Centerra Gold Inc (CGAU) 2009 Q4 法說會逐字稿

Welcome to the Centerra Gold fourth quarter 2009 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 24th, 2010.

It is now my pleasure to turn the conference over to Mr. John Pearson, Vice President of Investor Relations. Please go ahead, sir.

Thank you.

Welcome, everyone, joining us today for our fourth quarter and year-end conference call. Today with me I have Steve Lang, President and Chief Executive Officer; Jeff Parr, our CFO; Ron Calhoun, our Chief Operating Officer; and Ian Atkinson, Vice President of Exploration.

Today's conference call is open to all members of the investment community and media in listen-only mode. After the formal remarks, we will open the phone to questions, and the operator will give the instructions for asking a question.

Please note that all figures are in US dollars unless otherwise noted.

Before we begin, I would like to caution everyone that certain statements made on this call may be forward-looking statements, and as such, are subject to unknown and known risks and uncertainties which may cause actual results to differ materially from those expressed or implied. For a more detailed discussion of the key assumptions, risk factors and uncertainties associated with Centerra's business, and the industry we operate in, please refer to our news release issued today -- or yesterday, actually, last night -- and our various filings on our website.

And now I'll turn the call over to Steve.

Good morning, everyone.

The fourth quarter was certainly an eventful quarter for the Company, which included the successful completion of the secondary offering of 88 million Centerra common shares held by Cameco Corporation, which were sold to the public at $10.25 Canadian per share. With the transfer by Cameco of 25.3 million common shares to Kyrgazaltyn, Cameco disposed of all of its holdings in Centerra.

For 2009, our consolidated gold production was 676,000 ounces, as we previously announced, as Kumtor had a record fourth quarter, producing over 247,000 ounces of gold. With the solid operating results, the operations generated $246 million or $1.80 per share of cash flow for the year, resulting in net earnings of about $60 million. This was $0.27 a share after reflecting a charge for unusual items of $49 million relating to the Kyrgyz settlement.

Centerra ended the year with a balance sheet that included $323 million in cash and short-term investments, and no debt. During 2009, reserve increases at Kumtor and Gatsuurt resulted in our proven and probably reserves increasing by 26% to 7.3 million contained ounces at year end. This represents an increase of 2.4 million contained ounces before accounting for the production of 930,000 contained ounces.

I will now turn it over to Ian Atkinson, to discuss the reserves in more detail.

Thank you, Steve, and good morning, everyone.

Our ongoing ability of replacing reserves and increasing resources is the result of our successful exploration drilling and changes in the life-of-mine plans, as a result of the updated gold price used for estimating reserves and resources. During 2009 we spent a total of $25 million on exploration, and expect to spend about $30 million in 2010.

As Steve has mentioned, at the end of 2009 our proven and probable reserves on a 100% project basis totaled 7.3 million ounces of contained gold. We replaced everything that we've mined and then some. Measured and indicated resources totaled 4.1 million ounces of contained gold, of which Centerra's share is 3.7 million ounces, and inferred resources totaled 3.5 million of ounces of contained gold, of which Centerra's share is 3.4 million ounces.

We still continue to carry our [rent] on our resource statement until the sale transaction with Rye Patch is completed. Our reserves and resources were calculated at December 31, 2009 using the gold price at $825 per ounce, up from the $675 per ounce used in 2008. At Kumtor, 2.1 million ounces of gold were added to reserves, before accounting for mining 695,000 of contained gold in 2009. The increase is a combination of the reserve increase in the Central Pit, which was described in the Company's news release in December of last year. The Central Pit reserves have now been adjusted for production in November and December 2009 and the year-end increase in reserves for Sarytor and the Southwest has been added. With the expansion of the mining fleet at Kumtor that's required to complete the North Wall expansion in the Central Pit, there will be excess mining equipment capacity in the latter years of the Central Pit life-of-mine plan. This can be deployed for the mining of satellite deposits.

