Centerra Gold Reports 2012 Fourth Quarter and Year-end Results
TORONTO, ONTARIO -- (Marketwire) -- 02/20/13 -- Centerra Gold Inc. (TSX: CG) -
This news release contains forward-looking information that is subject to the risk factors and assumptions set out on page 24 and in our Cautionary Note Regarding Forward-looking Information on page 34. It should be read in conjunction with the Company's audited financial statements and notes thereto for the year ended December 31, 2012 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, 2012.
All figures are in United States dollars.
To view the 2012 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/CG2012FSMDAQ4.pdf.
Centerra Gold Inc. today reported adjusted net earnings of $112.7 million or $0.48 per share in the fourth quarter of 2012 before recognizing a one-time accounting charge of $180.7 million for the de-recognition of the underground assets at Kumtor, which results in the Company recording a net loss of $68.0 million or $0.29 per share for the period. This compares to net earnings of $79.4 million or $0.34 per common share in the same quarter of 2011.
2012 Fourth Quarter Highlights
-- Increased reserves at Kumtor by 58% with the new KS-13 life-of-mine
plan.
-- Replaced reserves, proven and probable gold reserves now total 11.1
million ounces of contained gold.
-- Agreed to acquire the remaining 30% interest for 100% ownership of the
Oksut gold project in Turkey, which subsequently closed in January 2013.
-- Reported initial resource estimate on the Oksut gold project of
indicated resources of 682,000 contained ounces and inferred resources
of 477,000 ounces of contained gold.
-- Started up the heap leach operation at the Boroo mine.
-- Signed a new two year Collective Bargaining Agreement at the Kumtor
mine. The new Agreement expires at the end of December 2014.
-- Produced 219,316 ounces of gold in the quarter, including 189,438 ounces
at Kumtor and 29,878 ounces at Boroo.
-- Increased revenues to $368.5 million compared to $248.0 million in the
same quarter of 2011.
-- Cash provided by operations was $208.2 million compared to $60.3 million
in the fourth quarter of 2011.
-- Reported all-in cash cost (pre-tax) for the quarter of $839 per ounce
compared to $934 for the 2011 fourth quarter.
For the full year, the Company reported an adjusted net loss of $3.3 million or $0.01 per share before recognizing a one-time accounting charge of $180.7 million for the de-recognition of the underground assets at Kumtor, which results in the Company recording a net loss of $184.0 million or $0.78 per share, compared to net earnings of $370.9 million or $1.57 per share in 2011. The 2012 results reflects the charge for the de-recognition of the underground assets at Kumtor and the negative impact on production resulting from the unexpected acceleration of ice and waste in the high movement area above the SB Zone which made it unsafe to mine in this area and required a revision to the production plan for 2012 delaying the release of ore.
Consolidated gold production in 2012 totalled 387,076 ounces compared to 642,380 ounces in the prior year. The decrease in ounces poured was primarily due to the unexpected acceleration of ice and waste into the Central Pit resulting in the rescheduling of mining activities to the extension of the southwest end of the SB Zone which was discovered in 2011. This revised mining plan led to a 46% decrease in production at Kumtor year over year, which was partially offset by a 21% increase in production at Boroo where the heap leach operation was re-started in October 2012.
Commentary
Ian Atkinson, President and CEO of Centerra stated, "Recently we published our updated reserves and resources and with that we were pleased to report our initial resource estimate on the Oskut Gold Project in Turkey. We have announced an indicated resource of 682,000 contained ounces of gold and an inferred resource of 477,000 ounces of contained gold at Oksut. It is still early in the development of this project, but we are excited and expect to continue to grow the resource, with the aim to fast track it to production. From a financial standpoint, in the fourth quarter of 2012, the Company had strong adjusted net earnings of $112.7 million or $0.48 per share, before recognizing the one-time accounting charge of $180.7 million for the de-recognition of the underground assets at Kumtor. The operations generated approximately $135 million of cash during the quarter and our cash and short-term investments grew during the period to $382 million. In comparing the quarter-over-quarter operating performance, both operations performed well in the quarter producing 45% more ounces in the fourth quarter of 2012 compared to the same period last year.
"Still 2012 was a challenging year, beginning with the ice and waste movement at Kumtor, the revised mining plan, political challenges, lower than expected mill throughput and recovery, as well as lower than expected mill head grades encountered in the fourth quarter at Kumtor as we were mining the newly discovered portion of the orebody. However, as outlined in the December 2012 Kumtor technical report, the KS-13 model has proven to be a reliable indicator of mineral reserves relative to gold production and we expect that trend to continue. In 2013, we expect approximately 75% of our production at Kumtor to come from the SB Zone which has had a number of years of historical production. For 2013, consolidated gold production is expected to be in the 605,000 to 660,000 ounce range as Kumtor returns to more normal production levels."
"The State Commission has issued its final report regarding Kumtor and has delivered it to the Kyrgyz Republic Government and the Kyrgyz Republic Parliament. On February 20, 2013, the Parliament debated the State Commission report and discussed a draft resolution that endorses the report and calls on the Government to hold negotiations with Centerra with a view to revising the agreements governing the Kumtor project in the interests of the Kyrgyz Republic. We understand that the draft resolution recommends that if mutually advantageous terms cannot be agreed the Government should take a number of steps, including annulling legislation enacted in 2009 approving the project agreements and terminating such project agreements. See "Other Corporate Developments - Kyrgyz Republic - State Commission Activities - Parliament Review and Draft Resolution". The Company believes that the conclusions and recommendations of State Commission relating to the Company are exaggerated or without merit and has responded in detail to the State Commission. We have always benefited from a close and constructive dialogue with the Kyrgyz authorities over the many years we have operated there and remain committed to continuing to work with them to resolve these issues in accordance with the New Project Agreements, and to the benefit of all shareholders. However, no assurances can be given that the claims and recommendations of the State Commission can be resolved without a material negative impact on the Company."
"Finally, Centerra like many of our peers is moving toward reporting an 'all-in cash cost' methodology for its gold production at Kumtor and Boroo mine operations. Having first reported along these lines with the announcement of the revised life-of-mine plan for Kumtor and with our 2012 production update and 2013 guidance, the Company believes an all-in cash cost measure more fully reflects the actual cost of producing an ounce of gold than the former Gold Institute total cash cost measure. Centerra's projected consolidated all-in cash (pre-tax) cost per ounce produced for 2013, described in our outlook, is within a range of $1,067 to $1,164, and includes all costs except revenue-based taxes in the Kyrgyz Republic and income taxes. This demonstrates the Company's focus on maximizing margins and our leverage to increases in the gold price. We continue to focus on our exploration and business development efforts as we look for additional operating platforms in an effort to increase our future gold production, diversify our regions of operation and help us achieve our goal of producing 1.5 million ounces of gold annually."
Year-end Gold Reserves and Resources
Reserves
As reported in the Company's news release of February 7, 2013, Centerra's proven and probable gold reserves as of December 31, 2012, increased by 3.6 million contained ounces (before accounting for 2012 production) to 11.1 million ounces of contained gold, compared to 8.1 million ounces as of December 31, 2011. This represents an increase of 45% before accounting for 534,000 contained ounces processed at Kumtor and Boroo during 2012. The reserve increase is the result of the significant expansion of the Kumtor Central Pit, announced November 7, 2012 and is described in detail in a new NI 43-101 technical report filed on SEDAR in December 2012. All 2012 year-end reserves were estimated using a gold price of $1,350 per ounce compared to $1,200 per ounce at December 31, 2011.
Resources
As of December 31, 2012, Centerra's measured and indicated resources total 5.1 million ounces of contained gold a decrease of 23% or 1.5 million ounces, compared to 6.6 million contained ounces as of December 31, 2011. The majority of this decrease is a result of the conversion of previously outlined Kumtor Central Pit measured and indicated open pit resources into mineral reserves as a result of the KS-13 Pit expansion. This conversion of resources to reserves has been offset by increased resources at Kumtor and the addition of 682,000 contained ounces of new indicated resources at the Oksut project (100% basis as of January 24, 2013).
Centerra's inferred resources, as of December 31, 2012, total 4.1 million ounces of contained gold for an increase of 22,000 contained ounces over the December 31, 2011 figures. The conversion of Kumtor underground resources into reserves within the KS-13 expanded pit was offset by the addition of 477,000 contained ounces of new inferred resources at the Oksut project (100% basis) and the new high grade resources outlined below the KS-13 pit design which resulted in the increase.
2012 year-end resource estimates on the Boroo, Gatsuurt, Ulan Bulag properties in Mongolia and Kara Beldyr property in Russia remain unchanged from those outlined at the end of 2011.
Financial and Operating Summary
Consolidated Highlights
----------------------------------------------------------------------------
Three Months Ended Year Ended
December 31 December 31
----------------------------------------------------------------------------
Financial and
Operating Summary 2012 2011 % Change 2012 2011 % Change
----------------------------------------------------------------------------
Revenue - $ millions 368.5 248.0 49% 660.7 1,020.3 (35%)
----------------------------------------------------------------------------
Cost of sales - $
millions (1) 165.2 104.1 59% 387.5 382.3 1%
----------------------------------------------------------------------------
Abnormal mining
costs - $ millions 8.9 - 100% 60.9 - 100%
----------------------------------------------------------------------------
Revenue-based taxes
- $ millions 44.5 33.6 33% 74.7 131.8 (43%)
----------------------------------------------------------------------------
Loss on de-
recognition of UG -
$ millions 180.7 - 100% 180.7 - 100%
----------------------------------------------------------------------------
Exploration - $
millions 11.5 11.7 (1%) 37.9 39.6 (4%)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Earnings (loss)
before income taxes
- $ millions (62.8) 80.3 (178%) (172.3) 362.8 (147%)
----------------------------------------------------------------------------
Income tax expense -
$ millions 5.2 0.9 486% 11.7 8.1 44%
----------------------------------------------------------------------------
Net earnings (loss)
- $ millions (68.0) 79.4 (186%) (184.0) 370.9 (150%)
----------------------------------------------------------------------------
Earnings(loss) per
common share-
$basic&diluted (0.29) 0.34 (185%) (0.78) 1.57 (150%)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash provided by
operations - $
millions 208.2 60.3 245% 134.7 434.9 (69%)
----------------------------------------------------------------------------
Capital expenditures
-$ millions 85.0 30.0 184% 410.6 187.9 118%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted average
common shares
outstanding - basic
(thousands) (2) 236,339 236,323 0% 236,369 236,088 0%
----------------------------------------------------------------------------
Weighted average
common shares
outstanding -
diluted (thousands)
(2) 236,339 236,621 (0%) 236,369 236,354 0%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Average gold spot
price - $/oz 1,721 1,688 2% 1,669 1,572 6%
----------------------------------------------------------------------------
Average realized
gold price - $/oz 1,711 1,690 1% 1,692 1,569 8%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Gold sold - ounces 215,361 146,704 47% 390,533 650,258 (40%)
----------------------------------------------------------------------------
Cost of sales (1)
(3) - $/oz sold 767 709 8% 992 588 69%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Gold produced -
ounces 219,316 151,562 45% 387,076 642,380 (40%)
----------------------------------------------------------------------------
Operating cash
cost(3)(4)(5)- $/oz
produced 360 603 (40%) 663 502 32%
----------------------------------------------------------------------------
Total production
cost(3)(4)(5) -
$/oz produced 998 820 22% 1,143 687 66%
----------------------------------------------------------------------------
All-in cash cost
(pre-tax)
(3)(4)(5)-$/oz
produced 839 934 (10%) 1,882 929 103%
----------------------------------------------------------------------------
(1) Cost of sales excludes regional office administration.
