.8 11.6
Other project costs not
related to current operations 1.9 6.9 0.2 2.4
--------------------------------------------
All-in Costs $ 641.1 $ 777.4 $ 174.5 $ 183.0
Revenue-based taxes and income
taxes 126.3 86.4 62.9 51.0
--------------------------------------------
All-in Costs (including taxes) $ 767.4 $ 863.8 $ 237.4 $ 234.0
--------------------------------------------
Ounces sold (000) 696.8 390.5 369.0 215.4
Adjusted Operating Costs per
ounce sold $ 402 $ 747 $ 247 $ 366
All-in Sustaining Costs per
ounce sold $ 818 $ 1,449 $ 433 $ 664
All-in Costs per ounce sold $ 920 $ 1,991 $ 474 $ 850
All-in Costs (including taxes)
per ounce sold $ 1,101 $ 2,212 $ 644 $ 1,086
----------------------------------------------------------------------------
Total capital and capitalized stripping presented in the all-in cost
calculations can be reconciled as follows:
----------------------------------------------------------------------------
Year - 2013 Kumtor Boroo All other Consolidated
----------------------------------------------------------------------------
($ millions, unaudited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capitalized stripping - cash 201.3 - - 201.3
----------------------------------------------------------------------------
Sustaining capital - cash 49.7 7.4 0.6 57.7
----------------------------------------------------------------------------
Growth capital - cash 39.2 - 0.7 39.9
----------------------------------------------------------------------------
Net increase in accruals
included in additions to
PP&E 9.8 - - 9.8
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total - Additions to PP&E 300.0 7.4 1.3 308.7 (1)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Year - 2012 Kumtor Boroo All other Consolidated
----------------------------------------------------------------------------
In $ millions
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capitalized stripping - cash 168.0 6.3 - 174.3
----------------------------------------------------------------------------
Sustaining capital - cash 40.8 2.1 0.6 43.5
----------------------------------------------------------------------------
Growth capital - cash 176.4 0.3 0.5 177.2
----------------------------------------------------------------------------
Net increase in accruals
included in additions to
PP&E 10.1 - - 10.1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total - Additions to PP&E 395.3 8.7 1.1 405.1 (1)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Fourth Quarter - 2013 Kumtor Boroo All other Consolidated
----------------------------------------------------------------------------
($ millions, unaudited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capitalized stripping - cash 50.6 - - 50.6
----------------------------------------------------------------------------
Sustaining capital - cash 9.6 0.4 0.1 10.1
----------------------------------------------------------------------------
Growth capital - cash 5.8 - 0.1 5.9
----------------------------------------------------------------------------
Net increase in accruals
included in additions to PP&E 19.4 - - 19.4
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total - Additions to PP&E 85.4 0.4 0.2 86.0 (1)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Fourth Quarter - 2012 Kumtor Boroo All other Consolidated
----------------------------------------------------------------------------
In $ millions
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capitalized stripping - cash 27.0 - - 27.0
----------------------------------------------------------------------------
Sustaining capital - cash 10.5 0.4 0.2 11.1
----------------------------------------------------------------------------
Growth capital - cash 36.6 0.3 0.2 37.1
----------------------------------------------------------------------------
Net increase in accruals
included in additions to PP&E 9.1 - - 9.1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total - Additions to PP&E 83.2 0.7 0.4 84.3 (1)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) As reported in the Company's Consolidated Statement of Cash Flows as
"Investing Activities - Additions to property, plant & equipment".
Other Corporate Developments
The following is a summary of corporate developments with respect to matters
affecting the Company and its subsidiaries in the Kyrgyz Republic and Mongolia.
A summary discussion of certain regulatory matters affecting the Kumtor Project
follows the discussion of events that occurred in the fourth quarter of 2013.
For a more complete discussion of these matters impacting Kumtor, and for
outstanding matters in Mongolia and at the corporate level, see the Company's
2012 Annual Information Form.
Kyrgyz Republic
Negotiations between Kyrgyz Republic and Centerra
As previously disclosed, the Kyrgyz Republic Parliament passed resolution #2805
on February 21, 2013, which, among other things, recommended that the Kyrgyz
Government conduct consultations and negotiations with Centerra to find mutually
acceptable solutions with respect to the Kumtor Project and the issues raised in
the Parliamentary and State Commission reports. The resolution set a deadline of
June 1, 2013 for the Government to return to the Parliament with information on
how to implement the Parliament's recommendations in the resolution. The
original deadline of June 1, 2013 was extended by resolution #3169-V for three
months, and Parliament set a deadline of September 10, 2013 for the Government
to present final agreements incorporating the mutually acceptable solution.
Resolution #3169-V also provides that if a mutually acceptable solution has not
been agreed to, the Government is instructed to develop and submit a draft law
"On Denunciation of the Agreement for the Kumtor Project" for review by the
Kyrgyz Republic Parliament.
Following discussions with representatives of the Kyrgyz Government in the third
quarter, Centerra announced on September 9, 2013 that it had entered into a
non-binding memorandum of understanding ("MOU") with the Government of the
Kyrgyz Republic in connection with a potential restructuring transaction under
which Kyrgyzaltyn would exchange its 32.7% equity interest in Centerra for an
interest in a joint venture company that would own the Kumtor Project. The MOU
recorded the status of negotiations that had been ongoing between management of
Centerra and the Kyrgyz Republic advisory working group up until that time and
set out certain principles that would guide the potential restructuring
transaction.
The Kyrgyz Parliament considered the MOU on October 23, 2013 and passed a decree
(the "Decree") with respect to the MOU. In the Decree, Parliament rejects the
MOU and orders the Government to (among other things) continue negotiations with
Centerra with a view to improving the Kyrgyz Republic's position and increasing
its interest in the joint venture project to no less than 67%, to provide for
the project to develop the Kumtor mine using underground mining methods, and to
provide for the establishment and financing of a centre to monitor the
preservation of glaciers. In the Decree, Parliament also recommends that the
Kyrgyz Republic General Prosecutor's Office consider pursing allegations that
management of the former parent company of Centerra, Centerra, Kumtor Operating
Company, and Kumtor Gold Company violated environmental regulations and
committed "other offenses", and that precious metal reserves (silver, tellurium,
and other associated components) at the Kumtor deposit were deliberately
understated.
In the Decree, Parliament requested that the Government and the General
Prosecutor's Office report to Parliament on these matters by December 23, 2013.
The Decree provides that if a mutually acceptable solution on the outstanding
matters cannot be reached, the Government is ordered to initiate a process to
cancel the Kumtor Project Agreements. . The Company disputes the allegations
contained in the Decree.
Following further discussions with representatives of the Kyrgyz government in
the fourth quarter of 2013, Centerra announced on December 24, 2013 that it had
entered into a non-binding Heads of Agreement ("HOA") with the Kyrgyz Government
which superceded the terms of the previously negotiated MOU. The HOA retains
most of the material terms of the MOU, including the following:
-- Kyrgyzaltyn would receive a 50% interest in the joint venture company
that would own the Kumtor Project in exchange for its 32.7% equity
ownership in Centerra.
-- The agreements entered into between, among others, Centerra, Kyrgyzaltyn
and Government of the Kyrgyz Republic in 2009 would remain in full force
and effect, including the tax regime set out in such agreements.
-- The Board of the joint venture company would be comprised of an equal
number of Centerra and Kyrgyzaltyn representatives. Consistent with
Centerra's ability to consolidate the financial results of the Kumtor
project, major decisions of the joint-venture company would be subject
to discussion and approval by the Board of the joint venture company.
-- Centerra would remain the operator/manager of the Kumtor Project
pursuant to an operating agreement which would contain typical terms and
provisions.
-- The operating agreement would also include provisions for compensation
for services provided by Centerra and Kyrgyzaltyn.
The HOA also includes certain additional provisions not contained in the MOU,
including the following:
-- The existing mobile mine equipment at Kumtor, having a value of
approximately $200 million, would be held by Centerra and capital leased
to the joint venture for 10 years on commercial terms, following which
the joint venture would be entitled to purchase such equipment for
$1.00.
-- Further to the equipment lease arrangement, the dividend distribution
adjustment of $100 million (from Kyrgyzaltyn in favour of Centerra)
which was in the MOU has been removed.
