Centerra Gold Inc (CGAU) 2005 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Centerra Gold fourth quarter results conference call.

[Operator Instructions]

I would now like to turn the conference over to [Jeff Low], Treasurer of Centerra Gold. Please go ahead sir.

Thank you, Pam and good afternoon everyone. My name is Jeff Low, and I'm the Treasurer of Centerra Gold. It is my pleasure to welcome you to discuss Centerra's 2005 fourth quarter and year-end results.

Before we begin, I'm required to mention that certain statements made on this conference call may be forward-looking and as such, are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied. For a more detailed discussion of the risks and uncertainties associated with Centerra's business, please refer to our securities filings on sedar.com, and more specifically our January 23rd and today's press release and our annual information form.

Presenting today will be Len Homeniuk, President and Chief Executive Officer of Centerra; David Petroff, Executive Vice President and Chief Financial Officer; and George Burns, Chief Operating Officer. Our prepared comments will be followed by Q&A session, during which we'll be pleased to answer your questions. Our international legal consultant, Marina Stephens, is also present and available to answer any questions you may have. Now I will turn the call over to Len.

Thanks Jeff, and good afternoon everyone. 2005 was a very good year for Centerra. On the financial front, Centerra produced just over $42 million in earnings and generated $83 million in cash from operations. And at the end of the year, we had $202 million of cash in the bank.

The results were impacted mainly by lower grade ore and higher costs at Kumtor and Boroo and our aggressive exploration program. Production at our mines was 787,275 ounces in 2005 compared to 640,779 ounces in 2004.

We were also helped by strong fundamentals in the gold industry as the average realized price reached $433 per ounce in 2005, up from $397 in 2004. Fundamentals also remained strong, with growing demand and declining worldwide supplies.

For the year, revenues increased to 339 million largely due to the impact of a full year of production from Boroo and positive movements in the gold price and increased ownership of our assets. The year's most exciting news, however, resulted from the very successful drilling programs at our mines and exploration properties.

In our January 23rd release, we provided updated estimates of the company's reserves and resources. The bottom line is that as a result of the exploration activities conducted over the past year, the mine life at Kumtor has been extended by almost three years. And the life, the mine life at Boroo has been extended by one year.

In addition, the resources at Gatsuurt and REN has been upgraded and expanded by a remarkable 82%. We are obviously very pleased with these results that they provide a very solid financial platform for Centerra's future growth.

Now a bit more about our success on the exploration front and our plans for the future. In our fourth quarter conference call one year ago, we stated that our objective during the 12 to 18 months would be add 1 to 1.5 million ounces of contained gold through reserves at Kumtor and 1 million ounces at Boroo and Gatsuurt. Today we are well on our way to, toward exceeding these objectives.

Since the end of 2004, we have increased the Kumtor reserves by more than 2.7 million ounces and the Boroo reserve by approximately 350,000 ounces. We have also reported 1.8 million ounces of measured and indicated resources at Gatsuurt.

As we indicated in our January 23rd news release, on a 100% basis, the proven and probable reserves at Centerra's operations totaled 6.2 million ounces at the end of 2005. An increase of 2.7 million ounces from the end of 2004 before accounting for production of 917,000 ounces in 2005.

Measured and indicated resources also increased significantly, reaching 6.3 million ounces at year-end, also on a 100% project basis. This is an increase of 2.5 million ounces over the December 31st, 2004 and reflects the promising results at Kumtor and Gatsuurt.

One of our priorities in 2006 is to continue to add to our reserves and resources through our exploration programs. Accordingly, we will continue with an aggressive exploration strategy and plan to spend $21 million in 2006. At Kumtor, we plan on investing 11.4 million in exploration in 2006. Work will be focused on extending the SB Zone, down dip and along strike, testing the extension of the NB Zone to the north as well as further drilling at the south west in territory deposits.

Recently we have reported on two excellent drill holes at Kumtor, neither of which has been included in the reserved estimates for the SB Zone, both of which identify the down dip potential of the zone. One of the drill holes 1039A returned a phenomenal [intercept] of 10.13 grams over 71 meters.

At the Boroo, drill programs will focus on testing for additional mineralization around the peripheries of the pits as well as other regional targets.

