Centerra Gold Inc (CGAU) 2011 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Centerra Gold 2011 fourth-quarter and year-end results conference call and webcast. During the presentation, all participant lines 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 Friday, February 24, 2012.

I would now like to turn the call over to John Pearson, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Lindsey. Welcome, everyone, to Centerra Gold's fourth-quarter and 2011 year-end conference call. Today's conference call is open to all members of the investment community and media, in listen-only mode first. Then after the formal remarks, we will open the phone to questions and the Operator will give instructions for asking your questions.

Please note that all figures are in US dollars unless otherwise noted. Joining me on the call today is Steve Lang, our President and Chief Executive Officer; Jeff Parr, Chief Financial Officer; Ron Colquhoun, Chief Operating Officer; and Ian Atkinson, Senior Vice President of Global Exploration.

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 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 key assumptions, risk factors, please refer to our news release issued last night, the 2011 MD&A, along with the audited financial statements and notes for 2011, and our other filings on SEDAR.

At this time, I will turn the call over to Steve.

Thanks, John, and good morning, everyone. As you're aware, about six weeks ago, we issued our 2011 production results and our 2012 guidance; and then just a couple of weeks ago, our reserve and resource statement, along with the fourth-quarter exploration update. So we'll just have a few brief comments here to start off with, and then leave time for questions and answers.

We recently settled the strike at Kumtor, and it is back up and running. Looking at 2011, a good year for the Company, our consolidated gold production was 642,000 ounces, and total cash costs for the year was $502 per ounce. With the higher gold prices realized during the year, we continued to build a solid debt-free balance sheet, which can be used for adding shareholder value. During 2011, we replaced reserves mined Kumtor, and had exploration success with new discoveries such as ATO, and delivered initial resources at Kara Beldyr and ATO.

I will turn it over to Ian to discuss the reserve increases in more detail, and provides some other exploration highlights.

Thank you, Steve, and good morning, everyone. During 2011, we spent a total of $39.6 million on exploration, and delivered more than 2.4 million new ounces of gold into reserves plus resources, and added an additional 600,000 ounces of gold to the inferred resources at an average cost of less than $15 per ounce.

As Steve mentioned, we again replaced reserves mined at Kumtor. So, at year-end, our proven and probable reserves companywide totaled 8.1 million contained ounces of gold. I'd also like to point out the 700,000 ounce increase in the Kumtor central pit is a result of additional exploration drilling, primarily on the Southwest extension of the SB Zone. This drilling has continued to outline a new zone of mineralization that lies immediately to the Northwest of the known mineralization.

The drilling has also increased the average reserve grade for the central pit to 3.7 grams per tonne gold, compared to the 3.4 grams per tonne gold in the 2010 reserve estimate. There's been no change in cut-off grades used for reserve estimation, and we're using the same pit design as we used last year.

Measured and indicated resources totaled 6.7 million ounces of contained gold, which includes the initial measured and indicated resource of 824,000 ounces of gold at ATO. In addition, the measured and indicated resources at ATO also include 5.6 million ounces of silver, 270 million pounds of lead, and 480 million pounds of zinc.

Inferred resources are also increased -- 570,000 ounces to a total of 4.1 million ounces of contained gold. The majority of the increase was in the inferred resources at Kumtor in the high-grade underground SB Zone, which increased 393,000 ounces to a total of 1.8 million contained ounces of gold, with an average grade of 15.6 grams per tonne. The high-grade underground Stockwork Zone totaled 629,000 contained ounces of gold with an average grade of 12 grams per tonne. Our reserves to resources were calculated at December 31, 2011, using the gold price of $1,200 per ounce, up from the $1,000 per ounce used in the 2010 reserve estimation. The increase in gold price had a minimal contribution to the increase in reserves.

The initial resource for the Kara Beldyr joint venture in Russia is 289,000 ounces of indicated resources and 211,000 ounces of inferred resources in the Gord Zone. Centerra has owned 70% interest in the joint venture as of January 2012, so further work will be funded on a pro rata basis with our partner, Central Asia Gold.

In Turkey, during the fourth quarter, Centerra earned a 50% interest in the Oksut property, a joint venture with Stratex. We've now exercised our right to an additional 20% interest in the joint venture by funding $3 million of further exploration on the property over the next two years. The property covers a gold bearing iso-oxidation epithermal system. Drilling that we carried out in 2009, '10 and '11 tested a number of epithermal targets on the large property.

This work has returned some very encouraging results from the Ortacam North prospect, which we published earlier this month, that shows some drilling to depths exceeding 200 meters of oxide material, grading 2 grams per tonne gold or better. The drilling completed to date on the Ortacam North prospect has outlined a significant zone of oxide mineralization over an area of approximately 350 meters by 250 meters. The deposit is opened in at least two directions to the north and east.

So looking forward, we plan on spending $45 million on exploration in 2012. This is an increase of 80% over the $25 million we were spending on exploration four years ago, and reflects the fact that we're continuing to develop a larger pipeline of exploration properties.

