Centerra Gold Inc. Reports Second Quarter 2013 Results
TORONTO, Jul 31, 2013 - Centerra Gold Inc. (TSX:CG) today reported net earnings for the second quarter of 2013 of $1.6 million, or $0.01 per share (basic and diluted) reflecting higher gold sales due to higher gold production at both operations, partially offset by the lower average realized gold price1 in the quarter. The 2013 second quarter results include other expenses of $2.8 million primarily made up of a charge of $2.2 million for the write-off of certain infrastructure assets at Kumtor which could not be relocated as a result of the accelerated movement of the Central Valley Waste Dump. For the same period in 2012, the Company recorded a net loss of $48.9 million or $0.21 per common share which included a charge of $21 million representing a contribution made by Kumtor to a national micro-credit financing program and a charge for abnormal mining costs of $3.9 million associated with the unplanned removal of ice and waste from the high movement area at Kumtor.2013 Second Quarter Highlights
- Produced 99,426 ounces of gold in the quarter, including 72,365 ounces at Kumtor and 27,061 ounces at Boroo, compared to 52,482 ounces (41,307 ounces and 11,175 ounces at Kumtor and Boroo, respectively) in the same period in 2012.
- Increased revenues to $128.2 million compared to $89.7 million in the same quarter of 2012.
- Cash provided by operations increased to $40.9 million compared to a use of cash of $42.3 million in the second quarter of 2012.
- Mining and processing operations were impacted at Kumtor between May 30 and June 1 as a result of an illegal protest which blocked the road leading to the mine, thereby disrupting delivery of supplies. The protestors also interrupted the power supply to the mine. Milling operations were suspended during the period as a result of the power interruption. During this time, the mine continued to operate sufficient equipment to continue to remove ice and waste from the high movement area of the pit.
- Movement in the Central Valley Waste Dump at Kumtor slowed to pre-March levels after modifications to the waste dump management plan.
- The modification to Kumtor's 2013 waste dump management plan is not expected to have an impact on the planned 2013 gold production.
- Increased annual consolidated gold production guidance to a range of 615,000 to 675,000 ounces.
| (1) | Non-GAAP measure, see discussion under "Non-GAAP Measures". |
Commentary
Ian Atkinson, President and CEO of Centerra Gold stated, "Our Boroo mine performed well operationally during the quarter, achieving 27,061 ounces of gold production, which brings year-to-date gold production to 52,663 ounces. Boroo's performance has enabled us to increase our gold production guidance for the mine to a range of 65,000 to 75,000 ounces from 55,000 to 60,000 ounces for the year. Unfortunately, on July 3, 2013 the operation suffered a fatality resulting from a single vehicle rollover accident at our tailings facility. I extend our deepest sympathies and our condolences to the family."
"In the Kyrgyz Republic, the Company is continuing its discussions with the government regarding a potential restructuring transaction to resolve all outstanding concerns relating to the Kumtor Project. At Kumtor work on the infrastructure relocation continues and our 2013 waste dump management plan was modified. The Central Valley Waste Dump movement has slowed to pre-March rates of movement. I am also happy to report that the movement rates of ice and waste in the high movement area are as expected and the stripping of waste is on track to allow access to the higher grade ore by the end of the third quarter."
"Kumtor also experienced a disruption in operations from May 30 to June 1, 2013 as a result of an illegal protest which blocked the road leading to the mine, thereby disrupting delivery of supplies to the mine. The protestors also interrupted the power supply to the mine. Milling operations were suspended during the period as a result of the power interruption. Mining operations were limited to management of the ice and waste in the high movement area of the open pit in order to preserve diesel inventory at the site. The mine has returned to normal operations and we expect Kumtor to achieve its gold production guidance for the year."
"We have undergone a program aimed at increasing our margins and cash flow in the lower gold price environment which includes an expected reduction in spending of approximately $50 million associated with exploration activities, capital and corporate initiatives and operating efficiencies. Centerra has no significant committed capital programs going forward and we continue to review our costs to look for ways to maximize our margins. With the increased gold production guidance and expected increase in gold production in the second half of the year, we are forecasting our all-in cash costs pre-tax(1) to be between $945 and $1,040 an ounce for the year."
"I am also pleased to note that the Board of Directors today has appointed Mr. Kylychbek Shakirov to the Board. Mr. Shakirov is a Kyrgyz Republic citizen and is the Deputy Chairman of Kyrgyzaltyn JSC., Centerra's largest shareholder. Mr. Shakirov is also a member of the Kyrgyz Republic Government working group established to represent the Kyrgyz Republic in negotiations with Centerra. We believe that Mr. Shakirov's presence on the Board will support and reinforce the excellent communication we have with Kyrgyzaltyn and with the Government and will facilitate future discussions. On behalf of Stephen Lang, Chairman of the Board, we welcome Mr. Shakirov to the Board of Directors."," he concluded.
| (1) | Non-GAAP measure, see discussion under "Non-GAAP Measures". |
Impact of Falling Gold Price
In light of the recent significant decline in the gold price, the Company has conducted reviews of its operating costs and capital expenditures and implemented measures to reduce spending on certain operating costs, exploration activities, capital and corporate costs. While this activity is ongoing and we continue to review costs to look for ways to maximize our margins, the Company believes it can continue to generate cash at the lower gold prices reached in June 2013. Centerra is forecasting all-in cash costs(1), including all operating cash costs(1), capital and taxes to be between $1,120 and $1,230 per ounce for the year.
The Company has performed an assessment of the recoverability of its capitalized assets at these lower gold prices and determined that no impairment exists at June 30, 2013.
In Mongolia, we understand the Mongolian Government has added a number of deposits, including Gatsuurt, to the list of mineral deposits of strategic importance which, if approved by Parliament, would exclude Gatsuurt from the application of the Water and Forest Law. In light of this development, along with the recent decline in the gold price, the Company is reviewing the Gatsuurt deposit mine plan and is studying its capital and operating costs. Although the Company has determined that no impairment currently exists, the results of these studies could impact the Company's future assessment of the recoverability of the Gatsuurt and Boroo assets which are approximately $140 million. Centerra will continue to monitor these developments and assess their impact on its Mongolian assets.
Other Matters
During an inspection of the Kumtor ball mill in June 2013, an increased number of cracks were observed in the ring gear of the ball mill as compared to the previous inspection in April 2013. The Company has ordered a replacement ring gear which it expects to be delivered in approximately 52 weeks. In the event that the ball mill cannot continue to operate with the existing ring gear until the replacement arrives, a spare ring gear is available on site, although it would be expected to operate at 95-97% of the capacity of the existing ring gear.
| (1) | Non-GAAP measure, see discussion under "Non-GAAP Measures". |
Consolidated Financial and Operating Summary
| Three Months Ended June 30 | Six Months Ended June 30 | |||||||||
| Financial Summary ($ millions, except as noted) | 2013 | 2012 Restated(4) | % Change | 2013 | 2012 Restated(4) | % Change | ||||
| Revenue | $ 128.2 | $ 89.7 | 43 | % | $ 320.5 | $ 223.5 | 43 | % | ||
| Cost of sales | 84.6 | 82.4 | 3 | % | 175.8 | 161.5 | 9 | % | ||
| Abnormal mining costs | - | 3.9 | 100 | % | - | 4.5 | 100 | % | ||
| Mine standby costs | - | - | 0 | % | - | 4.6 | 100 | % | ||
| Regional office administration | 5.9 | 5.3 | 10 | % | 11.5 | 10.1 | 13 | % | ||
| Earnings from mine operations | 37.7 | (1.8 | ) | 2157 | % | 133.2 | 42.8 | 212 | % | |
| Revenue-based taxes | 13.5 | 9.0 | 51 | % | 34.3 | 24.0 | 43 | % | ||
| Other operating expenses | 2.2 | 22.9 | (91 | %) | 4.1 | 24.3 | (83 | %) | ||
| Exploration and business development | 6.3 | 9.2 | (32 | %) | 13.4 | 17.5 | (23 | %) | ||
| Corporate administration | 7.2 | 1.9 | 275 | % | 13.9 | 10.5 | 33 | % | ||
| Earnings from operations | 8.6 | (44.7 | ) | 119 | % | 67.4 | (33.6 | ) | 301 | % |
| Other (income) and expenses | 2.8 | 0.8 | 252 | % | 4.1 | 0.0 | 100 | % | ||
| Finance costs | 1.2 | 0.7 | 68 | % | 2.5 | 1.7 | 51 | % | ||
| Earnings before income taxes | 4.5 | (46.3 | ) | 110 | % | 60.8 | (35.3 | ) | 272 | % |
| Income tax expense | 3.0 | 2.6 | 13 | % | 7.9 | 4.1 | 92 | % | ||
| Net earnings | $ 1.6 | $ (48.9 | ) | 103 | % | $ 52.9 | $ (39.4 | ) | 234 | % |
| Earnings per common share - $ basic | $ 0.01 | $ (0.21 | ) | 105 | % | $ 0.22 | $ (0.17 | ) | 229 | % |
| Earnings per common share - $ diluted | $ 0.01 | $ (0.21 | ) | 105 | % | $ 0.22 | $ (0.17 | ) | 229 | % |
| Weighted average common shares outstanding - basic (thousands) | 236,377 | 236,363 | 0 | % | 236,377 | 236,370 | 0 | % | ||
| Weighted average common shares outstanding - diluted (thousands) | 236,551 | 236,363 | 0 | % | 236,603 | 236,370 | 0 | % | ||
| Cash provided by (used in) operations | 40.9 | (42.3 | ) | 197 | % | 132.8 | (10.3 | ) | 1390 | % |
| Capital expenditures (1) | 105.5 | 117.9 | (11 | %) | 209.4 | 277.5 | (25 | %) | ||
| Operating Summary | ||||||||||
| Gold produced - ounces | 99,426 | 52,482 | 89 | % | 214,646 | 125,037 | 72 | % | ||
| Gold sold - ounces | 93,177 | 56,201 | 66 | % | 211,922 | 133,921 | 58 | % | ||
| Average realized gold price - $/oz (3) | 1,376 | 1,597 | (14 | %) | 1,512 | 1,669 | (9 | %) | ||
| Average gold spot price - $/oz (2) | 1,415 | 1,604 | (12 | %) | 1,532 | 1,651 | (7 | %) | ||
| Cost of sales - $/oz sold (3) | 908 | 1,466 | (38 | %) | 829 | 1,206 | (31 | %) | ||
| Operating cash costs - $/oz produced(3) | 577 | 831 | (31 | %) | 520 | 746 | (30 | %) | ||
| All-in cash costs (pre-tax) - $/oz produced(3) | 1,585 | 3,431 | (54 | %) | 1,447 | 3,124 | (54 | %) | ||
| All-in cash costs (including taxes) - $/oz produced(3) | 1,749 | 3,608 | (52 | %) | 1,642 | 3,319 | (51 | %) | ||
| (1) | Includes capitalized stripping of $77.2 million in the second quarter of 2013 ($71.0 million in the second quarter of 2012) and $151.5 million in the six months ended June 30, 2013 ($135.1 million in the six months ended June 30, 2012). |
| (2) | Average for the period as reported by the London Bullion Market Association (US dollar Gold P.M. Fix Rate). |
| (3) | Non-GAAP measure, see discussion under "Non-GAAP Measures". |
| (4) | Restated to reflect the impact of new accounting standards adopted January 1, 2013 (see "Changes in Accounting Policies"). |
Revenue for the second quarter of 2013, increased 43% to $128.2 million from $89.7 million in the comparative quarter of 2012, primarily as a result of higher sales volumes (93,177 ounces in the second quarter of 2013 compared to 56,201 ounces in the second quarter of 2012) that was partially offset by a 14% decrease in average realized gold price(1) at $1,376 per ounce compared to $1,597 per ounce in the same quarter of 2012. The higher sales volumes reflect the increase in gold production at both operations.
Gold production for the second quarter of 2013 totaled 99,426 ounces compared to 52,482 ounces in the comparative quarter. The 89% increase in ounces poured was mainly due to the processing of higher grade ore at both Kumtor and Boroo and the resumption of heap leach operations at Boroo.
Cost of sales was $84.6 million in the second quarter of 2013, compared to $82.4 million in the comparative period of 2012, mainly as a result of higher sales volumes. Operating costs(1) in the second quarter of 2013 were higher than the comparative quarter reflecting higher labour costs, resulting from inflationary increases provided for in the collective bargaining agreements which were finalized in the second half of 2012, and the addition of costs at Boroo from the resumption of heap leach operations. During the second quarter of 2013, Kumtor recorded a charge of $2.1 million against cost of sales, representing a write-down of inventoried cost in excess of current net realizable value.
Depreciation, depletion and amortization associated with production increased to $31.6 million in the second quarter of 2013 from $15.4 million in the comparative quarter of 2012 primarily due to the higher ounces sold which resulted in higher depreciation for assets depreciated using the units of production method. The basis for depreciation has increased due to the expanded mobile fleet at Kumtor and higher deferred stripping costs at Kumtor.