At Gatsuurt, the resource base has been significantly expanded by recent drilling programs. And drilling will continue in 2006 to further evaluate the high-grade mineralization beneath the Gatsuurt Central zone with a planned expenditure of 1 million. At our REN property in Nevada, the resource base has been upgraded by the recent drilling program. The $2.5 million exploration program in 2006 will focus on expanding the resource base.

In addition to work around our current operations, we are actively pursuing new exploration opportunities in the Kyrgyz Republic, Mongolia, China and other Central Asian and fSU countries.

That's a brief outline of our plans, exploration plans for 2006. We are quite confident that exploration will continue to play a significant role in Centerra's sustained growth going forward.

At this point I'd like to call on George Burns for a look at how our operations performed in 2005. George.

Thanks, Len. And good afternoon everyone. On the operating front, our Kumtor mine continued to perform well in 2005 pouring 501,487 ounces of gold during the year. This was down from 657,000 ounces poured last year as a result of expected lower grade ore on the periphery of the ore body. Our life-of-mine plan is focused on accessing the highest available ore grades. But to get there we have to work our way through some lower grades in 2005 and 2006.

Annual operating cash cost, using the Gold Institute standard, was $274 per ounce above the 2004 average of $202 per ounce due to a grade related reduction in gold production and the higher cost of labor, taxes and consumables in 2005. The higher cost of consumables was partially offset by in-house mine equipment component rebuild program which reduced cost by more than $1 million in 2005. Kumtor safety environmental performance was very good.

At Boroo, we completed our first full year of operations pouring a record 285,788 ounces of gold in 2005. We've actually exceeded our expectations with the productivity improvements realized in 2005 that resulted in a 27% increase in mine production and a 15% increase in mill throughput. A higher mill throughput was only partially offset by 6% lower mill head grade.

Annual operating cash cost, using the Gold Institute standard, was a $183 per ounce, higher than the 2004 average of a $149 per ounce. The increase was primarily due to higher mine production, the scheduled rebuild of the mining fleet, and higher labor, and consumables cost. Despite the increase, operating cash cost at Boroo are significantly below industry averages. The safety and environmental performance at Boroo was also good.

The excellent exploration results in 2005 have substantially changed Centerra's reserve picture. In fact just more than one and half years since the IPO, the reserves at Kumtor have increased by 3.1 million ounces and at Boroo by 0.6 million ounces. Our aggressive exploration strategy offers significantly more potential to further expand our reserves and extend our mine lives.

The Gatsuurt resource base has been significantly expanded by recent drilling programs. A feasibility study was completed in 2005. The preferred option, supported by this study, is to modify the existing Boroo facility by adding a bio-oxidation circuit and processing the refractory material from Gatsuurt at the modified facility following depletion of the Boroo reserves. This has the potential to significantly extend the life of the Boroo facility. Further analysis to optimize the project is continuing. And is expected to be completed during the first quarter.

The best news I have saved for last. Based on our recently updated life-of-mine plans, the Kumtor mine life has now been extended by almost three years to 2013 and Boroo by one year to 2011. A very successful and term growth in the past year one half has resulted in significant improvements in our production profile with 2009 now forecast to exceed 1 million ounces.

The significant reserve increase and extension in the mine life at Kumtor has provided the opportunity to increase mine capacity and to begin to retire our aging mining fleet. We have committed to a capital spending of $87 million primarily for the purchase of larger capacity mine shovels and haulage trucks as well as other support and auxiliary equipment and infrastructure. It represents an investment of about $18 per reserve ounce. The delivery of the new haulage fleet will largely be completed by the end of 2006.

Looking to 2006, we anticipate Kumtor production of 461,000 ounces at a unit cash cost of $347 per ounce. Boroo production is expected to be 268,000 ounces at a unit cash cost of $203 per ounce. The total ounces poured are expected to be 729,000 ounces -- our share is 716,000. On a consolidated basis, we expect cash cost of $294 per ounce for 2006.

At this point I'd like to turn the call over to David to review the quarterly and year-end financials. David.

Thanks George. And good afternoon everyone. Our financial position continues to be strong. In 2005, we generated over $115 million in operating cash flow before changes in working capital. We finished the year with slightly over $200 million of cash in the bank and we have no long-term debt.