-- Centerra would be entitled to compensation in a fixed amount per year
for acting as the manager, which amount will be agreed by the parties
and reflected in definitive documents.
-- The HOA would resolve, in accordance with the requirements of the laws
and agreements of the Kyrgyz Republic, comprehensively and finally, all
claims and concerns relating to the Kumtor Project, including but not
limited to environmental, technical and land use matters, in accordance
with the findings and recommendation of Kyrgyzaltyn's external legal,
financial, environmental and technical experts, including AMEC, which
has examined the Kumtor Project's environmental and technical practices.
-- The joint venture would commit to investments in community development
projects in an amount equal to two percent of the prior year's free cash
flow (subject to a minimum of $2 million per year)
-- The joint venture would commit to increasing local procurement in the
Kyrgyz Republic by an aggregate of $100 million over the remaining life
of the mine and to increase the number of Kyrgyz nationals in management
positions at the joint venture.
-- At the end of the current life of mine plan in 2026, Kyrgyzaltyn would
have the rights to: (a) increase its ownership interest in the Kumtor
Project from 50% to 67% for a price equal to fair market value; and (b)
recover the gold contained in the tailings facility for $1.00.
-- Kyrgyzaltyn would receive: (a) warrants to acquire six million Centerra
shares, with an exercise price of CAD$10.00 per Centerra share,
exercisable for two years after the restructuring; and (b) warrants to
acquire four million Centerra shares, with an exercise price of
CAD$12.00 per Centerra share, exercisable for three years after the
restructuring.
On February 6, 2014, after their review of the HOA, the Kyrgyz Parliament
adopted a resolution which appears to support the concept of the restructuring
described in the HOA but also contains a number of recommendations that are
materially inconsistent with the terms of the HOA. Among other things, the
resolution calls for further audits of the Kumtor operation and for the
Government and the General Prosecutor's Office to continue pursuing claims for
environmental and economic damages, which the Company disputes. The Company has
not yet received an official copy of the Parliamentary resolution.
The Company believes that the 2009 Kumtor Project Agreements and all previous
agreements are legal, valid and enforceable obligations. The Kumtor Project
Agreements were reviewed and approved by the Government and the Parliament, and
were the subject of a positive decision by the Kyrgyz Republic Constitutional
Court and a legal opinion by the Kyrgyz Republic Ministry of Justice. Such
agreements provide for all disputes relating to the Kumtor project to be
resolved by international arbitration, if necessary.
Centerra expects to continue its discussions with the Government regarding a
potential restructuring transaction to resolve all outstanding concerns relating
to the Kumtor Project. However, it maintains that any agreement to resolve
matters must be fair to all of Centerra's shareholders. Any definitive agreement
for a potential restructuring remains subject required approvals in the Kyrgyz
Republic, including Government and Parliament of the Kyrgyz Republic, Centerra
Special Committee and Board approval, as well as compliance with all applicable
legal and regulatory requirements and approvals, including an independent formal
valuation and shareholder approval.
While Centerra expects to continue discussions with the Government, there can be
no assurance that any transaction will be consummated or that Centerra will be
able to successfully resolve any of the matters currently affecting the Kumtor
Project. The inability to successfully resolve matters, including obtaining all
necessary approvals, and/or further actions of the Kyrgyz Republic Government
and/or Parliament, could have a material adverse impact on Centerra's future
cash flows, earnings, results of operations and financial conditions.
Environmental Claims
As previously disclosed, on June 7, 2013 Kumtor Operating Company ("KOC")
received four court claims filed by the State Inspectorate Office for
Environmental and Technical Safety ("SIETS") with the Bishkek Inter-district
court. The SIETS environmental claims sought to enforce the previously disclosed
environmental claims issued by SIETS in December 2012, seeking compensation in
the aggregate amount of $150 million in relation to (i) placement of waste rock
on glaciers; (ii) unpaid use of water from Petrov Lake; (iii) unaccounted
industrial and household waste; and (iv) damages caused to land resources (top
soil). Each of these claims was dismissed by the Bishkek Inter-District Court
and, on appeal, by the Bishkek City Court, on the basis that the arbitration
clause in the Restated Investment Agreement requires that all such disputes be
resolved through international arbitration. Each of these claims has been
appealed to the Kyrgyz Republic Supreme Court.
In addition to the original four claims of SIETS discussed above, SIETS has
filed the following additional claims against KOC: (i) on October 12, 2013, a
claim in the amount of approximately $485,000 for damages caused to land
resources due to disturbance of land at the Kumtor project (similar to the claim
in (iv) above but involving a different area of the Kumtor concession); and (ii)
on January 21, 2014, a claim for approximately $8.5 million for lost
agricultural production and lost profits from 1994 to 2042. Kumtor has responded
in writing to SIETS disputing both of these additional claims.
With respect to the previously disclosed claim commenced by the State Agency for
Environmental Protection and Forestry under the Government of the Kyrgyz
Republic ("SAEPF") for the aggregate amount of approximately $315 million, SAEPF
has commenced court proceedings in the Bishkek Inter-District Court, which
dismissed the Company's motion to dismiss the claim based on the arbitration
provision in the Restated Investment Agreement although the court is still
considering other procedural motions argued by the Company.
On October 11, 2013, Centerra received a statement of claim from the Green Party
of Kyrgyzstan in the Bishkek Inter-District Court which seeks damages of
approximately $9 billion for alleged environmental damages arising from the
Kumtor operations since 1996. The claimant, Green Party, requests that the
damage be paid by Kumtor to the Issyk-Kul Nature Protection and Forestry
Development Fund, a Kyrgyz state fund. The claim by the Green Party relates to
allegations substantially similar to the claims raised by SIETS and SAEPF.
As previously disclosed, KOC believes the claims are exaggerated and without
merit. The Kumtor Project has been the subject of systematic audits and
investigations over the years by Kyrgyz and international experts, including by
an independent internationally recognized expert who carried out a due diligence
review of Kumtor's performance on environmental matters at the request of
Centerra's Safety, Health and Environmental Committee of the Board of Directors.
The report of this expert released in October 2012 can be found on the Kumtor
website at www.kumtor.kg/en/ under the "Environment" section.
There can be no assurance that the Company will be able to successfully resolve
any of these matters discussed above. The inability to successfully resolve
matters could have a material adverse impact on the Company's future cash flows,
earnings, results of operations and financial conditions.
Land Use Claim
On November 11, 2013, the Company received a claim from the Kyrgyz Republic
General Prosecutor's Office requesting the Inter-District Court of the Issyk-Kul
Province to invalidate the Company's land use certificate and seize certain
lands within Kumtor's concession area.
As previously noted, the Company believes that the invalidation of the land use
certificate and purported seizure of land is in violation of the Kyrgyz Republic
Land Code as well as the Restated Investment Agreement, which provides that the
Kumtor project is guaranteed all necessary access to the Kumtor concession area,
including all surface lands as are necessary or desirable for the operation of
the Kumtor project.
Kumtor Waste Dump Movement
As previously disclosed in May 2013, the abnormal waste dump movement
experienced at Kumtor has required Kumtor to develop and implement alternative
waste rock dumps at the Kumtor mine and to revise its mine development plan.
During the third quarter of 2013, Kumtor received final regulatory approval for
a revised 2013 annual mining plan that, among other things, allows for the
placement of waste rock in the Sarytor Valley, the Davidov Valley and the Lysi
Valley. Kumtor is currently working in accordance with the revised plan.
Movement of the Central Valley Waste Dump was forecasted in the 2012 Kumtor
Technical Report and has now returned to its pre-March 2013 movement rate. The
Company continues to make progress in relocating and reconstructing certain
infrastructure at Kumtor which was, or is currently, in the path of the Central
Valley Waste Dump.