So, with that, I'll now turn you over to Ron Colquhoun to talk about the operations.

Thanks, Ian. Earlier this month, we had a 10-day work stoppage at Kumtor. The site is back up and running, but our production plan back-end-loaded for this year is -- it is too early to tell if this will impact production for the year. We are evaluating that currently and we'll update you further when our studies are complete.

Last year, Kumtor produced 583,000 ounces of gold at a cash cost of $482 per ounce. And we, like everyone else in the industry, were impacted on the cost side of things with high mining costs due to high national labor cost and increased cost for diesel fuel.

Work is continuing on the Kumtor underground. In 2011, the total underground development advanced 1,864 meters; decline number 1, the SB Zone decline, advanced 903 meters; while decline 2 advanced 961 meters in 2011. The Stockwork drive reached its design limit in October of 2011, and the delineation drilling of the Stockwork resource is continuing.

The underground development project at Kumtor is on track to achieve the connection of decline number 1 and decline number 2 in the third quarter of this year. Decline number 1 has approximately 125 meters of development advance remaining. In decline number 2, approximately 660 meters of development advance remaining to join the two declines. An additional 708 meters of development advance is required in order to access the SB Zone. The first ore of the SB Zone is expected in the second quarter of 2013.

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

Thanks, Ron, and good morning, everyone. The fourth quarter came in pretty much as expected, so I'll just review the annual results.

First off, I'd like to note that Centerra has now joined the $1 Billion Club, and we may have been helped a little bit by the price of gold -- still a big achievement. Net earnings for the full year was $371 million or $1.57 a share, which reflects the 27% increase in realized gold price for the year, the settlements of $14.1 million with the Kyrgyz Social Fund, and $2.6 million with the Mongolian government for the alluvial claim, and the $10 million contribution made for the construction and repair of 27 schools throughout the Kyrgyz Republic.

Cash provided by operations was $435 million for the year, representing $1.84 a share, exceeding the prior year's cash from operations of $281 million or $1.19 a share. Our cash and short-term investments totaled $568 million at the end of the year. This is after investing $188 million in our properties, $40 million in exploration, and paying $100 million in dividends.

In 2012, our outlook for capital expenditures is $389 million, including $49 million of sustaining capital. Growth capital is expected to be $340 million, which is made up of $265 million for expanding and renewing segments of the mining fleet at Kumtor, and pre-stripping costs related to the development of the open pit, and $12 million for the pre-stripping of Pit 6 at Boroo. We are also spending $63 million for the underground development of the declines for the SB Zone.

No capital for the development of the deeper sulfide ores at Gatsuurt has been forecast, and will only be invested following successful regulatory commissioning of the project. The bio-oxidation facility to be located in Boroo, which is needed to treat the Gatsuurt sulfide ores, will only be built after the approval to begin mining at Gatsuurt has received -- has been received from the government of Mongolia.

We begin this year with a very healthy cash balance and no debt. Our 2011 exploration capital projects and sustainable community investments will be funded out of cash flow.

And I'll now turn to call back to Steve to wrap up.

Thanks, Jeff. Just a few summary comments on the last 12 months. Another great year in exploration, solid production from both operations, very strong earnings. And we paid a substantial dividend, both regular and special, which, combined at the time, was yielding over 2%. Looking ahead to unlock more value, what we see is, one, continued exploration successes, both at the mine sites and on our broader greenfield efforts, to bring the Kumtor underground into production, and to resolve some of the outstanding permitting issues in Mongolia.

I also want to make a special mention of the Boroo mine, which exceeded our expectation last year on production and cost. They also had a great year in health and safety environments. We had no lost time accidents; in fact, had no recordable injuries, and no reportable environmental occurrences. Our mines in Asia operate at the highest standards in health, safety and environment, and their performance regularly exceeds that of most mines in North America.

With that, let's open the call up for questions. Operator, please give the instructions for the process on the question-and-answer session.

(Operator Instructions). Greg Barnes, TD Securities.

Just a question about the underground. You're going to be producing ore there in the Stockwork Zone this year and into SB Zone next year, and we really don't know in terms of grades, tonnes, costs, what you're planning from that zone.

All right, I think, Greg, that the concern we've had there is that we do not have the drill density to move that even into the M&I category. Therefore, we have been very reluctant to put it into any kind of a production outlook.

I think, as we get into next year, where all we will be producing ore, we'll have to give some guidance, obviously, on what production we expect and at what cost that will be delivered. But that will probably come before we're able to complete all the drilling, and have the full 43-101 feasibility study that's necessary to move it into reserves. Until we can complete that, we can't say here is a long-term outlook for that material.

Can you give us some kind of conceptual ideas of what you're thinking about? 3,000 tonnes a day? 5,000 tonnes a day? How that's going to build up over the next 24 months?

