Centerra Gold Inc (CGAU) 2006 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the fourth-quarter 2006 year-end 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, this conference is being recorded Wednesday, February 7, 2007. It is now my pleasure to turn the conference over to Mr. John Pearson. Please go ahead, sir.

Good morning, everyone, and welcome to Centerra Gold's 2006 year-end and fourth-quarter conference call. On the call today are Len Homeniuk, President and CEO; George Burns, Vice President and Chief Operating Officer; Ian Atkinson, Vice President Exploration; David Petroff, Executive Vice President and Chief Financial Officer; and Marina Stephens, our political consultant. Following their formal comments this morning, we will open up the phone lines for your questions. Today's conference call is open to all members of the investment community with media in listen-only mode.

Please note that all figures we will be discussing today are in U.S. dollars. Before we begin, I would like to remind you that certain statements made on this call 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 a more detailed discussion of the risks and uncertainties associated with Centerra's business, please refer to our security filings on the SEDAR website and the press release which we issued yesterday. Now I will turn the call over to Len.

Thanks, John, and good morning, everyone. 2006 was an eventful year for the Company, but the year's most positive news is the successful drilling program at our mines and exploration properties. Particularly at Kumtor, where we added 1.8 million ounces of high-grade underground inferred resources. The best news is that this mineralized structure is open along strike and at depth.

During the year, we replaced all the ounces we mined; so that on a 100% basis, proven and probable reserves totaled 7 million ounces at year-end. Additionally, our measured and indicated resources on a 100% basis increased 625,000 ounces to a total of 5.6 million ounces of contained gold.

Our greatest challenge came from the pit wall movement in July at Kumtor. This impacted our results for the year, with resulting lower gold production and higher costs at Kumtor. Consolidated gold production from our mines was 586,000 ounces in 2006, exceeding our September revised forecast by over 11,000 ounces. This compares to 787,000 ounces of gold produced in 2005. On the positive side, Kumtor met its revised mine plan; and Boroo once again exceeded our expectations.

Regarding total cash costs, while they came in at $386 per ounce for 2006, above our forecast range of $370 to $380 per ounce, we would have improved over our forecast if not for extra costs recorded in December in connection with various settlements at Kumtor.

On the financial front during 2006, Centerra produced just over $60 million in earnings or $0.28 per share, which includes a onetime insurance settlement. Also, we generated $95 million in cash from operations. At the end of the year we had $186 million of cash in the bank even after investing almost $111 million for the future well-being of our operations.

For the year, revenues increased to $365 million. Largely due to the positive movement in the gold prices, our average realized price reached $597 per ounce in 2006, up from $433 in 2005.

Before I turn the call over to George for a detailed look at how our operations performed in 2006, Ian Atkinson will give you a review of the reserve update and exploration results. Ian?

Thank you, Len. Our ongoing (inaudible) increasing resources is the result of our successful exploration drilling. During 2006, we spent a total of $23 million on exploration and expect to spend about $25 million in 2007.

As Len mentioned, at the end of 2006 our proven and probable reserves on a 100% project basis totaled 7 million ounces of contained gold. Centerra's share of reserves is 6.9 million ounces. Measured and indicated resources totaled 5.6 million ounces of contained gold, of which Centerra's share is 5.1 million ounces.

Our reserves and resources were calculated at December 31, 2006, using a gold price of $475 per ounce, up from the $400 per ounce in the 2005 reserve estimate. An increase in gold pricing assumption has had a minimal effect on the increase in the reserves and resources.

At Kumtor, we added 200,000 ounces of reserves before accounting for mining of 416,000 ounces of contained gold in 2006. The reserve grade at Kumtor increased by 20%, from 3.8 g/t to 4.7 g/t gold, reflecting the higher grade mineralization being delineated in the SB Zone.

Measured and indicated resources at Kumtor increased by approximately 500,000 ounces; and inferred resources increased significantly, by 1.3 million ounces, with almost all of this addition being the result of drilling at the SB Zone, which is identified high-grade underground inferred resource.

The SB underground inferred resource, which has been outlined below the current ultimate pit design, is estimated to be 1.8 million ounces of contained gold at an average grade of 20.5 g/t and accounts for almost the entire inferred resource. This is an increase of 400,000 ounces over the inferred resource number we stated early in December last year, when we announced our plans for a $36 million underground exploration and development program to provide access to and define and explore the resource at depth.