(2) As of December 31, 2012, the Company had 236,376,011 common shares
issued and outstanding.
(3) Operating cash cost is comprised of mine operating costs such as
mining, processing, regional office administration, royalties and
production taxes (except at Kumtor where revenue-based taxes are
excluded), but excludes depreciation, depletion and amortization,
reclamation costs, capital investments, community investments,
exploration expenses and corporate general and administration expenses.
Operating cash cost, total production cost and all-in cash cost (pre-
tax) per ounce produced as well as cost of sales per ounce sold are
non-GAAP measures and are discussed under "Non-GAAP Measures".
(4) As a result of Kumtor's Restated Investment Agreement signed in 2009,
operating cash cost and total production cost per ounce measures
exclude operating and revenue-based taxes.
(5) All-in cash cost (pre-tax) per ounce produced includes operating cash
costs, sustaining and growth capital, corporate general and
administrative expenses, global exploration expenses, and community
investments, but excludes revenue-based taxes at Kumtor and income
taxes.
Fourth Quarter of 2012 compared to Fourth Quarter of 2011
-- Gold production for the fourth quarter of 2012 was 219,316 ounces
compared to 151,562 ounces in the same quarter of 2011. The increased
gold production in the current quarter reflects 37% higher production at
Kumtor as higher throughput was achieved in the mine and mill in the
fourth quarter. Boroo achieved significantly higher production (+132%)
in the fourth quarter of 2012, by processing higher grades with slightly
lower recoveries through the mill and recovering gold from its heap
leach operations which resumed activities in October 2012 after
receiving all required permits.
-- Revenues in the fourth quarter of 2012 increased by $120.5 million to
$368.5 million from $248 million in the same period last year mainly as
a result of 47% higher ounces sold, (215,361 ounces compared to 146,704
ounces). The average gold price realized in the fourth quarter of 2012
was $1,711 per ounce, an increase from the $1,690 per ounce realized in
the same quarter of 2011.
-- Cost of sales for the fourth quarter of 2012 was $165.2 million compared
to $104.1 million in the same quarter of 2011. The increase reflects the
higher ounces sold at both sites and higher operating costs due to price
increases for diesel, volume increases due to the increased use of
consumables for the expanded fleet at Kumtor and the start-up of the
heap leach operation at Boroo.
Depreciation, depletion and amortization (DD&A) included in costs of
sales for the fourth quarter of 2012 of $91.2 million increased by $60.7
million compared to the same period last year, due in part to the
processing and sale of significantly higher ounces in the fourth quarter
of 2012. In addition, depreciation expense for the fourth quarter of
2012 was higher than the comparative quarter reflecting the increased
depreciation from the expanded mining fleet and achieving higher
throughput mining cut-back 14B in the last quarter of 2012 compared to
the same quarter of 2011 where lower volumes were mined in cut-back 14A.
-- The Company recorded an amount of $8.9 million of abnormal mining costs
at Kumtor in the fourth quarter of 2012 representing the ice and waste
removal from the high movement unload zone. There were no abnormal
mining costs in the comparative quarter.
-- Other operating expenses for the fourth quarter of 2012 totalled $4.8
million compared to $3.6 million in the same quarter of 2011. Costs in
the current quarter of 2012 include $2.9 million for the closure of the
underground development project at Kumtor and $1.9 million for ongoing
sustainable development projects in both countries where the Company
operates.
-- Exploration expenditures for the fourth quarter of 2012 were $11.5
million compared to $11.7 million in the same quarter of 2011 mainly
reflecting increased drilling activity at the ATO property in Mongolia,
the Dvoinoy Joint Venture in Russia and Kumtor.
-- A one-time accounting 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 to
expand the open pit at Kumtor and as a result consume a major portion of
the underground infrastructure.
-- A net loss of $68.0 million was recorded in the fourth quarter of 2012
compared to net earnings of $79.4 million in the same quarter of 2011.
Before the charge for the de-recognition of the underground assets, net
earnings of $112.7 million were recorded. The higher earnings (pre-
accounting charge) in the current quarter of 2012 reflect the increased
production and sales at both operations.
-- Cash provided by operations was $208.2 million in the fourth quarter of
2012 compared to $60.3 million in the same period of 2011. The increase
over 2011 reflects higher earnings from higher production and ounces
sold, higher realized prices and a reduction in working capital levels,
partially offset by higher operating costs.
-- Capital expenditures (spent and accrued) in the fourth quarter of 2012
were $85.0 million, which included sustaining capital of $11.1 million.
Growth capital of $73.9 million in the fourth quarter of 2012 reflects
$73.4 million of spending at Kumtor mainly on fleet expansion ($23.1
million) and the stripping of cut-back 14A ($36.8 million) and spending
at Boroo of $0.3 million. Capital expenditures in the same quarter of
2011 were $30.0 million, which included $9.0 million spent and accrued
on sustaining capital projects and $21.0 million invested in growth
capital.
----------------------------------------------------------------------------
Three Months Ended Year Ended
All-in Cash Costs(1)- Consolidated December 31 December 31
----------------------------------------------------------------------------
$ millions unless otherwise
specified 2012 2011 2012 2011
----------------------------------------------------------------------------
Operating cash costs 78.9 91.4 256.6 322.4
Capitalized stripping and ice unload
- cash (1) 32.2 6.0 152.7 39.4
----------------------------------------
Operating cash costs and capitalized
stripping 111.1 97.4 409.3 361.8
Sustaining capital (cash) 11.1 9.0 43.5 34.6
Growth capital (cash) 37.1 12.7 177.2 99.9
----------------------------------------------------------------------------
Operating Cash Costs including
capital (1) 159.3 119.1 630.0 496.3
----------------------------------------------------------------------------
Corporate and other cash costs (2) 24.6 22.5 98.5 100.4
----------------------------------------------------------------------------
All-in Cash Costs (pre-tax) (1) 183.9 141.6 728.5 596.7
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Ounces poured 219,316 151,562 387,076 642,380
All-in Cash Costs (pre-tax) per
ounce produced(1) $ 839 $ 934 $ 1,882 $ 929
----------------------------------------------------------------------------
(1) All-in cash costs (pre-tax), capitalized stripping - cash and
sustaining and growth capital (excluding stripping) are non-GAAP
Measures and are discussed under "Non-GAAP Measures".
(2) Corporate and other cash costs include corporate general and
administrative expenses, global exploration expenses, and community
investments.
-- Operating cash costs in the fourth quarter of 2012 was $78.9 million
compared to $91.4 million in the comparative quarter of 2011. The
decrease in the 2012 period results from higher capitalized stripping
costs and charges for the unloading of ice and waste, partially offset
by higher operating costs for labour, diesel fuel and other consumables
for the expanded fleet at Kumtor.
-- Operating cash costs per ounce produced was $360 in the fourth quarter
of 2012 compared to $603 in the comparative quarter of 2011. The
decrease in the 2012 period results mainly from significantly higher
production at both sites, partially offset by higher operating costs.
Operating cash costs per ounce produced is a non-GAAP measure and is
discussed under "Non-GAAP Measures".
-- All-in cash costs per ounce produced pre-tax were $839 in the fourth
quarter of 2012 compared to $934 in the same quarter of 2011. The
decrease reflects the higher production at both sites in the 2012
quarter, partially offset by higher capitalized stripping and higher
spending on capital. All-in cash costs per ounce produced is a non-GAAP
measure and is discussed under "Non-GAAP Measures".
Full Year 2012 compared to Full Year 2011
-- Gold production for 2012 totalled 387,076 ounces compared to 642,380
ounces in the prior year. The decreased gold production was mainly due
to the March 2012 revised mine plan at Kumtor, as a result of the
accelerated ice and waste movements in the SB Zone, which led to a 46%
decrease in production at Kumtor year-over-year, partially offset by a
21% increase in production at Boroo, which was positively impacted by
the start-up of the heap leach operation in October 2012.
-- Revenues for 2012 decreased to $660.7 million compared to $1,020.3
million in 2011 due to a 40% decrease in ounces sold (390,533 ounces
compared to 650,258 ounces), partially offset by an 8% increase in the
realized gold price. The reduction in sales reflects the lower gold
production at Kumtor (-46%) mostly due to lower volumes as a result of
the revised mine plan. The average gold price for 2012 was $1,692 per
ounce, compared to $1,569 per ounce realized in 2011.
-- Operating cash cost per ounce produced for 2012 increased to $663
compared to $502 per ounce in 2011. The increase in 2012 reflects the
impact of lower production levels due to lower grades and recoveries
from the processing of stockpiled material at Kumtor and higher
operating costs at both Kumtor and Boroo as discussed in "Operations
Update". Operating cash cost per ounce produced is a non-GAAP measure
and is discussed under "Non-GAAP Measures".
-- All-in cash costs per ounce produced for 2012 increased to $1,882
compared to $929 per ounce in 2011. The increase in 2012 reflects the
impact of lower production levels due to lower grades and recoveries
from the processing of stockpiled materials at Kumtor, higher
capitalized stripping and ice and waste unloading costs, and higher
spending on capital at Kumtor and higher operating costs at both Kumtor
and Boroo. All-in cash costs per ounce produced is a non-GAAP measure
and is discussed under "Non-GAAP Measures".
-- Cost of sales in 2012 was $387.5 million compared to $382.3 million in
2011, reflecting the processing of lower grade, higher cost, stockpiled
material at Kumtor for the period to September 2012, higher operating
costs for labour, diesel and other consumables and increased DD&A. Cost
of sales in 2012 also includes 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. In 2011
costs of sales included a charge of $5.8 million for the settlement
resulting from an audit by the Kyrgyz Social Fund, relating to the
calculation of the premium for work conducted at high altitude at the
Kumtor project.
Depreciation, depletion, and amortization associated with production
increased by 44% to $142.6 million in 2012 from $99.3 million in 2011 as
a result of higher depreciation for the expanded mobile fleet at Kumtor
and higher amortization of deferred stripping at both sites, partially
offset by lower volumes.
-- The Company recorded $60.9 million of abnormal mining costs at Kumtor in
2012 (nil in 2011) representing $24.8 million for the cost of removing
the ice and waste from the high movement unload zone and $36.1 million
of stripping costs during the period while little or no ore was mined.
-- Other operating expenses for 2012 totalled $34.3 million, which includes
$26.2 million spent on corporate social responsibility programs and $7.8
million for the closure of the underground project at Kumtor, compared
to $15.5 million in 2011.
-- Exploration expenditures in 2012 were $37.9 million compared to $39.6
million in 2011. Exploration expenditures in 2012 decreased slightly
from 2011 reflecting reduced regional exploration programs in Kyrgyz
Republic and the closure of the Reno, Nevada office and cessation of the
US exploration program in mid-2012.
-- A one-time accounting 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 to
expand the open pit at Kumtor which expansion will consume a major
portion of the underground infrastructure.
-- The net loss for 2012 was $184.0 million or $0.78 per share compared to
net earnings of $370.9 million or $1.57 per share in 2011, reflecting
the de-recognition of Kumtor's underground assets and lower earnings at
Kumtor from the revised mining plan.
-- Cash provided from operations for 2012 totalled $134.7 million compared
to $434.9 million in 2011, primarily as a result of significantly lower
earnings at Kumtor in 2012.
