Centerra Gold Inc (CGAU) 2006 Q2 法說會逐字稿

Welcome to the Centerra Gold second-quarter results conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS) As a reminder, today this conference is being recorded Friday, July 28, 2006. It is now my pleasure to turn the conference over to invest Miss Angela McMonagle, Investor Relations. Please go ahead, ma'am.

Thank you, operator, and good morning, everyone. Welcome to Centerra Gold's second-quarter 2006 conference call. On the call today are Len Homeniuk, President and Chief Executive Officer; George Burns, Vice President and Chief Operating Officer; Ian Atkinson, Vice President Exploration; and David Petroff, Vice President and Chief Financial Officer.

Following (inaudible) this morning we will open up the phone lines for your questions. Today's conference call will be for all members of the investment community, with the media in a listen-only mode. There is a slide presentation that is part of the review today, and it is available on our website at centerragold.com under Second-quarter 2006 Conference Call. Please note that all figures are in U.S. dollars.

Before we begin, I would like to remind you that certain statements made on the call today may be forward-looking and as such are subject to known and unknown risks and uncertainties, which may cause actual results to differ materially from those expressed or implied. For more detailed discussion of the risks and uncertainties associated with Centerra's business, please refer to our securities filings on the SEDAR website and the press release issued last night. At this point, I would like to turn the call over to Len.

Thanks, Angela, and good morning, everyone. Centerra kept on track with operational, financial, and exploration results for the quarter which George, Ian, and David will go through in more detail.

Before we do that, however, I want to review our priorities and plans for the future, particularly in light of the pit wall ground movement that occurred on July 13 at the Kumtor mine site. Clearly this is an unfortunate additional hurdle we need to overcome as we work towards a spectacular ZB Zone.

As you know, our production also in performance has been variable [since the] fourth quarter of 2005, and we expect it to continue to be so throughout most of this year as we work through this transition area necessary to reach the SB Zone.

Our original plan had us mining the high-grade area of the original stockwork in late 2002. Now as a result of safety concerns, this plan has to be deferred, and we are working hard at assessing various alternatives that will allow us to mitigate as much as possible the impact of the wall movement and still get to mining the SB Zone as soon as is practical.

In this regard, our priorities are to, firstly, expedite access to the SB Zone. Secondly, accelerate mining of the Southwest Zone. Thirdly, develop reserves and begin production at Sarytor. Fourthly, to optimize rehabilitation work at the [high] wall that would allow accessing the high-grade part of the stockwork.

Once these tasks are complete, we believe Kumtor will enter its second very successful life. Let me elaborate.

One, the SB Zone has been and continues to be a top priority given the high-grade and extent of this ore body. The reserves we have identified have significantly extended the mine life at Kumtor, and promising results from our exploration program such as those announced yesterday continue to confirm our view that the future mining opportunities should be very rewarding. Therefore, accessing the SB Zone remains a top priority for Centerra.

Second, in addition to the SB Zone, we will continue to pursue mining opportunities in the north and south areas of the pit and at Sarytor near the Kumtor pit.

Three, our operations at Boroo, reserves at Gatsuurt, and other priorities in Mongolia also represent significant opportunities that we continue to pursue, although in the case of Gatsuurt and Mongolian exploration, more cautiously in light of the recent legislative changes in that country.

As we have stated, the Boroo deposit is protected by a Stability Agreement with the Mongolian government. The changes to the mineral and tax laws do not apply to Boroo.

Fourth, our growth plan is a blend of organic growth through reserve expansion and strategic acquisition of potential reserves and/or operations. We continue to expand our exploration programs at Kumtor by adding $4 million to its annual budget, thereby increasing our overall exploration budget to $25 billion.

Also, we continue to evaluate acquisition opportunities and are prepared to move on them when we find the right fit.

Fifth, finally, at Sarytor we will toward the immediate development of this deposit.

To summarize, while the pit failure represents another challenge for us, we are confident we will be able to work through it, as our track record confirms. We do not expect it to have any long-term effects on the bright future [at Kumtor]. If anything, it inspires and stimulates us to look for possible solutions and to do everything possible to expedite the second phase of Kumtor, the development that promises to be even more exciting considering the general trends in the gold industry.