At Boroo, 343,000 contained ounces have been added to reserves, which replaces reserves mined in 2006. The majority of the increase is due to the inclusion of heap leach material in reserves following the positive results from the heap leach feasibility study and the decision to develop a heap leach facility at Boroo.

Reserves and resources at Gatsuurt showed a slight increase, directly related to the higher gold price used for estimation.

At REN, indicated and inferred resources increased by 19,000 and 300,000 ounces, respectively, a result of additional drilling on the JV zone and the discovery of the 105 zone.

One of our priorities for 2007 is to continue to add to our reserve and resource base through exploration. So we have budgeted $25 million for these programs in 2007. I will now turn you over to George Burns to discuss the operations.

Thanks, Ian, and good morning, everyone. First, let me provide an overview of our operations performance in the fourth quarter.

Kumtor produced just over 62,000 ounces of gold, an increase of about 10,000 ounces over the third quarter of 2006, but the total cash cost increased due to higher input cost, the impact of the high-altitude coefficient, and land tax settlements in the fourth quarter. On a per-ounce basis, the cash costs were $789, reflecting the higher cost and the fewer ounces. The Q4 results are not really comparable to the prior period since much of the ore was provided from low-grade stockpiles in the Southwest pit, due to the revised mining plan resulting from the ground movement last July.

Let me provide a brief update on the revised mining plan and our progress at Kumtor. Under the revised plan, the mine and mill and still operating at full capacity, milling low-grade ore stockpiles and ore from the Southwest pit. Mining is focused entirely on the SB Zone of the Central pit and the Southwest pit.

In the first quarter of 2007, we continue stripping to get to the main higher-grade core of the SB Zone. The second half of 2007 is when the higher-grade ore from the SB Zone starts to report to the mill.

Turning our attention to the Boroo mine in Mongolia, it had a good fourth quarter, producing about 80,000 ounces of gold at a total cash cost of $225 per ounce, compared to 68,000 ounces of gold produced at an average total cash cost of $223 per ounce in the same period in 2005. The higher production reflects higher throughput and a higher average mill head rate of 4.82 g/t compared to 3.85 g/t in 2005, overcoming the lower recovery of 85.2% this quarter.

For the full year, as Len mentioned, after revising our Kumtor mining plan for the pit wall movement, we exceeded our consolidated production forecast as the mines on a 100% basis produced 586,000 ounces of gold. Overall, our total cash costs for the year ended up at $386 per ounce, reflecting the lower production levels and additional costs at Kumtor.

Looking forward to 2007, we anticipate Kumtor gold production to increase to between 450,000 and 460,000 ounces at an expected total cash cost of $440 to $450 per ounce. Mining operations in 2007 will take place in both the Central pit and the Southwest pit. In the Central pit, mining will be focused on targeting the high-grade mineralization of the SB Zone; while mining in the North section of the pit has been scheduled to later in the mine life as a result of the July 2006 pit wall movement.

The mill head rate at Kumtor is expected to increase to an average of 3.13 g/t in 2007, compared to 2.27 g/t in 2006. Mill recovery is expected to average 79.9% compared to 73% in 2006.

At Boroo, on a 100% basis, gold production is expected to be between 250,000 and 260,000 ounces at a total cash cost of between $250 and $260 per ounce. The 2007 mine plan will focus on developing the Pit 3 phases and stripping Pit 6 to access oxide ore for blending in the fourth quarter of the year. Mill head rates are expected to average 3.64 g/t compared to 4.25 g/t in 2006, with recoveries remaining constant at 87%.

Additionally, Boroo should complete construction of its heap leach pad in the third quarter of 2007. A total of 1.7 million tonnes of low-grade material is expected to be stacked on the new heap leach pad in the second half of the year. This 3 million tonne per year operation is expected to have recovery rates on average for all material types of between 50% and 60%.

At this point, I would like to turn the call over to David to provide a review of our financial performance.

Thanks, George. The long-term outlook for Kumtor is very good. Unfortunately, the financial results of this quarter, though, were poor. Comparing fourth-quarter 2006 to the same period one year ago, revenue was lower and cash costs were higher.