Centerra's net asset value significantly increases when incorporating the recent reserve and resource additions. And the life of our assets is longer with the exploration successes in the Kyrgyz Republic and Mongolia.

The reality we faced though is common to many mines around the world. Our total cost and unit cost are under upward pressure. For us, such items include increased revenue related taxes and royalties, higher costs for labor and consumables and with the migration of mining from the stock works to the SB Zone at Kumtor, higher cost because the grade is lower and the mining dilution higher. This migration will occur through 2006.

We benefit from the increased ownership of our assets. As you remember, as of late June 2004, we now own 100% of Kumtor, 95% of Boroo and 100% of Gatsuurt. We enjoyed a full year production at Boroo, which began commercial operation March 1, 2004. And having no hedges in place allows us to fully participate in the gold price full market.

Turning to our results, for fourth quarter 2005, our revenue was $75 million. The reduction from the same period in 2004, was the result of lower sales, partially offset by higher prices.

You would expect cost of sales to reflect lower sales. However, it was the same as last year because it was impacted by the higher cost of taxes, labor and consumables. Our earnings for the quarter was $6.3 million or $0.09 a share.

For the year, net earnings were $42.4 million or $0.59 per share. 2005 revenue reflected a higher sales and higher realized gold prices. Cost of sales increased primarily due to the higher sales and the higher cost again for taxes, labor and consumables.

Exploration and business development costs at $30 million, double what they were in 2004, demonstrate our commitment to growth. Compared to 2004, we spent about $9 million more at Kumtor and $3 million at Gatsuurt.

All exploration spending was expensed. And this level of spending is significant for a company our size. Administration expense in 2005 was $18 million. This is a function of ramping up as a new public company. Minority interest simply represents the 5% of Boroo that we do not own and income taxes substantially are the non-cash accounting with 20% profit tax in the Kyrgyz Republic.

Turning now to the balance sheet. Cash at the end of the year stood at $202 million. This is up from $153 million at year-end 2004. The company continues to be profitable and this is the primary reason for the increase in cash.

We have $239 million invested in property, plant and equipment, of which $147 million is for Kumtor and $89 million for Boroo. Our goodwill amount of $155 million was confirmed in the third quarter as the appropriate amount to be on the balance sheet.

Cash provided by operations totaled $4.8 million for the quarter and $83 million for the year. The year over year decline in the quarter of cash provided by operations was mainly due to lower production levels and an increase in the working capital related to the timing of gold shipments and payments. The change in cash provided by operations for the year is mainly the result of increased working capital and the higher spot prices of gold.

As we look forward to 2006 based on the expectation of pouring 729,000 ounces of gold, we have assessed Centerra's sensitivity to changes in the spot price of gold. For every $25 change in the price, our revenues, earnings and cash flow for the year would change by approximately 18, 15 and $17 million respectively.

And with that, I will now hand the call back to Len.

Thank you, David. Before we open the line for questions, I'd like to close by reinforcing Centerra's priorities for 2006. Last year, we explained that our strategy was to operate our two excellent gold mines efficiently and safely. We increased Centerra's reserve base and expanded our portfolio of gold mining operations.

We've had another good year of operations. We have made significant, measurable progress in developing new reserves in and around Kumtor and Boroo, and further delineating Gatsuurt and REN deposits. We'll continue with our aggressive exploration program in 2006.

At the same time, we will continue to explore growth opportunities in other high potential regions of Central Asia, the former Soviet Union and other emerging markets. Centerra is creating a powerful platform for profitable growth, one that is further buoyed by the increasingly positive fundamentals in our industry. We look forward to reporting our progress in the year ahead.

Now, operator, could you please give the polling instructions as we would like to start the question period.

Thank you. [Operator Instructions].

Our first question comes from the line of Haytham Hodaly from Salman Partners. Please go ahead.

Good afternoon, gentlemen. A couple of quick questions. I guess the first one would probably be for George.

George could you align what cost range for Gatsuurt you're looking at for BIOX facility just in terms of the range? And what type of production levels do you think you'll be able to maintain -- something not too dissimilar to what we're seeing at Boroo?