Other operating expenses for the second quarter of 2013 totaled $2.1 million compared to $22.9 million in the comparative quarter of 2012. In the second quarter of 2013 the Company spent $2.1 million on corporate social responsibility ("CSR") programs in the Kyrgyz Republic and in Mongolia. The expense during the second quarter of 2012 includes a charge of $21 million representing a contribution made by Kumtor into a national micro-credit financing program, pursuant to an agreement signed by Kumtor and the Kyrgyz Government on April 23, 2012, and an amount of $1.8 million incurred by the Company on other CSR programs mainly in the Kyrgyz Republic.
Other expenses for the second quarter of 2013 totaled $2.8 million compared to $0.8 million in the comparative quarter of 2012. The second quarter of 2013 includes a charge of $2.2 million for the write-off of infrastructure assets at Kumtor which could not be relocated as a result of the accelerated movement in the Central Valley Waste Dump at Kumtor.
Exploration expenditures for the second quarter of 2013 were $6.3 million dollars compared to $9.2 million in the second quarter of 2012. Exploration expenditures in the second quarter of 2013 reflect new drilling programs at the Öksüt project in Turkey and reduced spending on drilling at Kumtor and at the Company's other various projects.
| (1) | Non-GAAP measure, see discussion under "Non-GAAP Measures". |
Corporate administration costs in the second quarter of 2013 were $7.2 million compared to $1.9 million in the same quarter of 2012. During the second quarter of 2012, the Company experienced a significant decline in share price resulting in a reduction in share-based compensation.
Cash provided from operations, net of working capital changes, was $40.9 million compared to cash used in operations of $42.3 million in the second quarter of 2012, as a result of the increased earnings in 2013 and movements in working capital levels.
Capital expenditures spent and accrued in the second quarter of 2013 amounted to $105.5 million, which includes $18.7 million of sustaining capital(1), $9.6 million invested in growth capital(1) and $77.2 million of capitalized stripping. Capital expenditures in the comparative quarter of 2012 totaled $117.9 million, consisting of $12.2 million of sustaining capital(1), $34.7 million of growth capital(1) and $71.0 million of capitalized stripping.
Centerra's cash and cash equivalents and short-term investments at the end of June 2013 decreased to $315.6 million, compared to cash and short-term investments of $382.1 million at December 31, 2012. At June 30, 2013, the Company had drawn $76 million on its $150 million revolving credit facility with the European Bank for Reconstruction and Development (EBRD), leaving a balance of $74 million undrawn. The amount drawn is due to be repaid on August 8, 2013. The Company has the ability to postpone repayment and has notified EBRD of its intention to extend the drawdown to February 8, 2014. Centerra believes, based on its current forecast, that it has sufficient cash and investments to carry out its business plan in 2013 (see "Outlook for 2013").
| (1) | Non-GAAP measure, see discussion under "Non-GAAP Measures". |
All-in cash costs(1) - Consolidated
| Three Months Ended June 30 | Six Months Ended June 30 | |||
| $ millions, except ounces poured | 2013 | 2012 (3) | 2013 | 2012 (3) |
| All-in Cash Costs(1): | ||||
| Operating cash costs | $ 57.4 | $ 43.6 | $ 111.6 | $ 93.3 |
| Abnormal mining costs - cash | - | 2.8 | - | 3.3 |
| Capitalized stripping and ice unload - cash | 56.6 | 52.8 | 110.0 | 99.8 |
| Operating cash costs and capitalized stripping | 114.0 | 99.3 | 221.6 | 196.4 |
| Sustaining capital (cash) | 18.5 | 12.2 | 31.8 | 18.2 |
| Growth capital (cash) | 9.5 | 34.7 | 25.8 | 124.2 |
| Operating cash costs including capital | 142.0 | 146.2 | 279.3 | 338.8 |
| Corporate and other cash costs (2) | 15.7 | 34.0 | 31.4 | 52.3 |
| All-in Cash Costs - pre-tax | $ 157.7 | $ 180.2 | $ 310.7 | $ 391.2 |
| Revenue-based tax and income tax | 16.3 | 9.3 | 41.8 | 24.4 |
| All-in Cash Costs - including taxes | $ 174.0 | $ 189.5 | $ 352.5 | $ 415.6 |
| Ounces poured | 99,426 | 52,482 | 214,646 | 125,037 |
| Operating cash cost - $/oz produced | $ 577 | $ 831 | $ 520 | $ 746 |
| All-in Cash Costs (pre-tax) - $/oz produced | $ 1,585 | $ 3,431 | $ 1,447 | $ 3,128 |
| All-in Cash Costs (including taxes) - $/oz produced | $ 1,750 | $ 3,610 | $ 1,642 | $ 3,324 |
| (1) | Non-GAAP measure, see discussion under "Non-GAAP Measures". |
| (2) | Corporate and other cash costs include corporate general and administrative expenses, global exploration expenses, and community investments which are only reflected in the all-in cash cost amounts reported at the consolidated level. |
| (3) | Operating cash costs and capitalized stripping for 2012 were restated for the impact of the adoption of IFRIC 20 (see "Changes in Accounting Policies"). |
Operating cash costs per ounce produced(1) in the second quarter of 2013 decreased to $577 compared to $831 per ounce in the comparative period of 2012. The decrease in 2013 reflects the impact of higher gold production levels due to higher grades processed at both operations and the resumption of lower cost heap leach operations at Boroo, partially offset by higher operating labour costs in the second quarter of 2013.
On a pre-tax basis, all-in cash costs per ounce produced1 for the second quarter of 2013 were $1,585 and includes all cash costs directly related to gold production. This compares to pre-tax all-in cash costs1 of $3,431 per ounce produced in the second quarter of 2012. The decrease is mainly due to higher gold production in 2013, 59% lower capital spending and 54% lower corporate and other cash costs. Growth capital1 spending (excluding capitalized stripping) decreased from $34.7 million in the second quarter of 2012 to $9.5 million in the second quarter of 2013 reflecting the expansion of the mining fleet at Kumtor during 2012. Corporate and other cash costs2 were down from $34 million in the second quarter of 2012 (in which a special contribution of $21 million was made to a national micro-credit financing program) to $15.7 million in the current quarter of 2013, primarily as a result of lower corporate social responsibility spending.
| (1) | Non-GAAP measure, see discussion under "Non-GAAP Measures". |
Operations Update
| Three Months Ended June 30 | Six Months Ended June 30 | |||||||
| Kumtor Operating Results | 2013 | 2012 (5) | % Change | 2013 | 2012 (5) | % Change | ||
| Gold sold - ounces | 70,318 | 40,228 | 75 | % | 161,935 | 102,425 | 58 | % |
| Average realized gold price - $/oz(3) | 1,372 | 1,592 | (14 | %) | 1,514 | 1,677 | (10 | %) |
| Revenue - $ millions | 96.5 | 64.0 | 51 | % | 245.2 | 171.8 | 43 | % |
| Cost of sales - $ millions (1) | 65.7 | 66.1 | (1 | %) | 132.0 | 128.9 | 2 | % |
| Cost of sales - $/oz sold (1)(3) | 935 | 1,644 | (43 | %) | 815 | 1,259 | (35 | %) |
| Tonnes mined - 000s | 47,901 | 42,736 | 12 | % | 88,085 | 73,482 | 20 | % |
| Tonnes ore mined - 000s | 799 | 16 | 4894 | % | 1,008 | 79 | 1176 | % |
| Average mining grade - g/t (2) | 1.91 | 1.18 | 62 | % | 2.02 | 1.30 | 55 | % |
| Tonnes milled - 000s | 1,351 | 1,376 | (2 | %) | 2,824 | 2,627 | 7 | % |
| Average mill head grade - g/t (2) | 2.17 | 1.33 | 63 | % | 2.44 | 1.64 | 49 | % |
| Recovery - % | 69.3 | 71.2 | (3 | %) | 72.0 | 72.0 | 0 | % |
| Gold produced - ounces | 72,365 | 41,307 | 75 | % | 161,983 | 102,014 | 59 | % |
| Operating cash cost - $/oz produced (3) | 608 | 808 | (25 | %) | 522 | 709 | (26 | %) |
| All-in cash cost (pre-tax) - $/oz produced(3) | 1,727 | 3,180 | (46 | %) | 1,524 | 3,032 | (50 | %) |
| All-in cash cost including tax - $/oz produced(3) | 1,913 | 3,397 | (44 | %) | 1,735 | 3,268 | (47 | %) |
| Capital expenditures - $ millions (4) | 101.5 | 112.8 | (10 | %) | 203.7 | 268.5 | (24 | %) |
| Boroo Operating Results | ||||||||
| Gold sold - ounces | 22,858 | 15,973 | 43 | % | 49,987 | 31,496 | 59 | % |
| Average realized gold price - $/oz(3) | 1,388 | 1,610 | (14 | %) | 1,506 | 1,643 | (8 | %) |
| Revenue - $ millions | 31.7 | 25.7 | 23 | % | 75.3 | 51.7 | 46 | % |
| Cost of sales - $ millions (1) | 18.9 | 16.3 | 16 | % | 43.8 | 32.6 | 35 | % |
| Cost of sales - $/oz sold (1)(3) | 827 | 1,018 | (19 | %) | 876 | 1,034 | (15 | %) |
| Total tonnes mined - 000s | - | 2,475 | - | - | 4,396 | - | ||
| Tonnes mined heap leach - 000s | - | 22 | - | - | 22 | - | ||
| Tonnes stacked heap leach - 000s | 1,026 | - | - | 1,294 | - | - | ||
| Tonnes leached - 000s | 1,083 | - | - | 2,886 | - | - | ||
| Tonnes ore milled - 000s | 624 | 635 | (2 | %) | 1,196 | 1,225 | (2 | %) |
| Average mill head grade - g/t (2) | 1.13 | 0.86 | 31 | % | 1.33 | 0.82 | 62 | % |
| Recovery - % | 60.8 | 69.0 | (12 | %) | 57.0 | 73.7 | (23 | %) |
| Gold produced - ounces | 27,061 | 11,175 | 142 | % | 52,663 | 23,023 | 129 | % |
| Operating cash cost - $/oz produced (3) | 495 | 916 | (46 | %) | 514 | 911 | (44 | %) |
| All-in cash cost (pre-tax) - $/oz produced(3) | 617 | 1,305 | (53 | %) | 601 | 1,241 | (52 | %) |
| All-in cash cost including tax - $/oz produced(3) | 752 | 1,471 | (49 | %) | 768 | 1,389 | (45 | %) |
| Capital expenditures - $ millions (Boroo) (4) | 3.6 | 4.9 | (27 | %) | 4.8 | 8.6 | (44 | %) |
| Capital expenditures - $ millions (Gatsuurt) | 0.2 | 0.1 | 117 | % | 0.4 | 0.2 | 92 | % |
| (1) | Cost of sales excludes regional office administration. |
| (2) | g/t means grams of gold per tonne. |
| (3) | Non-GAAP measure, see discussion under "Non-GAAP Measures". |
| (4) | Includes capitalized stripping of $77.2 million and $151.5 million for the three and six months ended June 30, 2013 at Kumtor ($66.9 million and $127.7 million at Kumtor and $4.1 million and $7.4 million at Boroo for the three and six months ended June 30, 2012, respectively). |
| (5) | Operating cash costs and capitalized stripping for 2012 at Kumtor were restated to reflect the impact of the adoption of IFRIC 20. |
Kumtor
At the Kumtor mine in the Kyrgyz Republic, gold production in the second quarter was 72,365 ounces compared to 41,307 ounces in the same quarter in 2012. The increase in ounces poured was mainly due to the processing of higher grade ore that was mined and stockpiled during the fourth quarter of 2012. During the second quarter of 2013, Kumtor's average head grade was 2.17 g/t with a recovery of 69%, compared with 1.33 g/t and a recovery of 72% for the same quarter in 2012. Gold recovery was 3% lower than the comparative period primarily related to the metallurgical difficulty of the stockpiled ore from the "hockey-stick zone". Tonnage processed was approximately 1.4 million tonnes for the second quarter of 2013, which is similar to the comparative period in 2012.
The increased movement in the waste-rock dump, which began in mid-March 2013, has accelerated the planned relocation of certain mine infrastructure. The rate of movement of the waste-rock dump decreased in the second quarter of 2013 to pre-March rates of movement as the Company modified the waste rock deposition plan. There has been no impact on planned 2013 gold production. See "Other Corporate Developments - Kyrgyz Republic - Kumtor Waste Dump Movement".
Operating cash cost per ounce produced(1) in the second quarter of 2013 decreased to $608 compared to $808 per ounce in the comparative period of 2012. The decrease in 2013 reflects the impact of higher production levels ($347 per ounce), as a result of processing material with higher average mill head grades. This was partially offset by higher operating costs(1) ($147 per ounce) described below.