Our Kyrgyz Republic segmented earnings in the fourth quarter of 2006 showed a loss of $16.9 million, explained by reduced production at Kumtor; lower ore grades and recoveries as a result of changes in the mine plan; and $8 million of the unexpected expenses, which you have heard before. That is $6 million of high-altitude settlement; $1.2 million land tax statement; and about $800,000 with respect to (indiscernible). We did have, though, higher realized gold prices, $128 per ounce higher; and a $5 million tax recovery.

On the other hand, Boroo's financial results were excellent. The quarterly comparison, fourth-quarter 2006 to fourth-quarter 2005, shows a significant increase in revenue. Although costs also modestly increased, net earnings were significantly better at $28.7 million in the fourth quarter of 2006. This is explained by higher realized price, higher production, and higher throughput.

On a consolidated basis and looking at the income statement, 2006 fourth-quarter revenue at $88 million was up 18%, reflecting a realized gold price that was nearly 27% higher and a sales volume that was about 7% lower than in the fourth quarter of 2005.

Cost of sales increased, though, 56% to $67 million primarily due to higher mining, milling, and site administration, and working capital movements.

During the fourth quarter, we had two items account for a large component of an $8.1 million tax recovery on the income statement. $5.4 million relates to a validation by the Kyrgyz Republic tax authorities of the tax basis for property, plant, and equipment. The future tax asset in Mongolia was increased by $3 million in the fourth quarter due primarily to temporary differences.

Earnings for the fourth quarter of 2006 were $1.9 million or $0.01 per share, which was lower than the $0.03 per share reported in the fourth quarter of 2005. It was strongly affected by Kumtor's lower production, higher operating costs, and, as previously explained, the additional expenses booked in the quarter.

Full-year 2006 results are net earnings of $61 million or $0.28 per share, and this compares to $0.20 per share in 2005. It is considerably higher than last year, with net earnings of $18.2 million, principally explained by higher realized gold prices at both mines; the $13.6 million Kumtor insurance settlement received in the third quarter; and the tax recoveries in the fourth quarter.

When we look at cash, we see that cash provided from operations is up on both a quarter-over-quarter basis and a year-over-year basis mainly, though, because of working capital timing principally due to increased accounts payable at Kumtor. Before working capital changes, cash flow for the year was down by $20 million. The improved results at Boroo were more than offset by low contributions from Kumtor. Cash used in investing for the quarter and full-year 2006 is higher than the comparative 2005 amounts, mainly due to the expansion at Kumtor which included the purchase of new mobile equipment.

Growth spending in the year 2006 was $87 million. Sustaining capital was approximately $24 million. Total capital expenditures for 2007 are anticipated to be $110 million, which includes $25 million of maintenance capital. The growth capital portion is expected to be $85 million, which includes $40 million at Kumtor and $45 million at Boroo.

The cash balance at the end of the year of $186 million was down from the $202 million balance at year-end 2005.

For administration costs, including the ongoing cost of maintaining the corporate office in Toronto and the higher cost of implementing regulatory compliance, we had expenses of $27 million in 2006. In 2007, we expect the number to be approximately the same and perhaps 1 or $2 million higher.

Looking forward in 2007, we are forecasting consolidated gold production on a 100% basis of approximately 700,000 to 720,000 ounces, being about 20% higher than 2006. You have heard that our total cash costs overall are forecast to be $375 to $385 per ounce.

Finally, based on this 2007 outlook, our sensitivity to changes in the spot price for gold for the following year, for the upcoming year is as follows. For every $25 change in the spot price of gold, there would be an approximate change of $18 million in our revenues, $15 million in earnings, and $17 million in cash flow.

With that, let me turn the call back to Len.

Thanks, David. I look forward to substantially growing reserves at Kumtor and an even more supportive environment for the project in the country following the resolution of some outstanding issues between our two largest shareholders, Cameco and the Kyrgyz Republic, and a successful conclusion to our negotiations in Mongolia to ensure a stable future there.

Our priorities continue to be, firstly, to put in place the Gatsuurt development; secondly, advance the underground access to the Kumtor SB Zone; thirdly, to continue our aggressive exploration program to grow and expand our reserves and resource base; and lastly, to continue to look for new 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)

If there are no questions --.