-- Capital expenditures (spent and accrued) in 2012 were $410.6 million,
which included sustaining capital of $40.8 million. Growth capital of
$367.1 million in 2012 reflects $359.0 million of spending at Kumtor
mainly on fleet expansion ($117 million), the stripping of cut-back 14B
and 14A ($179.8 million) and on underground development of decline 1 and
2 ($30.0 million) and spending at Boroo of $7.7 million in 2012 mainly
to strip Pit 6 prior to reaching ore. Capital expenditures in 2011 were
$187.9 million, which included $34.6 million spent and accrued on
sustaining capital projects and $153.3 million invested in growth
capital.
As at December 31, 2012, 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, 2012. The drawn amount is due to be repaid on August 8, 2013, or at the Company's discretion, repayment of the loaned funds could be extended until February 2014.
Net cash and short-term investments decreased to $382.1 million from $568.2 million at December 31, 2011.
Operations Update - Summary of Key Operating Results
----------------------------------------------------------------------------
Three Months Ended Year Ended
December 31 December 31
----------------------------------------------------------------------------
Kumtor Operating
Results 2012 2011 % Change 2012 2011 % Change
----------------------------------------------------------------------------
Revenue - $ millions 317.8 239.7 33% 533.6 941.1 (43%)
----------------------------------------------------------------------------
Gold sold - ounces 185,936 141,897 31% 314,987 599,494 (47%)
----------------------------------------------------------------------------
Average realized gold
price - $/oz 1,709 1,689 1% 1,694 1,570 8%
----------------------------------------------------------------------------
Cost of sales - $
millions (1) 137.3 96.9 42% 311.1 332.6 (6%)
----------------------------------------------------------------------------
Cost of sales - $/oz
sold (3) 738 683 8% 988 555 78%
----------------------------------------------------------------------------
Tonnes mined - 000s 38,185 37,124 3% 147,610 150,605 (2%)
----------------------------------------------------------------------------
Tonnes ore mined -
000s 4,463 1,095 308% 4,955 6,020 (18%)
----------------------------------------------------------------------------
Tonnes milled - 000s 1,547 1,450 7% 4,756 5,815 (18%)
----------------------------------------------------------------------------
Average mill head
grade - g/t (2) 5.13 3.80 35% 2.79 3.79 (26%)
----------------------------------------------------------------------------
Recovery - % 77.7 77.6 0% 75.6 80.8 (6%)
----------------------------------------------------------------------------
Gold produced -
ounces 189,438 138,696 37% 315,238 583,156 (46%)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating cash cost
(3) (4) - $/oz
produced 341 580 (41%) 655 482 36%
----------------------------------------------------------------------------
Total production cost
(3) (4)-$/oz
produced 1,021 808 26% 1,175 673 75%
----------------------------------------------------------------------------
All-in cash cost
(pre-tax) (3) (5)-
$/oz produced 760 769 (1%) 1,808 768 135%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capital expenditures
- $ millions 83.9 28.5 195% 399.9 180.7 121%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Boroo Operating
Results
----------------------------------------------------------------------------
Revenue - $ millions 50.6 8.3 512% 127.2 79.3 60%
----------------------------------------------------------------------------
Gold sold - ounces 29,425 4,807 512% 75,546 50,764 49%
----------------------------------------------------------------------------
Average realized gold
price - $/oz 1,720 1,719 0% 1,684 1,562 8%
----------------------------------------------------------------------------
Cost of sales - $
millions (1) 27.9 7.2 286% 76.4 49.7 54%
----------------------------------------------------------------------------
Cost of sales - $/oz
sold (3) 948.0 1,504 (37%) 1,011.0 979 3%
----------------------------------------------------------------------------
Total tonnes mined -
000s 0 0 - 6,338 0 100%
----------------------------------------------------------------------------
Tonnes mined heap
leach - 000s 0 0 - 143 0 100%
----------------------------------------------------------------------------
Tonnes stacked heap
leach - 000s 456 100% - 456 0 100%
----------------------------------------------------------------------------
Tonnes ore mined
direct mill feed
-000's 0 0 - 907 0 100%
----------------------------------------------------------------------------
Tonnes ore milled -
000s 581 629 (8%) 2,382 2,340 2%
----------------------------------------------------------------------------
Average mill head
grade - g/t (2) 2.07 1.09 90% 1.32 1.11 19%
----------------------------------------------------------------------------
Recovery - % 58.3 66.5 (12%) 64.0 68.9 (7%)
----------------------------------------------------------------------------
Gold produced -
ounces 29,878 12,866 132% 71,838 59,224 21%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating cash cost
(3) - $/oz produced 479 849 (44%) 699 694 1%
----------------------------------------------------------------------------
Total production cost
(3)-$/oz produced 846 951 (11%) 999 828 21%
----------------------------------------------------------------------------
All-in cash cost
(pre-tax) (3) (5)-
$/oz produced 502 940 (47%) 820 800 3%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capital expenditures
(Boroo) - $ millions 0.7 1.1 (39%) 9.8 6.3 55%
----------------------------------------------------------------------------
Capital expenditures
(Gatsuurt) - $
millions 0.1 0.0 504% 0.4 0.3 39%
----------------------------------------------------------------------------
(1) Cost of sales excludes regional office administration.
(2) g/t means grams gold per tonne.
(3) Operating cash cost is comprised of mine operating costs such as
mining, processing, regional office administration, royalties and
production taxes (except at Kumtor where revenue-based taxes are
excluded), but excludes depreciation, depletion and amortization,
reclamation costs, capital investments, community investments,
exploration expenses and corporate general and administration expenses.
Operating cash cost, total production cost and all-in (pre-tax) cost
produced as well as cost of sales per ounce sold are non-GAAP Measures
and are discussed under "Non-GAAP Measures".
(4) Kumtor's operating cash cost and total production cost per ounce
measures exclude operating and revenue-based taxes.
(5) All-in cash cost (pre-tax) per ounce produced for Kumtor and Boroo
includes operating cash cost, sustaining and growth capital, but
excludes corporate general and administrative expenses, global
exploration expenses, and community investments, revenue-based taxes at
Kumtor and income taxes.
----------------------------------------------------------------------------
Three Months Ended Year Ended
All-in Cash Costs (1)- Kumtor December 31 December 31
----------------------------------------------------------------------------
$ millions unless otherwise
specified 2012 2011 2012 2011
----------------------------------------------------------------------------
Operating cash costs 64.6 80.4 206.5 281.3
Capitalized stripping and ice
unload - cash (1) 32.2 6.0 146.4 39.4
--------------------------------------------
Operating cash costs and
capitalized stripping 96.8 86.4 352.9 320.7
Sustaining capital (cash) 10.5 7.8 40.8 32.2
Growth capital (cash) 36.6 12.4 176.4 95.0
----------------------------------------------------------------------------
Operating Cash Costs including
capital (1) 143.9 106.6 570.1 447.9
----------------------------------------------------------------------------
Corporate and other cash costs
(2) - - - -
----------------------------------------------------------------------------
All-in Cash Costs (pre-tax)
(1)(3) 143.9 106.6 570.1 447.9
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Ounces poured 189,438 138,696 315,238 583,156
All-in Cash Costs (pre-tax) per
ounce produced (1)(3) $ 760 $ 769 $ 1,808 $ 768
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three Months Ended Year Ended
All-in Cash Costs (1)- Boroo December 31 December 31
----------------------------------------------------------------------------
$ millions unless otherwise
specified 2012 2011 2012 2011
----------------------------------------------------------------------------
Operating cash costs 14.3 10.9 50.2 41.1
Capitalized stripping - cash (1) 0.0 0.0 6.3 0.0
--------------------------------------------
Operating cash costs and
capitalized stripping 14.3 10.9 56.5 41.1
Sustaining capital (cash) 0.4 0.9 2.1 1.8
Growth capital (cash) 0.3 0.3 0.3 4.5
----------------------------------------------------------------------------
Operating Cash Costs including
capital (1) 15.0 12.1 58.9 47.4
----------------------------------------------------------------------------
Corporate and other cash
costs(2) - - - -
----------------------------------------------------------------------------
All-in Cash Costs (pre-tax)
(1)(3) 15.0 12.1 58.9 47.4
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Ounces poured 29,878 12,866 71,838 59,224
All-in Cash Costs (pre-tax) per
ounce produced (1)(3) $ 502 $ 940 $ 820 $ 800
----------------------------------------------------------------------------
(1) All-in cash costs (pre-tax), capitalized stripping -cash and sustaining
and growth capital (excluding stripping) are non-GAAP Measures and are
discussed under "Non-GAAP Measures".
(2) Corporate and other cash costs include corporate general and
administrative expenses, global exploration expenses, and community
investments.
(3) All-in cash costs (pre-tax) for Kumtor and Boroo exclude corporate and
other cash costs.
Kumtor
At the Kumtor mine, gold production was 189,438 ounces in the fourth quarter of 2012, compared to 138,696 ounce in the same quarter in 2011. The increased production for the fourth quarter of 2012 was due to processing the higher grade ore available from cutback 14B. In comparison, in the fourth quarter of 2011 Kumtor processed consistent grades from the then newly accessed cutback 12B. Mill head grades for the fourth quarter of 2012 were 5.13 g/t with a recovery of 77.7%, versus 3.80 g/t and a recovery of 77.6% for the same quarter in 2011. Tonnes processed in the fourth quarter of 2012 were 1,547,463, 7% higher than the same period of 2011 as the Company increased mill availabilities and throughput following the seven week mill shutdown in the third quarter when extensive maintenance and remediation work was completed.
Operating cash costs including capitalized stripping and ice unloading at Kumtor (see "Non-GAAP Measures") in the fourth quarter of 2012 increased by $10.3 million due to higher mining costs, which increased by $8.6 million as a result of the 11% increase in the material mined by the expanded mine fleet which moved higher grade ore from the SB Zone. Other costs increased by $1.7 million relating to higher site support costs and higher labour costs.
Operating cash costs per ounce produced was $341 in the fourth quarter of 2012 compared to $580 in the comparative quarter of 2011. The decrease in per ounce costs in the 2012 period is the result of increased capitalized stripping and ice unload and 37% higher production partially offset by increased operating costs discussed above. Operating cash costs per ounce produced is a non-GAAP measure and is discussed under "Non-GAAP Measures".
All-in cash costs per ounce produced were $760 in the fourth quarter of 2012 compared to $769 in the same quarter of 2011. The decrease reflects the higher production in the 2012 quarter, partially offset by higher capitalized stripping and higher spending on capital. All-in cash costs per ounce produced is a non-GAAP measure and is discussed under "Non-GAAP Measures".
Exploration expenditures totaled $2.9 million for the fourth quarter of 2012, which is similar to the comparative quarter of 2011. Exploration activity focused on drilling of the southwest extension of the SB Zone and deeper portions of the SB Zone below the Central Pit. Underground exploration drilling from Declines 1 and 2 ended in November 2012, following the Company's decision to expand the Kumtor Central Pit and cease underground development activities.
During the fourth quarter of 2012, capital expenditures were $83.9 million, which included $10.5 million of sustaining capital spent mainly on the heavy equipment overhaul program ($6.1 million), the effluent treatment plant relocation ($3.4 million) and other projects ($1.0 million). Growth capital investment totalled $76.0 million mainly on capitalized stripping ($36.8 million), purchase of six CAT 789 Haul Trucks ($23.1 million) associated with the new KS-13 life-of-mine plan, purchase of four Hitachi shovels ($12.0 million), expansion of the fuel farm at the new marshaling yard ($0.9 million) and numerous other minor projects ($0.6 million). Capital expenditures in 2011 were $28.5 million, which included $7.8 million spent and accrued on sustaining capital projects and $20.7 million invested in growth capital.