In the second quarter of 2013, operating cash costs(1) at Kumtor increased by $10.6 million to $44.0 million, excluding the capitalization of stripping activities and the expensing of unloading activities (increased by $15.1 million including capitalized stripping and unloading expense), compared to $33.4 million in the comparative quarter of 2012. The increased cost of mining activities is primarily related to the increased tonnage as the higher density material moved in 2013 incurred higher diesel and blasting costs. Labour costs also increased as a result of the new collective bargaining agreement ratified in December 2012. Other increases include increased tire requirements and maintenance due to the expanded haul fleet.
All-in cash costs per ounce produced pre-tax(1) were $1,727 in the second quarter of 2013 compared to $3,180 in the same quarter of 2012. The decrease is due to both higher production and a reduction in growth capital spending(1). Kumtor is currently processing lower than average ore grade as it completes a waste stripping phase and expects the all-in cash costs(1) to decrease in the fourth quarter of 2013 when the higher grade ore from the SB Zone is accessed. See "Outlook for 2013".
Exploration expenditures totaled $2.0 million for the second quarter of 2013, compared to $2.9 million reported in the second quarter 2012.
Capital expenditures spent and accrued in the second quarter of 2013 at Kumtor amounted to $101.5 million which includes $15.1 million of sustaining capital(1), $9.3 million invested in growth capital(1) for the fleet expansion and $77.2 million for capitalized stripping. Capital expenditures in the comparative quarter of 2012 totaled $112.8 million, consisting of $11.2 million of sustaining capital(1) and $101.6 million of growth capital(1) including $66.9 million of capitalized stripping.
| (1) | Non-GAAP measure, see discussion under "Non-GAAP Measures". |
During an inspection in June 2013, an increased number of cracks were observed in the ring gear of the Kumtor ball mill as compared to the previous inspection in April 2013. After consultation with the supplier of the ring gear, FL Smidth, it was decided that the ring gear would need to be replaced. The Company has ordered a replacement ring gear which it expects to be delivered in approximately 52 weeks. In the meantime, the Company has taken measures to closely monitor the ring gear and to lessen the stresses applied to it. In addition, the ring gear will be rotated during the regularly scheduled 5 day shutdown in August. The off-side of the ring gear does not appear to have any cracks and is expected to provide good temporary service until such time as the replacement gear arrives. In the event that the ball mill cannot continue to operate with the current ring gear until the replacement arrives, a spare ring gear is available on site, although it would be expected to operate at 95% to 97% of the capacity of the current ring gear.
Boroo/Gatsuurt
At the Boroo mine in Mongolia, gold production was 27,061 ounces of gold in the second quarter of 2013 compared to 11,175 ounces of gold in the second quarter of 2012. The gold production increase of 15,885 ounces was mainly due to the resumption of activities at the heap leach operation, which contributed 13,210 ounces, and the processing of higher grades of ore through the mill, which contributed 13,850 ounces, partially offset by lower mill recoveries in 2013. Mill head grades averaged 1.13 g/t with a recovery of 61% in 2013, compared to 0.86 g/t with a recovery of 69% in the second quarter of 2012.
The Boroo mill processed stockpiled ore in the second quarter of 2013 which was refractory in nature, resulting in lower recoveries (61% compared to 69%) than during the same period of 2012 when the mill processed non-refractory lower grade ore.
Operating cash costs(1) at Boroo increased by $3.2 million in the second quarter of 2013, excluding the capitalization of stripping costs at Pit 6 in 2012 (and decreased by $0.4 million including capitalization), compared to the same period in 2012.
Operating cash costs per ounce produced(1) in the second quarter of 2013 were $495 compared to $916 per ounce in the same period of 2012. The decrease of 46% was a result of a 142% increase in production partially offset by higher operating costs(1) resulting primarily from the resumption of heap leaching operations.
Boroo's all-in cash costs per ounce produced (pre-tax)(1) for the second quarter of 2013 were $617 and included all costs directly related to gold production except for income tax paid in Mongolia. The same pre-tax all-in cash costs(1) for the second quarter of 2012 were $1,306 per ounce produced. The decrease in the pre-tax all-in cash costs(1) was primarily the result of the increase in production, reflecting the resumption of heap leaching operations and no mining activity in the second quarter of 2013. In the comparative quarter of 2012, mining costs accounted for $329 per ounce produced.
| (1) | Non-GAAP measure are discussed under "Non-GAAP Measures." |
Capital expenditures spent and accrued at Boroo in the second quarter of 2013 decreased to $3.6 million compared to $4.9 million in the same period of 2012. 2013 capital primarily relates to tailings dam construction ($2.8 million) and mobile component change outs ($0.5 million), whereas in the second quarter of 2012, $4.1 million was related to capitalized stripping of Pit 6.
The Gatsuurt project remained under care and maintenance in the second quarter of 2013 due to continued delays in permitting resulting from the Water and Forest Law which prohibits mining and exploration activities in water basin and forested areas. Further development of the project is subject to resolution of the impact of the Water and Forest Law on the Gatsuurt project, and receiving all required approvals and regulatory commissioning from the Mongolian Government. See "Other Corporate Developments- Mongolia".
Centerra understands that, in May 2013, the Mongolian Government added seven deposits, including Gatsuurt, to the list of "mineral deposits of strategic importance". Such a designation, which is subject to the approval of Parliament, would have the effect of excluding Gatsuurt from the application of the Water and Forest Law. Centerra expects that Parliament and/or any relevant committees of Parliament will consider this matter further in the fourth quarter of 2013, when Parliament reconvenes after its summer recess. If Parliament ultimately approves this designation, it would allow the Government of Mongolia to acquire up to a 34% interest in Gatsuurt. The terms of any such participation would be subject to discussion with the Government. See "Other Corporate Developments- Mongolia".
During the second quarter of 2013, exploration expenditures in Mongolia were $0.7 million compared to $2.1 million in the same period of 2012. The 2013 exploration expenditures were largely on activities at the Company's ATO project located in eastern Mongolia.
All-in cash costs(1)
| KUMTOR | Three months ended June 30 | Six months ended June 30 | ||
| $ millions, except ounces poured | 2013 | 2012(3) | 2013 | 2012(3) |
| All-in Cash Costs (1): | ||||
| Operating cash costs | $ 44.0 | $ 33.4 | $ 84.5 | $ 72.3 |
| Abnormal mining costs - cash | - | 2.8 | - | 3.3 |
| Capitalized stripping and ice unload - cash | 56.6 | 49.2 | 110.0 | 93.5 |
| Operating cash costs and capitalized stripping | 100.6 | 85.5 | 194.5 | 169.1 |
| Sustaining capital (cash) | 15.1 | 11.2 | 26.8 | 16.7 |
| Growth capital (cash) | 9.3 | 34.7 | 25.4 | 124.0 |
| Operating cash costs including capital | 124.9 | 131.3 | 246.8 | 309.8 |
| Corporate and other cash costs(2) | - | - | - | - |
| All-in Cash Costs (pre-tax) | 124.9 | 131.3 | 246.8 | 309.8 |
| Revenue-based tax | 13.5 | 9.0 | 34.3 | 24.0 |
| All-in Cash Costs (including taxes) | $ 138.5 | $ 140.3 | $ 281.1 | $ 333.9 |
| Ounces poured | 72,365 | 41,307 | 161,983 | 102,014 |
| All-in Cash Costs (pre-tax)- $/oz produced | $ 1,727 | $ 3,180 | $ 1,524 | $ 3,037 |
| All-in Cash Costs (including taxes) - $/oz produced | $ 1,913 | $ 3,397 | $ 1,735 | $ 3,273 |
| BOROO | Three months ended June 30 | Six months ended June 30 | ||
| $ millions, except ounces poured | 2013 | 2012 | 2013 | 2012 |
| All-in Cash Costs (1): | ||||
| Operating cash costs | $ 13.4 | $ 10.2 | $ 27.1 | $ 20.9 |
| Capitalized stripping - cash | 0.0 | 3.6 | 0.0 | 6.3 |
| Operating cash costs and capitalized stripping | 13.4 | 13.8 | 27.1 | 27.3 |
| Sustaining capital (cash) | 3.3 | 0.8 | 4.6 | 1.3 |
| Growth capital (cash) | 0.0 | 0.0 | 0.0 | 0.0 |
| Operating cash costs including capital | 16.7 | 14.6 | 31.6 | 28.6 |
| Corporate and other cash costs(2) | - | - | - | - |
| All-in Cash Costs (pre-tax) | $ 16.7 | $ 14.6 | $ 31.6 | $ 28.6 |
| Income tax | 3.7 | 1.9 | 8.8 | 3.4 |
| All- Cash Costs (including taxes) | $ 20.4 | $ 16.4 | $ 40.4 | $ 32.0 |
| Ounces poured | 27,061 | 11,175 | 52,663 | 23,023 |
| All-in Cash Costs (pre-tax)- $/oz produced | $ 617 | $ 1,306 | $ 601 | $ 1,241 |
| All-in Cash Costs (including taxes) - $/oz produced | $ 752 | $ 1,472 | $ 768 | $ 1,389 |
| (1) | Non-GAAP measure, see discussion under "Non-GAAP Measures". |
| (2) | Corporate and other cash costs include corporate general and administrative expenses, global exploration expenses and community investments which are only reflected in the all-in cash cost amounts reported at the consolidated level. |
| (3) | Operating cash costs and capitalized stripping for 2012 were restated to reflect the impact on adoption of IFRIC 20 (see "Changes in Accounting Policies"). |
Exploration Update
To view the graphics, maps/drill sections and complete drill results discussed in this news release, visit the following link: http://file.marketwire.com/release/CG-07-31-2013.pdf or visit the Company's web site at: www.centerragold.com.
Kyrgyz Republic
During the second quarter of 2013, exploration drilling was confined to the Kumtor Central Pit and to a small drilling program in proximity to the Southwest deposit.
For the discussion on the quality assurance program, please see "Qualified Person & QA/QC" elsewhere in this news release.
Kumtor Pit
Exploration completed 13 drill holes during the second quarter. Drilling focused on extensions to the Hockey Stick Zone beyond the limits of the current life of mine KS-13 open pit and on several deep targets beneath the Saddle Zone.
Holes D1712, 1713, 1714 and 1715 were completed on Sections -42, -54, -46 and -38, respectively, testing extensions of the Hockey Stick Zone below the limits of the KS-13 Open Pit. Hole D1712 intersected 2.9 g/t gold over 17.6 metres approximately 150 metres below the KS-13 pit bottom. 120 metres further west on Section-54, hole D1713 intersected 1.9 g/t gold over 18.7 metres and 1.8 g/t gold over 8.6 metres immediately below the KS-13 pit. Hole D1714 intersected 5.0 g/t gold over 15.6 metres approximately 150 metres below the KS-13 pit on Section -46, and hole D1715 returned 4.6 g/t gold over 18.8 metres, including 9.4 g/t gold over 4.2 metres, 100 metres below the KS-13 pit design on Section -38. These results are expected to have a modest positive impact on future resource estimates.
Three deep drill holes were completed to test for extensions to zones of higher grades beneath the Saddle Zone. On Section 54, hole D1716 intersected 2.1 g/t gold over 55.9 metres and 2.0 g/t gold over 47.4 metres approximately 500 metres down dip from the KS-13 pit bottom. Further east on Section 66, hole D1717 encountered 4.1 g/t gold over 18.7 metres (including 13.0 g/t gold over 3.0 metres), 1.8 g/t gold over 20.8 metres and several narrower intersections averaging less than 2 g/t gold approximately 300 metres below the KS13 pit. Lastly, drill hole D1718 intersected 2.3 g/t gold over 19.1 metres and several narrower intervals averaging less than 2 g/t gold approximately 20 metres below the KS-13 pit on Section 70. The results from these holes are similar to other holes in the Saddle Zone (an area of lower grades between the SB and Stockwork Zones) and are not expected to have a material impact on future resource estimates.
Six shallow drill holes were also completed to test for extensions to a small zone of oxide gold mineralization near the leading edge of the Kumtor thrust in the area of the Southwest deposit. The results from these holes are negative, and no further work is planned.
Exploration drilling will decrease markedly in the third quarter when mining activities prohibit access to drill sites in the Central Pit. Work early in the quarter will include a number of infill and geotechnical holes in the Central Pit.
True widths for the mineralized zones are from 70% to 95% of the stated intercept.
A complete listing of the drill results and supporting maps for the Kumtor pit have been filed on the System for Electronic Document Analysis and Retrieval ('SEDAR') at www.sedar.com and are available at the Company's web site at: www.centerragold.com.
Mongolia
ATO Project
Fieldwork resumed at the ATO project in the second quarter and included the collection of 3,400 soil samples, 72 kilometres of IP data and 947 metres of trenches over targets in the greater ATO district. Shallow reverse-circulation "scout" drilling is planned for these areas and will be followed by a program of diamond drilling later in the third quarter of 2013.