I apologize to interrupt, sir. We do have some last-minute queue-up questions here. Haytham Hodaly of Salman Partners.

Just a few questions. I guess we will start with just Boroo. What is the leach cycle time at Boroo on the Boroo heap leach?

George, can you answer that?

Yes, the leach cycle is 60 to 90 days.

Okay, so when would you in theory expect commercial production from Boroo?

A minor part of our production outlook for 2007, namely in the fourth quarter, will come out of the heap leach. We begin stacking in the second quarter, so obviously we will be building up on leached inventory for a while. So there is minimal impact this year.

Okay, so the 250,000 to 260,000 guidance that was given, that was primarily from everything else, not so much from the heap leach?

Correct.

Okay. I know that in this news release you indicated it was a 3 million tonne a year heap leach. I believe you previously guided to 3.3 million. Have you scaled that back, or was that just a rounding?

Rounding.

Okay. Could you talk a little bit about the Kumtor pit wall failure effect; and when you would expect much of the impact to be done; and what the cost associated has been and will be by the end, based on what your assumptions are?

Sure. We have been essentially stripping full speed on the SB Zone in the second half of 2006. That continues throughout the year. We will be getting ore out of the SB Zone beginning this quarter, continuing all year.

What really happens, though, as we get into the higher-grade portions of the SB Zone in the second half of the year, you can see from our outlook that we have the first quarter this year's production is a small fraction of the total year. That is really reflective of the fact the grade is going to increase significantly throughout the year from the SB Zone.

What would you say the overall cost associated with this whole pit wall movement is going to be in the end?

At the end of the day, the costs affected by the mining plan are insignificant. It is really the delay in accessing higher-grade ore. So our production is what the impact has been, and that has driven our cost per ounce up.

If you look at our reserve announcement, in fact the net impact of all issues at Kumtor (technical difficulty) slight increase in reserves. So negligible impact overall on the reserves. There is really no impact on the mining costs. It is simply modification in the gold production forecast. It's all timing.

Len here. The part where the wall failed was scheduled for the next pushback anyway. So all that we have done is just delayed that pushback to later in the year.

Got you. Okay. No, I appreciate that. Maybe two just housekeeping questions. One, I think David was talking about the -- I think it was business development or G&A that he guided to was going to be a couple million dollars higher. Which one was it, David?

G&A.

G&A was going to be a couple million dollars higher. Then, what is your exploration business development guidance for this year?

About the same as what we budgeted for 2006, $25 million.

Okay, perfect. Then can you just talk a little bit about just what is happening with Cameco and the Kyrgyz government and discussions going on there?

Len here. I will answer that. First of all, as you are aware, Cameco and the Kyrgyz government were the founding shareholders of Centerra. There are some issues that the new government of the Kyrgyz Republic -- if you have been following the situation in the KR, they have recently appointed a new Prime Minister and new cabinet -- want some explanations of how the Centerra was formed. And therefore want to talk to Cameco about these, and want to discuss these issues.

We look forward to that discussion as we, too, have some issues we would like to fold in, particularly with regard to the high-altitude premium that we have already mentioned here.

Okay, just last question. I was just flipping through the quarterly. I think there was somewhere, and I can't find it right now, but it somewhere indicated that there were some tax issues. That if certain discussions -- things didn't get resolved, or tax payments didn't get made, that the Boroo tax stability settlement agreement would be null and void. Is that still the case?

We believe that we have resolved all of those issues and are in discussions with the Mongolian government now, which you are aware, probably, that that has changed. So we consider that these are minor issues and we will be able to resolve them.

Excellent. Thank you, gentlemen.

Terence Ortslan of TSO and Associates.

Ian, you mentioned that you used $475 for the P&P and you said you used $475 as well for M&I. What sensitivity is there for the M&I for the $475 versus $400? You said there is not much for the [proven stuff]?

The impact of increasing gold price on resources, actually, again the large part of the impact on the resources has been a direct result of drilling. Not much of it has come from gold price increase, because we essentially use the same cutoff grade for our resources as we do for reserves.

Okay, okay. (indiscernible) the numbers out yet. So $475 you think is going to a norm this year, or for last year, for the industry to use? Or are you above the benchmark?