Management Assessment
There are several outstanding issues affecting the Kumtor Project, which require
consultation and co-operation between the Company and Kyrgyz regulatory
authorities. The Company has benefited from a close and constructive dialogue
with Kyrgyz authorities during project operations and remains committed to
working with them to resolve these issues in accordance with the Kumtor Project
Agreements, which provide for all disputes to be resolved by international
arbitration, if necessary. However, there are no assurances that the Company
will be able to successfully resolve any or all of the outstanding matters
affecting the Kumtor Project. There are also no assurances that continued
discussions between the Kyrgyz Government and Centerra will result in a mutually
acceptable solution regarding the Kumtor project that any agreed upon proposal
for restructuring would receive the necessary legal and regulatory approvals
under Kyrgyz law and/or Canadian law and that the Kyrgyz Republic Government
and/or Parliament will not take actions that are inconsistent with the
Government's obligations under the Kumtor Project Agreements, including adopting
a law "denouncing" or purporting to cancel or invalidate the Kumtor Project
Agreements or laws enacted in relation thereto. The inability to successfully
resolve the current outstanding matters, including the outstanding environmental
claims against Kumtor, could have a material adverse impact on the Company's
future cash flows, earnings, results of operations and financial conditions. See
"Caution Regarding Forward-looking Information".
Mongolia
Gatsuurt
Centerra continues to be in discussions with the Mongolian Government regarding
the development of the Gatsuurt property. Centerra remains reasonably confident
that the economic and development benefits resulting from its exploration and
development activities will ultimately result in the Mongolian Water and Forest
Law having a limited impact on the Gatsuurt project, in particular, and other of
the Company's Mongolian activities, including the ATO deposit. As previously
disclosed, the Mongolian Water and Forest Law prohibits mineral prospecting,
exploration and mining in water basins and forestry areas in Mongolia.
Centerra understands that, in May 2013, the Mongolian Government added seven
deposits, including Gatsuurt, to the list of "mineral deposits of strategic
importance". Such a designation, which is subject to the approval of the
Mongolian Parliament, would have the effect of excluding the Gatsuurt deposit
from the application of the Water and Forest Law. Centerra expects that
Parliament and/or any relevant committees of Parliament will consider this
matter further in the first half of 2014. If the Mongolian Parliament ultimately
approves this designation, it would allow the Government of Mongolia to acquire
up to a 34% interest in Gatsuurt. The terms of any such participation would be
subject to negotiations with the Mongolian Government.
There can be no assurance, however, that the Water and Forest Law will not have
a material impact on Centerra's Mongolian operations. Unless the Water and
Forest Law is repealed or amended such that the law no longer applies to the
Gatsuurt project or Gatsuurt is designated by the Parliament of Mongolia as a
"mineral deposit of strategic importance" that is exempt from the Water and
Forest Law, mineral reserves at Gatsuurt may have to be reclassified as mineral
resources or eliminated entirely and the Company may be required to write-off
approximately $37 million related to the investment in Gatsuurt and
approximately $39 million remaining capitalized for the Boroo mill facility and
other surface structures. These amounts represent the capitalized costs at
December 31, 2013 associated with its investment in Gatsuurt and Boroo (where
Gatsuurt ore is planned to be milled).
Corporate
Enforcement Notice by Sistem
The claim commenced in March 2011 by a Turkish company, Sistem Muhenkislik
Insaat Sanayi Ticaret SA ("Sistem") which alleges that the shares in Centerra
owned by Kyrgyzaltyn are, in fact, legally and beneficially owned by the Kyrgyz
Republic continues to be subject to proceedings in the Ontario courts. Centerra
is not a party to the proceedings, but understands that the matter is being
scheduled for consideration on its merits.
Pursuant to a Court Order issued by the Ontario Superior Court of Justice (as
amended from time to time, and most recently amended on June 5, 2013) (the
"Court Order"), Centerra is holding in trust (for the credit of the Sistem court
proceedings) dividends otherwise payable to Kyrgyzaltyn. Effective as of June 6,
2013, when a dividend was paid by Centerra, the maximum amount to be held in
trust, as set out in the Court Order (Cdn$11.3 million), has been reached. As of
December 31, 2013, Centerra holds in trust, for the benefit of the Sistem court
proceeding, approximately Cdn$11.4 million, including interest earned.
Background Description of Outstanding Kumtor Matters
The disclosure below is a summary description of the outstanding matters
affecting the Kumtor Project. For a more detailed description, see the Company's
prior disclosure, in particular, its news release on 2013 first quarter results
dated May 8, 2013 and its 2012 Annual Information Form. Both of these documents
can be found on www.sedar.com.
Parliamentary Commission and Report
On February 15, 2012, the Kyrgyz Parliament established an interim Parliamentary
Commission to inspect and review: (i) Kumtor's compliance with Kyrgyz
operational and environmental laws, as well as community standards, and (ii)
state regulation over the Kumtor project's activities. The Parliamentary
Commission issued its report (the "Parliamentary Report") on June 18, 2012 and
made a number of assertions regarding the operation of the Kumtor project,
including alleging non-compliance by the Kumtor project with Kyrgyz
environmental laws, particularly at Kumtor's tailings facility, the Davidov
glacier and the Sarychat-Ertash State Reserve which is in the vicinity of the
Kumtor project. The Parliamentary Commission alleges that the violations have
resulted in substantial monetary damages.
The Kyrgyz Parliament met in late June 2012 to consider the Parliamentary Report
and adopted Resolution 2117-V that took note of the Parliamentary Report and
declared the Kumtor Project Agreements to be contrary to the interests of the
Kyrgyz Republic. Resolution 2117-V also called for the formation of a State
Commission to "assess the environmental, industrial and social damage" caused by
the Kumtor project and to initiate the renegotiation of the current Kumtor
project agreements "in order to protect economic and environmental interests".
As contemplated in Resolution 2117-V, on July 5, 2012, the Kyrgyz Government
cancelled Government Decree #168, which provided Kumtor with land use rights
over the surface of the Kumtor concession area for the duration of the restated
concession agreement effective June 6, 2009 (the Restated Concession Agreement).
Based on advice from Kyrgyz legal counsel, the Company believes that the
purported cancellation of land rights is in violation of the Kyrgyz Republic
Land Code, because the Land Code provides that land rights can only be
terminated by court decision and on the listed grounds set out in the Land Code.
Kumtor has communicated this to the Kyrgyz Republic and requested the issuance
of a new land use certificate in light of the rights and obligations under the
restated investment agreement dated June 6, 2009 between Centerra and the Kyrgyz
Republic (the Restated Investment Agreement). No response has been received from
the Kyrgyz Government. Pursuant to the Restated Investment Agreement, the Kumtor
project is guaranteed all necessary access to the Kumtor concession area,
including all surface lands as are necessary or desirable for the operation of
the Kumtor project. The Restated Investment Agreement also provides for the
payment of quarterly land use and access fees.
In response to the Parliamentary Report's allegations of non-compliance with
environmental laws, in August 2012, the Board of Directors of Centerra retained
an independent internationally recognized consultant to carry out a due
diligence review of Kumtor's performance on safety, health and environmental
matters. The report issued in October 2012 concluded that "no major or
materially significant environmental issues were identified". The report of this
expert can be found on the Kumtor website at www.kumtor.kg/en/ under the
"Environment" section.
State Commission and Report
In response to Resolution 2117-V passed by the Parliament, the Kyrgyz Government
established a state commission (the "State Commission") for the purpose of
reviewing the Parliamentary Report as well as inspecting and reviewing Kumtor's
compliance with Kyrgyz operational and environmental laws and community
standards. The State Commission was comprised of three working groups,
responsible for (i) legal matters; (ii) social and economic matters; and (iii)
environmental and technical matters. The State Commission released its report
(the "State Commission Report") in late December 2012 following five months of
study. The State Commission Report included a large number of allegations,
including allegations that the Kumtor project was violating Kyrgyz legislation
relating to environmental and subsoil legislation and caused environmental
damage to water and land resources.
Environmental Claims
In December 2012, KOC received four claims from SIETS and a claim from SAEPF
(which was subsequently withdrawn) relating to alleged environmental damages at
the Kumtor project. The SIETS claims are for an aggregate amount of
approximately $150 million and include:
-- a claim for approximately $142 million for alleged damages in relation
to the placement on waste dumps of waste rock from mining operations
(2000 to 2011)
-- a claim for approximately $4 million for use of water resources for the
period of 2000 to 2011
-- a claim for approximately $0.3 million for unaccounted industrial and
household waste
-- a claim for approximately $2.3 million for alleged damages caused to
land resources at the time of initial construction of Kumtor
In addition, KOC has also received a directive from SIETS requiring that actions
be taken to correct various alleged environmental and technical violations
discovered in its review.