Our priority at Kumtor continues to be to access the SB Zone as quickly as possible as an important element of delivering on our overall growth objectives. At this point, let me pass the call over to George Burns to provide a review of our operations performance and discuss the pit wall movement in more detail, as well as some of the go-forward options being considered. George?

Thanks, Len, and good morning, everyone. I would like to first provide an overview of our operations performance in the second quarter, and then discuss the pit wall ground movement at Kumtor, and the detailed actions we have taken and options being considered.

On the second-quarter performance, overall production was lower in the quarter and cash costs were higher compared to last year, as was expected. This was primarily a result of our working through the lower-grade transition area at Kumtor.

Kumtor produced 99,592 ounces of gold at an average cash cost of $402 per ounce compared to 137,794 ounces of gold at a cash cost of $253 per ounce in the same period in 2005.

Average mill grade at Kumtor was significantly lower in the second quarter at 2.87 grams per tonne compared to 3.7 grams per tonne in the second quarter of 2005, which as I said was a prime driver of the lower production.

Boroo produced 64,000 ounces of gold in the second quarter at an average cash cost of $207 per ounce compared to 75,431 ounces of gold produced at an average cash cost of $162 per ounce in the same period in 2005. The lower production reflects lower recoveries from transition ore at Boroo. Cash costs were higher due to higher mining and consumable costs.

Let me provide a brief update on Gatsuurt. Last quarter, we outlined our plans to pursue development of this deposit. As you know, a number of developments occurred within Mongolia, with Parliament passing a windfall profits tax and providing approval of [reviving] mineral and tax laws. The details of the new laws are not yet available and will need to be assessed. This should now provide the framework to begin negotiations with the Mongolian government for a Stability Agreement, or investment contract as it is called under the new laws, for the Gatsuurt deposit. The development of the project will likely be suspended until an investment contract is in place that guarantees the legal and tax parameters for the project.

Now, let me discuss the pit wall ground movement that occurred at Kumtor mine on July 13. As we indicated in our earlier news release, it involved a significant portion of the northeast wall, with a slide falling onto a mining bench above the higher-grade stockwork area.

The ground movement that occurred at Kumtor in 2002 also happened in the northern part of the pit. This slide was north and east of where the 2000 movement occurred and the volume is a small fraction of the size of the 2002 slide.

Our slope monitoring system provided ample warming warning of the movement and allowed for safe evacuation of the area; therefore there were no injuries. Normal mine operations are continuing in the south end of the pit and milling of low-grade stockpile is continuing.

Our response team has quickly stepped in and taken the following actions. First, we have engaged geotechnical experts to assist us in evaluating a barrier mechanism, including revisiting the findings from the 2002 slide. The experts involved include Golder Associates, SRK Consulting, and the Krgyz Institute of Rock Mechanics.

Second, we have our team working on a rehabilitation design for the area affected by ground movement.

Third, we are resequencing the pushbacks to develop a revised mining plan assessing the following options. One, accelerate the southwest pit mining rate. Two, modify the Kumtor pit pushback designs. Three, modify the Kumtor pit sequence. Four, accelerate the reserve conversion of the Sarytor deposit. The resources we have working on this exercise include our own engineering team at Kumtor and in our Toronto offices; and we are engaging a consulting engineering firm to help us.

Fourth, we're looking at ways to improve delivery of the new trucks and fleet that were delayed in the second quarter and affected our production capacity. We are also looking for used equipment as an alternative or to supplement the new equipment.

Finally, we're looking at cost-cutting opportunities that will help to offset the impact of the lower production levels we now expect in 2006.

As Len mentioned earlier, this event is certainly another hurdle for us to get over; but I am confident we are doing everything we can to revise our plans to mitigate the impact to the remainder of this year and next; and most importantly to access the high-grade SB ore has quickly as possible.

I should also mention that reserves are not affected by the ground movement, as it was contained entirely within the ultimate pit design. As I already mentioned, we're exploring opportunities to accelerate reserve conversion as part of our overall strategy.

Looking forward, we have revised our 2000 production outlook as a result of the pit wall ground movement at Kumtor. Production at Kumtor is now expected to be about 300,000 ounces of gold at a cash cost of $530 per ounce. This compares to 410,000 to 420,000 ounces at a cash cost of $370 to $380 per ounce expected previously.