At year-end, a further review of the Sarytor and southwest reserves and resources, using the higher gold price of $825 per ounce, and the availability of the excess mining equipment capacity, has led to pit expansions of both of Sarytor and Southwest Deposits. At Sarytor, improvement in probable reserves increased by 442,000 ounces of contained gold, to total 814,000 ounces. At the Southwest deposit, a new proven and probable reserve estimate shows an increase of 394,000 ounces of contained gold, to total 394,000. The reserve increase has led to a further revision of the Kumtor life-of-mine, which has extended -- which has now been extended an additional two years to 2019, an expansion from the life-of-mine plan described in late December -- late 2009. Kumtor's life-of-mine plan is based only on the open pit reserves and resources. We have made no provision for production from the underground development activities at the high-grade SB and Stockwork Zones.

Measured and indicated resources at Kumtor decreased by approximately 664,000 ounces, even with the addition of 325,000 ounces at Sarytor and Southwest. This is the result of the conversion of resources into reserves, as a result of using a higher gold price for reserve estimation. Kumtor's inferred resources increased by 297,000 ounces, with increases in the high-grade SB Zone, Sarytor and Southwest deposits. The high-grade underground SB Zone increased to 1.8 million contained ounces of gold, with an average grade of 17 grams per ton, as a result of successful 2009 drawing of the Southwest extension of the SB Zone.

The strike land for the deposit has been extended a further 350 meters to the southwest of the 2008 year-end resource model. A significant portion of the new ounces identified by this drilling, 341,000 ounces of contained gold, fall within the new Kumtor open-pit design, and therefore are included in the new in-pit proven and probable reserves.

Moving onto to Boroo, 25,000 contained ounces have been added to reserves before accounting for 235,000 contained ounces of reserves mined in 2009. Boroo reserves are at 567,000 ounces of contained gold. The proven reserves consist of all of the mill and heap leach ore in stockpile inventory at the end of the year.

Reserves at the Gatsuurt project increased by 275,000 contained ounces of gold, due to an expanded pit as a result of the higher gold price used, and also a result of the lowering of the cut-off grades. Cut-off grades have been lowered now to 1.2 grams per ton for oxide material, 1.4 grams per ton transitional ore, and 1.5 grams per ton for sulfide material.

With that, I'll pass over to Ron Calhoun to discuss the operations.

Thank you, Ian.

I will now briefly review the operations. Kumtor produced a little over 247,000 ounces of gold in the fourth quarter, setting a site record for gold produced. For the year, Kumtor produced 525,000 ounces of gold, as we mined the higher-grade SB Zone in the fourth quarter. During the fourth quarter, the average mill feed grade was 6.9 grams per ton, and in the month of December the average mill feed grade was 10.14 grams per ton, and the average recovery was 85.5%.

On the cost side of things, cash cost decreased to $245 per ounce from $427 per ounce in the third quarter, due to an 85% increase in gold production from the third quarter. Lower consumable costs from lower diesel fuel, maintenance materials and supplies, and tires contributed to a lower cost as well. Work is continuing on the SB underground decline, which has advanced 680 meters by quarter-end, and as planned -- and as planned, the second portal and decline was started from within the Central Pit. The two declines are 5 meters by 5.5 meters in size, to accommodate ventilation and equipment for our future needs.

The underground development program has been revised to allow access to both the SB Zone and the Stockwork Zone at the same time. The second portal and infrastructure have been completed, and the mining development is underway, achieving 100 meters year-to-date. Exploration and delineation drilling for the two resources is planned in 2010. We are now targeting underground production to commence in the latter part of 2011.

At Boroo, fourth quarter gold production was above 49,000 ounces, 3% better than 2008 fourth quarter and 51% better than the third quarter in 2009. Better ore grade from the mine and the stockpiles improved plan performance, and better recovery led to a higher gold production. Mill grades in the fourth quarter were higher, at 2.91 grams per ton versus 2.55 grams per ton in 2008, and mill recovery was higher at 79.1% compared to 70.7%. During the fourth quarter in 2009, the mill throughput rate exceeded plan as we mined less transitional ore from pit 3, as we mined in the area that was less refractory in nature than anticipated.