On February 21, 2013, KOC announced the receipt of a claim from SAEPF for the
amount of approximately $315 million for alleged damage in relation to waste
placed in the tailings management facility, waste rock dumps, and for the
generation, management and treatment of other types of wastes. The claim covers
the period from 1996 to 2011.
The Company notes that the Kumtor Project Agreements provide a complete listing
of all taxes and payments to be made to the Kyrgyz Republic, including a fixed
environmental charge. Accordingly, no other tax, duties, or other obligations
are to be paid to the Kyrgyz Republic, however they may be characterized.
In addition, Centerra, the Kyrgyz Republic and others entered into a release
agreement (the Release Agreement) dated June 6, 2009, whereby, subject to
certain exceptions which we believe are not applicable in the circumstances, the
Kyrgyz Republic released Centerra from any and all claims, and damages with
respect of any matter (including any tax or fiscal matters) arising or existing
prior to the date of the Release Agreement, whether such matters were known or
unknown at such time, and the Kyrgyz Republic agreed not to commence any actions
or assert any demands for such actions or demands so released.
Kyrgyz Republic Advisory Committee and Requests to Negotiate
On February 21, 2013, the Kyrgyz Parliament adopted Resolution #2805 which among
other things, recommended that the Government ensure the continuous operation of
the Kumtor mine, and within three months of the date of the resolution, conduct
negotiations with Centerra with a view to revising the Kumtor Project Agreements
to return to conditions that existed prior to the restructuring of the project
in 2003, but subject to the application of the current Kyrgyz legislation, and
to enter into new project agreements. The resolution provided a deadline of June
1, 2013 for the Government to return to Parliament, which subsequently was
extended to September 10, 2013 and then on December 23, 2013 (as discussed
above).
The Draft Law on Denunciation
On April 9, 2013 an initiative group chaired by Mr. Beknazarov A.A. submitted a
draft Law on Denunciation for consideration by Parliament. The draft law
"denounces" the Agreement on New Terms for the Kumtor Project ("ANT") entered on
April 24, 2009, and recognizes as invalid all other agreements associated with
the ANT (namely, the Kumtor Project Agreements), and calls for the Government to
bring all of its decisions in accordance with the Law on Denunciation. To date,
the Law on Denunciation has not been considered by Parliament. Based on Kyrgyz
media reports, an opposition party in the Parliament, the Respublika faction,
has endorsed the Law on Denunciation. The Law on Denunciation was referenced in
Resolution #3169-V (discussed above).
The Company believes that the adoption of a law that denounces or purports to
invalidate the Kumtor Project Agreements would be a breach of the Government's
obligations under the Kumtor Project Agreements. The Company believes that the
Kumtor Project Agreements are legal, valid and enforceable obligations. The
agreements were reviewed and approved by the Government and the Parliament, and
were the subject of a positive decision by the Kyrgyz Republic Constitutional
Court and a legal opinion by the Kyrgyz Republic Ministry of Justice.
Furthermore, under the Kumtor Project Agreements, the Government agreed to use
its best efforts to reverse or annul any actions of public officials (including
state agencies) which conflict with the rights and benefits granted to Kumtor
under the Kumtor Projects Agreements.
There can be no assurance that the Company will be able to successfully resolve
any of these matters discussed above. The inability to successfully resolve
matters could have a material adverse impact on the Company's future cash flows,
earnings, results of operations and financial conditions.
2014 Outlook
Kumtor's forecasted 2014 production and costs discussed in this news release are
provided on a 100% basis and the forecast does not make any assumptions
regarding possible changes in the structure and management of the Kumtor
Project, including without limitation the level of ownership resulting from
ongoing discussions with the Government of the Kyrgyz Republic and Kyrgyzaltyn
JSC, Centerra's largest shareholder. See "Material Assumption and Risks" for
other material assumptions or factors used to forecast production and costs for
2014.
Centerra's 2014 gold production and unit costs are forecast as follows:
----------------------------------------------------------------------------
2014 Production 2014 Adjusted 2014
Forecast Operating Costs(1) All-in Costs(2)
(ounces of gold) ($ per ounce sold) ($ per ounce sold)
----------------------------------------------------------------------------
Kumtor 550,000 - 600,000 $373 - $407 $833 - $909
----------------------------------------------------------------------------
Boroo Approx. 45,000 $1,533 $1,557
----------------------------------------------------------------------------
Consolidated 595,000 - 645,000 $454 - $493 $989 - $1,074
----------------------------------------------------------------------------
(1) Adjusted operating costs per ounce sold is a non-GAAP measure and
includes operating costs, regional office administration, community
costs related to current operations, refining fees and by-product
credits. Operating costs include mine operating costs such as mining,
processing, site support, royalties and operating taxes (except at
Kumtor where revenue-based taxes are excluded), but exclude DD&A,
reclamation costs, financing costs, capital expenditures and
exploration.
(2) All-in costs per ounce sold is a non-GAAP measure and includes adjusted
operating costs, the cash component of capitalized stripping costs,
accretion expenses, sustaining and growth capital and additional costs
at the consolidated level for, corporate general and administrative
expenses, global exploration expenses and social development costs.
Gold Production
Centerra's 2014 consolidated gold production is expected to be 595,000 to
645,000 ounces.
Centerra estimates that the Kumtor mine will produce between 550,000 and 600,000
ounces in 2014 and, similar to 2013, over 50% of this gold production is
expected during the fourth quarter when mining will reach the high-grade section
of the SB Zone.
The 2014 production guidance range is lower than that outlined in the life of
mine plan set out in the Kumtor technical report filed on December 20, 2012 as a
result of a lower 2014 starting ore stockpile inventory and a reduction in the
rate of vertical advancement of cut-back 16, which provides access to the high
grade SB Zone ore in 2014.
At the Boroo mine, gold production is forecast to be approximately 45,000
ounces. The forecasted annual production at Boroo includes about 20,000 ounces
from heap leaching and 25,000 ounces from the mill. The Boroo mill is expected
to process ore stockpiles during the year with an average grade of 0.70 g/t
gold. The 2014 forecast assumes no mining activities at Boroo or Gatsuurt, and
no gold production from Gatsuurt.
All-in Unit Costs:
Centerra's 2014 all-in sustaining costs per ounce sold(1) and all-in costs per
ounce sold(1) are forecast as follows:
----------------------------------------------------------------------------
Kumtor Boroo Consolidated
----------------------------------------------------------------------------
Ounces sold forecast 550,000-600,000 Approximately 595,000-645,000
45,000
----------------------------------------------------------------------------
US $ / gold ounces sold
----------------------------------------------------------------------------
Operating costs(1) $358 - 390 $956 $400 - 434
----------------------------------------------------------------------------
Changes in inventories (29) - (30) 438(4) 4 - 4
----------------------------------------------------------------------------
Operating Costs (on a
sales basis)(1) $329 - 360 $1,394 $404 - 438
----------------------------------------------------------------------------
Regional office
administration 32 - 35 128 39 - 42
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Community costs related to
current operations 13 - 13 13 12 - 14
----------------------------------------------------------------------------
Refining costs and by-
product credits (1) - (1) (2) (1) - (1)
----------------------------------------------------------------------------
Sub-Total (Adjusted
Operating Costs)(1) $373 - 407 $1,533 $454 - 493
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Corporate general &
administrative costs - - 57 - 62
----------------------------------------------------------------------------
Accretion expense 1 - 1 7 1 - 2
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Capitalized stripping
costs - cash 319 - 348 - 296 - 321
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Capital expenditures
(sustaining)(1) 69 - 76 17 67 - 72
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All-in Sustaining Costs(1) $762 - 832 $1,557 $875 - 950
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capital expenditures
(growth)(1) 71 - 77 - 66 - 72
----------------------------------------------------------------------------
Other costs(2) - - 48 - 52
----------------------------------------------------------------------------
All-in Costs(1) $833 - 909 $1,557 $989 - 1,074
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Income and Revenue-based
taxes(3) $175 - 191 - $163 - 176
----------------------------------------------------------------------------
All-in Costs including
Taxes(1), (3) $1,008 - 1,100 $1,557 $1,152 - 1,250
----------------------------------------------------------------------------
(1) Non-GAAP measure, see discussion under "Non-GAAP Measures".