Haytham, regarding the production level we're thinking that we're in the 180/200,000 ounce per year range. We're in the process of updating the feasibility study to include the main zone. And to detail out the haulage option, which we now believe is the preferred option. And we'll be able to talk more about cost at the end of the first quarter.

Okay. In terms of just the range, what does the typical BIOX plan cost for something in the past excluding the cost creep we've seen?

You are talking operating or capital?

No, just capital cost. Not operating.

In terms of the standalone plan, Haytham, the analysis that was done this year showed capital in the range of 150 to 200 million for a standalone facility. And that higher capital cost really pushes towards the option of all in the order of Boroo, expanding the Boroo facility. And extending the mine life of that facility.

At this point we are currently at the resource base and plan to have the optimized study completed by first quarter.

Sure. But in theory if you're actually looking at, the standpoint you're looking at, you would not incur that much, that high a cost at that point.

Haytham, that's right. We really expect it to be half or less.

Okay. That is what I was expecting. And I guess next question I guess for timing for these expansions. Let's say, you come up with the positive study here in the next 12 months. You've got Boroo going until 2011. Would you be -- when would you actually begin to develop the BIOX circuit, I guess you call it, beginning, will that begin in 2011? And what type of timeline are you looking for in terms of actually completing and getting it online at 180 to 200,000 ounce a year?

Again, Haytham, we're doing further detail on that. But conceptually, what we are looking at right now, is to start the oxide mining at the Gatsuurt property in the next year or two. That would be pre-stripping to get us down to the sulfide. And we have the construction end started, from the timing point of view such that it will be up in operational before we've exhausted the Boroo reserves.

So we'll be starting the oxide in the next year or so. And we'll be starting the construction on the sulfide probably in a year and half before end of the Boroo reserve base now.

And we've been successful for last two years of extending our reserves and extending the mine life of Boroo. So we'll keep that effort going and, and these schedules will be adjusted based on our success.

Haytham, we'll have the amended feasibility study available at the end of the first quarter with all the details in it at that time.

That's perfect. That's more than enough information on that. One of the questions, I mean guess, I appreciate the forward-looking guidance [inaudible].

We also, we recognize, Haytham, that of course we don't have any reserves there now. They are just resources and we need to complete the study and carry on with our work on the concepts that we're talking about now for them to become reserves. But today they are just resources.

No, no. I understand that. Like I was saying I appreciate the forward looking guidance I guess you've given for Kumtor and Boroo, that's actually very helpful.

Quick question I guess for David is that you indicate that you've seen a significant increase in cost of both Kumtor and Boroo and that your mining processing G&A cost have all gone up. Can you give us an idea just for the last quarter for example what your mining, processing and G&A cost on a cost per ton basis would've been?

What has been ...

Actually was in the last quarter that we just finished. For Kumtor for example?

Well, Haytham, we talked about cost per ounce not cost per ton. And it's right there, right on our MD&A. Do you not have that with you?

No, I'm looking for more breakdown in terms of mining and processing in G&A, David?

Well generally our processing costs are about 10 times what our mining cost are. In that order magnitude eight to 10 times on per ton basis.

Okay. That's helpful. Thank you.

Our next question comes from the line of Barry, just one moment -- from the line of Barry Cooper from CIBC World Markets. Please go ahead.

Hi, good day. Good guidance there out there for what's coming in the future. Looks like you're seeing a lot of balances this forward. Len, maybe you can just walk me through, there is about 3 million ounce of give and take in the NB zone. What steps do you need to take in order to get a sense of the reserve base in addition to what kind of gold price? I'm assuming the gold price right now was pretty attractive for all of your assumptions. But what specifically needs to be done to put those into the reserves.

Barry, we have great plans for the NB zone. We're drilling there at the moment. It is a bit of difficult access, so it took a little while to get there. And plus during this past year we devoted our drilling efforts to the SB zone rather than the NB.

So we are drilling there now. We expect to be releasing further results during the quarter. But our overall strategy there is to develop enough resources such that we could justify perhaps an exploration added through the mountain to continue our drilling program.

So we're intending to be very aggressive there, Barry. And are very optimistic for the future. But right now with regard to what gold price it would take, I'd rather not answer because we just have a very incomplete picture there.

So in terms of timing, if you're fast forwarding a year is that sufficient time to put those into reserves or not?