At Boroo on a 100% basis, we expect production for the year of 270,000 to 275,000 ounces of gold with an expected cash cost of $210 to $215 per ounce.

Overall, we now expect production in 2006 of 570,000 to 575,000 ounces of gold at an overall cash cost of $370 to $380 per ounce in 2006. This compares to our previous outlook of 680,000 to 695,000 ounces of gold with expected cash cost of $305 to $315 per ounce.

We are still assessing the 2007 production impacts and will provide an update when it is available. At this point, I would like to turn over the call Ian Atkinson to provide a review of our exploration activities. Ian?

Great, thank you, George, and good morning. We issued a news release earlier this week providing an update on our exploration activities, which continue to deliver (indiscernible) results. We also announced that we will increase our exploration budget by $4 million or 20% to extend our exploration drilling program at Kumtor to the end of the year.

As Len indicated earlier in the call, (indiscernible) results at Kumtor continued to expand the SB Zone. During the quarter, we drilled a further five holes in the south end of the pit. Four of these holes were to test the dip and strike extensions of the SB Zone. All of these holes intersected significant mineralization, returning intercepts that range from 5.95 grams per tonne gold to 30.97 grams per tonne gold, over (technical difficulty) times the range in (indiscernible) to 35.9 meters.

This recent drilling has extended the SB Zone a further 40 meters along strike to the south. The SB Zone has now been delineated over a strike length of 360 meters and down dip lengths ranging from 70 to 520 meters. It still remains open along strike to the south and in the down dip direction.

We have drilled one hole in the north end of the Kumtor pit to follow up on the intersection that we reported on in the first quarter. It is actually an extension of the Kumtor mineralization along strike to the north. The hole had to be abandoned before the target zone was intersected, and it is currently being redrilled.

We have additional drilling scheduled for the third quarter that is designed to test between section 198, the last continuous zone of mineralization within the pit area, and the drill hole completed in the first quarter that intersected mineralization at the 3,740 meter elevation, which returned an intercept of 3.27 grams per tonne gold over 13.6 meters. This intercept extended the known gold mineralization 440 meters along strike to the north from the prior most northerly drilled hole in the Kumtor structure.

At Sarytor we continued our in-fill drilling program, completing 21 holes in the second quarter. The aim of the program is to systematically in-fill between 80-meter drill sections, to develop a drill spacing to enable conversion of the resources to reserves, and to determine the limits of the mineralization.

The in-fill holes have been very successful and are confirming the continuity of the mineralization, with results ranging from 1.29 grams per tonne to 11.5 grams per tonne gold over widths of 0.8 to 14.5 meters. The results indicate that the mineralization is continuous, although variable in thickness and grade along the strike and down dip. The detailed drilling results are posted on our website. As George has indicated, we are accelerating our work at Sarytor to convert the resources to reserves, to enable the development of the deposit as quickly as possible.

In Nevada, we started drilling on the REN project in April. Six holes were completed in of the quarter. Two holes have return significant results. One hole, RC-100C (sic -- see press release), was drilled to in-fill a 150-meter gap between previous drill holes in the JB Zone; and it returned assays of 21.7 grams per tonne gold over 4.6 meters and 10.2 grams per tonne gold over 12 meters.

The intercepts are located 75 to 105 meters northeast of good grade intercepts of 7.8 over 7.6 meters and 24.5 grams over 3 meters from a previous drill hole, and 90 meters from an intercept of 8.3 grams over 10.7 meters in a hole to the east. We will require additional drilling to confirm the continuity of the mineralization, which has the potential to extend the JB Zone to the north.

A second hole, which also returned significant results, was drilled to offset a 2005 intercept of 8 grams over 3 meters. This hole is located along the Corona dike near the intersection of the MBX fault. The hole returned a high-grade intercept of 18.5 grams over 19.8 meters. Wedging of this hole is in progress to provide 60-meter offset to this intercept.

Lastly, in Mongolia work is continuing at Gatsuurt to develop additional near surface targets in the immediate Gatsuurt area. Surveys were completed around Gatsuurt and on an adjacent Balj target, which is located 4.5 kilometers to the southeast of Gatsuurt.