(2) Other costs per ounce sold include global exploration expenses,
business development expenses, and project development costs not
related to current operations.
(3) Includes revenue-based tax that reflects a forecasted gold price
assumption of $1,250 per ounce sold.
(4) The Boroo operation is nearing the end of its mine life. All forecast
production and sales are a result of drawing down the existing
stockpiles and assumes no mining activities.
2014 Exploration Expenditures
Planned exploration expenditures for 2014 total approximately $20 million, which
is $9.5 million lower than the 2013 expense of $29.5 million. No expenditures
are planned for exploration at Kumtor which accounts for most of the reduction
in the planned exploration costs.
In Mongolia, approximately $6 million is planned for exploration programs in the
greater ATO district. In Turkey, approximately $3.5 million is allocated for
further exploration work on the Oksut property and $2.5 million to test
exploration targets elsewhere in the region. Exploration spending for Russia is
planned at approximately $3 million and includes funds to complete the
assessment of targets on the Dvoinoy and Umlekan earn-in projects.
The 2014 exploration plan also includes $3 million to fund programs of
generative exploration and advanced-project evaluations in Turkey, the Caucasus,
Russia, Asia and western Canada. These programs will fund efforts to identify,
evaluate and acquire drill-ready through resource-development gold projects in
high-ranking geologic terrains.
2014 Capital Expenditures
Centerra's projected capital expenditures for 2014, excluding capitalized
stripping, are estimated to be $86 million, including $43 million of sustaining
capital(1) and $43 million of growth capital(1).
Projected capital expenditures (excluding capitalized stripping) include:
----------------------------------------------------------------------------
2014 Sustaining
2014 Growth Capital(11) Capital(1)
Projects (millions of dollars) (millions of dollars)
----------------------------------------------------------------------------
Kumtor mine $43 $42
----------------------------------------------------------------------------
Mongolia (Boroo and
Gatsuurt) - 1
----------------------------------------------------------------------------
Consolidated Total $43 $43
----------------------------------------------------------------------------
Kumtor
At Kumtor, 2014 total capital expenditures, excluding capitalized stripping, are
forecast to be $85 million. Spending on sustaining capital(1) relates primarily
to the major overhaul maintenance of the heavy duty mine equipment ($32
million), purchase of replacement mining equipment and ball mill girth gear ($5
million), tailings dam construction raise ($3 million) and other items ($2
million).
Growth capital(1) investment at Kumtor for 2014 is forecast at $43 million and
includes the relocation of certain infrastructure at Kumtor related to the KS-13
life-of-mine expansion plan amounting to $32 million, dewatering projects ($4
million) and purchase of new mining equipment ($7 million).
The cash component of capitalized stripping costs related to the development of
the open pit is expected to be $191 million in 2014.
Mongolia (Boroo and Gatsuurt)
At Boroo, 2014 sustaining capital(1) expenditures are expected to be $1 million
primarily for maintenance rebuilds and overhauls.
No growth capital(1) is forecast for Boroo or Gatsuurt.
2014 Corporate Administration and Social Development
Corporate and administration expense for 2014 is forecast to be $41 million,
which includes $37 million for corporate and administration costs, and $4
million for business development activities.
Total planned social development expenditures for 2014 are forecast at $8
million, which includes $5 million for donations, and sustainable development
projects in the various communities in which Centerra operates and $3 million
for strategic community investment projects.
Oksut Project
The Company expects to complete a preliminary economic assessment in the first
quarter of 2014 and if such assessment is positive, expects to commence a
feasibility study for its Oksut property in 2014. The total planned spending in
2014 of approximately $10 million includes work for technical studies,
environmental and social impact assessment and project support (collectively,
$6.4 million) and $3.5 million for exploration (discussed earlier).
2014 Depreciation, Depletion and Amortization
Consolidated depreciation, depletion and amortization expense included in costs
of sales expense for 2014 is forecasted to be approximately $290 million before
the impact of the 2013 year-end reserve and resource calculations. This includes
approximately $275 million at Kumtor and $15 million at Boroo. Refer to the
Company's 2013 Audited Financial Statements note 11 for further details on the
Company's capital assets and the related changes to DD&A.
----------------------------------------------------------------------------
2014 DD&A 2013
Forecast DD&A
(In millions) (Unaudited) Actual
----------------------------------------------------------------------------
Kumtor
----------------------------------------------------------------------------
Mine equipment $ 95 $ 98
----------------------------------------------------------------------------
Less DD&A capitalized to stripping costs (1) (71) (77)
----------------------------------------------------------------------------
Capital stripping costs amortized 170 331
----------------------------------------------------------------------------
Other mining assets 5 34
----------------------------------------------------------------------------
Mill assets 7 6
----------------------------------------------------------------------------
Administration assets and other 10 14
----------------------------------------------------------------------------
Inventory movement (non-cash depreciation) 59 (93)
----------------------------------------------------------------------------
Subtotal for Kumtor $ 275 $ 282
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Boroo
----------------------------------------------------------------------------
Mine equipment $ 1 $ 1
----------------------------------------------------------------------------
Less DD&A capitalized to stripping costs - -
----------------------------------------------------------------------------
Stripping costs amortized - 2
----------------------------------------------------------------------------
Mine development and other mining assets - 1
----------------------------------------------------------------------------
Mill assets 4 6
----------------------------------------------------------------------------
Administration assets and other 5 10
----------------------------------------------------------------------------
Inventory movement (non-cash depreciation) 5 7
----------------------------------------------------------------------------
Subtotal for Boroo $ 15 $ 27
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Consolidated Total $ 290 $ 309
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Use of the Company's mining fleet for stripping activities results in a
portion of the depreciation related to the mine fleet to be allocated
to capitalized stripping costs. In 2013, $77 million of depreciation
costs was allocated to capitalized stripping costs.
Kumtor
At Kumtor, depreciation, depletion and amortization expense included in costs of
sales expense for 2013 was $282 million which is $81 million higher than the
guidance for 2013 provided in the Company's MD&A of February 20, 2013. The
increase in the DD&A expense is mainly due to higher amortization expense of
capitalized stripping costs ($40 million), a lower credit for inventory movement
($34 million) and higher mining and other assets depreciation ($7 million). The
higher amortization of capitalized stripping costs was mainly a result of the
adoption of IFRIC 20 which re-stated the 2012 results. Operating costs
previously expensed in 2012 in the amount of $37 million were capitalized as
stripping costs as a result of IFRIC 20's adoption. These newly capitalized
costs were amortized during 2013 as the ore in the related cut-back was mined,
increasing 2013 DD&A expense by $37 million. The non-cash inventory movement
recorded in 2013 of $93 million was $34 million lower than the guidance for
2013, reflecting lower than forecasted levels of gold stockpile inventory at the
end of 2013 due in part to higher than forecasted ore processing and a negative
production reconciliation. The depreciation of mining and other assets was
higher than the guidance due to higher production a $4.8 million write down of
exploration related spare parts inventory following the close of the exploration
program.
The forecast for 2014 DD&A expensed as part of costs of sales is approximately
$275 million before the impact of the 2013 year-end reserve and resource
calculations. The amortization of capitalized stripping costs is the largest
component of depreciation expense in 2014 totaling $170 million. Capitalized
stripping costs include mining operating costs such as labour, diesel and
maintenance costs, as well as the depreciation expense for the mine equipment
used in the stripping campaign. The capitalized stripping costs are amortized
over the ounces contained in the ore body exposed by the stripping campaign.
The mine equipment assets are depreciated on a straight-line basis over their
estimated useful lives. The total mine equipment depreciation for 2014 is
forecasted at $95 million. The depreciation related to mine equipment engaged in
a stripping campaign and capitalized as stripping costs is forecasted to be $71
million in 2014.
Boroo
At Boroo, depreciation, depletion and amortization expense included in costs of
sales expense for 2013 was $27 million which is $10 million higher than the
guidance for 2013 provided in the Company's MD&A of February 20, 2013. The
increase in the DD&A expense is mainly due to significantly higher production
than forecasted in 2013.
The forecast for 2014 DD&A expensed as part of costs of sales is approximately
$15 million before the impact of the 2013 year-end reserve and resource
calculations, compared to $27 million in 2013. The decrease in 2014 reflects a
lower forecasted production at Boroo in 2014 compared to 2013. The largest
components of depreciation expense are related to depreciation of the mill, the
administration buildings and other assets forecasted at $5 million.