I would think a year would be a little too soon. And I say that because we now have a contract out for the scoping study for this exploration added. And we expect to be making decision on it sometime this year. So it would take a while to put that in place. And at that time of course we would be doing a great deal more drilling than we intend to do right now which would be much more extensive of course.

Okay. And then obviously I think one of the reasons why you kind of, just [started earnings out there] was the grade at the Kumtor. Can you just walk us through the 2.77 obviously, what you see is what you get, when you're an open pit? But how much of that was lower rate due to lets say a reinterpretation of what you're actually bound versus what the block model was saying versus what you modified the plan in order to get at the SB Zone?

Okay, Barry, I will let George answer the technical part of that question. I would like to comment though that our earnings were certainly affected by the amount of money we'd spent on exploration here. Especially in the fourth quarter. So I think that in general I'm not disappointed with the $0.09 earnings. It could've been higher if we did less exploration, done less exploration. But I think everyone would agree, all our stakeholders are benefiting from the exploration results.

But in any case I'll let George answer the question on the grade.

Hi, Barry, the fourth quarter grade at Kumtor, in December we put a new outlook out reducing the production level for the fourth quarter. In fact the grade came in a little better than that outlook predicted. And for the production, it was a little bit higher.

We're basically migrating from the high-grade stock work mineralization that we've been mining predominantly throughout the Kumtor line. We are trying to get to the SB Zone as quickly as possible. And you'll you see in our new life-of-mine production, grade will be coming up significantly over the next three years. But in the meantime, we're in the transition area between the high grade stock work and the high grade SB Zone. And in those areas, we, mineralization is not as predictable. We've experienced some higher dilutions in some zones. But we're trying to come back with mining on shallower benches.

At any rate the fourth quarter came in a little bit better than our December update. And we're expecting in 2006 to be struggling through these lower grade portions. Does that answer your question?

Yes. I guess if I were to maybe try and just make a reinterpretation a little bit when you say the information is not as concise and good, I guess, is that because you're dealing with a lot of holes that are towards the bottom of their drill depths such that you've got deviations to deal with and incomplete information. Is that some of the reasons for the sort of sketchiness on the grade?

Well, the continuity of the ore body in the area that we were mining late last year and we'll be during 2006 isn't as good. And so we get more variation. With the new [KAS 6] model that the new life-of-mine is based on, we've got more conservative in these areas. We intend to do some in-fill drilling this year to improve our predictability. We think we have a good model now to predict that area but I would say from the month to month, quarter to quarter, we could see some fluctuations.

Right okay. And then one of the things you indicate as going up, and I've anticipated this but I don't really have a good sense for things, labor cost. What kind of labor rate increases are you seeing at your operations?

Barry, the labor costs we negotiated a new contract at Kumtor and that contract expires end of this year. And with that contract a wage rate increase last year and again this coming year. In addition to that, we have a good number of employees that have stock options related to Cameco. And as you all know, their share prices moved considerably and that's impacted our labor costs.

So in percentage sense, what we've talked, is that like 5 or 6% or 8 or 10%?

Barry, I don't think we are in a position to answer that at the moment.

Okay. Then just your depreciation rate for '06, obviously you brought it down in '05. Was there a sort of an indication of any guidance for '06?

David, would you like to respond to that?

Yes. I think that if I remember for Kumtor, the depreciation is going to go down by about $13 per ounce and Boroo $5 per ounce.

Okay, great. And then, Len this deal with the Kyrgyz government there, that's a bit of change for a temporary period of time. Any color you can add on to what's going on there?

Well Barry, the Kyrgyz are well able financially to pay for the gold themselves. They have an operating facility by-- from an international bank. And what we are doing really is just helping them move to an implementation of where they use their own resources to directly pay for the gold, saving themselves whatever the bank fees and the interest charges are. And so we are -- we signed a deal with them and they are working through the implementation of it. And we expect that to be in place shortly.

Right. Okay, thanks a lot. That's all the questions I have.

Our next question comes from the line of Mike Jalonen from Merrill Lynch. Please go ahead, sir.