Russia
Kara Beldyr Joint Venture
The Kara Beldyr winter drilling program ended in April with the completion of 372 metres of diamond drilling in two holes on the northern extension of the Camp Zone. Better results from two infill holes completed on the Camp Zone in the first quarter include:
| K?Æ-177: | 7.05 g/t gold over 1.0 metres (118.4 - 119.4 metres) |
| 2.15 g/t gold over 2.4 metres (147.2 - 149.6 metres) | |
| K?Æ-178: | 2.30 g/t gold over 5.0 metres (27.7 - 32.7 metres) |
| 32.70 g/t gold over 1.4 metres (104.2 - 105.6 metres) |
Results from the winter exploration program have defined a small resource at the Camp Zone and downgraded the remaining targets on the license. Centerra and joint-venture partner Auriant Mining have elected to cease exploration on the property and examine strategic options in the second half of 2013.
True widths for the mineralized zones are from 20% to 90% of the stated intercept.
A complete listing of the drill results and supporting maps for the Kara Beldyr project 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.
Turkey
Öksüt Project
At the Öksüt Project 19 diamond drill holes were completed. Four PQ drill holes, ODD 105-108, were completed as twins to prior exploration holes for metallurgical test work. Another five drill holes tested an IP anomaly east of the Ortacam deposit. Eight drill holes were completed to infill or close off the Ortacam North and Ortacam deposits.
Assay results were received for drill holes ODD109-119. Better results include:
| ODD109 (infill): | 1.02 g/t gold over 152.4 metres |
| ODD110 (infill): | 2.42 g/t gold over 94.7metres and 1.16 g/t Au over 164.4 metres |
| ODD111 (infill): | 4.39 g/t gold over 8.1 metres and 1.55 g/t Au over 15.0 metre |
| ODD115 (stepout): | 0.41 g/t gold over 47.0 metres |
| ODD118 (infill): | 0.41 g/t gold over 59.1 metres |
Drill holes ODD109 and 110 are infill drill holes in the core of the Ortacam North deposit. ODD111, an eastward directed drill hole was drilled for geotechnical information, intersected two high-grade ledges within 50 metres of the surface. Drill hole ODD115 encountered multiple intervals of low-grade oxide material in the southwest corner of the Ortacam North deposit. Results from holes ODD111 and 115 remain open-ended and will be the focus of additional drilling this year.
Drill holes ODD112, 114, 116, 117 and 119 were drilled to test an IP anomaly east of the Ortacam deposit intersected intervals of massive and vuggy-textured silica breccia; however, assay results were negative.
True widths for the mineralized zones are from 50% to 90% of the stated intercept.
A complete listing of the drill results and supporting maps for the Öksüt project 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.
To view the graphics, maps/drill sections and complete drill results discussed in this news release, visit the following link: http://file.marketwire.com/release/CG-07-31-2013.pdf or visit the Company's web site at: www.centerragold.com.
Qualified Person & QA/QC
The exploration information and 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 ("NI 43-101") and were prepared, reviewed, verified and compiled by Centerra's geological and mining staff under the supervision of David Groves, Certified Professional Geologist, Centerra's Vice-President, Global Exploration, 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 (see below).
The production information and related scientific and technical information in this news release, including the production estimates were prepared in accordance with the standards of the Canadian Institute of Mining, Metallurgy and Petroleum and NI 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.
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.
Other Corporate Developments
The following is a summary of corporate developments with respect to matters affecting the Company and its subsidiaries in the Kyrgyz Republic and Mongolia. A summary discussion of certain regulatory matters affecting the Kumtor Project follows the discussion of events that occurred in the second quarter of 2013. For a more complete discussion of these matters impacting Kumtor, and for outstanding matters in Mongolia and at the corporate level, see the Company's prior public disclosure, in particular, its news release dated May 8, 2013 and its 2012 Annual Information Form. Both of these documents can be found on www.sedar.com.
Kyrgyz Republic
Negotiations between Kyrgyz Republic and Centerra
As previously disclosed, the Kyrgyz Republic Parliament passed resolution #2805 on February 21, 2013, which, among other things, recommended that the Kyrgyz Government conduct consultations and negotiations with Centerra to find mutually acceptable solutions with respect to the Kumtor Project and the issues raised in the Parliamentary and State Commission reports. The resolution set a deadline of June 1, 2013 for the Government to return to the Parliament with information on how to implement the Parliament's recommendations in the resolution. This deadline of June 1, 2013 was extended by Parliament by way of a resolution dated June 5, 2013 (Resolution #3169-V). The original deadline of June 1, 2013 was extended for three months, and Parliament set a deadline of September 10, 2013 for the Government to present final agreements incorporating the mutually acceptable solution. Resolution #3169-V also provides that if a mutually acceptable solution has not been agreed to, the Government is instructed to develop and submit a draft law "On Denunciation of the Agreement for the Kumtor Project" for review by the Kyrgyz Republic Parliament.
The Company continues to discuss outstanding matters with the Kyrgyz Republic advisory working group, which includes Prime Minister Satybaldiev, and with the Kyrgyz Republic financial and legal experts. As previously disclosed, the Company is in discussions with the Kyrgyz Republic Government regarding a potential restructuring transaction under which Kyrgyzaltyn JSC would exchange its 32.7% equity interest in Centerra for an interest of equivalent value in a joint venture company that would own the Kumtor Project. Discussions are on-going and any definitive agreement for a potential restructuring would be subject to compliance with all applicable legal and regulatory requirements and approvals, including any independent valuation and minority shareholder approval requirements. Centerra expects to continue discussions with the Government with the objective of resolving matters through constructive dialogue. However, there can be no assurance that any transaction will be consummated or that the Company will be able to successfully resolve any of the matters currently affecting the Kumtor Project. The inability to successfully resolve matters, including obtaining all necessary approvals, and/or further actions of the Kyrgyz Republic Government and/or Parliament, could have a material adverse impact on the Company's future cash flows, earnings, results of operations and financial conditions.
Environmental Claims
On June 7, 2013, Kumtor Operating Company ("KOC") received four court claims filed by the State Inspectorate Office for Environmental and Technical Safety ("SIETS") with the Bishkek Inter-district court. The SEITS environmental claims sought to enforce the previously disclosed environmental claims commenced by SIETS in December 2012, seeking compensation in relation in the aggregate amount of $152 million to (i) placement of waste rock on glaciers; (ii) unpaid use of water from Lake Petrov; (iii) unaccounted industrial and household waste; and (iv) damages caused to land resources (top soil). KOC submitted materials requesting the court reject the claims based on the arbitration clause in the Amended and Restated Investment Agreement between (among others) the Kyrgyz Republic Government and KOC dated June 6, 2009,which requires all such disputes to be resolved through international arbitration. The Bishkek Inter-district court dismissed the claims for enforcement on the basis of the arbitration clause in the Restated Investment Agreement which requires all such disputes to be resolved through international arbitration.
On June 20, 2013, SIETS appealed the decision of the Bishkek Inter-district court to the Bishkek City Court. KOC will continue to dispute the claims, both on a substantive and procedural basis. As previously disclosed, KOC believes the claims are exaggerated or without merit. The Kumtor Project has been the subject of systematic audits and investigations over the years by Kyrgyz and international experts, including by an independent internationally recognized expert which carried out a due diligence review of Kumtor's performance on safety, health and environmental matters at the request of Centerra's Safety, Health and Environmental Committee of the Board of Directors. The report of this expert released in October 2012 can be found on the Kumtor website at http://www.kumtor.kg/en/ under the "Environment" section.
With respect to the claim commenced by the State Agency for Environmental Protection and Forestry under the Government of the Kyrgyz Republic ("SAEPF") for the aggregate amount of approximately $315 million, KOC continues to be in discussions with SAEPF regarding the claim. However, there can be no assurance that the Company will be able to successfully resolve any of these matters discussed above. The inability to successfully resolve matters could have a material adverse impact on the Company's future cash flows, earnings, results of operations and financial conditions.
Kumtor Waste Dump Movement
As previously disclosed, the waste dump movement experienced at Kumtor in May 2013 has required Kumtor to develop and implement alternative waste rock dumps at the Kumtor mine and to revise its mine development plan. The revised mine development plan was submitted in June 2013 and Kumtor is working with applicable regulatory authorities at the State Agency for Geology and Mineral Resources (the "SAGMR") under the Government of the Kyrgyz Republic and SAEPF to obtain necessary approvals in a timely manner. Since May 2013, Kumtor is placing waste rock in areas previously approved as waste dumps and/or in areas where Kumtor is currently seeking regulatory approval to place waste rock. With respect to the areas where the approval process is still underway, Kumtor has requested temporary approval from the relevant regulatory authorities (SAGMR and SAEPF) for this purpose. Although, each of SAGMR and SAEPF acknowledged Kumtor's plans with respect to the placement of waste rock in these areas, they indicated that they lacked the authority to grant such temporary approval. However, SAGMR also indicated that it had no objections to Kumtor's plan of placing waste rock in such areas. However, there can be no assurance that the Company will be able to successfully resolve any of these matters discussed above. The inability to successfully resolve matters could have a material adverse impact on the Company's future cash flows, earnings, results of operations and financial conditions.
Kumtor Road Block
On May 28, 2013, the Company announced that the road leading to the Kumtor mine had been blocked by an illegal protest on May 27, 2013. The road block continued for a five-day period until June 1, 2013. The road block interfered with the movement of supplies and personnel to and from the mine, and at one point (starting on May 30, 2013) resulted in the national grid power supply to the Kumtor mine being disrupted. The Kumtor mine was able to carry out an orderly shutdown of the milling facility and operations were suspended starting May 30, 2013. Mining operations were also suspended other than continuing to manage the ice and waste in the high movement area of the open pit. In response to the road block and the power disruption, the Kyrgyz Government declared a state of emergency, and took steps to remove the road block. The Company was able to resume operations on June 2, 2013. The Company does not believe that the suspension of operations will have a significant impact on the Company's 2013 forecasted gold production.
Conclusion
There are several outstanding issues affecting the Kumtor Project, which require consultation and co-operation between the Company and Kyrgyz regulatory authorities. The Company has benefited from a close and constructive dialogue with Kyrgyz authorities during project operations and remains committed to working with them to resolve these issues in accordance with the project agreements signed with the Kyrgyz Republic Government in June 2009 governing the Kumtor Project (the "Kumtor Project Agreements"), which provide for all disputes to be resolved by international arbitration, if necessary. However, there are no assurances that the Company will be able to successfully resolve any or all of the outstanding matters affecting the Kumtor Project. There are also no assurances that Kumtor will be able to receive all necessary approvals for its mine development plan. There are also no assurances that the Kyrgyz Republic Government and/or Parliament will not take actions that are inconsistent with the Government's obligations under the Kumtor Project Agreements, including adopting a law "denouncing" or purporting to invalidate the Kumtor Project Agreements or laws enacted in relation thereto. The inability to successfully resolve matters, including obtaining all necessary approvals, and/or further actions of the Kyrgyz Republic Government and/or Parliament could have a material adverse impact on the Company's future cash flows, earnings, results of operations and financial conditions. See "Cautionary Note Regarding Forward-looking Information".
Mongolia
Boroo
In view of the expiry of the Boroo Stability Agreement on July 7, 2013, working groups comprised of representatives of Centerra, Boroo Gold Company ("BGC") and the Mongolian Ministry of Mining have been formed to assess compliance with the terms of the Stability Agreement. The working groups met several times in June 2013 and engaged in detailed discussions on the financial, geological and legal aspects of the Stability Agreement, ultimately concluding that both BGC and the Government of Mongolia had operated within the agreement and in accordance with all applicable Mongolian laws and regulations. Representatives of the Ministry of Mining have communicated these findings to the Minister of Mining and Cabinet and we await further comment from them.
In addition, Centerra notes that the expiry of the Boroo Stability Agreement has resulted in the tax and royalty rates applicable to the Boroo project becoming subject to those applicable under current Mongolian law. The applicable income tax rate, which is unchanged from the rate Boroo has paid up to the date of expiry of the Stability Agreement, is 25% for taxable income over 3 billion Mongolian tugriks (approximately $2.1 million at the June 30, 2013) with a tax rate of 10% for taxable income up to that amount. The royalty rate, which was previously stabilized at 5%, will now vary from 5% to 10%, depending on the price of gold per ounce in U.S. dollars at the time of sale. VAT paid on inputs will no longer being recoverable by BGC. Because the Boroo deposit is classified as a "mineral deposit of strategic importance" under applicable Mongolian laws, following the expiry of the Boroo Stability Agreement, the Government of Mongolia has a right to acquire up to a 50% interest in the project. Centerra is continuing its discussions with representatives of the Government of Mongolia in this regard, including as to the amount and share of the Government of Mongolia's investment into the project. However, given the short remaining mine life of the Boroo project, Centerra does not expect that the participation of the Government of Mongolia would have a material effect on Centerra's financial results.
