Centerra Gold Inc (CGAU) 2012 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Centerra Gold 2012 first quarter results 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 reminder, this conference is being recorded Wednesday, May 16, 2012. I would now like to turn the conference over to John Pearson, Vice President, Investor Relations. Please go ahead sir.

Thank you operator. Welcome everyone to Centerra Gold's first quarter 2012 conference call. Today's conference call is open to all members of the investment community and the 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. Joining me on today's call is Steve Lang, President and CEO, Ian Atkinson, Senior Vice President, Global Exploration; Ron Colquhoun, Chief Operating Officer; and Jeff Parr, Chief Financial Officer.

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, and uncertainties, please refer to our news release that was issued last night, the MD&A, along with the unaudited financial statements and notes and our annual and other filings on the SEDAR website. At this point in time, I will now turn the call over to Steve.

Thanks John and good morning everyone. I have a few comments before turning things over to the rest of the group. Our quarterly results showed production of 72,500 ounces at a cash cost of $985 per ounce. This reflects the impact of the strike at Kumtor and the revised production outlook there. We still have about 4.5 months before we are back into our normal production levels at the mine. On the financial front, we reported a loss for the quarter of $0.06 per share or $14.7 million. This includes $19.2 million of abnormal mining costs at Kumtor related to the revised mine plan, $4.6 million of standby mine costs related to the work stoppage at Kumtor, and a $1 million provision for the closure of the Reno exploration office.

Following our announcement in March we thought it would be useful to provide everyone with the three-year outlook for Kumtor, which we included in the quarterly results. We would like to highlight a few items from that plan. First, essentially all of the ounces deferred in 2012 are recouped before the end of 2014. The total gold production over the three-year period is approximately unchanged from our previous plan. Also, the total mining tonnage needed to produce those ounces is also unchanged from the previous plan. The step out work for unloading the high movement area can be done with the same mining fleet we had already ordered. The removal of the high movement area will be completed before the end of 2013.

This serves two outcomes. First it decreases our risk profile around the SB Zone and really lowers the risk for future mining. Also, this decision to remove all of this material gives us an opportunity to examine a further expansion of the open pit at Kumtor. We expect to complete this evaluation and announce the results before the end of the third quarter. And as a final note, yesterday we announced a quarterly dividend of CAD0.04 per share. We expect -- believe a quarterly dividend makes more sense for the Company as it helps reduce the volatility we have seen around the annual dividend date.

So with that, I will turn it over to Ian to discuss the exploration highlights for the quarter.

Thank you Steve and good morning everyone.

Drilling at Kumtor during the first quarter has continued to return positive results. We completed a further five drill holes to infill and extend the SB Zone. All five holes intersected broad zones of mineralization at or below the KS12 design pit. Three of the five holes in particular returned significant intersects, 4.4 grams over 38.4 metres, 6.5 grams of gold over 41.4 metres, and 6.9 grams of gold over 39 metres.

The results from this drilling will have a positive impact on the future resource estimates. The infill resource delineation drilling in the Stockwork Zone is progressing well and will continue in the second quarter. Results from two of the five holes we completed in the quarter returned high-grade intercepts within the limits of the inferred resource with assays of 10 grams of gold over 24.4 metres, which includes 26.4 grams of gold over 7.3 metres and another intercept of 7.8 grams over 35.5 metres including 17.9 grams of gold over 11.8 metres.

In Mongolia, we completed the Mongolian reserve and resource report for the ATO deposit and submitted the report to the Mineral Resource Authority of Mongolia, who will review as we work in converting the exploration license to a mining license. As we're doing this we will continue to explore the rest of our large land package the ATO license as this reserve review process progresses and we work on converting the license.

In Turkey, we will resume drilling on the Oksut project shortly to continue testing the Ortacam North Prospect, where we had some extremely encouraging results in the third and fourth quarter of last year. The Ortacam North Prospect is an oxidized high-sulphidation epithermal deposit that is open in two directions. Our plans are to carry out drilling to determine the extent of the mineralization along with further metallurgical test work and environmental baseline work.

So on that note, I'll now pass you back over to Ron Colquhoun to talk about our operations.

Thank you Ian.