Abnormal mining costs at Kumtor for the fourth quarter of 2012 were $8.9 million representing the ice and waste removal from the high movement unload zone, which is required to resume mining the southeast section of the pit and to access the higher grade ore in 2013.
During the fourth quarter of 2012, the Company recorded a one-time charge of $180.7 million for the de-recognition of the underground assets at Kumtor following the decision to expand the open pit. The larger open pit will partially consume the declines rendering them unusable for future mining activities.
Other operating expenses were incurred in the fourth quarter for the closure of the underground operation at Kumtor in the amount of $2.9 million. Kumtor will incur further closure costs for the underground during the first quarter of 2013.
Boroo
At the Boroo mine in the fourth quarter of 2012, gold production was 29,878 ounces, compared to 12,866 ounces in the same period of 2011. The production increase of 12,614 ounces is a result of processing higher grade ore from Pit 6 with an average mill head grade of 2.07 g/t compared to 0.86 g/t last year and the addition of 7,486 ounces of production from the heap leap operation which resumed in October 2012.
Operating costs at Boroo were up $3.8 million quarter-over-quarter primarily due to increased costs for mining ($0.4 million), heap leaching ($1.9 million) and royalties ($1.8 million), partially offset by a decrease in milling costs ($0.2 million). Heap leaching costs were higher due to stacking, crushing and processing activities which commenced in the fourth quarter in 2012. Royalties increased in 2012 due to the additional 24,618 ounces sold in the 2012 fourth quarter. Milling cost decreased mainly due to lower consumption of consumables.
Operating cash costs per ounce produced in the fourth quarter 2012 was $479 compared to $849 per ounce for 2011. The decrease in the unit cash cost is a result of the higher production partially offset by higher operating cost incurred for heap leach operations in the fourth quarter of 2012. Operating cash costs per ounce produced is a non-GAAP measure and is discussed under "Non-GAAP Measures".
Boroo's all-in cash costs per ounce produced for the fourth quarter of 2012 is $502 and includes all costs directly related to gold production except for income tax paid in Mongolia. The same all-in cash costs measure for 2011 was $940 per ounce produced. The decrease in all-in cash costs is due to the 21% increase in production partially offset by higher costs at Boroo year-over-year. All-in cash costs per ounce produced is a non-GAAP measure and is discussed under "Non-GAAP Measures".
During the fourth quarter of 2012 exploration expenditures in Mongolia decreased to $3.0 million from $4.2 million in the same period in 2011. The majority of the exploration work in the fourth quarter 2012 was conducted at the ATO property in eastern Mongolia.
During the fourth quarter of 2012, capital expenditures at Boroo were $0.7 million, $0.4 million of sustaining capital and $0.4 million of growth capital.
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, Mongolia and Canada:
Kyrgyz Republic
Since the Company's most recent quarterly news release dated November 7, 2012, there have been several developments with respect to the state commission established by the Kyrgyz Government for the purpose of inspecting and reviewing Kumtor's compliance with Kyrgyz operational and environmental laws and regulations and community standards (the "State Commission"). In particular, the following developments have occurred, each of which will be discussed below in greater detail: (a) The State Commission released its final report (the "State Commission Report") on December 25, 2012; (b) Kumtor received five claims from the State Inspectorate Office for Environmental and Technical Safety under the Government of the Kyrgyz Republic ("SIETS") for an aggregate of $152 million for alleged environmental violations, which was previously disclosed in a news release of the Company on December 14, 2012; (c) The Kyrgyz Republic Government received the State Commission Report on January 24, 2013 and created a working group to hold discussions with Centerra on revising the terms under which the Kumtor Project operates; and (d) the Kyrgyz Republic Parliament received the State Commission Report on February 20, 2013 and is considering a draft Parliamentary resolution. Such draft Parliamentary resolution calls on the Government to hold negotiations with Centerra with a view to revising the Kumtor Project Agreements (as defined below) in the interest of the Kyrgyz Republic and recommends that, if mutually advantageous terms cannot be agreed, the Government take a number of steps including, without limitation, the repeal of the 2009 laws approving the Kumtor Project Agreements and the termination of the Kumtor Project Agreements; and(e) the Kyrgyz Republic Social Fund (the "Social Fund") has appealed to the Supreme Court a lower court ruling that dismissed the Social Fund's request to invalidate documentary acts (assessments) of the Social Fund against Kumtor for the years 2004 to 2009.
The Company addresses each of the developments below in detail. Reference should also be made to the historical information contained in the Company's news release dated November 7, 2012 regarding the State Commission and the related Parliamentary Commission which was formed in early 2012. The Company believes that the agreements entered into in 2009 governing the Kumtor Project (the "Kumtor Project Agreements") are legal, valid and enforceable obligations. The Kumtor Project Agreements were reviewed and approved by the Kyrgyz Republic Government and the Kyrgyz Republic Parliament, and were the subject of a positive decision of the Kyrgyz Republic Constitutional Court and a legal opinion by the Kyrgyz Republic Ministry of Justice. The Company continues to be in discussions with the Government regarding the State Commission Report, with the objective of resolving these outstanding concerns through constructive dialogue. However, there can be no assurances that the Company will be able to successfully resolve any or all of these matters currently affecting the Kumtor Project. There can also be no assurance that the Kyrgyz Republic Government and/or Parliament will not take actions that are inconsistent with the Kyrgyz Republic's obligations under the Kumtor Project Agreements or cancel government decrees, orders or licenses under which Kumtor currently operates. Any such actions could have a material adverse impact on the Company's future cash flows, earnings, results of operations and financial condition. See "Material Assumptions & Risks" and "Cautionary Note Regarding Forward-looking Information" below. For further information on risk factors relevant to Centerra and its operations, please see "Risk Factors" in the most recently filed MD&A and in the Company's most recently filed Annual Information Form. State Commission Activities
(A) State Commission Report
In December 2012, the State Commission issued its final report following five months of study and several visits to the Kumtor mine site, and over 120 written requests for information on a wide variety of matters going back to 1993 when the original agreement regarding the Kumtor Project was executed. The State Commission was comprised of three working groups with responsibility for environmental and technical matters, legal matters (including a review of all prior and current agreements relating to the Kumtor Project), and social-economic matters (including a review of financial, taxation, procurement and employment-related matters).
The State Commission Report includes a large number of allegations in regard to prior transactions relating to the Kumtor Project and the Kumtor Project's operations and management, including the following:
(i) that the Kumtor Project violated Kyrgyz Republic legislation relating
to corporate, environment, and subsoil legislation at various times
since project activities began in 1993, including allegations relating
to the tender process for the deposit in 1993, the approval process
for the initial development of the Kumtor Project, the placing of
waste rock on glaciers, and causing environmental damage to water and
land resources in the area of the Kumtor Project;
(ii) that the Kumtor management is ineffective;
(iii) that incorrect valuation of assets occurred during the 2003/2004
restructuring process, which purportedly led to significant losses
sustained by the Kyrgyz Republic;
(iv) that the Kumtor Project Agreements adopted in 2009 were improperly
approved and violate the Kyrgyz Republic constitution.
The State Commission Report recommends that the Kyrgyz Government open negotiations under which the Kumtor Project is governed, including requiring Kumtor to accept the current tax regime and pay higher environmental charges; changes in the management of Kumtor and Centerra including greater representation by Kyrgyzaltyn on the Centerra board of directors and greater representation of Kyrgyz citizens in management of the Kumtor Project; and recommendations for additional charges and fees to be paid by the Kumtor Project including for land use, and for those items raised by SIETS (see disclosure below regarding environmental claims received by Kumtor Project). The State Commission Report also recommends various actions to be taken by Kyrgyzaltyn, by the Kyrgyz Government, including revisions to Kyrgyz law, and the Kyrgyz Republic General Prosecutor's Office with respect to investigating the personal liability of parties who were involved in negotiating previous agreements governing the Kumtor Project for violations of Kyrgyz legislation and for inflicting losses to the Kyrgyz Republic's interests. The State Commission recommended the establishment of a working group to give effect to the recommendations, in particular the opening of negotiations with Centerra and Kumtor.
The Company received the final copy of the State Commission Report on January 18, 2013. The Company believes that the conclusions and claims in the State Commission Report are exaggerated or without merit. While the Company has responded in detail in writing to such conclusions and claims, it also makes the following general responses:
(i) The Company operates in accordance with Kyrgyz and international
standards, and this has been proven over the years in systematic
audits by Kyrgyz and international experts. In particular, in August
2012, the Safety, Health and Environment Committee of the Board of
Directors of Centerra engaged 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".
(ii) The Kumtor Project Agreements provide for a full regime of all
payments to the Kyrgyz Government including a comprehensive revenue-
based tax and specified fees and payments for other matters including
environmental charges. The Kumtor Project Agreements were negotiated
at arm's length, and reviewed and approved by the Kyrgyz Government
and its Parliament. The agreements were the subject of a positive
decision by the Kyrgyz Constitutional Court and a legal opinion of the
Kyrgyz Republic Ministry of Justice. The Company believes these
agreements are legal, valid and enforceable obligations of the
parties.
(iii) Centerra, Kumtor and the Kyrgyz Government, among other parties,
entered into a release agreement (the Release Agreement) on June 6,
2009, as part of Kumtor Project Agreements. The Release Agreement
provides that parties agreed to release each other from any claims,
including any legal, tax and fiscal matters, in respect of any matter
arising or existing prior to June 6, 2009, whether such matters were
known or unknown as of June 6, 2009, subject to certain exemptions
which are not applicable in the circumstances. Accordingly, the
conclusions and recommendations relating to alleged wrong doings prior
to June 6, 2009, including matters relating to the 1993 Master
Agreement and the 2003 Restructuring Agreement, have been released by
all parties.
(B) Kumtor Has Received Claims from Kyrgyz Authorities for Alleged Environmental Violations
As previously disclosed, Kumtor received in mid-December 2012, five claims from the SIETS for alleged environmental violations. The claims are for an aggregate amount of approximately $152 million, including (i) a claim for approximately $142 million for alleged damages in relation to the placement on waste dumps of waste rock (unprocessed rock) from mining operations for the period from 2000 to 2011; (ii) a claim for approximately $4 million for use of water resources from Petrov Lake for the period of 2000 to 2011; and (iii) a claim for approximately $2.3 million for alleged damages caused to land resources, including in some cases from the time of initial construction of the Kumtor facilities in 1995. One Claim for $2.8 million for waste placed in the tailings management facilities and for emissions for 2009-2011 was withdrawn after discussions with the applicable Kyrgyz regulatory authorities, although there are no assurances that further claims will not be issued on this matter. The claims reference the review of the Kumtor Project carried out by the environmental and technical working group of the State Commission. Kumtor disagrees with these claims and has responded to them in detail in writing to the relevant authority. While the Company believes that such claims are exaggerated or without merit, there can be no assurances that these claims will be successfully resolved in favour of the Company or that further claims will not be issued.
© Government Decree #34
The Kyrgyz Government received the State Commission Report on January 24, 2013 and issued a decree, Decree of the Kyrgyz Government dated January 24, 2013, #34 ("Decree #34"), accepting the State Commission Report and sending it to the Kyrgyz Parliament. Pursuant to Decree 34, the Kyrgyz Government also established a working group to hold discussions on the revisions of terms governing the Kumtor Project, particularly on revisions to the tax regime and other matters identified in the State Commission Report.
The Company intends to meet with the working group and other Kyrgyz Government officials, with the objective of resolving matters through constructive dialogue. However, there can also be no assurance that such discussions will result in a successful outcome for the Company, or that the Kyrgyz Government will not take actions that are inconsistent with its obligations under the Kumtor Project Agreements or cancel government decrees, orders or licenses under which the Kumtor Project currently operates. Any such actions could have a material adverse impact on the Company's future cash flows, earnings, results of operations and financial conditions.