Boroo Heap Leach
In June 2013, BGC experienced a minor, non-reportable excursion of heap leach solution from its heap leach pad. BGC undertook immediate remedial action, including the shutdown of heap leach cell number 4 (which we believed to be the cause of the excursion) to contain the excursion and, despite the fact that it was a non-reportable incident, notified all relevant authorities. An investigation is continuing into this matter which we expect will be completed shortly, at which time we expect to receive permission to re-start cell number 4 of the heap leach. No material impact to Centerra's financial results is expected to result from this incident.
Gatsuurt
Centerra continues to be in discussions with the Mongolian Government regarding the development of the Gatsuurt property. Centerra remains reasonably confident that the economic and development benefits resulting from its exploration and development activities will ultimately result in the Mongolian Water and Forest Law having a limited impact on the Gatsuurt project, in particular, and other of the Company's Mongolian activities, including the ATO deposit. As previously disclosed, the Mongolian Water and Forest Law prohibits mineral prospecting, exploration and mining in water basins and forestry areas in Mongolia.
Centerra understands that, in May 2013, the Mongolian Government added seven deposits, including Gatsuurt, to the list of "mineral deposits of strategic importance". Such a designation, which is subject to the approval of Parliament, would have the effect of excluding the Gatsuurt deposit from the application of the Water and Forest Law. Centerra expects that Parliament and/or any relevant committees of Parliament will consider this matter further in the fourth quarter, when Parliament reconvenes after its summer recess. If Parliament ultimately approves this designation, it would allow the Government of Mongolia to acquire up to a 34% interest in Gatsuurt. The terms of any such participation would be subject to discussions with the Government.
There can be no assurance, however, that the Water and Forest Law will not have a material impact on Centerra's Mongolian operations. Unless the Water and Forest Law is repealed or amended such that the law no longer applies to the Gatsuurt project or Gatsuurt is designated by the Parliament of Mongolia as a "mineral deposit of strategic importance" that is exempt from the Water and Forest Law, mineral reserves at Gatsuurt may have to be reclassified as mineral resources or eliminated entirely and the Company may be required to write-off the associated investment in Gatsuurt and Boroo (where Gatsuurt ore was planned to be milled).
Corporate
Enforcement Notice by Sistem
The claim commenced in March 2011 by a Turkish company, Sistem Muhenkislik Insaat Sanayi Ticaret SA ("Sistem") which alleges that the shares in Centerra owned by Kyrgyzaltyn JSC are, in fact, legally and beneficially owned the Kyrgyz Republic continues to be subject to proceedings in the Ontario courts. Centerra is not a party to the proceedings, but understands that the matter is being scheduled for consideration on its merits.
Pursuant to a Court Order issued by the Ontario Superior Court of Justice (as amended from time to time, and most recently amended on June 5, 2013) (the "Court Order"), Centerra is holding in trust (for the benefit of the Sistem court proceedings) dividends otherwise payable to Kyrgyzaltyn JSC. Effective as of June 6, 2013, when a dividend was paid by Centerra, the maximum amount to be held in trust as set out in the Court Order (Cdn$11.3 million) has been reached. As of June 30, 2013, Centerra holds in trust, for the benefit of the Sistem court proceeding, approximately Cdn$11.3 million. Subject to any future changes to the Court Order, all future dividends will be paid to Kyrgyzaltyn JSC.
Background Description of Outstanding Kumtor Matters
The disclosure below is a summary description of the outstanding matters affecting the Kumtor Project. For a more detailed description, see the Company's prior disclosure, in particular, its news release dated May 8, 2013 and its 2012 Annual Information Form. Both of these documents can be found on www.sedar.com.
Parliamentary Commission and Report
On February 15, 2012, the Kyrgyz Parliament established an interim Parliamentary Commission to inspect and review: (i) Kumtor's compliance with Kyrgyz operational and environmental laws, as well as community standards, and (ii) state regulation over the Kumtor project's activities. The Parliamentary Commission issued its report (the "Parliamentary Report") on June 18, 2012 and made a number of assertions regarding the operation of the Kumtor project, including alleging non-compliance by the Kumtor project with Kyrgyz environmental laws, particularly at Kumtor's tailings facility, the Davidov glacier and the Sarychat-Ertash State Reserve which is in the vicinity of the Kumtor project. The Parliamentary Commission alleges that the violations have resulted in substantial monetary damages.
The Kyrgyz Parliament met in late June 2012 to consider the Parliamentary Report and adopted Resolution 2117-V that took note of the Parliamentary Report and declared the Kumtor Project Agreements to be contrary to the interests of the Kyrgyz Republic. Resolution 2117-V also called for the formation of a State Commission to "assess the environmental, industrial and social damage" caused by the Kumtor project and to initiate the renegotiation of the current Kumtor project agreements "in order to protect economic and environmental interests".
As contemplated in Resolution 2117-V, on July 5, 2012, the Kyrgyz Government cancelled Government Decree #168, which provided Kumtor with land use rights over the surface of the Kumtor concession area for the duration of the restated concession agreement effective June 6, 2009 (the Restated Concession Agreement). Based on advice from Kyrgyz legal counsel, the Company believes that the purported cancellation of land rights is in violation of the Kyrgyz Republic Land Code, because the Land Code provides that land rights can only be terminated by court decision and on the listed grounds set out in the Land Code. Kumtor has communicated this to the Kyrgyz Republic and requested the issuance of a new land use certificate in light of the rights and obligations under the restated investment agreement dated June 6, 2009 between Centerra and the Kyrgyz Republic (the Restated Investment Agreement). No response has been received from the Kyrgyz Government. Pursuant to the Restated Investment Agreement, the Kumtor project is guaranteed all necessary access to the Kumtor concession area, including all surface lands as are necessary or desirable for the operation of the Kumtor project. The Restated Investment Agreement also provides for the payment of quarterly land use and access fees.
In response to the Parliamentary Report's allegations of non-compliance with environmental laws, in August 2012, the Board of Directors of Centerra retained an independent internationally recognized consultant to carry out a due diligence review of Kumtor's performance on safety, health and environmental matters. The report issued in October 2012 concluded that "no major or materially significant environmental issues were identified". The report of this expert can be found on the Kumtor website at http://www.kumtor.kg/en/ under the "Environment" section.
State Commission and Report
In response to Resolution 2117-V passed by the Parliament, the Kyrgyz Government established a state commission (the State Commission) for the purpose of reviewing the Parliamentary Report as well as inspecting and reviewing Kumtor's compliance with Kyrgyz operational and environmental laws and community standards. The State Commission was comprised of three working groups, responsible for (i) legal matters; (ii) social and economic matters; and (iii) environmental and technical matters. The State Commission released its report (the "State Commission Report") in late December 2012 following five months of study. The State Commission Report included a large number of allegations, including allegations that the Kumtor project was violating Kyrgyz legislation relating to environmental and subsoil legislation and caused environmental damage to water and land resources.
Environmental Claims
In December 2012, KOC received four claims from SIETS relating to alleged environmental damages at the Kumtor project. The claims are for an aggregate amount of approximately $152 million and include:
- a claim for approximately $142 million for alleged damages in relation to the placement on waste dumps of waste rock from mining operations (2000 to 2011)
- a claim for approximately $4 million for use of water resources for the period of 2000 to 2011
- a claim for approximately $2.8 million for waste placed in the tailings management facility and for emissions for 2009-2011, which claim was subsequently withdrawn
- a claim for approximately $2.3 million for alleged damages caused to land resources at the time of initial construction of Kumtor
In addition, KOC has also received a directive from SIETS requiring that actions be taken to correct various alleged environmental and technical violations discovered in its review.
On February 21, 2013, KOC announced the receipt of another claim from SAEPF for the amount of approximately $315 million for alleged damage in relation to waste placed in the tailings management facility, waste rock dumps, and for the generation, management and treatment of other types of wastes. The claim covers the period from 1996 to 2011.
The Company notes that the Kumtor Project Agreements provide a complete listing of all taxes and payments to be made to the Kyrgyz Republic, including a fixed environmental charge. Accordingly, no other tax, duties, or other obligations are to be paid to the Kyrgyz Republic, however they may be characterized.
In addition, Centerra, the Kyrgyz Republic and others entered into a release agreement (the Release Agreement) dated June 6, 2009, whereby, subject to certain exceptions which we believe are not applicable in the circumstances, the Kyrgyz Republic released Centerra from any and all claims, and damages with respect of any matter (including any tax or fiscal matters) arising or existing prior to the date of the Release Agreement, whether such matters were known or unknown at such time, and the Kyrgyz Republic agreed not to commence any actions or assert any demands for such actions or demands so released.
Kyrgyz Republic Advisory Committee and Requests to Negotiate
On February 21, 2013, the Kyrgyz Parliament adopted Resolution #2805 which among other things, recommended that the Government ensure the continuous operation of the Kumtor mine, and within three months of the date of the resolution, conduct negotiations with Centerra with a view to revising the Kumtor Project Agreements to return to conditions that existed prior to the restructuring of the project in 2003, but subject to the application of the current Kyrgyz legislation, and to enter into new project agreements. The resolution provided a deadline of June 1, 2013 for the Government to return to Parliament, which subsequently was extended to September 10, 2013 (as discussed above).
The Law on Denunciation
On April 9, 2013 an initiative group chaired by Mr. Beknazarov A.A. submitted the Law on Denunciation for consideration by Parliament. The draft law "denounces" the Agreement on New Terms for the Kumtor Project ("ANT") entered on April 24, 2009, and recognizes as invalid all other agreements associated with the ANT, and calls for the Government to bring all of its decisions in accordance with the Law on Denunciation. To date, the Law on Denunciation has not been considered by Parliament. Based on Kyrgyz media reports, an opposition party in the Parliament, the Respublika faction, has endorsed the Law on Denunciation. The Law on Denunciation was referenced in Resolution #3169-V (discussed above).
The Company believes that the adoption of a law that denounces or purports to invalidate the Kumtor Project Agreements would be a breach of the Government's obligations under the Kumtor Project Agreements. The Company believes that the Kumtor Project Agreements are legal, valid and enforceable obligations. The agreements were reviewed and approved by the Government and the Parliament, and were the subject of a positive decision by the Kyrgyz Republic Constitutional Court and a legal opinion by the Kyrgyz Republic Ministry of Justice. Furthermore, under the Kumtor Project Agreements, the Government agreed to use its best efforts to reverse or annul any actions of public officials (including state agencies) which conflict with the rights and benefits granted to Kumtor under the Kumtor Projects Agreements.
Conclusion
Centerra has benefited from a close and constructive dialogue with the Kyrgyz authorities over many years and we remain committed to continuing to work with them to resolve all allegations and concerns in accordance with the Kumtor Project Agreements, which provide for all disputes to be resolved by international arbitration, if necessary. However, no assurances can be given that the outstanding issues will be resolved without a material impact on the Company. If the Kyrgyz Government and Centerra cannot successfully resolve the outstanding matters impacting the Kumtor Project, if environmental claims are upheld and enforced by the Kyrgyz courts, if Parliament takes further actions inconsistent with the Kumtor Project Agreements, if government decrees, orders or licences under which Kumtor operates are cancelled, or if the Kumtor Project Agreements are denounced or invalidated, any of these events, alone or together, could have a material adverse impact on the Company's future cash flows, earnings, results of operations and financial condition. See the section of our 2012 Annual Information Form entitled "Risks that can affect our business - Political and regulatory" for further discussion around these risks.
For a full discussion of risk factors that could have a material effect on the profitability, future cash flow, earnings, results of operations, stated mineral reserves or financial conditions of the Company, please see "Risk Factors" in the 2012 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".
Outlook for 2013
The Company is monitoring the recent fluctuations in the gold price and assessing the impact of a lower gold price environment on its operations. The Company is in the process of reviewing spending plans for 2013, which will result in a reduction of planned expenditures in all areas, with significant reductions in exploration and some business development activities.
Production
Centerra's 2013 consolidated gold production is forecast to be in the 615,000 to 675,000 ounce range, which is higher from the previous guidance of the 605,000 to 660,000 ounce range reflecting the higher gold production expected to be achieved at the Boroo mine.
In 2013, approximately 55% 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, which is unchanged from the previous guidance. Ore production in the fourth quarter is planned to come from the high-grade SB Zone ore that has several years of production history and grade and recovery are well known. The high-grade ore from the SB Zone is only available for mining at the end of the third quarter when it will be exposed by cut-back 15.
Mining at Kumtor is currently on track to access the high-grade ore in cut-back 15 by the end of the third quarter of 2013 as planned.
At the Boroo mine, gold production is forecast to increase to the 65,000 to 75,000 ounce range from the previous guidance of 55,000 to 60,000 ounces. The new range reflects increased production achieved at the Boroo mine in the first half of the current year. The forecasted production at Boroo includes approximately 35,000 ounces from heap leaching and 40,000 ounces from processing mill stockpiles. The Boroo mill is expected to process ore stockpiles during the second half of the year with an average grade of 0.70 g/t. Planned maintenance on the Boroo heap leach facility was deferred from May 2013 to August 2013. The heap leach operation is expected to be temporarily suspended for the month of August to complete this maintenance. The 2013 forecast assumes no mining activities at Boroo or Gatsuurt, and no gold production from Gatsuurt.