Trenching of anomalies on the Balj target exposed gold-bearing alteration along the north 20 degrees east trending fault over a strike length of 400 meters. The trenchings have returned assays ranging from 16 grams per tonne gold over 2.2 meters up to 91 grams per tonne gold over 2.2 meters. Drill plans are being developed for this and other targets in the Gatsuurt area.

With that review of our exploration activities, let me pass the call over to David Petroff to provide a review of our financial performance. David?

Ian, thank you. Overall, our financial performance in the second quarter reflected the lower reduction that George outlined. We benefited once again, as did the entire industry, with strong U.S. dollar gold prices in the quarter which helped us continue to generate strong cash flow from operations.

Looking at the income statement for the second quarter, revenue at $107 million is 13% higher than the year-ago period, reflecting a realized gold price that was nearly 50% higher and sales volume that was about 25% lower than in the second quarter of 2005. Cost of sales increased 17% to $57 million, primarily due to higher mining and milling costs.

Exploration and business development expense in the second quarter of 2006 was $6 million, compared to $7 million in the same period in 2005. While exploration expenditures were about the same in both quarters, business development spending was lower with the completion of the Gatsuurt feasibility study in 2005.

We had net interest and other recovery of $3.8 million in the second quarter of 2006, compared to a $300,000 expense in Q2 2005. Foreign exchange adjustments for our Canadian dollar cash balances explained most of the difference.

Net earnings for the second quarter of 2006 were $29 million or $0.13 per share, nearly double the $15 million or $0.07 per share recorded in the second quarter of 2005.

Looking at cash, we had cash inflow from operations in the quarter of $24 million. We extended about the same amount of cash in the quarter, $23 million for capital expenditures, $8 million of which was for sustaining capital and $15 million for growth initiatives dominated by the expansion of Kumtor. The cash balance at the end of the quarter of $224 million was essentially unchanged from the balance at the end of the first quarter of 2006.

Looking forward to the rest of this year, based on (inaudible) 570,000 to 575,000 ounces of gold and based on the related costs, our sensitivity to changes in the gold price is the following. For every $25 change in the spot price of gold, there would be an approximate change of $6.4 million in revenues, $5.6 million in earnings, and $6.1 million in cash flow. With that, let me hand the call back to Len.

Thanks, David. Let me reiterate that our priorities will be, one, in the short term, to quickly put in place a mitigation strategy at Kumtor. Second, focus on accessing the SB Zone as soon as possible. Third, continue our aggressive exploration programs to grow and expand our reserves and resource base. Fourth, to continue to look for growth opportunities through acquisitions.

With that, let's open up the call for questions. Operator, please lay out the process for the question-and-answer period.

(OPERATOR INSTRUCTIONS) Terence Ortslan from TSO & Associates.

Question on Gatsuurt. How much money has been spent so far in the books?

I am not sure if we have that available. Why don't we get back to you on that? The feasibility study was in the range of about $3 million.

All right, but everything else was expensed before the exploration and all?

Everything is expensed, yes.

Just coming back to the Mongolian law, I think there has been a lot came out in the last couple of weeks as well since the first, let's say, fuse that kind of surprised everybody.

But what is the issue, except Parliament come back in September, that you can get this thing back on track and put into the critical path again? What is there to negotiate?

Terry, right now, we have submitted to the Mongolian government our request to sit down and negotiate what is now called an investment agreement. We made this application about three weeks ago and have not heard back from them yet. We don't expect that they will respond until probably late summer or early fall, and at the time we expect to enter into negotiations.

Also, as you mentioned, these recent laws have not yet been -- drafting has not yet been completed, so they are not fully known as to how they will be applied. So once we have all that information, we intend to aggressively pursue these negotiations.

Is that fair to say, Len and George, that if it is $500 (indiscernible) for [excess] profit tax that you will not pursue this project?

I don't want to comment on that right now, Terry. We did the feasibility study at Gatsuurt there [for 50] and it was quite a robust project then. But clearly, we are concerned that if the law does not take into account what the margins would be, then obviously we would rethink our strategy there.

But we are optimistic that, once we see the detail of the law, that there will be there will be some accommodation for that.

Okay, coming back to the trucks, two out of eight been delivered. The rate of mining on [a slowdown] is -- I missed that. The other six were supposed to be delivered this year?