Taxes
Pursuant to the Restated Investment Agreement, Kumtor's operations are not
subject to corporate income taxes. The agreement replaced the prior tax regime
applicable to the Kumtor Project with a simplified tax regime effective January
1, 2008. This simplified regime, which assesses tax at 13% on gross revenue
(plus 1% for the Issyk-Kul Oblast Development Fund) effective January 2009, was
approved and enacted by the Parliament of the Kyrgyz Republic on April 30, 2009.
The corporate income tax rate for Centerra's Mongolian subsidiary, Boroo Gold
LLC, is 25% for taxable income over 3 billion Mongolian tugriks (approximately
$1.8 million at the December 31, 2013 foreign exchange rate) with a tax rate of
10% for taxable income up to that amount. Following the expiration of the Boroo
Stability Agreement in July 2013, Boroo Gold LLC's corporate income tax rate was
unchanged, however the royalty paid to the government increased from 5% to a
rate varying between 5% and 10% based on the price of gold, to a maximum of 10%
for gold prices at or above $1,300 an ounce. In January 2014, the royalty rate
was reduced to 2.5% for gold sold to the Bank of Mongolia and Boroo Gold LLC is
exploring sales to the Bank of Mongolia as a result. Boroo Gold LLC is
forecasted to not pay any income tax in 2014.
Production, cost and capital forecasts for 2014 are forward-looking information
and are based on key assumptions and subject to material risk factors that could
cause actual results to differ materially. These risks are discussed herein
under the headings "Material Assumptions & Risks" and "Cautionary Note Regarding
Forward-Looking Information" and under the heading "Risk Factors" in the
Company's Annual Information Form for the year ended December 31, 2012.
Sensitivities:
Centerra's revenues, earnings and cash flows for 2014 are sensitive to changes
in certain variables and the Company has estimated the impact of any such
changes on revenues, net earnings and cash from operations.
----------------------------------------------------------------------------
Impact on
($ millions)
-------------------------------------------
Cash Earnings before
Change Costs Revenues flow income tax
----------------------------------------------------------------------------
Gold Price $50/oz 4.9 32.1 27.2 27.2
----------------------------------------------------------------------------
Diesel Fuel (1) 10% 10.5 - 10.5 10.5
----------------------------------------------------------------------------
Kyrgyz som (2) 1 som 3.0 - 3.0 3.0
----------------------------------------------------------------------------
Mongolian tugrik (2) 25 tugrik 0.5 - 0.5 0.5
----------------------------------------------------------------------------
Canadian dollar (2) 10 cents 2.8 - 2.8 2.8
----------------------------------------------------------------------------
(1) a 10% change in diesel fuel price equals $16/oz produced
(2) appreciation of currency against the US dollar will result in higher
costs and lower cash flow and earnings, depreciation of currency
against the US dollar results in decreased costs and increased cash
flow and earnings
Material Assumptions and Risks:
Material assumptions or factors used to forecast production and costs for 2014
include the following:
-- a gold price of $1,250 per ounce,
-- exchange rates:
-- $1USD:$1.05 CAD
-- $1USD:48.5 Kyrgyz som
-- $1USD:1,600 Mongolian tugriks
-- $1USD:0.81 Euro
-- diesel fuel price assumption:
-- $0.75/litre at Kumtor
-- $1.22/litre at Boroo
The Company cannot give any assurances in this regard.
The assumed diesel price of $0.75/litre at Kumtor assumes that no Russian export
duty will be paid on the fuel exports from Russia to the Kyrgyz Republic. 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 $108 per barrel.
Other material assumptions were used in forecasting production and costs for
2014. The Company cannot give any assurances in this regard. These material
assumptions include the following:
-- That current discussions between the Government of the Kyrgyz Republic
and Centerra regarding a potential restructuring of the Kumtor Project
will result in a mutually satisfactory solution to the outstanding
matters affecting the Kumtor project, which is fair to all of Centerra's
shareholders, and that such proposal will receive all necessary legal
and regulatory approvals under Kyrgyz law and/or Canadian law.
-- Any recurrence of political or civil unrest in the Kyrgyz Republic will
not impact operations, including movement of people, supplies and gold
shipments to and from the Kumtor mine and/or power to the mine site.
-- The activities of the Kyrgyz Republic Parliament and Government,
referred to under the heading "Other Corporate Developments - Kyrgyz
Republic" do not have a material impact on operations or financial
results. This includes any action being taken by the Parliament or
Government purporting to cancel the current project agreements governing
the Kumtor Project, or taking any actions which would be inconsistent
with the rights of Centerra, Kumtor Gold Company and Kumtor Operating
Company under the project agreements governing the Kumtor project.
-- The previously disclosed environmental claims received from the Kyrgyz
regulatory authorities in the aggregate amount of approximately $476
million, the claim received from the Kyrgyz Green Party for $9 billion
and the claim of the Kyrgyz Republic's General Prosecutor's office
purporting to invalidate land use rights and/or seize land at Kumtor,
and any further claims, whether alleging environmental allegations or
otherwise, are resolved without material impact on Centerra's operations
or financial results.
-- The movement in the Central Valley Waste Dump at Kumtor, referred to
under the heading "Other Corporate Developments - Kyrgyz Republic -
Kumtor Waste Dump Movement", does not accelerate and will be managed to
ensure continued safe operations, without impact to gold production,
including the successful demolition of buildings and relocation of
certain other infrastructure as planned.
-- Grades and recoveries at Kumtor will remain consistent with the 2014
production plan to achieve the forecast gold production.
-- The Company is able to manage the risks associated with the increased
height of the pit walls at Kumtor.
-- The timing of the infrastructure move at Kumtor not impacting the
maintenance of the mobile fleet and its availability.
-- The dewatering program at Kumtor continues to produce the expected
results and the water management system works as planned.
-- The Company is able to satisfactorily manage the ice movement and to
unload the ice and waste in the southeast portion of the Kumtor pit.
-- The Kumtor ball mill and the rotated ring gear or replacement ring gear
continue to operate as expected.
-- The successful negotiation of new collective agreements at Kumtor and
Boroo without any labour actions/strikes and without significantly
increasing labour costs. Kumtor's current agreement expires December 31,
2014 and Boroo's current agreement expires June 30, 2014
-- There are no changes to the Mongolian tax regime which would impact
Boroo operations because of the expiry of the Boroo Stability Agreement
in July 2013.
-- Prices of key consumables, costs of power and water usage fees are not
significantly higher than prices assumed in planning.
-- Precious metal prices and costs remain stable and do not result in an
impairment to the Company's asset valuations.
-- No unplanned delays in or interruption of scheduled production from our
mines, including due to civil unrest, natural phenomena, regulatory or
political disputes, equipment breakdown or other developmental and
operational risks.
-- All necessary permits, licenses and approvals are received in a timely
manner.
Production and cost forecasts and capital estimates are forward-looking
information and are based on key assumptions and subject to material risk
factors. If any event arising from these risks occurs, the Company's business,
prospects, financial condition and results of operations and cash flows could be
adversely affected. Additional risks and uncertainties not currently known to
the Company, or that are currently deemed immaterial, may also materially and
adversely affect the Company's business operations, prospects, financial
condition, results of operations or cash flows and the market price of
Centerra's shares. See the section entitled "Cautionary Note Regarding
Forward-Looking Information" in this news release and also the Risk Factors
listed in the Company's Annual Information Form for the year ended December 31,
2012, available on SEDAR at www.sedar.com.
Centerra Gold Inc.