(D) Parliament Review and Draft Resolution
On February 20, 2013, the Parliament of the Kyrgyz Republic debated the State Commission Report and discussed a draft resolution (the "Draft Resolution") that endorses the Report and calls on the Government to hold negotiations with Centerra with a view to revising the Kumtor Project Agreements in the interests of the Kyrgyz Republic. The Company understands that the Draft Resolution further recommends that if mutually advantageous terms cannot be agreed the Government should take a number of steps including the following:
i. annul the legislation enacted by Parliament in 2009 approving the Kumtor
Project Agreements;
ii. terminate the Kumtor Project Agreements, including the Restated
Investment Agreement and Restated Concession Agreement dated June 6,
2009;
iii.initiate legal proceedings with a view to implementing a Government
decree of July 5, 2012 "On Cancellation of the Government's Decree on
granting land plots to Kumtor Gold Company CJSC dated as of March 25,
2010. (Such March 25, 2010 decree granted Kumtor certain surface rights
in relation to the project. See Centerra's news release dated July 6,
2012.);
iv. review Government decisions issued between 1992 and 2012 which granted
areas for carrying out exploration, mining operations and construction
of facilities for the Kumtor Project; and
v. develop and submit amendments to laws on biosphere territories and
prevention of damage to glaciers.
In addition, the Draft Resolution advises the Government to:
i. ensure that the Kumtor mine remains in continuous operation;
ii. require Kumtor to develop additional designs for reclamation and
determine relevant financial resources required to implement such
designs; and
iii.ensure that the recommendations of the State Commission (the Report) and
Draft Resolution are fulfilled.
The Draft Resolution also recommends that the Government review allegations that Kumtor has understated reserves of silver, tellurium and other elements.
The Draft Resolution calls for the Government to report on the fulfillment of the recommendations contained in the State Commission Report and the Parliamentary resolution by June 1, 2013. While it is not certain that Parliament will pass the Draft Resolution in its current form, Centerra is reviewing the provisions of the Draft Resolution and will respond to any final Parliamentary resolution accordingly. However, as already stated in this news release, Centerra continues to be confident in the continued validity of the Kumtor Project Agreements, which provide for disputes concerning the project to be resolved by international arbitration.
Kyrgyz Republic Social Fund Dispute
As previously disclosed, the Social Fund commenced a claim in the Kyrgyz courts to invalidate documentary acts (assessments) issued by the Social Fund for the years 2004-2009. Preliminary motions regarding jurisdictional matters were argued on August 28, 2012 and subsequently determined in favour of Kumtor. Such decision was appealed by the Social Fund to the Bishkek City Court, which dismissed the appeal of the Social Fund on November 28, 2012. In early February 2013, the Social Fund appealed this decision of the Bishkek City Court to the Kyrgyz Republic Supreme Court.
For a further discussion regarding the Social Fund claim and the dispute for the 2010 taxation year regarding the payment of Social Fund contributions on the high altitude coefficient, please see the Company's Annual Information Form for 2011. There are no assurances that the Company and Kumtor will be able to resolve the outstanding matters relating to the Social Fund without any material impact on the Company's future cash flows, earnings, results of operations and financial condition.
Other
The Company is aware of certain statements made by the Kyrgyz Minister of Health and published on the Ministry's website indicating that Centerra has committed to certain donations related to the improvement of cardiology, cardiac surgery and hemodialysis care in the Kyrgyz Republic. While the Company is reviewing the appropriateness of this donation along with other possible donations in the Kyrgyz Republic, the Company has not yet made a determination thereon.
Mongolia
Gatsuurt and the Impact of the Mongolian Water and Forest Law
Further to information disclosed in Centerra's MD&A for the third quarter 2009 and Centerra's Annual Information Form for 2011, the Mongolian Parliament enacted in July 2009 the Mongolian Law to Prohibit Mineral Exploration and Mining Operations at River Headwaters, Protected Zones of Water Reservoirs and Forested Areas (the "Water and Forest Law") which prohibits mineral prospecting, exploration and mining in water basins and forestry areas in Mongolia. The law provides for a specific exemption for "mineral deposits of strategic importance", which exempts the Boroo hard rock deposit from the application of the law. Centerra's Gatsuurt licenses are currently not exempt. Under the Mineral Laws of Mongolia, Parliament on its own initiative or, on the recommendation of the Mongolian Government, may designate a mineral deposit as strategic. Such designation could result in Mongolia receiving up to a 34% interest in the applicable project.
Centerra is currently in discussions with the Mongolian Government regarding the development of the Gatsuurt property. Centerra is reasonably confident that the economic and development benefits resulting from its exploration and development activities will ultimately result in the Water and Forest Law having a limited impact on the Gatsuurt property, in particular, and other Company's Mongolian activities including ATO. There can be no assurance, however, that this will be the case. 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 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 the associated investment in Gatsuurt and Boroo.
As at December 31, 2012, the Company had net assets recorded amounting to approximately $37 million related to the investment in Gatsuurt and approximately $28 million remaining capitalized for the Boroo mill facility and other surface structures which are expected to be utilized for the processing of ore from Gatsuurt. Although the Company expects to exploit the Gatsuurt deposit, should this not be the case, the Company would be required to write-off these amounts. A revocation of the Company's mineral licenses, including the Gatsuurt mineral license, or the reclassification of mineral reserves or the write-off of assets could have an adverse impact on Centerra's future cash flows, earnings, results of operations or financial condition. For a further discussion relating to the Water and Forest Law, please see the Company's Annual Information Form for 2011.
The Boroo Heap Leach
Boroo received regulatory approval for the mine plan for the heap leach facility in September 2012. As a result, Boroo recommenced heap leach operations in the fourth quarter of 2012.
Corporate
Enforcement Notice by Sistem:
As previously disclosed, in March 2011, Centerra was served by a Turkish company, Sistem Muhenkislik Insaat Sanayi Ticaret SA ("Sistem"), with a notice of enforcement to seize any shares and dividends in Centerra held in the name of the Kyrgyz Republic, followed by a notice of garnishment in April 2011 for any debts owed by Centerra to the Kyrgyz Republic. These notices were served by Sistem as part of the enforcement proceedings brought by Sistem in the Ontario Superior Court to collect approximately US$11 million with additional interest, owed to Sistem by the Kyrgyz Republic in accordance with a judgment of the Ontario Superior Court enforcing an international arbitration award against the Kyrgyz Republic. In these Ontario proceedings, Sistem alleges that the shares in Centerra owned by Kyrgyzaltyn and any dividends paid in respect of those shares, are in fact legally and beneficially owned by the Kyrgyz Republic and are therefore subject to execution to pay the judgment.
Based on legal advice received, Centerra disputes those allegations and paid to Kyrgyzaltyn its portion of Centerra dividends payable on May 18, 2011 (approximately C$31 million) and on May 31, 2012 (approximately C$3 million). Sistem is continuing with its claim regarding the Centerra shares owned by Kyrgyzaltyn. If this claim is successful in the Ontario court proceedings, Sistem may have a right to execute its judgment against those shares and may assert a claim against Centerra in respect of the payment of the dividends to Kyrgyzaltyn. However, Centerra believes it has a strong defense to that claim based on the facts and the law.
Preliminary motions regarding jurisdictional matters have been heard in the Ontario Superior Court over the course of 2012, with the objective of setting aside the Ontario judgment enforcing the arbitration award. The lower court decision found in favour of Sistem and dismissed the motion. Kyrgyzaltyn appealed such decision to the Court of Appeal where it was not successful. At this point, the matter can either be appealed further by Kyrgyzaltyn or the trial on the substantive issue will commence.
Pursuant to a Ontario court decision dated September 5, 2012 (the "Court Order"), Centerra is required to hold in trust to the credit of the Sistem court proceeding, Kyrgyzaltyn's portion of dividends payable on shares of Centerra, up to a maximum of C$11.2 million. The Court Order has been put in place until the resolution of the court proceedings. To date, Centerra is holding in trust for the credit of the Sistem court proceedings, an amount equal to $5.9 million. The Court Order also places certain restrictions on 4 million of the Centerra shares held by Kyrgyzaltyn, including restrictions on the transfer or encumbrance of such shares. The Centerra shares pledged by Kyrgyzaltyn to Kumtor Gold Company and Kumtor Operating Company as security for payments due from Kyrgyzaltyn under the Restated Gold and Silver Sale Agreement dated as of June 6, 2009 are not subject to the Court Order restrictions.
For a full discussion of risk factors that can have a material effect on the profitability, future cash flow, earnings, results of operations, stated mineral reserves and financial condition of the Company, please see "Caution Regarding Forward-looking Information". For information regarding risk factors relevant to Centerra and its operations, please see "Risk Factors" in the most recently filed MD&A and in the Company's most recently filed Annual Information Form.
2013 Outlook
Centerra's 2013 gold production and unit costs are forecast as follows:
----------------------------------------------------------------------------
2013 Operating 2013 All-in Cost
2013 Production Cash Cost(1) Pre-tax(2)
Forecast ($ per ounce ($ per ounce
(ounces of gold) produced) produced)
----------------------------------------------------------------------------
Kumtor 550,000 - 600,000 $ 342 - 373 $ 853 - 931
----------------------------------------------------------------------------
Boroo 55,000 - 60,000 $ 1,055 - 1,151 $ 1,225 - 1,336
----------------------------------------------------------------------------
Consolidated 605,000 - 660,000 $ 406 - 443 $ 1,067 - 1,164
----------------------------------------------------------------------------
(1) Operating cash cost per ounce produced is a non-GAAP measure and
includes mine operating costs such as mining, processing, regional
office administration, royalties and production taxes (except at Kumtor
where revenue-based taxes are excluded), but excludes depreciation,
depletion and amortization, reclamation costs, capital investments,
community investments, exploration expenses and corporate general and
administration expenses.
(2) All-in cost (pre-tax) per ounce produced is a non-GAAP measure and
includes cash operating cost, sustaining and growth capital, corporate
general and administrative expenses, global exploration expenses, and
community investments, but excludes revenue-based taxes at Kumtor and
income taxes.
2013 Production
Centerra's 2013 consolidated gold production is forecast to be in the 605,000 to 660,000 ounce range.
In 2013, approximately 50% of Kumtor's gold production is expected to occur in the fourth quarter creating a potential variability to Kumtor's 2013 production guidance. Centerra estimates that the Kumtor mine will produce between 550,000 and 600,000 ounces in 2013. Ore production in the fourth quarter is planned to come from the high-grade SB Zone ore that has several years of production history. The high-grade ore from the SB Zone is only available for mining at the end of the third quarter when it is exposed by Cut Back 15.
According to the KS-13 mine plan, 2013 is expected to be the last year with a significant back-end loaded production profile as the mine continues to build stockpiles, which will allow for more consistent production on a quarterly basis going forward.
At the Boroo mine, gold production is forecast to be approximately 55,000 to 60,000 ounces, which includes about 24,000 ounces from heap leaching and 36,000 ounces from processing mill stockpiles. The Boroo mill is expected to process ore stockpiles during the year with an average grade of 0.82 g/t. The 2013 forecast assumes no mining activities at Boroo and Gatsuurt, and no gold production from Gatsuurt.