No, I think it is probably going to be the norm. Most people use the three-year trailing average; it's the SEC requirement. Three-year trailing average at the end of December I think was around $485, so we are a little below the three-year trailing average. So I think you will find other people reporting in at the same level.

(indiscernible) also going to make exploration as well once again; on the $25 million can you just kind of pie chart that for us?

Well, the majority of it is going to go to Kumtor again. We are currently planning to spend about $15 million on exploration at Kumtor. That is just in surface drilling. That doesn't include the investment in the decline to chase the underground resource there.

Then, outside of the $15 million at Kumtor, we have probably $2 million allocated to doing work in and around Gatsuurt and Boroo. Then the balance of it, we have another $1.5 million, $2 million looking at continuing work in Nevada. Then the balance is looking for new opportunities in other areas in both Kyrgyzstan, Mongolia, China, and the former USSR.

Okay. This number is probably going to be sustaining itself, (indiscernible) in the case of the -- eventually you are [going to the] decline in Kumtor and all, right? The $25 million is probably a base number we can expect the next few years?

I think so, Terry.

Okay. Just coming back to, David, your numbers for CapEx (indiscernible) 2007. You didn't put anything for Gatsuurt, which is understandable. But in case things happen and progress fast, how fast can you mobilize your CapEx on Gatsuurt?

Sorry, Terry. You want to ask that question again?

You have nothing on Gatsuurt for CapEx for 2007, right?

We actually do have $25 million in the budget for Gatsuurt.

You do? I thought you said Boroo.

Yes, at Boroo, we have $25 million for Gatsuurt and $20 million for heap leach.

I see. Okay, then I need to reverse the question then. What has transpired with respect to the IA on your side of the equation with the ongoing changes in Ulan Bator with respect to your deals?

Terry, Len here. I will answer that. As we announced previously, we have been in discussions with the Mongolians with regard to coming up with a new Investment Agreement for Gatsuurt. Lately there has been a lot of internal government discussion, so they have not been able to address those negotiations properly.

As you are probably aware, the Minister of Industry who is responsible for negotiations as of yesterday is no longer part of the government. So we're looking for the government to consolidate a little bit further in the next months or so. Then we expect we will be on track to conclude these negotiations. So I think we are a little bit away yet.

You are not in negotiations the way Rio Tinto, Ivanhoe, and the government are in negotiations (indiscernible)?

We're not in negotiations right now. We had negotiated what we thought was an acceptable deal for the government and ourselves. But they have not been able to consummate it on their side.

To the best of your knowledge, then, I assume that you're going to wait for the outcome; or they will wait for the outcome of the (indiscernible)?

They may, but I don't think so, Terry. The OT project is a huge one for them; whereas ours is -- you know, we are only talking about 1 million ounces here, so I don't think it is necessary -- necessarily they will have to conclude the OT negotiations before ours.

Anything on the excess profit or the price of (technical difficulty) on the taxation side?

As far as we know, there's discussions to change it. But nothing has happened there.

Okay. If you use the same as this CapEx number in 2007 -- I don't know; I don't have the press release unfortunately (indiscernible) talking from the conference call numbers, David. 2008 would be a number of -- order of magnitude, what?

We didn't catch the question. 2008 would be which?

The CapEx numbers?

Oh, the CapEx numbers.

Because there's a lot of things standing out as incomplete, so I assume --

I think we will be -- depending on the underground, though that could change it; but right now we don't have a number for you, Terry. Sorry.

But order of magnitude will be more than 2007, I would anticipate?

I don't think so, Terry. It will be -- the two major events will be the completion of the decline, so we have half budgeted in '07 and the balance will be in '08. The other is the development of Gatsuurt, which we have in the past talked about $75 million. We have got $25 million budget for '07. So you can -- those two things will carry on in '08.

Okay, all right. Fair enough, gentlemen. Thank you very much.

Steven Butler with Canaccord Adams.

A question I guess for George. George, what would be your peak production year as you would see it right now for the Kumtor open pit? Given the delays you have in getting the SB Zone, is it '08 or '09 that would be the better, perhaps the best grade year at Kumtor open pit?

We have just finished the new reserves that were announced. So we are continuing to optimize the life of mine. So I can't really give you any specific guidance. I can tell you that production is going to go up with that SB Zone late this year. If you look at our prior disclosure, we're still going to concentrate on the SB Zone.