Yes, we expected to have eight trucks delivered in the first quarter or second quarter of this year. We only had two of them in operation at the end of the second quarter. The remaining six trucks will be delivered during the third quarter.

All right, so they are going to be in service by the fourth quarter and the first quarter of next year?

Correct. The first eight in the expansion will be in service by the fourth quarter. There is an additional 16 trucks that were to be delivered by the end of this year. That schedule has shifted a bit too. A few of them are going to be in early, a number of them will be in a bit late, and the entire truck fleet will be operational -- currently expected by the end of the first quarter of 2007.

As we stated, we're looking at alternatives to accelerate that in any way we can. We are also looking at opportunities for potential used equipment.

Thank you for that. A question for Ian or Len (indiscernible) answer the question. With respect to the REN deposit, the rate of exploration at REN, do you think that is on a fast-track of exploration, or you are being too methodical on this (indiscernible)?

It's Ian. I think, you know, (indiscernible) the environment (indiscernible) with REN you have to be methodical about it. You have to understand the geology before you start continuing to drill the holes. So I'd say if the [all the other is wrongdoing] except that we thought we need to drill three offset spurs that put the geology together to design where we go from there.

You think you're going to be in a position to have some numbers by this year or next year?

When you go back (indiscernible) [the gap] in the JB Zone, which [we thought] we will do this year, we will be [going] through the resource numbers again for the JB Zone.

Last question. Len, remind me. The government of Kyrgyzstan incorporates Kumtor within the three to 10-year government [financial panel]. Can you remind me what percent of the government revenues you are now?

Terry, we are very significant contributors to the Kyrgyz GDP and somewhere in the range of -- depending on what our gold production is -- it's 7% to 10%; and we're approximately 40% of their export earnings. So it is a very important project for them.

I know that they are concerned with the pit wall failure, and we expect that they will provide us with whatever support we need to get back on track there.

That was 7% to 10% of the GDP, right? (indiscernible)?

Yes.

In terms of government direct revenues what percent would come to represent?

I'm sorry, Terry, I don't know that number.

All right, guys, thank you very much. Thanks for the detailed presentation.

It's David. I will just confirm to you that Len was correct. What we have invested in Gatsuurt so far, it is about $2.5 million on the feasibility study; and between this year and the last year we have probably put in $3 million of drilling.

Okay. I just want to come back and say, the excess profit tax in Mongolia, on surface it looks very punitive. But if you analyze it further with the income tax and everything else, it is not as punitive as most people think. But nevertheless, it is [in] quite a direction of change. So why not take a strong stance on this either way?

Terry, right now we are reserving any comment until we have seen the laws in detail. But we agree with you. I think the whole concept is that the laws have changed; but there would be some mitigating legislation passed as well.

So I think at the end of the day, it is not going to be quite as bad as it first appeared. But nevertheless until we see the detail, we are not prepared to comment on it.

Thank you, Len. Thank you, guys.

Steve Butler from Canaccord Adams.

Just a couple questions. Dating back to the rock event that happened in 2002, do you remember how long it took you to get back to normal operations at that time?

It took us about 10 months to get the rehabilitation of that wall completed.

Okay. You mentioned, George, that this is a small fraction of that size of that event, and that event I think was 7.5 million tons. So is this event in your view -- ? I mean, 50%, is that a small fraction or even less than 50% of that 7.5 million ton failure in '02?

The 2002 failure, that was about 17 million [bank] cubic meters of wall. The failure this year is a small fraction of that amount; significantly less than 50%.

Okay. When were you guys originally expecting to commence mining in the SB Zone?

Steve, on the south end of the pit where the SB Zone is located we have a number of pushbacks; and each subsequent pushback strips and begins to uncover the SB Zone.

So on the southern end of the pit there is low-grade mineralization that was part of our prior [ultimate] pit, and part of our short-range production schedule. The stripping that will be done on the southern end of the pit will began to uncover the SB Zone. We expected to be into that material late next year, early the following year.

With the rehabilitation plan and the slide that has occurred, we are having to resequence and redesign the pushback. So at this point, we don't have a current mine plan that we can predict when will be in the SB Zone. But that is a focus of our efforts, to get there as quickly as possible.

Okay. Can you remind us, again, maybe it is a question for Ian, what the resource base is in Sarytor?