You know, there's a lot of frustration on our part of not being able to give you a bit more specific guidance on that. I think we would like to just say that, obviously, we're very keen on that. We do show on the inferred resource, we have the size and grade there. I think that would be typical of what we would hope to deliver to the plant. But again, this is only at this point an inferred resource. And I think I would set the expectation that it would still just be an inferred resource when that material shows up at the mill.

Okay, so when the 43-101, when do you anticipate that being ready?

I think if we look at the drill schedule, that will take us well into 2013 and I don't know if we would have enough completed to have it even at the 2013 year-end. I'm kind of looking at Ron and Ian, and they're both nodding. (laughter) (multiple speakers)

(multiple speakers) -- we have exposing the ore and then doing a -- the 43-101 thereafter. So it will (multiple speakers) --

So it'd be started in 2013 -- (multiple speakers)

Third quarter 2013.

Late -- late 2013's.

Yes.

And Greg, it's Ian. I mean, we are currently drilling the Stockwork Zone with two machines, to give us the detailed spacing to move the inferred resources to an M&I. We actually hope to be able to get a lot of that done this year. We won't be in a position to get to the SB Zone until later in the year, as Ron has described, with the advances on the current declines. Once we're in a position there, as soon as we can, we will start the detailed delineation and definition drilling of that department at the SB Zone.

Okay. Okay, thanks very much.

(Operator Instructions). Bruce Murray, MFS McLean Budden.

Gentlemen, could you give us some assurance on the political situation in Kyrgyzstan? To the best of your ability at least?

I didn't catch the end part of the question there --?

I just said to the best of your ability, could you kindly give us your best take on the political situation and the stability over the next X number of years in Kyrgyzstan.

Well, I guess I would start out by -- let's review the facts that this year, we'll reach the 20th anniversary of the signing of the Kumtor agreements, and the mine has been operating now 15 years. There's been a number of changes in government. None of them has ever resulted in a disruption to the operation.

So -- but looking back at the fourth quarter last year, there was a presidential election. I think it was widely recognized that this did provide a true reflection of the decisions of the Kyrgyz people. Then-Prime Minister Atambayev was elected President with a very clear majority. I think he is now working very diligently in that new role.

Deputy Prime Minister Babanov has now been selected by the Parliament as the new Prime Minister. We're familiar with both. I think it is a very active democracy in the Kyrgyz Republic. There are active opposition parties as well as the ruling coalition. They don't always agree on things. I think that rather than being a sign of instability, is a healthy sign that democracy is working.

I think there's still a lot of things we have to do in working with the government and educating them as to what our interests and intention, and how our business runs, I guess. But the fact is we continue to operate under the agreements on new terms that were signed prior to the 2009 revolution.

The other, I think, key part to remember in all of this that Kyrgyzaltyn is our largest shareholder. They own 33%, roughly, of the outstanding shares of Centerra. They have representation on our Board of Directors. So we have, I guess, a pretty clear pipeline of information to us from the government through that representation.

Thank you.

Andrew Breichmanas, BMO Capital Markets.

I guess just a question for Ian regarding ATO. I was just wondering if you could go through the plans there this year, and talk a little bit about the potential already defined outside of the three mineralized pipes?

Hi, Andrew. The plans for this year are -- now we've got the resource estimation published, we will be filing that with the Mongolian government (technical difficulty) -- actually next week. And that's a key step for us in getting the initial reserve resource, which is Mongolian reserve, approved by the state authorities in Mongolia; that once we are through that process over the next three or four months, that will then put us in a position to convert the exploration license to a mining license later this year.

In the meanwhile, we will start up exploration again; actually we'll start drilling in the very near future on some of the targets in and around ATO, not only around the three pipes that we've defined with mineralization, but also on the broader property itself. And we have put some material out, as you may be aware, on our website that does show some of the targets that we have, off to the north in particular.

There is at least a couple of other styles of mineralization that we've identified on the broader package. I'll remind you that that package is quite large; it's 35 kilometers north-south and 25 kilometers east-west. So we've got some gold porphyry-type targets that we are looking at in the Northwest corner. A gold copper [scouring] type target. And then other features in and around the ATO pipes that have similar characteristics.

We did drill a number of them in the fourth quarter that did provide at least the comments in our update that we put out a couple of weeks ago. Certainly immediately around the ATO prospect, the initial chargeability anomalies we drilled, results were a little discouraging. We have had some encouraging results out of one target, Mongu, that we're still working on. I hope to be able to move that forward fairly quickly so we can talk about it, once we've got some better information.

So it's probably still a fairly general outline for you. I hope that answers your question. Yes?

No, that's helpful. Thanks very much.

(Operator Instructions). At the moment, we are showing no further questions registered.

Well, with that, Operator Lindsey, we will end the call. Thank you for joining us today and for your interest in Centerra Gold. If there are further questions, management is around to take those. So, please get in contact with us. And thank you again for joining us on the call.

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