Hi Len. Just going back to your five-year guidance and I echo the point of the other analysts, that it's great to have this guidance. I just noticed though that you have costs for [customer] '06 and capital for '06, but nothing for '07 to 2010. And David had mentioned that you've had enhancements to your NTV or NAV. And I guess those numbers would be integral for us to figure that out ourselves. Wondering if those numbers are out or when will they be out?

Well, you are asking for the cost numbers related to the production?

Well,'07 that you have given everything else -- you have given production for Kumtor and Boroo for '07 to 2010. I'm just looking. We have a couple in cash cost numbers, is I'm asking I guess?

Well, that's right. You will ultimately need those. But what we are doing is of course we've just announced the new life for mines plans. We wanted to put the volumes out for you. We think that there are opportunities to continuously improve our operations and look at our cost in a more meaningful way. So we didn't want to put out numbers that didn't have a little bit more time to be assessed and analyzed. So at this point in time, we'd rather not put any numbers out than to put numbers that we think need a little bit more engineering.

Maybe I'll ask the question a different way, if you don't mind. The grade does rise at Kumtor. So ordinarily that does say to me that assuming cost return was static, that your cost per ounce will go down. And I don't know, like you say you have to do engineering still, I don't know how much stripping has to be done and what your strip ratio will be, when you get to those reserves. And maybe George can help there?

Well I think that your assessment follows the right logic with, if you just assumed constant costs for example, and you looked at higher grade, factored in this strip ratio, you see that the economics gets better over time. As the grade goes up, obviously we're just not prepared to let out upfront dollars to that at this point of time.

Mike, perhaps you could get a little more guidance, in the next month or so, we are in the final stages of preparing NI 43-101.

Okay.

Listen Mike, I would add to that, if you do get on the Internet site, we do have all the detailed production figures, including strip and strip ratios. So I think using our historical costs and your feel for what the pressures would be, so fuel and other commodities would be, you can come up with some reasonable estimates.

Okay, thank you very much.

[Operator Instructions].

Our next question comes from the line of Geoff Stanley from BMO Nesbitt Burns. Please go ahead, sir.

Thank you very much. The question for, probably for George, best to answer this one. George can you tell me what gold prices were used as a basis for the calculation for the forecasts that you put out there? And then to elaborate -- obviously relationship between grade and tonnage at most operations in Kumtor seems to be one of those operations that would have a fairly variable grade tonnage profile. Do you have a sense for what changes you would see to your forecast production in '06, if this 550/570 gold price sticks? And how that varies from the gold price you are using?

From the reserve perspective, we use $400. For our operating cost assumptions we use $425.

Right. Now in the mid 500s or thereabouts. Quite clearly you've got a lot of material and that picked up, becomes economic that -- that's not economic at 400 and change, does it have material implications for production in '06 and beyond?

You are asking in terms of reserve potential?

Well, I'm thinking more in the terms of actual production, because as you're going through the mining process, if you are using a higher short-term gold price to determine what tons go to the mill and which ones go to the stockpile and waste, you are going to end up with a different result. I'm wondering if you do operate the mine on the basis of higher gold prices when they prevail. You are fairly hamstrung with respect to the gold price that you used for reserves, there are some rules that you have to follow. I'm wondering if you could actually operate on the basis of the prevailing price or whether you are still thinking along the 425 lines when you are actually operating?

Well, what's driving the life-of-mine schedules that we currently have or our mining capacities. Now in the case of Kumtor, with the reserve expansion we did a number of optimizations to determined what the optimum mine production would be, therefore how quickly should pull the grade forward. And essentially, although assumptions were done at $425, in the case of Boroo we are maxing our fleet up -- I would tell you with a higher price assumption we may look at pushing the Kumtor production higher and pull the grade even lower, but at this point we are sticking with the production schedule you see out on the website.

Geoff, I think if I understood your direction, your question was that if we -- because we're at a 425 gold price and are finding the prices are higher, then what do we do, we certainly put the higher grade material through the mill first. No questions.

Okay. I suppose an extension of that or general concept in terms of the distribution of grades and tonnage at different costs, do you have a sense for what the reserve picture might look like at 550 or alternatively do have a sense of how much extra drilling you might have to do to determine that? And how long it may take? And can you just kind of thrash around that, as a concept for us and give us some sense of your understanding of things?