In Sarytor, the resource base is on the order of 400,000 ounces.

400,000 ounces? At what grade, Ian?

I think it is close to 3 grams (inaudible).

Okay.

Steve, Len here. We are at Sarytor [daylight] so we feel that it is a good place for us to get quick access to some fairly (technical difficulty)..

Okay, and the southwest pit as well, is that even perhaps earlier? Of course there is no reserve yet at Sarytor, but there is a reserve at southwest. So is that something where you think you could get into mining this year or into next year?

Steve, we're currently mining the southwest pit. We began stripping it early this year. We have got ore exposed, and part of our mitigation is to look at accelerating the mine capacity at southwest.

Okay, thanks very much, guys.

Al Caesar from Bernstein LP.

Thanks for the presentation out ahead of time; that was quite helpful. Question just on the pit wall failure, and thinking back to 2002, and being in the same general area. Is there anything sort around the pit design or the angle or the ground characteristics that sort of makes that area of the pit sort of relatively more susceptible to these sorts of events? Or is it kind of just sort of bad luck and coincidence that it occurred in the same general area? Can you just help me think through that?

Sure. The north end of the pit where both failures occurred is structurally very complex. We have put a lot of effort into geotechnical drilling, structural modeling, [that's] inputs into the geotechnical design.

In 2002, the high wall's angle averaged about 42 degrees. Subsequent to that, the rehabilitation plan (indiscernible) flatten that angle to 38; and the current pushback or the current high wall angle where the 2006 movement occurred was at 36 degrees. So there has been a 6 degree lowering of the angle of the wall.

Now the movement this year as I stated was a fraction of the volume last time. But nevertheless, it is having a significant impact on our business. So our geotechnical experts are there at site, looking at this particular event and seeing what additional modifications we need to do to prevent future reoccurrence.

I guess presumably, if sort of flattening out the elevation further might be in the potential solution set, can you help me think about how that impacts the mining economics in that area?

Sure. The pushback that has already started behind this year's movement was flattened to 34 degrees. At this point, our geotechnical experts are still on-site, and we don't have the final assessment. But I can tell you that the nice pushback and the final [hole] in the pit is 2 degrees flatter than the wall that slumped this year. That particular wall had stood in place for about three years with virtually no movement.

So at this point, I know the next pushback (indiscernible) is a bit more conservative. Ultimately we will have to wait for the final conclusions out of the investigation to determine if anything further will need to be done.

The only thing other thing I can tell you is it's structurally complex. There is a lot of faulting in that north region of the wall, and the faults played an important role in both 2002 and the 2006 movement. So structural geology is a critical part of it. We put a lot of effort into improving our models to have good designs.

Thanks for the answer and good luck pushing forward on it. Take care.

(OPERATOR INSTRUCTIONS) Barry Cooper with CIBC World Markets.

Yes, a few questions. I will start off maybe hitting up Ian there. Ian, your voice is not coming through very clear at all, so maybe you could move closer to the mike or something.

Ian, the question relates to the SB Zone. You have added 40 meters in Q1, and strike length 40 meters in Q2. Can you just kind of walk me through what the general geometry is in that new 80 meters of strike length addition, relative to what it was say at the end of 2005, in terms of how it looked?

It is (inaudible) stepping out the long strike to the southwest on 40-meter drill sections. We are just changing the (inaudible) along strike and finding it where we expected. The (indiscernible) results from the [last two sections] is both those sections are in the current design pit (inaudible) moves into our reserve position straightaway by the end of the year.

(indiscernible) I think on section 6; it is probably [testing] one, two, three, four holes [150] meters down dip; and we have tested it 40 meters down dip on section 2 (indiscernible) section.

Okay, I was trying to get a more sense of the geometry. Is kind of lengths and widths of the intercepts that you're getting comparable to what you were getting last year?

We are continuing to get the same sort of widths and grades on I think the (inaudible) drill holes.

Thank you, Miss McMonagle, there seems to be no further questions at this time. You may continue with your presentation or closing remarks.

I think we are still answering questions for the last person.

On section 2, which is the (indiscernible) section the intercept there has been (indiscernible). That is in the (indiscernible). [96.84] grams over [20.8] meters. That is the only hole there.