Unit Cash Costs:
Centerra's 2013 operating cash costs(1) and all-in cash costs per ounce produced(1) measures have been revised from the previous guidance disclosed in the Company's news release of May 8, 2013. The revisions to the forecast are explained in more detail below.
| (1) | Non-GAAP measure, see discussion under "Non-GAAP Measures". |
The new ranges for all-in costs on a pre-tax(1) basis are as follows:
| 2013 Production Forecast (ounces of gold) | 2013 Operating Cash Costs(1) ($ per ounce produced) | 2013 All-in Cash Costs (pre-tax)(1) ($ per ounce produced) | |
| Kumtor | 550,000 - 600,000 | $335 - 365 | $820 - 895 |
| Boroo | 65,000 - 75,000 | $765 - 880 | $860 - 990 |
| Consolidated | 615,000 - 675,000 | $380 - 420 | $945 - 1,040 |
Centerra's 2013 unit cash costs have been revised from the previous guidance disclosed in the Company's news release of May 8, 2013 reflecting reductions in certain spending activities and increased production forecasted at Boroo. The revised estimates for revenue-based tax at Kumtor and current income tax at Boroo reflect a lower gold price assumption forecasted for the second half of 2013 of $1,250 per ounce sold from $1,450 per ounce sold. Based on this revised estimate, the Company is forecasting operating cash costs per ounce produced(1) and all-in production costs per ounce produced(1) as follows:
| All-in Cash Costs(1) | Kumtor | Boroo | Consolidated |
| ($ per ounce produced) | ($ per ounce produced) | ($ per ounce produced) | |
| Operating cash costs | $335 - 365 | $765 - 880 | $380 - 420 |
| Capitalized stripping costs - cash | 325 - 355 | - | 290 - 320 |
| Operating cash and stripping costs | $660 - 720 | $765 - 880 | $670 - 740 |
| Sustaining capital (cash) | 110 - 120 | 95 - 110 | 110 - 120 |
| Growth capital (cash) | 50 - 55 | - | 45 - 50 |
| Operating cash costs including capital | $820 - 895 | $860 - 990 | $825 - 910 |
| Corporate and other cash costs(2) | - | - | 120 - 130 |
| All-in cash costs (pre-tax)(1) | $820 - 895 | $860 - 990 | $945 - 1,040 |
| Revenue-based tax and income tax(3) | $180 - 200 | $130 - 150 | $175 - 190 |
| All-in cash costs (including taxes)(1),(3) | $1,000 - 1,095 | $990 - 1,140 | $1,120 - 1,230 |
| (1) | Non-GAAP measure, see discussion 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 which are only reflected in the all-in cash cost amounts reported at the consolidated level. |
| (3) | Revenue-based tax and income tax reflect actual amounts for the first six months of 2013 and a change in the forecasted gold price assumption from $1,450 per ounce sold to $1,250 for the last six months of 2013. |
2013 Exploration Expenditures:
Planned exploration expenditures for 2013 have been further reduced to approximately $32 million, which is $8 million lower from the previous guidance of May 8, 2013. Exploration expenditures at Kumtor are now estimated at $6.5 million, $2 million lower from the previous guidance as a result of a reduction in planned drilling.
In Mongolia, approximately $6.0 million is allocated for exploration programs at the Altan Tsagaan Ovoo ("ATO") project and in the greater ATO district.
Exploration spending in Turkey will be approximately $8 million as work focuses on expanding and upgrading the Öksüt gold deposit resource, advancing ongoing metallurgical test work and initiating detailed environmental and technical project studies. Funds are also allocated to a number of early-stage exploration projects in Turkey and Cyprus.
In Russia, expenditures are expected to total approximately $6.0 million in 2013.
A China 2013 exploration program of $2 million will fund the drilling of targets developed on the Laogouxi Joint Venture project and generative exploration programs in several prospective areas. Generative programs will also continue in Russia and Turkey and in several new regions to increase the Company's pipeline of projects.
2013 Capital Expenditures
Centerra's capital expenditures for 2013, excluding capitalized stripping, are unchanged from the previous guidance and are estimated to be $107 million, including $75 million of sustaining capital(1) and $32 million of growth capital(1). While the total capital expenditure amount is unchanged, distribution of the capital between the projects has been updated as described below.
Capital expenditures (excluding capitalized stripping) include:
| Projects | 2013 Growth Capital(1) (millions of dollars) | 2013 Sustaining Capital(1) (millions of dollars) |
| Kumtor mine | $30 | $67 |
| Mongolia | 2 | 8 |
| Consolidated Total | $32 | $75 |
Kumtor
At Kumtor, 2013 total capital expenditures, excluding capitalized stripping, are forecast to be $97 million ($95 million in the previous guidance) including $67 million of sustaining capital(1) ($64 million in the previous guidance). The change in guidance for sustaining capital(1) is due to the late delivery of 2 CAT 789 haul trucks purchased in 2012 with the associated costs of $5 million carried over to 2013. This was partially offset by $2 million reduction in the major overhaul maintenance costs of the heavy duty mine equipment. The largest sustaining capital(1) spending will be the major overhaul maintenance of the heavy duty mine equipment ($27 million), purchase of new mining equipment ($22 million), tailings dam construction raise ($5 million) and other items ($13 million).
| (1) | Non-GAAP measure, see discussion under "Non-GAAP Measures". |
Growth capital(1) investment at Kumtor for 2013 is forecast at $30 million ($31 million in the previous guidance), which includes the relocation of certain infrastructure at Kumtor related to the KS-13 life-of-mine expansion plan ($26 million) and other items amounting to $4 million ($5 million in the previous guidance).
The cash component of capitalized stripping costs related to the development of the open pit is expected to be $196 million in 2013 ($212 million in the previous guidance).
Mongolia (Boroo and Gatsuurt)
At Boroo, 2013 sustaining capital(1) expenditures are expected to be $8 million ($10 million in the previous guidance) primarily for raising the tailings dam at Boroo amounting to $5 million ($6 million in the previous guidance) and maintenance rebuilds and overhauls.
Growth capital(1) for the Gatsuurt deposit is forecast at $2 million ($1 million in the previous guidance) with $1 million related to environmental studies and $1 million for additional technical and legal work related to the project.
2013 Corporate Administration and Community Investment
Corporate and administration expense forecast for 2013 has been revised to $35 million from the previous guidance of $45 million, which includes a reduced forecast for business development activities from $7 million in the previous guidance to $2 million.
Total planned community investments for 2013 have been revised from the previous guidance of $27.5 million and are now forecast at $11.5 million, which includes $6.5 million for donations and sustainable development projects in the various communities in which Centerra operates and $5 million for strategic community investment projects. Note that these costs are not included in operating cash costs(1) but have been reflected in all-in cash costs(1).
Taxes
Pursuant to the Restated Investment Agreement, Kumtor's operations are not subject to corporate income taxes. The agreement replaced the prior tax regime applicable to the Kumtor Project with a simplified tax regime effective January 1, 2008. This simplified regime, which assesses tax at 13% on gross revenue (plus 1% for the Issyk-Kul Oblast Development Fund) effective January 2009, was approved and enacted by the Parliament of the Kyrgyz Republic on April 30, 2009.
The corporate income tax rate for Centerra's Mongolian subsidiary, Boroo Gold Company, is 25% for taxable income over 3 billion Mongolian tugriks (approximately $2.1 million at the June 30, 2013 foreign exchange rate) with a tax rate of 10% for taxable income up to that amount while the royalty rate is 5%. These income tax and royalty rates applied until the Boroo Stability Agreement expired on July 7, 2013. Following the expiration of the Boroo Stability Agreement, Boroo Gold Company's corporate income tax rate has not changed, however the royalty paid to the government has increased from 5% to a rate varying between 5% and 10% based on the price of gold to a maximum of 10% for gold prices at or above $1,300 an ounce.
| (1) | Non-GAAP measure, see discussion under "Non-GAAP Measures". |
Production, cost and capital forecasts for 2013 are forward-looking information and are based on key assumptions and subject to material risk factors that could cause actual results to differ materially and which are discussed herein under the headings "Material Assumptions & Risks" and "Caution Regarding Forward-Looking Information" and under the heading "Risk Factors" in the Company's 2012 Annual Information Form.
Sensitivities:
Centerra's revenues, earnings and cash flows for 2013 are sensitive to changes in certain variables and the Company has estimated the impact of any such changes on revenues, net earnings and cash from operations.
| Change | Impact on ($ millions) | ||||
| Costs | Revenues | Cash flow | Earnings before income tax | ||
| Gold Price | $50/oz | 3.5 | 23.0 | 19.5 | 19.5 |
| Diesel Fuel (1) | 10% | 5.0 | - | 5.0 | 5.0 |
| Kyrgyz som (2) | 1 som | 1.0 | - | 1.0 | 1.0 |
| Mongolian tugrik(2) | 25 tugrik | 0.2 | - | 0.2 | 0.2 |
| Canadian dollar (2) | 10 cents | 2.2 | - | 2.2 | 2.2 |
| (1) | a 10% change in diesel fuel price equals $11/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 $1,250 per ounce,
- exchange rates:
- $1USD:$1.01 CAD
- $1USD:48.5 Kyrgyz som
- $1USD:1,400 Mongolian tugriks
- $1USD:0.75 Euro
- diesel fuel price assumption:
- $0.70/litre at Kumtor
- $1.26/litre at Boroo
The Company cannot give any assurances in this regard.
The assumed diesel price of $0.70/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 $100 per barrel.
Other material assumptions were used in forecasting production and costs for 2013. The Company cannot give any assurances in this regard. These material assumptions include the following:
- the Company accesses the high-grade in cut-back 15 by the end of the third quarter 2013 as planned.
- any recurrence of political or civil unrest in the Kyrgyz Republic referred to under the heading "Other Corporate Developments - Kyrgyz Republic - Kumtor Road Block" will not impact operations, including movement of people, supplies and gold shipments to and from the Kumtor mine, and or power to the mine site.
- the activities of the Parliament and Government, referred to under the heading "Other Corporate Developments - Kyrgyz Republic" do not have a material impact on operations or financial results.
- the previously disclosed environmental claims received from the Kyrgyz regulatory authorities in the aggregate amount of $467 million, including four claims now before the Kyrgyz appeals court, and any further claims that may result from the State Commission, referred to under the heading "Other Corporate Developments - Kyrgyz Republic - Environmental Claims" are resolved without material impact on Centerra's operations or financial results.
- the movement in the Central Valley Waste Dump at Kumtor referred to under the heading "Other Corporate Developments - Kyrgyz Republic - Kumtor Waste Dump Movement" will be managed to ensure continued safe operations, without impact to gold production, including the prompt development and approval by Kyrgyz regulatory authorities of alternative waste-rock dumping plans and the successful demolition of buildings and relocation of certain other infrastructure as planned.
- the activities of the special commission formed to visit the Kumtor mine site and inspect the waste-rock dump movement do not have a material impact on operations or financial results.
- grades and recoveries at Kumtor will remain consistent with the annual and life-of-mine plans to achieve the forecast gold production.
- the Company is able to manage the risks associated with the increased height of the pit walls at Kumtor.
- the design of the new and expanded waste dumps at Kumtor adequately address the risks associated with size and stability.
- the timing of the infrastructure move at Kumtor not impacting the maintenance of the mobile fleet and its availability.
- the dewatering program at Kumtor continues to produce the expected results and the water management system works as planned.
- the Company is able to satisfactorily manage the ice movement and to unload the ice and waste in the southeast portion of the Kumtor pit.
- the Kumtor ball mill and the ring gear or replacement ring gear continue to operate as expected. See "Operations Update - Kumtor" in this news release.
- the approval from Mongolian authorities to restart heap leach production at Boroo from cell number 4 is received, referred to under "Other Corporate Developments - Mongolia - Boroo Heap Leach".
- the royalty paid by Boroo will vary between 5% to 10% depending on the price of gold per ounce in U.S. dollars at the time of sale after the Boroo stability agreement expires in July 2013 and the current 25% income tax rate remains unchanged.
- prices of key consumables are not significantly higher than prices assumed in planning,
- precious metal prices and costs remain stable and do not result in an impairment to the Company's asset valuations.
- no unplanned delays in or interruption of scheduled production from our mines, including due to civil unrest, natural phenomena, regulatory or political disputes, equipment breakdown or other developmental and operational risks, and
- all necessary permits, licenses and approvals are received in a timely manner.
Production and cost forecasts and capital estimates are forward-looking information and are based on key assumptions and subject to material risk factors. If any event arising from these risks occurs, the Company's business, prospects, financial condition and results of operations and cash flows could be adversely affected. Additional risks and uncertainties not currently known to the Company, or that are currently deemed immaterial, may also materially and adversely affect the Company's business operations, prospects, financial condition, results of operations or cash flows and the market price of Centerra's shares. See the section entitled "Cautionary Note Regarding Forward-Looking Information" in this discussion and also the Risk Factors listed in the Company's 2012 Annual Information Form, available on SEDAR at www.sedar.com.