Looking forward at 2010, we anticipate Kumtor gold production is to be between 520,000 and 560,000 ounces, at an expected total cash cost of$ 430 to $460 per ounce. The 2010 gold production profile will see an improved first quarter, as we have continued mining the high grade material in the SB Zone during January. The plan mining sequence for the year has approximately 28% of the gold production being recovered in the first quarter, and 43% in the fourth quarter. The second and third quarters of 2010 will have lower production, due primarily to the sequencing of mining in the Kumtor pit, as well as the anticipated change of the [ball mill ring gear] in second quarter and the replacement of [sag mill] liners in the third quarter at the Kumtor mill.

At Boroo, 2010 production includes 36,000 ounces of heap leach production, assuming a mid-April restart, and about 52,000 ounces from the Gatsuurt project, for a total production to be in the range of 120,000 to 140,000 ounces. Total cash costs for the Boroo and Gatsuurt projects in 2010 is expected to be $590 to $690 per ounce, reflecting the 2010 Gatsuurt start-up. In 2010, the total capital expenditures are anticipated to be $276 million, which will include $50 million of sustainable capital. Growth capital is expected to be $227 million, which is made up of $93 million for expanding and renewing portions of the mine fleet at Kumtor, $38 million for the underground development of the SB and Stockwork Zones decline, $20 million to increase haulage capacity to manage the ice and waste movement at Kumtor, and a further $74 million of capital for Gatsuurt. All this capital I have described is in line with the updated technical reports, and what we have previously talked about.

We have implemented a phased approach to the development of Gatsuurt ore body, consisting of the oxide project component and the sulfide project component. It is anticipated that the Gatsuurt on-site ores will begin to be processed through the Boroo facility in the third quarter of this year, for an expected 2010 capital expenditure of approximately $15 million. Engineering and construction costs of the sulfide project accounts for the remaining $58.8 million expected in 2010 growth capital expenditure. The sulfide project is currently in the engineering phase of the development. The balance of the capital for the development of the deeper sulfide ores at Gatsuurt will be invested when the Company obtains an investment agreement for Gatsuurt with the government of Mongolia.

At this time, I'd like to turn the call over to Jeff Parr to provide a review of our financial performance.

Thanks, Ron, and good morning, everyone.

I'll start with a review of our impressive quarterly results. Kumtor generated it's highest ever quarterly revenue in its 12-year operating history, with the higher production and realized gold prices. On a consolidated basis, fourth quarter revenue at $324 million reflects an average realized gold price of $1,129 per ounce in the quarter. This high realized gold price, which was better than the average spot price, was the result of the timing of gold sales, primarily from Kumtor.

Net earnings of $140 million or $0.60 a share in the quarter reflects record gold production during a period of higher than average gold prices, and the lower operating costs, which Ron mentioned earlier. The operations generated cash of $189 million, and we added $160 million to our cash and short-term investment balances after all our capital programs. Centerra ended the year with $323 million in cash and short-term investments. Cash flow was $189 million or a healthy $0.80 per share. During the quarter, we spent and accrued $6 million on sustaining capital and $23 million on growth projects, including $12 million for ongoing work on the SB underground project and $10 million related to Gatsuurt development. The earnings per share was $0.60 for the quarter on net income of $140 million.

Looking at the full year revenue increased by 8% or $50 million to $686 million, compared to $636 million in the same period of 2008, due to a 19% increase in realized gold price. This was partially offset by a 9% decrease in ounces sold. Earnings before unusual items for the year was $110 million or $0.48 a share. This reflects the increased number of shares outstanding in the year, and compares favorably to earnings of $97 million or $0.45 a share in 2008. Net earnings for 2009 were $60 million or $0.27 a share, after reflecting the unusual charge of $49 million related to the Kyrgyz settlement.

Net earnings for 2008 were $135 million or $0.62 per share after reflecting unusual income of $38 million which was related to the reduction to fair market value of the contingent share obligation under the expired preliminary framework agreement with the Kyrgyz government. Cash provided by operations was $246 million for the year, representing $1.08 per share, and exceeding the prior year's tax from operations of $166 million or $0.77 a share. As I mentioned before, our cash and short-term investments totaled $323 million at the end of the year, which is made up of $177 million in cash and $146 million in short-term investments. This is after investing $90 million in our properties and $25 million in exploration.