In the quarter Kumtor produced about 61,000 ounces, down from our planned production of 72,000 ounces due to the lower mill head grades and recoveries. In the quarter, the mill process stockpiled material with lower grades, instead of the higher grade material that was expected from the SB Zone. In the first quarter mill head grades averaged 1.98 grams per tonne with a recovery of 73% compared to the 4.12 grams per tonne and recoveries of 83% seen last year when we had consistent quarterly production and processed excess in process gold inventory that was drawn down along with higher than expected gold grades processed in that quarter.

During the quarter, the mill processed about 10% less tonnage than in the same period last year as a result of lower mill operating time due to the temporary suspension of operations from the 10-day illegal work stoppage, which resulted in Kumtor recording a $4.6 million dollar of mine standby costs. The unanticipated acceleration of ice and waste, in addition to the work stoppage in February, resulted in the loss of access in the southeast part of the pit and a delay in accessing the ore planned for the first quarter, as we had to revise our mine plan at Kumtor. The resulting unplanned removal of the new ice and the waste material, compounded by the low amount of ore being mined in the first quarter of 2012, added a significant amount of abnormal mining costs expensed in the quarter, which Jeff will expand upon.

A note to mention is the new mine fleet equipment was on order in 2011 has started to arrive, which adheres to the manufacturing and delivering schedule. The delivery and operation of this high-capacity fleet will aid in the new mine plan going forward. As Steve explained earlier, gold production over this year and the next two will be about the same as our last technical report. We just had to delay ounces for this year into the next two years.

Work is continuing on the Kumtor underground with a total advance of 474 metres. Decline number 1 which is in the SB Zone decline, advanced 223 metres, while Decline number 2 advanced 251 metres in the same quarter towards the SB Zone. The underground development project is on track to achieve a connection of Decline number 1 and Decline number 2 early in the third quarter of 2012.

At this point I'd like to turn the call over to Jeff to provide a review of our financial performance. Thank you.

Thanks Ron and good morning everyone.

I'll start the review with our quarterly results. On a consolidated basis our first-quarter revenue of $134 million reflects the 24% higher average realized gold price of $17.21 an ounce in the quarter, and as well, the 57% reduction in gold sales. During the quarter we had a loss of $15 million, or $0.06 a share reflecting significantly lower ounces sold and produced at Kumtor, and includes $19.2 million of abnormal costs related to the accelerated ice movement at Kumtor, and the revised mine plan. The $4.6 million of mine standby costs resulting from the worker stoppage at Kumtor, and the $1 million provision for the closure of the Company's Reno office.

The original mining plan for the first quarter of 2012 included stripping of waste material in the SB Zone, and the continued normal mining of ice and waste in the southeast section of the pit to allow access to the ore in March. However, the increased acceleration of this material resulted in a decision to stop mining cutback 12B where ore for the quarter was to be released.

The increased level of mining of ice and waste necessary to maintain safe access to the pit during a period where little ore was mined resulted in an unusual amount of cost being added to existing stockpiled inventory. This caused the inventory's recorded value to exceed what can be realized after further processing and subsequent sale of the gold by $18.7 million. We consider these costs to be attributable to the accelerated ice movement and not a cost sale. So, we recorded the excess inventory cost over its net realizable value as an abnormal cost for the period.

In addition, as a result of the decision announced on March 27, to address the acceleration of ice and waste material in the high movement area above the SB Zone, access to the ore in this section of the pit was delayed and the mine plan for the year has been revised. The area of ice and waste which needs to be removed is primarily located outside of the current pit limits, and will require significant effort and cost over the balance of 2012 and part of 2013 to provide access to mine the southeast section of the pit. This additional abnormal cost associated with the removal of ice and waste material from the high movement area was only $500,000, as it occurred only from the date of the announcement. However we anticipate that it will be more significant as the year progresses.

Cash provided by operations was $10 million for the quarter, down from last year's amount of $143 million reflecting the decreased earnings from lower production and higher operating costs. We spent and accrued $6 million on sustaining capital and $123 million on growth projects, including $77 million on equipment purchases, $30 million on capitalized pre-strip and almost $10 million for the underground project, all at Kumtor.