We have got a second hole in progress to test (indiscernible) for the 40 meters down dip. Then in section 6, the intercepts (indiscernible) [6.3] grams over [30] meters, and that is in hole [1105-B]; 6.2 grams, sorry, [5.95] grams over [35.9] meters (indiscernible) feet. That runs [in the bulk] of the current [pit].

Then some deeper drilling on the same section (inaudible) underground. Again it is returning I think about [6.89] grams over [18] meters. [6.54] over [18] drilling at some holes we drilled earlier in the year. So that is on section 6. That gives us now a down dip strike extent about 150, 160 meters.

Okay, I think I'm going to call you because I am not hearing you at all, Ian. Len, just wondering. I realize it is certainly stages here and whatnot. You had a goal of 1 million ounces there that you had pretty much defined a way of getting there. Do you think that is in jeopardy at this point in time?

(inaudible) the SB Zone?

No, for the Corporation as a whole, 1 million ounces of production, I forget what was it, 2009, 2010? So what I am asking you is, is that goal do you feel now in jeopardy given the fall of the ground?

Sorry, Barry, I misunderstood your question, but thanks for clarifying it. Right now, we're looking at the mine plans, and I think we are still optimistic that we can achieve those goals or at least comes close to them.

But again, we are stock with some late equipment deliveries which impact the initial years. Then as George mentioned, we are working on the revisions to the mine plan. I expect that we will have that available in the fairly near future for you to review.

Right, okay. Then could you just tell me, has there been any other drilling or any other results that you want to talk about? I know you drilled that one hole that was -- I call it over the other side of the hill there. I believe it was hole 1057 or something like that, that had an interesting intercept there. Any other drilling that is taking place there that you can shed some light on?

Barry, we completed -- we tried to drill one more hole there this quarter which was -- we had to abandon it, unfortunately. We are currently redrilling it now, and we have fairly extensive drilling plans in the north of the (indiscernible) which you referred to in the third quarter.

Okay, thanks.

One other thing, Barry, just to help you out. Go to our website; we have got the drill sections 2, 6 and 30 posted along with the news release. That can give you a good idea of the geometry you're looking for. (multiple speakers)

Okay, thanks, Ian.

Al Caesar with Bernstein LP.

Just a quick follow-up to Barry's question, sort of thinking a couple of years out and the growth aspirations. Since the past few months obviously you have had news, with exploration sort of the upside and then the pit wall issue to contend with. Trying to think about how, ultimately, the cash costs were likely to evolve kind of going forward, along with the overall mine plan. Granted, anything would be sort of ahead of revisions to the mine plan.

Have you seen anything to date, sort of net of those two, that would make you think the cash cost position would likely be sort of more favorable or less favorable than you had in your head beforehand?

David, go ahead.

I would say that the way I look at the cash costs, if you see that year-to-date we have spent (indiscernible) about 80, $83 million. We are hoping to -- we are going to continue on a kind of spending pattern with the mining activity, the milling activity.

So, basically, when you get into -- you have your total (indiscernible) and your cash cost per ounce as a function of what comes out of the mill. That is going to be totally dependent on grade.

So when we go into the very lucrative SB Zone you're going to see cash costs coming down significantly with the higher grade and the higher output basically on the same cost structure.

I guess maybe a more helpful way to ask my question would be sort of what does the overall OpEx for Kumtor look like today; and how do you see that increasing to support the overall greater scope of operations going forward associated with the sort of production to get you towards 1 million ounces?

I mean, at this point, if you look at the most recent life of mine that was posted, that life of mine incorporates the higher mining rate, which was put in place for us to be able to mine the SB Zone and the (indiscernible) pit.

At this point, unless this evaluation we're going through right now might determine to add some equipment, I would say those cost projections are good.

The real question right now is what do those revenues look like? That is purely going to be dependent on the ore release from the sequencing that we are working on.

From our point of view, I think our (indiscernible) numbers are pretty solid. The only thing that might change that is if we decided to add additional equipment beyond the current expansion.

Okay, thanks Len, David.

Miss McMonagle, there are no further questions at this time. You may continue with your presentation or closing remarks.

Okay, thank you, operator. Thank you for joining us today and thank you for your interest in Centerra Gold. We look forward to reporting to you next quarter.

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