The unit cost of fuel increased at both operations during the fourth quarter of 2009, and we anticipate that this trend will continue into 2010. This is reflected in our outlook assumptions, where we're assuming $0.61 per liter at Kumtor and $0.81 per liter for our Mongolian operations. Our total cash cost per ounce guidance for 2010 is between $460 to $505 per ounce, which excludes the revenue-based taxes at Kumtor, and reflects gold production of 640,000 to 700,000 ounces.

As Ron mentioned, total capital expenditures for 2010 are expected to be $276 million, which includes $50 million of sustaining capital and growth capital of $227 million.

We began 2010 with a very healthy cash balance and no debt. Our 2010 exploration and capital projects will be funded out of cash flow.

I will now turn back to Steve to wrap up.

Thanks, Jeff.

I think it's worth reflecting on the change in the Company's outlook in the last 12 months. In 2009, we concluded the agreement on new terms with Cameco and the Kyrgyz government. We worked successfully with Cameco to complete the secondary offering late last year. The price achieved in the offering resulted in the maximum amount of shares transferred from Cameco to Kyrgyzaltyn. and overall impact of the offering -- the monetization for Cameco, the full transfer to Kyrgyzaltyn, and the wide distribution of shares and the improved liquidity is expected to be a benefit to all shareholders.

We made the decision last year to reinvest in the open pit fleet at Kumtor. The initial and now further extension of the operating life at Kumtor are partly the result of that decision, and we begin this year with a significant increase in reserves. With the open pit life at Kumtor now extended through 2019, we have increased our underground development efforts with the addition of the second portal and decline, as well as we have stepped up our regional exploration efforts, and are confident that we'll continue to add additional open pit resources.

This year we still have a lot on our agenda. We look forward to resolving all of the outstanding issues in Mongolia, and making the transition from Boroo to Gatsuurt. Our fourth quarter and year-end results put us in even better financial shape. Our cash position is very solid, and gives us both the ability to make large investments this year in our operations, and to look for further opportunities.

So with that, let's open the call up for questions.

(Operator Instructions).

Our first question comes from the line of Stephen Walker from RBC Capital Markets. Please proceed with your question.

Thank you, operator and good morning. Just a couple of questions, first of all on the recoveries in the third quarter. You're up to 84.4, obviously an improvement over the -- the prior three quarters. I'm just curious if you expect to see that sort of recovery for 2010? And then as a part of that question, the initial metallurgical work that's been done on Stockwork and the SB Zone underground, is there any change in the mineralogy or metallurgy that would suggest that recoveries would be any different as you mine the underground material at some point?

Steve, it's Ron, I'll respond to those questions. With regards to recoveries, the recoveries are improved primarily because of the, the higher grade. The metallurgy at Kumtor is very challenging. It's a double refractory-type ore body, and we do try to optimize it as much as possible. So it is grade related. You'll see improved recoveries as the grade goes up.

With regards to your second question, Sarytor, Southwest, and underground, we do and have in the past performed metallurgical testing, and we'll be doing that as we go forward. Again, we are seeing some very small amounts of oxide material which impact recovery, and we also see some ongoing Telluride exposure in some of the sulfides, which is difficult to leach. But we are going to be seeing a similar range of recovery in the Sarytor and Southwest in the order of 72%, 75%. Underground will be much improved, because of the significantly higher grade and much improved metallurgical results that we've seen in our tests.

Sorry, in line with the 84%, 85% that you're seeing now? From underground, I'm sorry.

The underground will probably be better and improved upon that as a source of ore.

Okay, and just if I can -- I just had another question with respect to the underground exploration. Both declines I believe you said were 5 by 5.5 meters. What is the ultimate length of those two declines to the center of gravity, I guess, of the SB and the Stockwork, respectively?

Decline one to the center of SB that we know of today is approximately 1.3, 1.4 kilometers. The Stockwork number two decline is very close within you know, we basically are passing right past it. So we'd have to do approximately 400 meters of development to set up for our drilling. And then for it to continue to the SB Zone is approximately a kilometer, I believe.

Okay, great. Thank you very much for that, Ron.