2013 All-in Unit Cash Costs
Centerra's 2013 all-in unit cash production costs per ounce are forecast as follows:
----------------------------------------------------------------------------
Kumtor Boroo Consolidated
----------------------------------------------------------------------------
($ per ounce ($ per ounce ($ per ounce
produced) produced) produced)
----------------------------------------------------------------------------
Operating cash costs(1) $ 342 - 373 $ 1,055 - 1,151 $ 406 - 443
----------------------------------------------------------------------------
Capitalized stripping
costs - cash 354 - 386 - 322 - 351
----------------------------------------------------------------------------
Operating cash and
stripping costs $ 696 - 759 $ 1,055 - 1,151 $ 728 - 794
----------------------------------------------------------------------------
Sustaining capital (cash) 105 - 115 170 - 185 113 - 124
----------------------------------------------------------------------------
Growth capital (cash) 52 - 57 - 49 - 53
----------------------------------------------------------------------------
Operating cash costs
including capital $ 853 - 931 $ 1,225 - 1,336 $ 890 - 971
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Corporate and other cash
costs(2) - - 177 - 193
----------------------------------------------------------------------------
All-in cash costs (pre-
tax)(1) $ 853 - 931 $ 1,225 - 1,336 $ 1,067 - 1,164
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue-based tax and
income tax 234 - 255 130 - 142 224 - 245
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total all-in cash costs
including taxes(1) $ 1,087 - 1,186 $ 1,355 - 1,478 $ 1,291 - 1,409
----------------------------------------------------------------------------
1. Operating cash costs, all-in cash costs (pre-tax) and total all-in cash
costs including taxes per ounce produced are non-GAAP measures and are
discussed under "Non-GAAP Measures".
2. Corporate and other cash costs per ounce produced include corporate
general and administrative expenses, global exploration expenses, and
community investments.
2013 Exploration Expenditures
Exploration expenditures of $45 million are planned for 2013, which is unchanged from the budgeted expenditures for 2012. The 2013 program will continue the successful exploration work below and west of the Central Pit at the Kumtor mine and includes drilling on the adjacent Sarytor and Northeast satellite deposits. Planned exploration expenditures on the Kumtor concession are expected to be about $13.5 million.
In Mongolia, approximately $7 million is allocated for exploration programs that will focus on expanding the mineral resource at the Altan Tsagaan Ovoo ("ATO") project and evaluating targets in the greater ATO district.
Exploration spending in Turkey will increase to approximately $8 million as work focuses on expanding and upgrading the Oksut gold deposit resource, advancing ongoing metallurgical testwork and initiating detailed environmental and technical project studies.
In 2013, drilling programs will continue in Russia on the Kara Beldyr and Dvoinoy Joint Ventures and commence on the new Umlekan Joint Venture adjoining Dvoinoy. Expenditures for the projects in Russia are expected to be, in the aggregate, approximately $6 million.
The China 2013 exploration program of $2 million includes the drilling of targets developed on the Laogouxi Joint Venture project and generating new projects in several prospective areas. Generative programs will continue in Central Asia, Russia, China, Turkey and several new regions to increase the pipeline of projects that the Company is developing to meet the longer term growth targets of Centerra.
2013 Capital Expenditures
Centerra's capital expenditures for 2013, excluding capitalized stripping, are estimated to be $107 million, including $75 million of sustaining capital and $32 million of growth capital.
Capital expenditures (excluding capitalized stripping) include:
----------------------------------------------------------------------------
2013 Growth 2013 Sustaining
Capital Capital
(millions of (millions of
Projects dollars) dollars)
----------------------------------------------------------------------------
Kumtor mine $ 31 $ 64
----------------------------------------------------------------------------
Mongolia $ 1 $ 10
----------------------------------------------------------------------------
Corporate - $ 1
----------------------------------------------------------------------------
Consolidated Total $ 32 $ 75
----------------------------------------------------------------------------
Kumtor
At Kumtor, 2013 total capital expenditures, excluding capitalized stripping, are forecast to be $95 million including $64 million of sustaining capital. The largest sustaining capital spending will be the major overhaul maintenance of the heavy duty mine equipment ($29 million), purchase of new mining equipment ($17 million), tailings dam construction raise ($5 million) and other items ($13 million).
Growth capital investment at Kumtor for 2013 is forecast at $31 million, which includes the relocation of certain infrastructure at Kumtor related to the KS-13 life-of-mine expansion ($26 million) and other items ($5 million).
Capitalized stripping costs related to the development of the open pit are expected to be $212 million (cash) in 2013.
Mongolia (Boroo & Gatsuurt)
At Boroo, 2013 sustaining capital expenditures are expected to be $10 million primarily for raising the tailings dam at Boroo ($6 million), and maintenance rebuilds and overhauls.
Growth capital for the Gatsuurt deposit is forecast at $1 million, related to environmental studies.
2013 Corporate Administration and Community Investment
Corporate and administration expenses for 2013 are forecast at $45 million, which includes $7 million for business development activities.
Total community investments for 2013 are forecast at $27.5 million, which includes $7.5 million for donations and sustainable development projects in the various communities in which Centerra operates and $20 million for strategic community investment projects. Note that these costs are not included in cash operating cost per ounce.
2013 Depreciation, Depletion and Amortization
Depreciation, depletion and amortization expenses included in costs of sales expense for 2013 are forecast to be approximately $218 million. Changes in DD&A are a result of increases or decreases to certain of the Company's capital assets.
----------------------------------------------------------------------------
2013 2012 2011
DD&A DD&A DD&A
(In millions) Forecast Actual Actual
----------------------------------------------------------------------------
Kumtor
----------------------------------------------------------------------------
Mine equipment $ 95 $ 87 $ 69
----------------------------------------------------------------------------
Less DD&A capitalized to stripping
costs (1) (77) (59) (14)
----------------------------------------------------------------------------
Stripping costs amortized 291 117 32
----------------------------------------------------------------------------
Other mining assets 1 1 5
----------------------------------------------------------------------------
Mill assets 6 4 8
----------------------------------------------------------------------------
Administration assets and other 12 3 10
----------------------------------------------------------------------------
Inventory movement (non-cash) (127) (32) (22)
----------------------------------------------------------------------------
Subtotal for Kumtor $ 201 $ 121 $ 88
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Boroo
----------------------------------------------------------------------------
Mine equipment $ 1 $ 1 $ 2
----------------------------------------------------------------------------
Less DD&A capitalized to stripping
costs - (1) -
----------------------------------------------------------------------------
Stripping costs amortized 2 9 -
----------------------------------------------------------------------------
Mine development and other mining
assets 1 1 1
----------------------------------------------------------------------------
Mill assets 6 4 1
----------------------------------------------------------------------------
Administration assets and other 6 8 3
----------------------------------------------------------------------------
Inventory movement (non-cash) 1 (1) 3
----------------------------------------------------------------------------
Subtotal for Boroo $ 17 $ 21 $ 10
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Consolidated Total $ 218 $ 142 $ 98
----------------------------------------------------------------------------
(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 2012, $2 million of depreciation was
expensed as mine standby costs, $7 million of depreciation was expensed
as abnormal ice unload costs, and $51 million of depreciation was
allocated to capitalized stripping costs.
Kumtor
At Kumtor, the forecast for 2013 DD&A expensed as part of costs of sales is $201 million. The increase over the three years reflects a significant expansion of the mining fleet in order to achieve higher throughput levels of materials moved and the increased stripping of waste required to access the deposit. The amortization of capitalized stripping costs is the largest component of depreciation expense in 2013 totalling $291 million. The mine equipment assets are depreciated on a straight-line basis over their estimated useful lives. The depreciation expense related to mine equipment engaged in a stripping campaign is capitalized as stripping costs ($77 million forecasted to be capitalized as stripping costs in 2013).
During 2013 Kumtor will be mining the remaining ore from cut-backs 14A and 14B and starting stripping campaigns on cut-backs 15, 16 and 17. The costs to remove waste and ice within the various cut-backs 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. Labour and consumables costs (such as diesel costs) have been steadily increasing over the last several years due to both increases in price and demand with the expanding operation at Kumtor. These costs are capitalized as stripping costs and amortized over the ounces contained in the ore body exposed by the stripping campaign.
Based on the sequencing of production at Kumtor for 2013, ore from cut-backs 14A, 14B and 15 will be mined resulting in the amortization through cost of sales of $291 million in capitalized pre-stripping costs. As Kumtor completes mining of the ore from cut-backs 14A and 14B, it will amortize the remaining unamortized capitalized stripping costs of $101 million related to those cut-backs. The forecast assumes that the stripping campaign for cut-back 15 is completed in the third quarter of 2013 providing access to the ore in the third and fourth quarters. As the ore in cut-back 15 is mined in the third and fourth quarters, the amortization expense for 2013 for the capitalized stripping costs related to cut-back 15 is forecast at $190 million.
Boroo
At Boroo, the forecast for 2013 DD&A expensed as part of costs of sales is $17 million, compared to $21 million in 2012 and $10 million in 2011. The decrease in 2013 reflects the completion of mining activities in Pit 6 in 2012. The largest components of depreciation expense are related to depreciation of the mill, the administration buildings and other assets forecasted at $6 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 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 in 2009.
The corporate income tax rate for Centerra's Mongolian subsidiary, BGC is 25% for taxable income over 3 billion Mongolian tugriks (approximately $2.2 million at the 2012 year-end foreign exchange rate) with a tax rate of 10% for taxable income up to that amount. These tax rates will continue to apply until the expiration of the Boroo Stability Agreement in July 2013, after which Boroo's operations will be subject to a prevailing income tax rate of 25%. Royalty fees will increase from 5% under Boroo's Stability Agreement to the current graduated royalty fee structure which would charge the maximum of 10% based on current gold prices.
Sensitivities
Centerra's revenues, earnings and cash flows for 2013 are sensitive to changes in certain variables and the Company has estimated their impact on revenues, net earnings and cash from operations.
----------------------------------------------------------------------------
Impact on
($ millions)
-----------------------------------------
Cash Earnings before
Change Costs Revenues flow income tax
----------------------------------------------------------------------------
Gold Price $50/oz 5.1 32.5 27.4 27.4
----------------------------------------------------------------------------
Diesel Fuel (1) 10% 8.2 - 8.2 8.2
----------------------------------------------------------------------------
Kyrgyz som (2) 1 som 2.8 - 2.8 2.8
----------------------------------------------------------------------------
Mongolian tugrik(2) 25 tugrik 1.3 - 1.3 1.3
----------------------------------------------------------------------------
Canadian dollar (2) 10 cents 3.2 - 3.2 3.2
----------------------------------------------------------------------------
(1) a 10% change in diesel fuel price equals $13/oz produced
(2) appreciation of currency will result in higher costs and lower cash flow
and earnings, depreciation of currency results in decreased costs and
increased cash flow and earnings
Material Assumptions & Risks
Material assumptions or factors used to forecast production and costs for 2013 include the following:
-- a gold price of $1,700 per ounce,
-- exchange rates:
-- $1USD:$0.99 CAD
-- $1USD:47.0 Kyrgyz som
-- $1USD:1,375 Mongolian tugriks
-- $1USD:0.78 Euro
-- diesel fuel price assumption:
-- $0.80/litre at Kumtor
-- $1.18/litre at Boroo
The assumed diesel price of $0.80/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 $87 per barrel.