In 2012, our outlook for capital expenditures is $384 million. Growth capital is expected to be $348 million, which is $5 million lower than our original guidance. This is made up of $126 million for the purchase of new mining equipment at Kumtor. $147 million pre-strip costs related to the development of the open pit, and $56 million for underground development of the declines. And Boroo, 2012 sustaining capital expenditures are expected to be $3 million and growth capital is forecast at $10 million which includes $9 million of capital pre-strip cost at Pit 6.

And with that, I will turn it back to Steve to wrap up.

Okay, thanks, Jeff.

And just really recapping of my initial comments, we are proceeding with our mitigation plan at Kumtor, and are about 4.5 months from resuming normal production levels at the mine. The three-year production plan at Kumtor through 2014 has 1.87 million ounces of gold produced. This is roughly unchanged in either the ounces or the mining rate from our previous technical report. And with the decision to offload this high movement area in the upper portion of the southeast section of the pit wall at Kumtor, we have an opportunity to review the possible expansion limits of the ultimate pit. The study has been initiated, and we hope to complete and announce the results before the end of the third quarter.

So with that, let's open the call up for questions. Operator, please give the instructions for the question-and-answer session. Thank you.

Certainly, thank you.

(Operator Instructions)

Greg Barnes, TD Securities.

Thank you. Steve, I know you are working on a new longer-term mine plan for Kumtor, but the 810,000 ounces in 2014, is that a big, high-grade, one-year blip because you're fully in the high-grade SB Zone, or what do you see happening beyond that?

I think there are certainly -- probably that would not be the normal level. What we had seen in the previous life-of-mine plan was producing about 600,000 to 650,000 ounces a year. I think one thing that we would see as an opportunity there with the potential expansion of the pit is the opportunity to release a lot more ore, perhaps have larger stockpiles. So I think we need to really complete that study before commenting much further on a long-term mine plan.

Okay. And I assume the 810,000 ounces does not include anything from underground?

That is correct. That is just open-pit production.

So, is the plan still to be mining commercially underground by the second half of next year, so, 2014 will obviously be different than that 810,000 ounces, once the underground is brought into the mix?

Yes, we are on track with that underground. We had anticipated the action of the [Oksut lines] at the third quarter of this year. As Ron mentioned, that is on track. Further, we saw Decline 1 reaching the SB Zone second quarter of next year.

I think I would be clear also when we talk about this evaluation of the life-of-mine plan, that is not simply an evaluation -- can we make the open pit bigger, and how does it look? But we look at this as an economic improvement from what we would have expected anyway between the combined open pit and underground operation there at Kumtor.

If you do expand the pit, is that going to somehow impinge on the underground development, or is it going to slow that down somehow? Do have any sense of that yet?

Well, I think the first indication is, we are continuing the development on the underground. Certainly the area that we will be studying is around the SB Zone. We are continuing our access and drilling at the Stockwork, as well as the work at SB. I think our view is that long-term we have both an open pit and an underground operation at Kumtor.

Okay, thank you.

(Operator Instructions)

Alec Kodatsky, CIBC.

Thanks, good morning, everyone. I just had a quick question regarding Mongolia. There's obviously been a lot of discussion lately about the potential for legislation to change and impact foreign ownership. Have you had any discussions with any government officials, or do you have a particular view as to how that may play out?

You know Alec, given -- as everyone is aware of, our management's changes that are effective as of the end of day tomorrow, I think I'll pass that question over to Ian to answer.

Hi, Alec. To answer the question, we have been watching closely the debates that are going on there, inside and outside of parliament on this proposed new legislation, and it certainly looks as though, going forward, the parliament is likely to enact some sort of restriction on foreign investment. But at this point in time, we don't know what that is. So, if and when parliament does finalize the legislation, then we will have to take a close look at it and see just what impact it may have on our current operations and exploration program.

And is there any color that you can provide with respect to timelines? Is it something that could be settled as soon as a week or two, or is this likely to drag out post the elections?

The election is, as I think you are probably aware, is at the end of June. It's likely that this legislation would be tabled at least, certainly the discussion in parliament it won't be before that. What the outcome of that discussion will be, it's always hard to predict. But it certainly I think will come up for discussion before parliament.

Okay, thank you very much.

I am showing no further questions registered at this time.

If there is no further questions, we will end the call here. Thank you for joining us. We're all around the office today, and available to answer any further questions. Thank you for being on the call.

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.