Our next question comes from the line of Greg Barnes from TD Newcrest. Pease proceed.

The first question is on the cash cost of Boroo and Gatsuurt, $590 to $690 an ounce, that seems very high relative to what you did last year and to the technical report?

That cash cost is impacted by the fact that we are hauling material from Gatsuurt, and it sees an additional charge to haul that material from Gatsuurt over the -- some 55 kilometers of road back to the milling operation.

Okay, so that's the sole reason for that higher cost?

It's Jeff, Greg. We've also got some start-up costs associated with Gatsuurt that would impact this year and, you know, slightly lower production, so the cash cost per ounce is going to be higher.

What would you think of sustainable costs going forward from here then, beyond 2010?

I'm sorry, you broke up there; could you repeat the question, please?

Yes, sorry, what would be a sustainable cost beyond 2010, then, for the Boroo and Gatsuurt operation?

It would be the in order of $500, $520, range.

Okay. Just on the income statement, we were wondering about the $15.5 million in income tax in Q4, wondering where that came from?

Greg, it's Jeff. The income tax in Q4, was that the question?

Yes, $15.5 million?

We've only got income tax in Mongolia now, and it just reflects the higher income in the fourth quarter at the Mongolian operations.

Okay. I guess I'll ask you about that offline. That was it, thank you.

Our next question comes from the line of Barry Cooper from CIBC. Please proceed with your question.

Yes, good day. Just a question for you, Ron, on the decline, where you run into, as you've described, good ground and then bad ground and whatnot, I'm assuming all of this is taking place in permafrost, and as you've got the opening exposed to air, obviously at this time of year it's not a problem with cold air, but as you move into Summer seasons and whatnot, what kind of problems are you anticipating perhaps, you know, developing because of the permafrost thawing out, and is indeed that part of the problem with the weaker ground areas?

There is only one location where we actually penetrate the permafrost. There is no permafrost problem. The portal at -- number one portal went through permafrost, it was approximately 4 to 5 meters thick, and we have a chilling process that maintains the temperature of the surrounding ground where the portal is passing through, and we also are taking precautions of avoiding trying to heat that part up too much, where it may create problems. But we don't see any other issues. We're well below the permafrost everywhere else in the mine.

Okay, I was under the impression that the permafrost went down a little further than just the surface area, but I guess the glaciers and whatnot are somewhat insulated I guess from the outside temperatures, is that correct?

I would not go to assume that, Barry.

Okay. Then just another question, what are the kind of the deficiencies that you still have remaining for getting the heap leach back up and running, or are there no deficiencies? It's just basically coming to an agreement here? I'm talking about Boroo, obviously.

Okay, Barry, I might have Jeff, who spent a time in Mongolia here recently, talk about our current status there.

Barry, I was in Mongolia in January and had various meetings. You know, I think there's a number of issues in Mongolia that are tied together. I met with the Vice Minister of Finance, he's the author of the letter relating to the SSIA issues, and so we met to discuss the letter and, you know, we both came away satisfied that progress was being made, and we don't anticipate that the government's going to take any further action with regard to that letter. And I think you know, that's sort of -- we have to get through that and we're making progress all the time, and we see some positive signs coming out of Mongolia. But as far as the timing, it's difficult to say, only to say that we're hopeful that it's not going to last much longer.

Is the Gatsuurt agreement in essence tied to the heap leach at Boroo? Are they two separate items that you're dealing with? Two separate entities there, or is there a connection?

No, they're really separate issues and the Mongolian government's dealing with a lot right now and, you know, compared to some of the other projects they're dealing with, Gatsuurt is not huge, so it's just a little bit slow getting them focused.

Okay, and then what specifically would you expect to get in a stability agreement there? Is it -- you know, because obviously I don't think you're going to get the kind of terms that you had with Boroo, where you had that tax holiday, although you might, but what kind of things should we maybe expect or are you asking for?

Well, you know, with the changes that the Mongolians have made to their fiscal regime subsequent to the -- or as part of the OT agreement, we're fairly satisfied that it's a -- it's a fiscal regime that we can -- that's good for the project. As you know, they repealed the windfall profit tax effective January 1, 2011, and that timing works for us. The rest of their taxes are are quite reasonable, and when we run it through our model, it provides a pretty good -- a very good return for Gatsuurt. So we would effectively just ask to stabilize the existing regime. We're not looking for anything special.