I think, Geoff, where we are at right now is we had this significant expansion to the SB Zone. We think it continues. We think the potential for the NB Zone is good. We think there is further reserves or resources at Boroo to convert. And I think we just need more time before we can answer that. But certainly the higher the gold price it would be an expectation that we would have better reserves. But I think we are just at the stage now where we are drilling with quite aggressively. We have 10 drill at Kumtor right now. And we think we will be in a better position to answer that later. And I'd rather not speculate now.

Okay, that's good, great. Thank you very much.

Our next question comes from the line of Larry Strauss from GMP Securities. Please go ahead.

Good afternoon guys. As a follow-up to Geoff's question on what kind of material you would be mining in the event that we continue to be about a $150 or so above your assumed price, basically you suggested that you'd be putting the higher grade material to the mill, in order to take advantage of that price. Another way of looking at it might be to lower the cut-off grade so that more material could be brought into the mine plan. And what I would like to know is has any thought and consideration been given in that regard? Clearly you'd have a little bit lower production, but you might be able to extend the life considerably by doing that. And how much material could be brought in by lowering that cut-off?

Hi, this is George. And yes, each year we do our reserves, we take a look at cut-off rate. Currently we're using a $400 price. At both mines, we are stockpiling some of the lower grade material within [10 to lower] at the end of the mine life. So you can see that if you look at the life of the mine production schedules.

Now regarding the potential for higher prices, we also stockpile sub-grade material. That would be material below the cut-off grade at $400. And those materials are stockpiled, if the price of gold goes up we have those located near the crushers and we would include them in the reserves at that point and process them in the future.

So it wouldn't change our operating plan. Higher prices would however add additional low-grade material to be processed at the end of the mine life.

I like that, that's a great answer. And as it relates to, for example a 550 long-term price, do you know how much low grade might be stockpiled, sub-grade at, clearly based on your $400 estimate, but potentially brought in to the mill at the end of the life?

I don't have those numbers with me today.

All right. And just some housekeeping, the delayed shipment out of Boroo in Q4, how much did that impact earnings and cash flow?

Larry, it's David here. There wasn't a delayed shipment out of Boroo. It just happened at the end of the year so we got paid in early January. And it was I think, 5 or $6 million. There was a shipment schedule to go from Kumtor, and with the annual maintenance of the Kyrgyzaltyn and Karabalta mill, it got pushed into January.

And in terms of impact, if you look at the results that we released and looked at the gold poured versus sales, you will see that there is about 11,000 plus or minus ounces that were produced, but not sold in the fourth quarter.

And were you a little bit ahead of schedule or would you expect that typically for those sales to have occurred in December? Or is it basically according to plan, getting the payment in January?

Well I think that -- every year as I mentioned Karabalta mill does go down for maintenance. And some times it fluctuates plus or minus a week. So although we continue to produce, what happens to that last shipment of the year, is that kind of hangs in the balance of what their maintenance schedule is. And so it just happened that way, that it slipped into January.

Thanks a lot.

Great. And just while I'm speaking, I just might update that Barry, I gave you the incorrect answer both guidance on depreciation for Kumtor next year. I said it was going down $13 per ounce, but I think the right number is 7. So I apologize for that. And please correct your notes.

Our next question comes from the line of Tanya Jakusconek from National Bank Financial. Please go ahead.

Hi. I have a question on Kumtor. I just was wondering after the large CapEx in 2006, what sustaining capital will be going forward in your new life-of-mine plans?

Well the sustaining capital that we've had last year was $15 million for the company. Next year we are expecting it to be of the same order of magnitude. The year before, it was about the same order of magnitude. So we don't have costs in capital at this point of time for the life-of-mines that we're prepared to publish. But I would use that number as a rule of thumb.

Okay. And then perhaps you don't have the individual costs refined for the mines from 2006 to 2011 or 13. But maybe you might share with us the life of the mine cash costs of both operations with the mine plans?

We might. But not today, Tanya.

Okay. All right, thank you.

Thank you.

There are no further questions at this time. I will turn the call back to you.

Well thank you, operator. And thank you everyone for participating in Centerra's fourth quarter 2005 year-end conference call. We look forward talking to you again at the end of the next quarter. Thank you, operator.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.