Other material assumptions include the following:
-- 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. No assurances can be given by the
Company in this regard,
-- the activities of the State Commission, referred to under the heading
"Other Corporate Developments - Kyrgyz Republic - State Commission
Activities" do not have an impact on operations or financial results. No
assurances can be given by the Company in this regard,
-- the Government and the Parliament of the Kyrgyz Republic taking no
action in connection with the matters referred to under the heading
"Other Corporate Developments - Kyrgyz Republic - State Commission
Activities" that has an impact on operations or financial results. This
includes the Parliament adopting the Draft Resolution referred to
therein, and the Government (or a working group formed by the
Government) seeking to negotiate the Kumtor Project Agreements, and
taking the steps referred to in the Parliamentary Draft Resolution if
such negotiations are not successful, including repealing laws passed in
2009 approving the Kumtor Project Agreements and terminating the Kumtor
Project Agreements. No assurances can be given by the Company in this
regard, the previously disclosed environmental claims received from the
Kyrgyz regulatory authorities in the amount of $152 million, in
aggregate, and any further claims that may result from the State
Commission, are resolved without material impact on Centerra's
operations or financial results. No assurances can be given by the
Company in this regard,
-- grades and recoveries at Kumtor will remain consistent with the life-of-
mine 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 over the life-of-mine,
-- the design of the new and expanded waste dumps (contemplated by the new
KS-13 life-of-mine plan) at Kumtor adequately address the risks
associated with size and stability,
-- 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,
-- prices of key consumables are not significantly higher than prices
assumed in planning,
-- 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,
-- the Mongolian legislation which prohibits mineral prospecting,
exploration and mining in water basins and forest areas in Mongolia (the
"Water and Forest Law") will be amended or repealed to allow Gatsuurt to
proceed as planned, (see Company's most recently filed AIF),
-- the royalty paid by Boroo increases to 10% after the Boroo stability
agreement expires in July 2013 and the current 25% income tax rate
remains unchanged, and
-- all necessary permits, licenses and approvals are received in a timely
manner.
Production and reserve estimates and cost forecasts 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 and the market price of Centerra's shares 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 "Risk Factors" in the Company's most recently filed Annual Information Form (the "2011 Annual Information Form"), available on SEDAR at www.sedar.com and see also the discussion below under the heading "Cautionary Note Regarding Forward-looking Information".
Non-GAAP Measures
This news release presents information about operating cash costs of production of an ounce of gold produced, total production costs per ounce produced and all-in cash costs per ounce produced for the operating properties of Centerra. Operating cash costs per ounce produced is calculated by dividing operating cash costs by gold ounces produced for the relevant period. Total production costs per ounce produced include operating cash costs plus depreciation, depletion and amortization attributable to production divided by gold ounces produced for the relevant period. All-in cash costs per ounce produced includes operating cash costs, plus capitalized stripping, plus capital spent and accrued (sustaining and growth capital) divided by gold ounces produced for the relevant period. Cost of sales per ounce sold is calculated by dividing cost of sales by gold ounces sold for the relevant period. Operating cash costs, total production costs and all-in cash costs per ounce produced, as well as cost of sales per ounce sold are non-GAAP measures.
Operating cash costs include mine operating costs such as mining, processing, site and regional office administration, royalties and operating taxes (except at Kumtor where revenue-based taxes are excluded), but exclude depreciation, depletion and amortization, reclamation costs, capital investments and exploration expenses. Certain amounts of stock-based compensation at the corporate level have been excluded. Total production costs includes total operating cash cost plus depreciation, depletion and amortization attributable to production. All-in cash costs includes operating cash costs, plus capitalized stripping and total sustaining and growth capital spent and accrued.
Operating cash costs per ounce produced, total production costs per ounce produced and all-in cash costs per ounce produced have been included because certain investors use this information to assess performance and also to determine the ability of Centerra to generate cash flow for use in investing and other activities. The inclusion of operating cash cost per ounce produced, total production cost per ounce produced and all-in cash costs per ounce produced and cost of sales per ounce sold may enable investors to better understand year-over-year changes in production costs, which in turn affect profitability and cash flow.
Reporting measure going forward
Centerra has initiated an "all-in cash cost" reporting methodology for its gold production. Having first reported along these lines with the announcement of the revised life-of-mine plan for Kumtor in November 2012, the Company believes an all-in cash cost measure more fully reflects the actual cash cost of producing gold than the former Gold Institute total cash cost measure. The new measure does have limitations as an analytical tool as it 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. This new measure should therefore not be considered in isolation, or as a substitute for, analysis of our results as reported under GAAP.
It should also be noted that the mining industry is in early stages of defining an industry-wide standard on the reporting of "all-in cash costs" hence, the definition adopted by the mining industry may differ from the Company's current definition. The Company may modify the calculation of its "all-in cash cost" to conform to the industry's standard once it is known.
Management uses all-in cash cost per ounce produced to evaluate current operating performance and for planning and forecasting of future periods. Management believes that the presentation of this new measure is useful for the investor because it allows investors to view results in a manner similar to the method used by management.
Operating Cash Cost per Ounce Produced and Total Production Cost per Ounce
Produced can be reconciled as follows:
Year ended Fourth Quarter
December 31, December 31
Unaudited
($ millions, unless otherwise specified) 2012 2011 2012 2011
----------------- ----------------
Centerra:
Cost of sales, as reported $ 387.5 $ 382.3 $ 165.2 $ 104.1
Less: Non-cash component 142.2 98.4 91.1 30.3
----------------- ----------------
Cost of sales, cash component $ 245.3 $ 283.9 $ 74.1 $ 73.8
Adjust for:
Refining fees & by-product credits (1.2) (3.3) (0.7) (0.3)
Regional office administration 21.0 21.3 5.6 5.9
Mining Standby Costs 4.6 0.2 - -
Non-operating costs 32.6 (14.1) 15.2 -
Inventory movement (45.7) 34.4 (15.3) 11.9
----------------- ----------------
Operating cash cost $ 256.7 $ 322.4 $ 78.9 $ 91.3
Depreciation, depletion, amortization
and accretion 142.6 99.3 91.2 30.5
Inventory movement - non-cash 43.0 19.5 48.7 2.5
----------------- ----------------
Total production cost $ 442.3 $ 441.1 $ 218.8 $ 124.3
Ounces poured (000) 387.1 642.4 219.3 151.6
Operating cash cost per ounce produced $ 663 $ 502 $ 360 $ 603
Total production cost per ounce produced $ 1,143 $ 687 $ 998 $ 820
Kumtor:
Cost of sales, as reported $ 311.1 $ 332.6 $ 137.3 $ 96.9
Less: Non-cash component 121.1 88.3 80.1 29.1
----------------- ----------------
Cost of sales, cash component $ 190.0 $ 244.3 $ 57.2 $ 67.7
Adjust for:
Refining fees & by-product credits (1.0) (3.3) (0.6) (0.3)
Regional office administration 15.5 15.3 4.2 4.1
Mining Standby Costs 4.6 - - -
Non-operating costs 32.6 (14.1) 15.2 -
Inventory movement (35.2) 39.1 (11.4) 8.9
----------------- ----------------
Operating cash cost $ 206.5 $ 281.3 $ 64.6 $ 80.4
Depreciation, depletion, amortization
and accretion 121.4 88.9 80.1 29.2
Inventory movement - non-cash 42.6 22.0 48.8 2.5
----------------- ----------------
Total production cost $ 370.5 $ 392.2 $ 193.5 $ 112.1
Ounces poured (000) 315.2 583.2 189.4 138.7
Operating cash cost per ounce produced $ 655 $ 482 $ 341 $ 580
Total production cost per ounce produced $ 960 $ 673 $ 491 $ 808
Boroo:
Cost of sales, as reported $ 76.4 $ 49.7 $ 27.9 $ 7.2
Less: Non-cash component 21.1 10.1 11.0 1.1
----------------- ----------------
Cost of sales, cash component $ 55.3 $ 39.6 $ 16.9 $ 6.1
Adjust for:
Refining fees & by-product credits (0.2) (0.1) (0.1) -
Regional office administration 5.5 6.0 1.5 1.8
Mining Standby Costs 0.2 -
Non-operating costs - -
Inventory movement (10.5) (4.7) (4.0) 3.0
----------------- ----------------
Operating cash cost $ 50.2 $ 41.1 $ 14.3 $ 10.9
Depreciation, depletion, amortization
and accretion 21.2 10.4 11.1 1.3
Inventory movement - non-cash 0.4 (2.5) (0.1) -
----------------- ----------------
Total production cost $ 71.8 $ 49.0 $ 25.3 $ 12.2
Ounces poured (000) 71.8 59.2 29.9 12.9
Operating cash cost per ounce produced $ 699 $ 694 $ 479 $ 849
Total production cost per ounce produced $ 1,033 $ 828 $ 793 $ 951
Total capital and capitalized stripping presented in the All-in cash cost calculation can be reconciled as follows:
----------------------------------------------------------------------------
Fourth Quarter 2012 ($ millions,
unaudited) Kumtor Boroo All other Consolidated
----------------------------------------------------------------------------
Capitalized stripping - cash 26.1 - - 26.1
----------------------------------------------------------------------------
Sustaining capital - cash 10.5 0.4 0.2 11.1
----------------------------------------------------------------------------
Growth capital - cash 36.6 0.3 0.2 37.1
----------------------------------------------------------------------------
Increase in accruals included in
additions to PP&E 9.1 - - 9.1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total - Additions to PP&E 82.3 0.7 0.4 83.4 (1)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Fourth Quarter 2011
----------------------------------------------------------------------------
Capitalized stripping - cash 6.0 - - 6.0
----------------------------------------------------------------------------
Sustaining capital - cash 7.8 0.9 0.3 9.0
----------------------------------------------------------------------------
Growth capital - cash 12.4 0.3 - 12.7
----------------------------------------------------------------------------
Increase in accruals included in
additions to PP&E 2.1 - - 2.1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total - Additions to PP&E 28.3 1.2 0.3 29.8 (1)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2012 Year ($ millions, unaudited) Kumtor Boroo All other Consolidated
----------------------------------------------------------------------------
Capitalized stripping - cash 129.3 6.3 - 135.6
----------------------------------------------------------------------------
Sustaining capital - cash 40.8 2.1 0.6 43.5
----------------------------------------------------------------------------
Growth capital - cash 176.4 0.3 0.5 177.2
----------------------------------------------------------------------------
Increase in accruals included in
additions to PP&E 10.1 - - 10.1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total - Additions to PP&E 356.6 8.7 1.1 366.4 (1)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2011 Year
----------------------------------------------------------------------------
Capitalized stripping - cash 39.4 - - 39.4
----------------------------------------------------------------------------
Sustaining capital - cash 32.2 1.8 0.6 34.6
----------------------------------------------------------------------------
Growth capital - cash 95.0 4.5 0.4 99.9
----------------------------------------------------------------------------
Increase in accruals included in
additions to PP&E 1.3 - - 1.3
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total - Additions to PP&E 167.9 6.3 1.0 175.2 (1)
----------------------------------------------------------------------------
(1) As reported in the Company's Consolidated Statement of Cash Flows as
"Investing Activities - Additions to property, plant & equipment".
Corporate and other cash costs presented in the All-in cash cost calculation can be reconciled as follows:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(Unaudited) Fourth Quarter Year
2012 2011 2012 2011
---------------------------------------------------------------------------
---------------------------------------------------------------------------
($ millions)
Other operating expenses $ 4.8 $ 3.7 $ 34.3 $ 15.5
Exploration and business
development 11.6 11.1 38.5 42.9
Corporate administration 8.8 10.3 27.0 44.9
---------------------------------------------------------------------------
Subtotal (1) $ 25.2 $ 25.1 $ 99.8 $ 103.3
Adjust for:
Non-operating charge - claim
settlement and other - (2.5) 0.1 (2.5)
Depreciation and amortization (0.6) (0.1) (1.4) (0.4)
---------------------------------------------------------------------------
Total corporate and other cash
costs $ 24.6 $ 22.5 $ 98.5 $ 100.4
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(1) As reported on the Consolidated Statements of Earnings (Loss) and
Comprehensive Income (Loss) for the reported periods
Centerra Gold Inc.