Right, okay. So it sounds to me that it's just a matter of priorities for them to -- whenever they get their act together, to act on a smaller project then, I guess, as you indicated.

That's right and, you know, I think we'd be prepared to move forward with the [off sites] in the meantime.

Right, okay, thanks a lot.

Okay.

Our next question comes from the line of Haytham Hodaly from Salman Partners. Please proceed.

Thanks, operator. Good morning, everybody. Just a couple quick questions, just with the Kumtor underground, you mentioned that you could be at the underground, effectively, in the latter part of 2011 contributing. How do you see this developing, and what kind of impact could it have on the current operating plan?

I think first off, I would expect it is going to take several years to ramp the underground up to its ultimate full production. I think -- you know, as you know, Haytham, we are a little constrained in talking about what that ultimate production rate might be, because it is an inferred resource. I think the extension of the open pit life is a -- is a real win for the underground in that, as you're aware, there's a pretty significant investment we make in the infrastructure and the administration and the supply chain logistics in operating at Kumtor, and very little additional overhead is required to support the underground. And no modifications are needed, certainly in the mill circuit, to accommodate the underground ores. I think that's one of the reasons we -- we wanted very specifically to discuss the operating performance on the higher grade which was a blend, obviously, in much higher grade, which was a blend, obviously, of a much higher grade from the SB plus some lower-grade stockpiles there in the fourth quarter, and in particular in December.

You know, one of the reasons for the variance in the fourth quarter versus the earlier guidance is that the operations group was able to run the mill, particularly the gold handling and strip circuit, more efficiently, and we were able to process the higher grades without suffering any drop at all, in fact saw the good recoveries there that Ron referenced in the fourth quarter and December. I think that open pit news is very positive for the overall economics of the underground. The operating results we've seen metallurgically in the mill are very positive for both the metallurgy of the SB Zone and our ability to blend high-grade into the mill. I think the prospectivity we see on both has also been a real positive. So our -- our outlook obviously for Kumtor is very upbeat.

Okay and then, with regards to grades, what's the grades look on a relative to the current reserve grade, from what you've seen so far?

Maybe --

The resource grades for the underground, that's I think what your question is. The SB zone, it's 70 grams per ton. For the Stockwork Zone it's 11.4. So both significantly higher than what we're putting through the pit.

Okay, interesting. Maybe just a couple housekeeping questions. Short-term investments, what's that made up of these days?

Well, we've got a fairly conservative investment policy, so -- some uncertainties and concerns with regards to the market. So our focus is on preservation cash as opposed to investment returns. So it's Treasuries, it's all the stuff that's safe.

Okay. No, that makes sense. With regards to exploration expense for 2010, where was that? I'm not sure if that's in the guidance there?

We're expecting to spend about $30 million on exploration in 2010, and actually in addition to that, we have some capitalized definition drilling to the Stockwork Zone and the SB Zone plan from underground.

Okay, but that $30 million will hit the income statement and the rest is on top of that, correct?

That's correct, yes.

Perfect, thank you gentlemen.

Our next question comes from line of Steven Butler of Canaccord Adams, please proceed.

Good morning. Ian, a question for you. Will most of the exploration drilling or underground drilling in the SB and Stockwork Zones this year be just delineation, or is there still some potential to extend the inferred resources further this year, or a goal to do that?

Steven, yes, there's still an opportunity to extend both the SB Zone, down dip and long strike, and the Stockwork Zone more down dip. The real issue, what we can get done from surface, is access, because we'd still be drilling from active mining areas when we can get -- a sufficient period of time where we can get in there and get a hole drilled before we're forced to move out again because for mining reasons, we'll do it. So we hope to get some holes drilled on both of those opportunities.

And then we expect decline one will be down close to the -- actually sometime in the third quarter, we expect it'll be at the SB Zone as we know it to date. So we'll be in a position then to start testing the strike extensions of that, both the long strike and the down dip.