Non-GAAP Measures
This new release presents information about operating cash costs of production of an ounce of gold produced, all-in cash costs per ounce produced and cost of sales per ounce sold for the operating properties of Centerra. Except as otherwise noted, operating cash costs per ounce produced is calculated by dividing operating cash costs 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), plus corporate general and administrative expenses, plus global exploration expenses and community investments, divided by gold ounces produced for the relevant period. Operating cash costs, all-in cash costs per ounce produced, as well as average realized gold price per ounce and cost of sales per ounce sold are non-GAAP measures.
Operating cash costs include mine operating costs such as mining, processing, administration, royalties and operating taxes (except at Kumtor where revenue-based taxes are excluded), but exclude depreciation, depletion and amortization (DD&A), reclamation costs, financing costs, capital development and exploration. Certain amounts of stock-based compensation have been excluded as well. All-in cash costs includes operating cash costs, plus capitalized stripping and total sustaining and growth capital spent and accrued.
Operating costs include operating cash costs plus DD&A.
Operating cash costs per ounce produced is calculated by dividing operating cash costs by the ounces produced.
All-in cash costs per ounce produced and all-in cash costs produced (pre-tax) includes operating cash costs, capitalized stripping, sustaining and growth capital, corporate general and administrative expenses, global exploration expenses and community investments. The measure is presented including and excluding revenue-based taxes at Kumtor and income taxes at Boroo.
Cost of sales per ounce sold is calculated by dividing cost of sales by the number of ounces of gold sold for the relevant period.
Sustaining capital is a capital expenditure necessary to maintain existing levels of production. The sustaining capital expenditures maintain the existing mine fleet, mill and other facilities so that they function at levels consistent from year to year.
Growth capital is capital expended to expand the business or operations by increasing productive capacity beyond current levels of performance.
Average realized gold price is calculated by dividing revenue derived from gold sales by the number of ounces sold.
Operating cash costs per ounce produced, all-in cash costs per ounce produced and cost of sales per ounce sold have been included because certain investors use this information to assess performance and also to determine the ability of Centerra to generate cash flow for use in investing and other activities. The inclusion of operating cash cost per ounce produced, 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.
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.
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.
Industry measure
The World Gold Council released on June 27, 2013 guidance regarding the non-GAAP measures "All-In Sustaining Costs" and "All-In Costs" it recommends that its members adopt. The Company is reviewing the recommended measures and assessing their impact. The Company may modify the calculation of its "all-in cash cost" measure to conform to the industry's standard following its review.
Operating Cash Cost per Ounce Produced can be reconciled as follows:
| (Unaudited) | Three months ended | Six months ended | ||||||||
| June 30, | June 30, | |||||||||
| ($ millions, unless otherwise specified) | 2013 | 2012 | 2013 | 2012 | ||||||
| Centerra: | ||||||||||
| Cost of sales, as reported | $ 84.6 | $ 82.4 | $ 175.8 | $ 161.5 | ||||||
| Less: Non-cash component | 31.6 | 15.4 | 75.4 | 33.6 | ||||||
| Cost of sales, cash component | $ 53.0 | $ 67.0 | $ 100.4 | $ 127.9 | ||||||
| Adjust for: Refining fees & by-product credits | (0.2 | ) | (0.1 | ) | (0.3 | ) | (0.4 | ) | ||
| Regional office administration | 5.9 | 5.3 | 11.5 | 10.1 | ||||||
| Mining Standby Costs | - | - | - | 4.6 | ||||||
| Non-operating costs | - | - | - | - | ||||||
| Inventory movement | (1.3 | ) | (28.5 | ) | 0.1 | (48.9 | ) | |||
| Operating cash cost | $ 57.4 | $ 43.7 | $ 111.7 | $ 93.3 | ||||||
| Ounces poured (000) | 99.4 | 52.5 | 214.6 | 125.0 | ||||||
| Operating cash cost per ounce produced | $ 577 | $ 831 | $ 520 | $ 746 | ||||||
| Kumtor: | ||||||||||
| Cost of sales, as reported | $ 65.7 | $ 66.1 | $ 132.0 | $ 128.9 | ||||||
| Less: Non-cash component | 25.2 | 12.9 | 59.3 | 28.5 | ||||||
| Cost of sales, cash component | $ 40.5 | $ 53.2 | $ 72.7 | $ 100.4 | ||||||
| Adjust for: Refining fees & by-product credits | (0.1 | ) | (0.1 | ) | (0.2 | ) | (0.3 | ) | ||
| Regional office administration | 4.4 | 4.1 | 8.5 | 7.4 | ||||||
| Mining Standby Costs | - | - | - | 4.6 | ||||||
| Non-operating costs | - | - | - | - | ||||||
| Inventory movement | (0.8 | ) | (23.8 | ) | 3.6 | (39.8 | ) | |||
| Operating cash cost | $ 44.0 | $ 33.4 | $ 84.6 | $ 72.3 | ||||||
| Ounces poured (000) | 72.4 | 41.3 | 162.0 | 102.0 | ||||||
| Operating cash cost per ounce produced | $ 608 | $ 808 | $ 522 | $ 709 | ||||||
| Boroo: | ||||||||||
| Cost of sales, as reported | $ 18.9 | $ 16.3 | $ 43.8 | $ 32.6 | ||||||
| Less: Non-cash component | 6.4 | 2.5 | 16.1 | 5.1 | ||||||
| Cost of sales, cash component | $ 12.5 | $ 13.8 | $ 27.7 | $ 27.5 | ||||||
| Adjust for: Refining fees & by-product credits | (0.1 | ) | - | (0.1 | ) | (0.1 | ) | |||
| Regional office administration | 1.5 | 1.2 | 3.0 | 2.7 | ||||||
| Mining Standby Costs | - | - | - | - | ||||||
| Non-operating costs | - | - | - | - | ||||||
| Inventory movement | (0.5 | ) | (4.7 | ) | (3.5 | ) | (9.1 | ) | ||
| Operating cash cost | $ 13.4 | $ 10.2 | $ 27.1 | $ 21.0 | ||||||
| Ounces poured (000) | 27.1 | 11.2 | 52.7 | 23.0 | ||||||
| Operating cash cost per ounce produced | $ 495 | $ 916 | $ 514 | $ 911 | ||||||
Total capital and capitalized stripping presented in the All-In Cash Cost calculation can be reconciled as follows:
| Second Quarter | Kumtor | Boroo | All other | Consolidated | ||
| ($ millions) (Unaudited) | ||||||
2013 | ||||||
| Capitalized stripping -cash | $ 56.6 | $ - | $ - | $ 56.6 | ||
| Sustaining capital - cash | 15.0 | 3.4 | 0.1 | 18.5 | ||
| Growth capital - cash | 9.3 | - | 0.3 | 9.6 | ||
| Net decrease in accruals included in additions to PP&E | 1.6 | - | - | 1.6 | ||
| Total - Additions to PP&E(1) | $ 82.5 | $ 3.4 | $ 0.4 | $ 86.3 (1 | ) | |
| 2012 | ||||||
| Capitalized stripping - cash | $ 49.2 | $ 3.6 | $ - | $ 52.8 | ||
| Sustaining capital - cash | 11.2 | 0.8 | 0.1 | 12.1 | ||
| Growth capital - cash | 34.7 | - | 0.1 | 34.8 | ||
| Net increase in accruals included in additions to PP&E | (0.7 | ) | - | - | (0.7 | ) |
| Total - Additions to PP&E(1) | $ 94.5 | $ 4.4 | $ 0.2 | $ 99.0(1 | ) |
| First Half | Kumtor | Boroo | All other | Consolidated | ||
| ($ millions) (Unaudited) | ||||||
2013 | ||||||
| Capitalized stripping -cash | $ 110.0 | $ - | $ - | $ 110.0 | ||
| Sustaining capital - cash | 26.8 | 4.6 | 0.5 | 31.9 | ||
| Growth capital - cash | 25.4 | - | 0.3 | 25.7 | ||
| Net decrease in accruals included in additions to PP&E | (7.7 | ) | - | - | (7.7 | ) |
| Total - Additions to PP&E(1) | $ 154.5 | $ 4.6 | $ 0.8 | $ 159.9(1 | ) | |
| 2012 | ||||||
| Capitalized stripping - cash | $ 93.5 | $ 6.3 | $ - | $ 99.8 | ||
| Sustaining capital - cash | 16.7 | 1.3 | 0.2 | 18.2 | ||
| Growth capital - cash | 124.0 | - | 0.2 | 124.2 | ||
| Net increase in accruals included in additions to PP&E | 0.6 | - | 0 | 0.6 | ||
| Total - Additions to PP&E(1) | $ 234.8 | $ 7.6 | $ 0.4 | $ 242.8(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 Costs calculation can be reconciled as follows:
| Unaudited | Three months ended June 30 | Six months ended June 30 | ||
| ($ millions) | 2013 | 2012 | 2013 | 2012 |
| Other operating expenses | $ 2.2 | $ 22.9 | $ 4.1 | $ 24.3 |
| Exploration and business development | 6.3 | 9.2 | 13.4 | 17.5 |
| Corporate administration | 7.2 | 1.9 | 13.9 | 10.5 |
| Total Corporate and other cash costs (1) | $ 15.7 | $ 34.0 | $ 31.4 | $ 52.3 |
| (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) | |||||
| June 30, | December 31, | ||||
| 2013 | 2012 | ||||
| (Expressed in Thousands of United States Dollars) | (Restated) | ||||
| Assets | |||||
| Current assets | |||||
| Cash and cash equivalents | $ | 307,636 | $ | 334,115 | |
| Short-term investments | 7,997 | 47,984 | |||
| Amounts receivable | 41,226 | 75,338 | |||
| Inventories | 249,185 | 292,565 | |||
| Prepaid expenses | 41,593 | 49,317 | |||
| 647,637 | 799,319 | ||||
| Property, plant and equipment | 766,290 | 625,923 | |||
| Goodwill | 129,705 | 129,705 | |||
| Restricted cash | 10,927 | 6,087 | |||
| Other assets | 23,695 | 23,270 | |||
| Long-term inventories | 5,662 | 10,094 | |||
| 936,279 | 795,079 | ||||
| Total assets | $ | 1,583,916 | $ | 1,594,398 | |
| Liabilities and Shareholders' Equity | |||||
| Current liabilities | |||||
| Accounts payable and accrued liabilities | $ | 47,175 | $ | 63,940 | |
| Short-term debt | 75,162 | 74,617 | |||
| Revenue-based taxes payable | 5,936 | 18,643 | |||
| Taxes payable | 2,048 | 5,180 | |||
| Current portion of provision | 6,504 | 5,257 | |||
| 136,825 | 167,637 | ||||
| Dividend payable | 11,233 | 5,949 | |||
| Provision | 48,722 | 49,911 | |||
| Deferred income tax liability | 913 | 1,808 | |||
| 60,868 | 57,668 | ||||
| Shareholders' equity | |||||
| Share capital | 660,449 | 660,420 | |||
| Contributed surplus | 18,820 | 36,243 | |||
| Retained earnings | 706,954 | 672,430 | |||
| 1,386,223 | 1,369,093 | ||||
| Total liabilities and shareholders' equity | $ | 1,583,916 | $ | 1,594,398 | |
| Centerra Gold Inc. | |||||||||||
| Condensed Consolidated Statements of Earnings (loss) and Comprehensive Income (loss) | |||||||||||
| (Unaudited) | Three months ended | Six months ended | |||||||||
| June 30, | June 30, | ||||||||||
| 2013 | 2012 | 2013 | 2012 | ||||||||
| (Expressed in Thousands of United States Dollars) | (Restated | ) | (Restated | ) | |||||||
| (except per share amounts) | |||||||||||
| Revenue from Gold Sales | $ | 128,229 | $ | 89,737 | $ | 320,480 | $ | 223,490 | |||
| Cost of sales | 84,626 | 82,377 | 175,775 | 161,496 | |||||||
| Abnormal mining costs | - | 3,864 | - | 4,522 | |||||||
| Mine standby costs | - | - | - | 4,584 | |||||||
| Regional office administration | 5,869 | 5,332 | 11,490 | 10,129 | |||||||
| Earnings (loss) from mine operations | 37,734 | (1,836 | ) | 133,215 | 42,759 | ||||||
| Revenue-based taxes | 13,510 | 8,962 | 34,328 | 24,045 | |||||||
| Other operating expenses | 2,150 | 22,861 | 4,096 | 24,329 | |||||||
| Exploration and business development | 6,259 | 9,171 | 13,429 | 17,516 | |||||||
| Corporate administration | 7,203 | 1,920 | 13,946 | 10,466 | |||||||
| Earnings (loss) from operations | 8,612 | (44,750 | ) | 67,416 | (33,597 | ) | |||||
| Other expenses, net | 2,841 | 807 | 4,121 | 30 | |||||||
| Finance costs | 1,245 | 743 | 2,501 | 1,659 | |||||||
| Earnings (loss) before income taxes | 4,526 | (46,300 | ) | 60,794 | (35,286 | ) | |||||
| Income tax expense | 2,974 | 2,640 | 7,890 | 4,102 | |||||||
| Net Earnings (loss) and comprehensive income (loss) | $ | 1,552 | $ | (48,940 | ) | $ | 52,904 | $ | (39,388 | ) | |
| Basic earnings (loss) per common share | $ | 0.01 | $ | (0.21 | ) | $ | 0.22 | $ | (0.17 | ) | |
| Diluted earnings (loss) per common share | $ | 0.01 | $ | (0.21 | ) | $ | 0.22 | $ | (0.17 | ) | |
| Centerra Gold Inc. | |||||||||||||
| Condensed Consolidated Statements of Cash Flows | Three months ended | Six months ended | |||||||||||
| (Unaudited) | June 30, | June 30, | |||||||||||
| 2013 | 2012 | 2013 | 2012 | ||||||||||
| (Expressed in Thousands of United States Dollars) | (Restated | ) | (Restated | ) | |||||||||
| Operating activities | |||||||||||||
| Net earnings (loss) | $ | 1,552 | $ | (48,940 | ) | $ | 52,904 | $ | (39,388 | ) | |||
| Items not requiring (providing) cash: | |||||||||||||
| Depreciation, depletion and amortization | 31,714 | 16,771 | 75,614 | 37,238 | |||||||||
| Finance costs | 1,245 | 743 | 2,501 | 1,659 | |||||||||
| Loss on disposal of equipment | 2,143 | 353 | 2,152 | 410 | |||||||||
| Share-based compensation expense | 812 | 640 | 1,563 | 1,153 | |||||||||
| Change in long-term inventory | 3,480 | - | 4,432 | - | |||||||||
| Change in provision | (82 | ) | 950 | (149 | ) | 950 | |||||||