Condensed Consolidated Statements of Financial
Position
December 31, December 31,
2013 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(Expressed in Thousands of United States
Dollars) (Restated)
Assets
Current assets
Cash and cash equivalents $ 343,108 $ 334,115
Short-term investments 158,358 47,984
Amounts receivable 78,707 75,338
Inventories 373,289 292,565
Prepaid expenses 29,191 49,317
----------------------------
982,653 799,319
Property, plant and equipment 539,070 625,923
Goodwill 129,705 129,705
Restricted cash 10,731 6,087
Other assets 20,276 23,270
Long-term inventories 5,229 10,094
----------------------------
705,011 795,079
----------------------------
Total assets $ 1,687,664 $ 1,594,398
----------------------------
----------------------------
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 32,109 $ 63,940
Short-term debt 75,582 74,617
Revenue-based taxes payable 30,742 18,643
Taxes payable 2,108 5,180
Current portion of provisions 1,194 5,257
----------------------------
141,735 167,637
Dividend payable 10,636 5,949
Provisions 58,826 49,911
Deferred income tax liability (net) 2,157 1,808
----------------------------
71,619 57,668
Shareholders' equity
Share capital 660,486 660,420
Contributed surplus 20,087 36,243
Retained earnings 793,737 672,430
----------------------------
1,474,310 1,369,093
----------------------------
Total liabilities and shareholders' equity $ 1,687,664 $ 1,594,398
----------------------------
----------------------------
Centerra Gold Inc.
Condensed Consolidated Statements of Earnings (loss) and Comprehensive
Income (loss)
Three months ended Twelve months ended
December 31, December 31,
2013 2012 2013 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(Expressed in
Thousands of United
States Dollars)
(except per share (Unaudited)
amounts) (Unaudited) (Restated) (Restated)
Revenue from Gold
Sales $ 468,918 $ 368,461 $ 944,373 $ 660,737
Cost of sales 271,780 167,896 559,236 383,316
Abnormal mining
costs - 8,855 - 24,769
Mine standby costs - - - 4,585
Regional office
administration 6,148 5,636 23,746 21,041
----------------------------------------------------------------------------
Earnings (loss) from
mine operations 190,990 186,074 361,391 227,026
Revenue-based taxes 62,852 44,499 113,532 74,697
Other operating
expenses 1,884 4,793 8,259 34,280
Loss on de-
recognition of
underground assets - 180,673 - 180,673
Exploration and
business
development 8,789 11,551 29,572 38,531
Corporate
administration 8,106 8,794 30,642 27,046
----------------------------------------------------------------------------
Earnings (loss) from
operations 109,359 (64,236) 179,386 (128,201)
Other (income)
expenses, net 518 (56) 3,568 (132)
Finance costs 1,244 1,263 4,989 3,978
----------------------------------------------------------------------------
Earnings (loss) before
income taxes 107,597 (65,443) 170,829 (132,047)
Income tax expense 1,044 5,239 13,153 11,684
----------------------------------------------------------------------------
Net earnings (loss)
and comprehensive
income (loss) $ 106,553 $ (70,682) $ 157,676 $ (143,731)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Basic earnings (loss)
per common share $ 0.45 $ (0.30) $ 0.67 $ (0.61)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Diluted earnings
(loss) per common
share $ 0.44 $ (0.30) $ 0.64 $ (0.61)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Centerra Gold Inc.
Condensed Consolidated
Statements of Cash Flows Three months ended Twelve months ended
December 31, December 31,
2013 2012 2013 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(Expressed in Thousands of (Unaudited)
United States Dollars) (Unaudited) (Restated) (Restated)
Operating activities
Net earnings (loss) $ 106,553 $ (70,682) $ 157,676 $ (143,731)
Items not requiring
(providing) cash:
Depreciation, depletion
and amortization 188,787 102,388 309,389 152,737
Finance costs 1,244 1,262 4,989 3,978
Loss on disposal of
equipment 557 932 2,818 1,403
Compensation expense on
stock options 588 704 2,830 2,335
De-recognition of
underground assets - 180,673 - 180,673
Change in other provision (386) (123) (613) 614
Income tax expense 1,044 5,239 13,153 11,684
Other operating items 572 (130) 15 (673)
------------------------------------------------
298,959 220,263 490,257 209,020
Change in operating
working capital 46,386 (5,800) (15,463) 129
Change in long-term
inventory 1,413 439 4,865 2,080
Revenue-based taxes
applied (advanced) 16,078 155 20,000 (30,000)
Income taxes paid (3,290) (5,952) (15,746) (7,838)
------------------------------------------------
Cash provided by operations 359,546 209,105 483,913 173,391
------------------------------------------------
Investing activities
Additions to property,
plant and equipment (85,956) (84,279) (308,682) (405,094)
Net (purchase) redemption
of short-term investments (120,566) (45,985) (110,374) 324,683
Purchase of interest in
Oksut Gold Project- net
of cash acquired - - (19,742) -
Increase in restricted
cash 299 (3,096) (4,644) (5,908)
Decrease (increase) in
other assets 892 6,752 2,222 (1,070)
Proceeds from disposition
of fixed assets 24 32 205 79
------------------------------------------------
Cash used in investing (205,307) (126,576) (441,015) (87,310)
------------------------------------------------
Financing activities
Dividends paid (8,706) (6,571) (31,085) (22,238)
Payment of interest and
other borrowing costs (1,412) (231) (2,820) (1,416)
Proceeds from short term
debt - - - 76,000
Proceeds from common
shares issued for cash - (20) - 149
------------------------------------------------
Cash (used in) provided by
financing (10,118) (6,822) (33,905) 52,495
------------------------------------------------
Increase in cash during the
period 144,121 75,707 8,993 138,576
Cash and cash equivalents at
beginning of the period 198,987 258,408 334,115 195,539
------------------------------------------------
Cash and cash equivalents at
end of the period $ 343,108 $ 334,115 $ 343,108 $ 334,115
------------------------------------------------
------------------------------------------------
Cash and cash equivalents
consist of:
Cash $ 57,087 $ 51,675 $ 57,087 $ 51,675
Cash equivalents 286,021 282,440 286,021 282,440
------------------------------------------------
$ 343,108 $ 334,115 $ 343,108 $ 334,115
------------------------------------------------
------------------------------------------------
Centerra Gold Inc.
Condensed Consolidated Statements of Shareholders' Equity
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(Expressed in Thousands of United States Dollars, except share information)
Number of Share
Common Capital Contributed Retained
Shares Amount Surplus Earnings Total
----------------------------------------------------------------------------
Balance at
January 1, 2012
(restated) 236,339,041 $ 660,117 $ 33,994 $ 844,348 $1,538,459
----------------------------------------------------------------------------
Share-based
compensation
expense - - 2,335 - 2,335
Shares issued on
exercise of
stock options 30,752 235 (86) - 149
Shares issued on
redemption of
restricted share
units 6,218 68 - - 68
Dividend declared - - - (28,187) (28,187)
Net loss for the
period - - - (143,731) (143,731)
----------------------------------------------------------------------------
Balance at
December 31,
2012 (restated) 236,376,011 $ 660,420 $ 36,243 $ 672,430 $1,369,093
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance at
January 1, 2013
(restated) 236,376,011 $ 660,420 $ 36,243 $ 672,430 $1,369,093
----------------------------------------------------------------------------
Share-based
compensation
expense - - 2,830 - 2,830
Adjustment for
acquisition of
30% non-
controlling
interest - - (18,986) - (18,986)
Shares issued on
redemption of
restricted share
units 14,208 66 - - 66
Dividend declared - - - (36,369) (36,369)
Net earnings for
the period - - - 157,676 157,676
----------------------------------------------------------------------------
Balance at
December 31,
2013 236,390,219 $ 660,486 $ 20,087 $ 793,737 $1,474,310
----------------------------------------------------------------------------
----------------------------------------------------------------------------
To view the 2013 Management's Discussion and Analysis and the Audited Financial
Statements and Notes for the year ended December 31, 2012, please visit the
following link: http://media3.marketwire.com/docs/CG2013-YEMDA.pdf.
The 2013 Audited Financial Statements and Notes and Management's Discussion and
Analysis for the year-ended December 31, 2013 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.
Qualified Person & QA/QC
All reserve and resource estimates, production information and other related
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 and were prepared, reviewed, verified and compiled by
Centerra's geological and mining staff under the supervision of Dan Redmond,
Ontario Professional Geoscientist, Centerra's Director, Technical Services -
Mining, who is the qualified person for the purpose of NI 43-101. Sample
preparation, analytical techniques, laboratories used and quality
assurance-quality control protocols used during the exploration drilling
programs are done consistent with industry standards and independent certified
assay labs are used with the exception of the Kumtor project as described in its
Technical Report.