Production will be significantly in excess of 0.5 million ounces. But targeting one year versus another, we're not ready to do that.

Okay. Just a question, guys, on the high-altitude coefficient factor. Will that affect operating costs on a go-forward basis? I know you accrued a $6 million number. Is that for a bygone period? How will that number come through on a go-forward basis?

Len here. The $6 million is for the 2006 settlements. We have just as of yesterday signed a new agreement with the Kumtor trade union for two further years, which includes a high-altitude premium.

But as you are probably aware, our investment agreement -- in our view, anyway -- protects us from paying or gives us the right not to pay that high-altitude premium. So we are in discussions with the government on that issue right now. But as far as all the costs you're seeing, they have it built into it.

Okay, so theoretically if one were to be pessimistic you could factor in $6 million per [year] life of the mine?

Roughly that, yes.

Okay, and I missed part of the answer to the question that Haytham had, guys. My apologies. On Boroo heap leach. Your disclosure for Boroo, just to be clear, for '07, does it exclude any ounces from the heap leach?

No, there is a minor production coming out of the heap leach in the fourth quarter of '07.

Okay. So, George, but your grade is inclusive of the heap leach? Your disclosure on grade and total cash costs and recoveries is inclusive of the heap leach?

Yes, that is the mill grade that is in the disclosure.

Mill grade only?

(multiple speakers) begins in the second quarter. Obviously we build inventory up and we get some minor production in the fourth quarter out of the heap leach. Really next year is when it becomes a sustaining operation.

Okay, but that was -- okay. Just to be clear, the mill grade -- the grade disclosed was exactly the mill only, not heap leach?

Yes.

Okay. Lastly, could you guys quantify, perhaps Ian, quantify either the reserve or the resource that exists in the Sarytor zone? Thanks very much.

I don't have that number available. I can get you that number later.

Okay, but is it fair enough to say -- I would assume there is no reserve for Sarytor just yet?

Yes, there is.

There is?

We completed the infill drilling in 2006 and have a design pit there with the reserves outlined; and they have been included in the overall Kumtor figure published.

Okay, all right. Thanks very much, guys.

Mike Jalonen of Merrill Lynch.

Hi, Len. Just following up there; a lot of my questions were answered, thank you for that. Just wondering, George, you mentioned 500,000 ounces for Kumtor production next year. I heard a 500, but I am not too sure where that was allocated for?

I was just simply stating that the production at Kumtor still remains on target [to be] much over 0.5 million ounces a year. Definitively, the question was what is the peak production year; and I did not have that number available. We are still working on optimizing the life of mines based on the new reserves.

I guess with these high-grade reserves, I would assume costs should come down rather dramatically even with this $6 million charge. Is that a fair statement to make?

Yes, it is. I mean, you can take our public disclosure and our production profile and divide it by 6 million ounces, but it is a fairly minor impact to costs.

Okay, thank you.

(OPERATOR INSTRUCTIONS) Barry Cooper of CIBC.

I will start off with George, maybe. George, at Boroo the grade was really pretty decent in Q4; however, the recovery was down at 85%. With the grade dropping in '07, you're actually showing a higher recovery. Which even though it is a higher recovery, it is well below where it has been in the past. Why was the recovery so low in Q4?

The recoveries at Boroo are dependent on material types. We have got oxide transition of fresh materials from each of the pits throughout the life of mine. In Q4, the higher-grade ore above our outlook came out of Pit 5. Pit 5, we have essentially exhausted that pit. So we were down in the bottom of it experiencing refractory ores which pushed the recovery down.

So we had recoveries a bit lower than expected; but we had a positive reconciliation in that pit on tonnes and grade. Net impact was positive.

You're going to continue to see those sort of fluctuations at the Boroo mine as we continue to mine Pit 3 and then begin to mine Pit 6. In the oxide materials our recoveries are very high. When we get into the fresh materials, recoveries can drop significantly.

Okay, good. That answers that well, George. Can you give me a strip ratio for Kumtor this year?

Not off the top of my head, but I can get you that number.

Okay, then I will just move on to Dave for a brief one there. Dave, what gold price are you using for your budgeting, such that I can relate that to the cost guidance that you're giving us?