Condensed Consolidated Statements of Financial Position
(Unaudited) December 31, December 31,
2012 2011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(Expressed in Thousands of United States Dollars)
Assets
Current assets
Cash and cash equivalents $ 334,115 $ 195,539
Short-term investments 47,984 372,667
Current portion of restricted cash - 179
Amounts receivable 75,338 56,749
Inventories 289,012 279,944
Prepaid expenses 49,317 26,836
----------------------------
795,766 931,914
Property, plant and equipment 589,209 590,151
Goodwill 129,705 129,705
Restricted cash 6,087 -
Long-term receivables and other 23,270 24,674
Long-term inventories 10,094 12,174
----------------------------
758,365 756,704
----------------------------
Total assets $ 1,554,131 $ 1,688,618
----------------------------
----------------------------
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 63,940 $ 76,385
Short-term debt 74,617 -
Revenue-based taxes payable 18,643 15,178
Taxes payable 5,180 1,074
Current portion of provision 5,257 1,848
----------------------------
167,637 94,485
Dividend payable 5,949 -
Provision 49,911 53,777
Deferred income tax liability 1,808 1,897
----------------------------
57,668 55,674
Shareholders' equity
Share capital 660,420 660,117
Contributed surplus 36,243 33,994
Retained earnings 632,163 844,348
----------------------------
1,328,826 1,538,459
----------------------------
Total liabilities and shareholders' equity $ 1,554,131 $ 1,688,618
----------------------------
----------------------------
Centerra Gold Inc.
Condensed Consolidated Statements of Earnings (Loss) and Comprehensive
Income (Loss)
(Unaudited) Three months ended Twelve months ended
December 31, December 31,
2012 2011 2012 2011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(Expressed in Thousands of United States Dollars)
(except per share amounts)
Revenue from Gold Sales $ 368,461 $ 247,962 $ 660,737 $ 1,020,344
Cost of sales 165,199 104,083 387,470 382,295
Abnormal mining costs 8,855 - 60,881 -
Mine standby costs - - 4,585 213
Regional office
administration 5,636 5,930 21,042 21,322
----------------------------------------------------------------------------
Earnings from mine operations 188,771 137,949 186,759 616,514
Revenue based taxes 44,499 33,558 74,697 131,750
Other operating expenses 4,793 3,592 34,280 15,471
Loss on de-recognition of
underground assets 180,673 - 180,673 -
Exploration and business
development 11,551 11,070 38,531 42,894
Corporate administration 8,794 10,279 27,046 44,902
----------------------------------------------------------------------------
Earnings (loss) from
operations (61,539) 79,450 (168,468) 381,497
Other (income) and expenses (55) (1,377) (132) (1,056)
Finance costs 1,263 521 3,978 3,545
----------------------------------------------------------------------------
Earnings (loss) before income
taxes (62,747) 80,306 (172,314) 379,008
Income tax expense 5,239 894 11,684 8,130
----------------------------------------------------------------------------
Net Earnings (loss) and
comprehensive income (loss) (67,986) 79,412 (183,998) 370,878
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Basic and diluted earnings
(loss) per common share $ (0.29) $ 0.34 $ (0.78) $ 1.57
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Centerra Gold Inc.
Condensed Consolidated
Statements of Cash Flows Three months ended Twelve months ended
(Unaudited) December 31, December 31,
2012 2011 2012 2011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(Expressed in Thousands of
United States Dollars)
Operating activities
Net (loss) earnings $ (67,986) $ 79,412 $ (183,998) $ 370,878
Items not requiring
(providing) cash:
Depreciation, depletion
and amortization 92,038 30,366 152,869 98,840
Finance costs 1,262 521 3,978 3,545
Loss on disposal of
equipment 932 383 1,403 1,305
Share-based compensation
expense 704 483 2,335 1,759
De-recognition of
underground assets 180,673 - 180,673 -
Change in provision (123) (12,481) 614 -
Income tax expense 5,239 894 11,684 8,130
Other operating items (128) (250) (673) (2,430)
------------------------------------------------
212,611 99,328 168,885 482,027
Change in operating
working capital 935 (40,560) 1,593 (44,150)
Change in long-term
inventory 439 - 2,080 703
Revenue-based taxes
(advanced) utilized 155 - (30,000) -
Income taxes paid (5,952) 1,546 (7,838) (3,657)
------------------------------------------------
Cash provided by operations 208,188 60,314 134,720 434,923
------------------------------------------------
Investing activities
Additions to property,
plant and equipment (83,362) (29,833) (366,423) (175,155)
Net redemption (purchase)
of short-term investments (45,985) (106,971) 324,683 (290,389)
Increase in restricted
cash (3,096) (19) (5,908) (616)
Increase in other assets 6,752 77 (1,070) (7,375)
Proceeds from disposition
of fixed assets 32 11 79 19
------------------------------------------------
Cash used in investing (125,659) (136,735) (48,639) (473,516)
------------------------------------------------
Financing activities
Dividends paid (6,571) - (22,238) (99,322)
Payment of borrowing costs (231) (57) (1,416) (630)
Proceeds from short term
debt - - 76,000 -
Proceeds from common
shares issued for cash (20) 321 149 3,347
------------------------------------------------
Cash provided by (used in)
financing (6,822) 264 52,495 (96,605)
------------------------------------------------
(Decrease) increase in cash
during the period 75,707 (76,157) 138,576 (135,198)
Cash and cash equivalents at
beginning of the period 258,408 271,696 195,539 330,737
------------------------------------------------
Cash and cash equivalents at
end of the period $ 334,115 $ 195,539 $ 334,115 $ 195,539
------------------------------------------------
------------------------------------------------
Cash and cash equivalents
consist of:
Cash $ 51,675 $ 75,193 $ 51,675 $ 75,193
Cash equivalents 282,440 120,346 282,440 120,346
------------------------------------------------
$ 334,115 $ 195,539 $ 334,115 $ 195,539
------------------------------------------------
------------------------------------------------
Centerra Gold Inc.
Condensed Consolidated Statements of Shareholders' Equity
(Unaudited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(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, 2011 235,869,397 $ 655,178 $ 33,827 $ 572,792 $ 1,261,797
----------------------------------------------------------------------------
Share-based
compensation
expense - - 1,759 - 1,759
Shares issued on
exercise of
stock options 469,644 4,939 (1,592) - 3,347
Dividend
declared - - - (99,322) (99,322)
Net earnings for
the period - - - 370,878 370,878
----------------------------------------------------------------------------
Balance at
December 31,
2011 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 - - - (183,998) (183,998)
----------------------------------------------------------------------------
Balance at
December 31,
2012 236,376,011 $ 660,420 $ 36,243 $ 632,163 $ 1,328,826
----------------------------------------------------------------------------
----------------------------------------------------------------------------
To view the 2012 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/CG2012FSMDAQ4.pdf.
The 2012 Audited Financial Statements and Notes and Management's Discussion and Analysis for the year-ended December 31, 2012 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 ("43-101") 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 a technical report dated December 20, 2012, which is filed on SEDAR at www.sedar.com. The technical report describes the exploration history, geology and style of gold mineralization at the Kumtor deposit. Sample preparation, analytical techniques, laboratories used and quality assurance-quality control protocols used during the drilling programs at the Kumtor site are described in the technical report.
The Boroo deposit is described in Centerra's 2011 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 2011 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 which are not statements of historical facts, and the documents incorporated by reference herein, 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, the successful resolution of matters in the Kyrgyz Republic relating to the State Commission Report, including discussions with the Government working group formed to open negotiations on the Kumtor Project Agreements, the Kyrgyz Republic Parliament consideration of the Draft Resolution referred to under the heading "Other Corporate Developments - Kyrgyz Republic - State Commission Activities - Parliament Review and Draft Resolution", the resolution of environmental claims for the aggregate amount of $152 million; statements made under the heading, "Gold Industry, Key Economics and Recent Market Uncertainty" regarding expectations in the gold industry, investor demand, and global financial markets; statements made under the heading "Outlook for 2013", including the Company's future production, estimates of cash operating costs and all-in unit cash costs, exploration expenditures and the success thereof, capital expenditures; mining plans at each of the Company's operations; the continued success with the management of the ice, waste and water movements at Kumtor; the outcome of discussions with the new Mongolian government on the way forward for the Company's Gatsuurt deposit, the impact of the Water and Forest Law on the Company's Mongolian activities; the Company's business and political environment and business prospects; and the timing and development of new deposits.
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 "2013 Outlook". 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 Kyrgyz Republic Government and Parliament as a result of the Kyrgyz State Commission on Kumtor, 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, the Company's ability to successfully negotiate an investment agreement for the Gatsuurt project to complete the development of the mine and the Company's ability to obtain all necessary permits and commissions needed to commence mining activity at the Gatsuurt project; (B) risk related to operational matters, including the waste and ice movement at the Kumtor Project and the Company's continued ability to successfully manage it, the occurrence of further ground movements at the Kumtor Project, 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 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, and risks associated with the conduct of joint ventures; © risks relating to financial matters including the sensitivity of the Company's business to the volatility of gold prices, 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 December 2012 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 "Risk Factors" in the Company's most recently filed AIF 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.
Reserve and resource figures included in this news release 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 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 reserve and resource estimates are well established and the best estimates of Centerra's management, by their nature reserve and resource estimates are imprecise and depend, to a certain extent, upon analysis of drilling results and statistical inferences which may ultimately prove unreliable.
Centerra has not adjusted resource figures included herein in consideration of these risks and, therefore, Centerra can give no assurances that any resource estimate will ultimately be reclassified as proven and probable reserves or incorporated into future production guidance. If Centerra's reserve or resource estimates or production guidance for its gold properties are inaccurate or are reduced in the future, this could have an adverse impact on Centerra's future cash flows, earnings, results of operations and financial condition. Centerra estimates the future mine life of its operations and provides production guidance in respect of its mining operations. Centerra can give no assurance that mine life estimates will be achieved or that actual production will not differ materially from its guidance. Failure to achieve estimates or production guidance could have an adverse impact on Centerra's future cash flows, earnings, results of operations and financial condition.
Mineral resources are not mineral reserves, and do not have demonstrated economic viability, but do have reasonable prospects for economic extraction. Measured and indicated resources are sufficiently well defined to allow geological and grade continuity to be reasonably assumed and permit the application of technical and economic parameters in assessing the economic viability of the resource. Inferred resources are estimated on limited information not sufficient to verify geological and grade continuity or to allow technical and economic parameters to be applied. Interred resources are too speculative geologically to have economic considerations applied to them to enable them to be categorized as mineral reserves. There is no certainty that mineral resources of any category can be upgraded to mineral reserves through continued exploration.
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 20, 2013. 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.
Additional information on Centerra is available on the Company's website at www.centerragold.com and at SEDAR at www.sedar.com.
Conference Call
Centerra invites you to join its 2012 fourth quarter, year-end conference call on Thursday, February 21, 2013 at 10:00AM Eastern Time. The call is open to all investors and the media. To join the call, please dial Toll-Free in North America (800) 745-8951 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 28, 2013 by calling (416) 626-4100 or (800) 558-5253 and using passcode 21644903.
Additional information on Centerra is available on the Company's web site at www.centerragold.com and at SEDAR at www.sedar.com.
Contacts:
Centerra Gold Inc.
John W. Pearson
Vice President, Investor Relations
(416) 204-1241
john.pearson@centerragold.com
www.centerragold.com