| Income tax expense | 2,974 | 2,640 | 7,890 | 4,102 | |||||||||
| Other operating items | 20 | (1,087 | ) | (172 | ) | (602 | ) | ||||||
| 43,858 | (27,930 | ) | 146,735 | 5,522 | |||||||||
| Change in operating working capital | 724 | 16,196 | (6,495 | ) | 14,692 | ||||||||
| Prepaid revenue-based taxes utilized (paid) | 1,077 | (30,155 | ) | 3,845 | (30,155 | ) | |||||||
| Income taxes paid | (4,760 | ) | (417 | ) | (11,239 | ) | (341 | ) | |||||
| Cash provided by (used in) operations | 40,899 | (42,306 | ) | 132,846 | (10,282 | ) | |||||||
| Investing activities | |||||||||||||
| Additions to property, plant and equipment | (86,246 | ) | (99,041 | ) | (159,919 | ) | (242,816 | ) | |||||
| Net redemption of short-term investments | 108,330 | 122,236 | 39,987 | 342,434 | |||||||||
| Purchase of interest in Öksüt Gold Project- net of cash acquired | - | - | (19,742 | ) | - | ||||||||
| Increase in restricted cash | (2,084 | ) | (239 | ) | (4,840 | ) | (179 | ) | |||||
| (Increase) decrease in long-term other assets | (117 | ) | 2,965 | (334 | ) | (7,508 | ) | ||||||
| Proceeds from disposition of fixed assets | - | 47 | 27 | 47 | |||||||||
| Cash (used in) provided by investing | 19,883 | 25,968 | (144,821 | ) | 91,978 | ||||||||
| Financing activities | |||||||||||||
| Dividends paid | (6,747 | ) | (9,238 | ) | (13,096 | ) | (9,238 | ) | |||||
| Payment of interest and other borrowing costs | - | (280 | ) | (1,408 | ) | (734 | ) | ||||||
| Proceeds from common shares issued for cash | - | - | - | 148 | |||||||||
| Cash used in financing | (6,747 | ) | (9,518 | ) | (14,504 | ) | (9,824 | ) | |||||
| (Decrease) increase in cash during the period | 54,035 | (25,856 | ) | (26,479 | ) | 71,872 | |||||||
| Cash and cash equivalents at beginning of the period | 253,601 | 293,267 | 334,115 | 195,539 | |||||||||
| Cash and cash equivalents at end of the period | $ | 307,636 | $ | 267,411 | $ | 307,636 | $ | 267,411 | |||||
| Cash and cash equivalents consist of: | |||||||||||||
| Cash | $ | 56,665 | $ | 46,779 | $ | 56,665 | $ | 46,779 | |||||
| Cash equivalents | 250,971 | 220,632 | 250,971 | 220,632 | |||||||||
| $ | 307,636 | $ | 267,411 | $ | 307,636 | $ | 267,411 | ||||||
| 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, 2012 (restated) | 236,339,041 | $ | 660,117 | $ | 33,994 | $ | 844,348 | $ | 1,538,459 | |||
| Share-based compensation expense | - | - | 1,153 | - | 1,153 | |||||||
| Shares issued on exercise of stock options | 30,752 | 235 | (87 | ) | - | 148 | ||||||
| Shares issued on redemption of restricted share units | 3,343 | 47 | - | - | 47 | |||||||
| Dividend declared | - | - | - | (9,238 | ) | (9,238 | ) | |||||
| Net loss for the period | - | - | - | (39,388 | ) | (39,388 | ) | |||||
| Balance at June 30, 2012 (restated) | 236,373,136 | $ | 660,399 | $ | 35,060 | $ | 795,722 | $ | 1,491,181 | |||
| Balance at January 1, 2013 (restated) | 236,376,011 | $ | 660,420 | $ | 36,243 | $ | 672,430 | $ | 1,369,093 | |||
| Share-based compensation expense | - | - | 1,563 | - | 1,563 | |||||||
| Adjustment for acquisition of 30% non-controlling | ||||||||||||
| interest | - | - | (18,986 | ) | - | (18,986 | ) | |||||
| Shares issued on redemption of restricted share units | 8,441 | 29 | - | - | 29 | |||||||
| Dividend declared | - | - | - | (18,380 | ) | (18,380 | ) | |||||
| Net earnings for the period | - | - | - | 52,904 | 52,904 | |||||||
| Balance at June 30, 2013 | 236,384,452 | $ | 660,449 | $ | 18,820 | $ | 706,954 | $ | 1,386,223 | |||
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 outstanding matters in the Kyrgyz Republic (discussed under the heading "Other Corporate Development - Kyrgyz Republic") to the benefit of all shareholders including matters relating to the State Commission report, government resolutions and decrees, discussions with the Kyrgyz Government on the Kumtor Project Agreements, the resolution of environmental claims received by Kumtor in December 2012 (now before the Kyrgyz appeal court) and February 2013 for the aggregate amount of $467 million, and the draft Kyrgyz law on denunciation having no material impact on Kumtor operations, the Company's ability to develop a long-term waste-rock plan at Kumtor and promptly obtain the necessary permits and approvals for such long-term plan, and the Company's ability to successfully demolish certain buildings and relocate other infrastructure at Kumtor and to maintain the availability of the Kumtor mobile fleet, the Company's ability to manage the movement of the Central Valley Waste Dump, the activities of a special commission formed to inspect the increased movement of the Central Valley Waste Dump, statements regarding guidance under the heading "Outlook for 2013" relating to, among other things, the Company's ability to strip sufficient waste to allow access to the east portion of the Kumtor Central Pit, the continued operation of Kumtor ball mill with the current and/or spare ring gear, the Company's future production in 2013, including estimates of cash operating costs and all-in unit cash costs, exploration plans and expenditures and the success thereof, capital expenditures, mining plans at Kumtor, statements regarding having sufficient cash and investments to carry out the Company's business plans for 2013, the outcome of discussions with the Mongolian government on the potential development of the Company's Gatsuurt deposit and the strategic designation status of the Gatsuurt deposit, future planned exploration expenditures; 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. Factors that could cause actual results or events to differ materially from current expectations include, among other things:
(A) political and regulatory risks, including the political risks associated with the Company's principal operations in the Kyrgyz Republic and Mongolia, resource nationalism, the impact of changes in, or to the more aggressive enforcement of, laws, regulations and government practices in the jurisdictions in which the Company operates, the impact of any actions taken by the Government and Parliament relating to the Kumtor Project Agreement, 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) risks related to operational matters and geotechnical issues, including the movement of the Central Valley Waste Dump and the approvals needed for an alternative waste-rock dump plan, the waste and ice movement at the Kumtor Project and the Company's continued ability to successfully manage such matters, the occurrence of further ground movements at the Kumtor Project, the timing of the infrastructure move potentially impacting the maintenance of the mobile fleet and its availability, the success of the Company's future exploration and development activities, including the financial and political risks inherent in carrying out exploration activities, the adequacy of the Company's insurance to mitigate operational risks, mechanical breakdowns, the Company's ability to obtain the necessary permits and authorizations to (among other things) raise the tailings dam at the Kumtor Project to the required height, the Company's ability to replace its mineral reserves, the occurrence of any labour unrest or disturbance and the ability of the Company to successfully re-negotiate collective agreements when required, seismic activity in the vicinity of the Company's operations in the Kyrgyz Republic and Mongolia, long lead times required for equipment and supplies given the remote location of the Company's properties, reliance on a limited number of suppliers for certain consumables, equipment and components, illegal mining on the Company's Mongolian properties, the Company's ability to accurately predict decommissioning and reclamation costs, the Company's ability to attract and retain qualified personnel, competition for mineral acquisition opportunities, risks associated with the conduct of joint ventures, and the possibility of failure of the ring gear and spare ring gear at the Kumtor ball mill;
(C) risks relating to financial matters including the sensitivity of the Company's business to the volatility of gold prices, the impact of declining gold prices and rising costs on the Company's asset valuation leading to a potential impairment, the imprecision of the Company's mineral reserves and resources estimates and the assumptions they rely on, the accuracy of the Company's production and cost estimates, the impact of restrictive covenants in the Company's revolving credit facility which may, among other things, restrict the Company from pursuing certain business activities, the Company's ability to obtain future financing, the impact of global financial conditions, the impact of currency fluctuations, the effect of market conditions on the Company's short-term investments, the Company's ability to make payments including any payments of principal and interest on the Company's debt facilities depends on the cash flow of its subsidiaries; and
(D) risks related to environmental and safety matters, including the ability to continue obtaining necessary operating and environmental permits, licenses and approvals, the impact of the significant environmental claims made in December 2012 and February 2013 relating to the Kumtor Project, inherent risks associated with using sodium cyanide in the mining operations; legal and other factors such as litigation, defects in title in connection with the Company's properties, the Company's ability to enforce its legal rights, risks associated with having a significant shareholder, and possible director conflicts of interest. There may be other factors that cause results, assumptions, performance, achievements, prospects or opportunities in future periods not to be as anticipated, estimated or intended. See "Risk Factors" in the Company's 2012 Annual Information Form 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.
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. Inferred 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 July 31, 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.
Conference Call
Centerra invites you to join its 2013 second quarter conference call on Thursday, August 1, 2013 at 11:00am Eastern Time. The call is open to all investors and the media. To join the call, please dial toll-free in North America (800) 681-1608 or International participants dial +1 (303) 223-2681. Alternatively, an audio feed of the conference call is being webcast by Thomson Reuters and can be accessed live on the Company's website at: www.centerragold.com. An audio recording of the call will be available on Centerra's website www.centerragold.com shortly after the call and via telephone until midnight on Thursday August 8, 2013 by calling (416) 626-4100 or (800) 558-5253 and using passcode 21661339.
Additional information on Centerra is available on the Company's web site at www.centerragold.comand at SEDAR at www.sedar.com.
To view Management's Discussion and Analysis and the Financial Statements and Notes for the three and six month periods ended June 30, 2013, please visit the following link: http://file.marketwire.com/release/CG-MDA-073113.pdf
This news release contains forward-looking information that is subject to the risk factors and assumptions set out on page 28 and in our Cautionary Note Regarding Forward-looking Information on page 39. It should be read in conjunction with the Company's unaudited interim condensed consolidated financial statements and notes for the three and six months ended June 30, 2013 and associated Management's Discussion and Analysis. The condensed interim financial statements of Centerra are prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as issued by the International Accounting Standards Board. The Company's accounting policies are described in note 3 to its annual consolidated financial statements for the year ended December 31, 2012. The Company's June 30, 2013 condensed interim financial statements give effect to the adoption of new accounting standards on January 1, 2013 as described in note 2 of the financial statements.
All figures are in United States dollars.
To view Management's Discussion and Analysis and the Financial Statements and Notes for the three and six months ended June 30, 2013, please visit the following link: http://file.marketwire.com/release/CG-MDA-073113.pdf
Contact
John W. Pearson, Vice President, Investor Relations
(416) 204-1241
john.pearson@centerragold.com