We are using $600 an ounce.

Okay, okay, that is sort of what I thought. Now, Ian, I will ask a few of yours -- questions for you. On the drilling that you give in terms of the results at the SB Zone, is there a specific defined zone where we can actually say, okay, below this level that is definitely part of the underground, and above it is part of the open pit? So we can get some sort of sense as to where those drill holes are coming in, whether they're actually in the open pit or the underground component.

Yes, the resource number that we have stated, the 1.8 million ounces, is below the bottom of the KS7 design pit. We have put a series of sections on our website that were put up last night. They show the design pit and they show the drill holes. There's four sections in there that show the drill holes that go beneath the pit. There is also a long section with the outline of the ultimate pit and how it cuts into what we are considering the SB underground resource.

So you can -- if you take that one section in particular, the drill holes are all labeled on it; so you can select the drill holes from the table that we published that are included in the underground resource.

Okay.

There are about a dozen holes that actually come into the -- a dozen of our own holes that come into the underground resource and three historic Soviet holes.

Okay, good. Then do you know what is controlling the high-grade mineralization at the SB Zone? Like why are you seeing 20 and 30 gram material there, as supposed to the more disseminated 3 to 5 gram material that the rest of the deposit is known for?

Well, the SB Zone is similar, very similar, to be the stockwork zone, which again was higher grade than the North and the South Zones. It is smaller in dimensions, but similar in ore mineralogy and [alteration minerals].

You are just getting essentially the same sort of fluids, I think, coming into a smaller zone. You're getting the same volume of gold coming in. But as it drops out, it is coming out into a more -- well, you're getting a higher-grade core to it that is extremely defined. Largely attributed to the (indiscernible) content. You can pick it out fairly well in the drill core, and then it stands up with the assays.

So is a pretty much pipe-shaped, then, Ian? Or is there a fairly continuous strike length to it, or a vein?

It is actually open right now along strike. Again, just go back, if you get a chance, to look at those long sections, Barry, the long section we put up shows all the drill holes that we have drilled are available to us in the SB Zone. If you're looking at a long section on the right-hand side, you will see the drilling up through the Kumtor pit, up to the North end. We've got a lot of intercepts. So we know where it goes, but that is only down to the 3,700-meter elevation.

Beneath that -- well, we have got every drill hole that we have done counted and included in this SB underground resource. Then to the South, there is no drilling at all. So the thing is open both downdip and along strike in both directions.

Okay. Then finally, Ian, the M&I, 3.5 million ounces at Kumtor, what does it take to turn that into reserves? Just spatially where is that?

The majority of that is on the North end of the Kumtor pit. There is also some around both the Southwest zone and the Sarytor deposit. So that is all -- the M&I resources [are] essentially all the resources that would come into future expansions of the open pit.

What would it take to move that over to reserves? It would be any one of a number of factors. Obviously, gold price; if we can get a continued increase in gold price, [it would] bring some of it in.

Certainly at the North end, a lot of material is classed as resources because of drill density. As we drill more holes, particularly to chase the Kumtor deposit off to the North and Northeast, if we are successful with that, as we anticipate being, it will allow us to migrate some of that resource into reserves.

Again, as we can to grips with the pit wall movement at the North end, come up with the ultimate design pit there, if we can -- we have got an opportunity to increase slope angles at all, that will bring some of that material in as well.

If we were using today's gold price, would most of that come in, based on just the gold price influence?

Actually, yes. If you could fix the gold price at what is at today going forward, yes, we would be able to migrate some of that, a great portion of that, into reserves.

Great, okay. Thanks a lot.

Barry, on your question on strip ratio at Kumtor, in 2007 it will average 19 to 1.

Okay, good enough. That is not too different than what you told us, I guess a year and a half ago or so, when you gave that detailed mine plan, I think. Okay, thanks.

Thank you very much. There are no further questions at this time. Mr. Pearson, I will now turn the call back to you.

Thank you very much. I wanted to let everyone know that this conference call will be available for replay both on our website and an audio feed via telephone for the next week. The details are in the news release. Management will be around if there's any further questions, if you need to get ahold of us. Thank you very much.

Thank you. Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you disconnect your lines and have a great day.