The Kumtor deposit is described in Centerra's 2012 Annual Information Form and a
technical report dated December 20, 2012, which is filed on SEDAR at
www.sedar.com. The technical report is prepared in accordance with NI 43-101 and
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 Boroo deposit is described in Centerra's 2012 Annual Information Form and a
technical report dated December 17, 2009 prepared in accordance with NI 43-101,
which is available on SEDAR at www.sedar.com. The technical report describes the
exploration history, geology and style of gold mineralization at the Boroo
deposit. Sample preparation, analytical techniques, laboratories used and
quality assurance-quality control protocols used during the drilling programs at
the Boroo site are the same as, or similar to, those described in the technical
report.
The Gatsuurt deposit is described in Centerra's 2012 Annual Information Form and
a technical report dated May 9, 2006 prepared in accordance with NI 43-101. The
technical report has 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.
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
"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".
Cautionary Note Regarding Forward-looking Information
Information contained in this news release and the documents incorporated by
reference herein, contain statements which are not current statements or
historical facts and may be "forward looking information" for the purposes of
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.
The words "believe", "expect", "anticipate", "contemplate", "target", "plan",
"intends", "continue", "budget", "estimate", "may", "will", "schedule" and
similar expressions identify forward-looking information. These forward-looking
statements relate to, among other things, general economic indicators affecting
the price of gold and gold production, interest rates, and exchange rates, the
Company's plans for future borrowing under its revolving credit facility, the
successful resolution of outstanding matters in the Kyrgyz Republic (discussed
under the heading "Other Corporate Development - Kyrgyz Republic") to the
benefit of all shareholders including matters relating to the State Commission
report, government resolutions and decrees, discussions with the Kyrgyz
Government on the Kumtor Project Agreements and a possible restructuring of the
Kumtor project into a joint venture, the resolution of environmental claims
received from SIETS and SAEPF by Kumtor in 2012 and 2013, the environmental
claim received from the Green Party of Kyrgyzstan in the amount of $9 billion,
the claim of the General Prosecutor's Office of the Kyrgyz Republic purporting
to invalidate Kumtor's land use certificate and to seize certain lands within
the Kumtor concession area and the draft Kyrgyz law on denunciation having no
material impact on Kumtor operations, the Company's ability to successfully
demolish certain buildings and relocate other infrastructure at Kumtor and to
maintain the availability of the Kumtor mobile fleet, the Company's ability to
manage the movement of the Central Valley Waste Dump, the Company's ability to
access and mine high-grade ore in the SB Zone at Kumtor, the Company's future
production for 2014, including estimates of adjusted operating costs(1) and
all-in unit costs(12), exploration plans and expenditures and the success
thereof, capital expenditures, mining plans at Kumtor, statements regarding
having sufficient cash and investments to carry out the Company's business plans
for 2014, processing activities at Boroo, the outcome of discussions with the
Mongolian government on the potential development of the Company's Gatsuurt
deposit and the strategic designation status of the Gatsuurt deposit, plans for
mining, processing and construction at Gatsuurt, asset retirement obligations,
future planned exploration expenditures; the Company's business and political
environment and business prospects; hedging activities; the timing and
development of new deposits; and Centerra's plans to complete a preliminary
economic assessment and commence a feasibility study for its Oksut property in
2014.
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. Material assumptions used to forecast production and costs include
those described under the heading "Material Assumptions and Risks". Factors that
could cause actual results or events to differ materially from current
expectations include, among other things: (A) political and regulatory risks,
including the political risks associated with the Company's principal operations
in the Kyrgyz Republic and Mongolia, resource nationalism, the impact of changes
in, or to the more aggressive enforcement of, laws, regulations and government
practices in the jurisdictions in which the Company operates, the impact of any
actions taken by the Government and Parliament relating to the project
agreements governing the Kumtor Project (the "Kumtor Project Agreements") and
any proposals to restructure the Kumtor project into a joint venture, the impact
of any actions taken by the Kyrgyz authorities or political groups relating to
allegations of environmental violations and other offences and the deliberate
understatement of the reserves by management, any impact on the purported
cancellation of Kumtor's land use rights at the Kumtor Project, the effect of
the Water and Forest Law on the Company's operations in Mongolia, the effect of
the 2006 Mongolian Minerals Law on the Company's Mongolian operations, the
effect of the November 2010 amendments to the 2006 Mongolian Minerals Law on the
royalties payable in connection with the Company's Mongolian operations, the
impact of continued scrutiny from Mongolian regulatory authorities on the
Company's Boroo project, the impact of changes to, or the increased enforcement
of, environmental laws and regulations relating to the Company's operations;
(B) risks related to operational matters and geotechnical issues, including the
movement of the Central Valley Waste Dump, the waste and ice movement at the
Kumtor Project and the Company's continued ability to successfully manage such
matters, the occurrence of further ground movements at the Kumtor Project, the
timing of the infrastructure move potentially impacting the maintenance of the
mobile fleet and its availability, the ability of the Company to access and mine
the high-grade ore in the SB Zone, the success of the Company's future
exploration and development activities, including the financial and political
risks inherent in carrying out exploration activities, the adequacy of the
Company's insurance to mitigate operational risks, mechanical breakdowns, the
Company's ability to obtain the necessary permits and authorizations to (among
other things) raise the tailings dam at the Kumtor Project to the required
height, the Company's ability to replace its mineral reserves, the occurrence of
any labour unrest or disturbance and the ability of the Company to successfully
re-negotiate collective agreements when required, seismic activity in the
vicinity of the Company's operations in the Kyrgyz Republic and Mongolia, long
lead times required for equipment and supplies given the remote location of the
Company's properties, reliance on a limited number of suppliers for certain
consumables, equipment and components, illegal mining on the Company's Mongolian
properties, the Company's ability to accurately predict decommissioning and
reclamation costs, the Company's ability to attract and retain qualified
personnel, competition for mineral acquisition opportunities, risks associated
with the conduct of earn-in arrangements, and the possibility of failure of the
ring gear and spare ring gear at the Kumtor ball mill;
(C) risks relating to financial matters including the sensitivity of the
Company's business to the volatility of gold prices, the impact of declining
gold prices and rising costs on the Company's asset valuation leading to
potential impairment, the imprecision of the Company's mineral reserves and
resources estimates and the assumptions they rely on, the accuracy of the
Company's production and cost estimates, the impact of restrictive covenants in
the Company's revolving credit facility which may, among other things, restrict
the Company from pursuing certain business activities, the Company's ability to
obtain future financing, the impact of global financial conditions, the impact
of currency fluctuations, the effect of market conditions on the Company's
short-term investments, the Company's ability to make payments including any
payments of principal and interest on the Company's debt facilities depends on
the cash flow of its subsidiaries; and (D) risks related to environmental and
safety matters, including the ability to continue obtaining necessary operating
and environmental permits, licenses and approvals, the impact of the significant
environmental claims made in 2012, and 2013 relating to the Kumtor Project,
inherent risks associated with using sodium cyanide in the mining operations;
legal and other factors such as litigation, defects in title in connection with
the Company's properties, the Company's ability to enforce its legal rights,
risks associated with having a significant shareholder, and possible director
conflicts of interest. 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 "Risks that can
affect our business" in the Company's Annual Information Form for the year ended
December 31, 2012, 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 herein or
incorporated by reference. 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 February 19, 2014. 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 Gold Inc. 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 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 based in
Toronto, Ontario, Canada.
Conference Call
Centerra invites you to join its 2013 fourth quarter, year-end conference call
on Thursday, February 20, 2014 at 11:00AM Eastern Time. The call is open to all
investors and the media. To join the call, please dial Toll-Free in North
America (800) 734-8507 or International callers dial +1 (212) 231-2900.
Alternatively, an audio feed web cast will be available on www.centerragold.com.
A recording of the call will be available on www.centerragold.com shortly after
the call, and via telephone until midnight on Thursday, February 27, 2014 by
calling (416) 626-4100 or (800) 558-5253 and using passcode 21704596.
Additional information on Centerra is available on the Company's web site at
www.centerragold.com and at SEDAR at www.sedar.com.
(1) Non-GAAP measure, see discussion under "Non-GAAP Measures".
FOR FURTHER INFORMATION PLEASE CONTACT:
Centerra Gold Inc.
John W. Pearson
Vice President, Investor Relations
(416) 204-1241
(416) 204-1954 (FAX)
john.pearson@centerragold.com
www.centerragold.com
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