Okay, so the bulk of both delineation and exploration drilling really does start to pick up in earnest in the third, fourth quarter this year and into 2011, is that correct?

That's correct. That's what we plan on.

Okay. Ron, any comment on how -- you remarked, I think at how high grade was in December of 10.14 grams per ton, which is quite stellar. Q4 overall, reconciliation to the block model, how was it on mining?

The reconciliation worked out very well. We, in fact, are seeing a strong reconciliation to the model, and we're very confident in the model, and the performance of what we have forecasted to see, plus the operation is working well.

I think one of the important parts there, obviously, we produced a bit more in the fourth quarter than we had given as guidance. That didn't and doesn't impact, doesn't come out of the first quarter. It was just, as I mentioned earlier, they did a good job being able to process more higher-grade material, but also the positive reconciliation Ron talked about; there was more ounces available.

If I could add one other thing, Steven, that we also do track the high grade core within the SB Zone as we mine it in the pit, the 7-gram-plus material, and do a separate reconciliation on that. That's coming out very positive as well. That, of course, just gives us increasing confidence in the inferred resources we have there.

Sorry, I'm just a bit confused; you said strong reconciliation, i.e. a very good fit or was there actually a strongly positive or positive reconciliation overall on either grade or tons, guys?

For open pit it was a positive reconciliation.

Okay.

For both grade and tons. And what Ian is referring to is the 7-gram envelope that we monitor, it came back very good and right on the mark. Our expectations are valid.

Okay, thank you very much.

(Operator Instructions).

And our next question comes from the line of Brian MacArthur from UBS. Please proceed with you question.

Good morning. I just wanted to follow up a little bit on Greg's question, just on the taxes, because at $15 million it looks like you had revenues of $60 million at Boroo and costs of $30 million. So it looks like your tax in the fourth quarter, if it's all just Boroo is like 50% as opposed to the 25%; or was there some reverse true-up or back calculation that just ended up with that -- what looks to me like a fairly high tax rate?

No, there was nothing unusual, Brian, off the top of my head. I haven't got the actual effective tax rate in my head but I can -- I can get back to you on that one. But there was certainly nothing unusual or unexpected in Mongolia.

Right. And you can't shelter anything really corporately in Canada either, right? It's just straight-up -- really, it should just be 25% of Mongolia is what we should be using going forward? I just want to be clear about that.

Yes, correct. Yes.

And just second thing, just on -- assuming everything goes well this year, we start Gatsuurt, can you give any idea just roughly what -- I mean, your depreciation's been bouncing all over the place. When we get through this, is everything originally that was spent on building Boroo depreciated down to zero, so we're just depreciating the Gatsuurt -- on-site Gatsuurt stuff going forward? Or how is that actually going to work from just a rough ballpark depreciation figure? Do you have that?

I don't have the number, but what you're saying is effectively correct, except that the mill at Boro, because we're using the mill to process Gatsuurt ore as well, the mill will be amortized over the Gatsuurt reserves as well.

So is that all -- can you already do that, or I guess what will happen, say it goes wrong, does that mean we just have a writedown, because we shut it all down right away because it's not fully depreciated now?

That'd be correct, yes.

Okay, that's what I was trying to get at. Great, thanks very much

Our next question comes from the line of Mike Jalonen from Banc of America. Please proceed.

Hi, Steve.

Good morning.

I guess it's still morning even for Steve Butler. Just a quick call -- back in December you put out a press release with life-of-mine, capital spending at Kumtor, $483 million, that's to the end of 2017; just wondering if, it's good news of two years of additional mine life, what additional capital we should have in our models?

With this -- you know, I suspect there'd be some incremental sustaining capital just related to fleet maintenance, but I think that was one of the things that we were describing with the additional capital that we've -- we've placed in there that the life extension here is very low capital cost, other than just the sustaining capital. This will really be just continuing to utilize the fleet a bit longer.

Okay. Great, thanks.

And there appear to be no further questions at this time. I'll turn the call back to you. Please continue with your presentation or closing remarks.

Well, don't have too many closing remarks. Just thank you for joining us today, and thank you for your interest in Centerra Gold.

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.