Centerra Gold Inc (CGAU) 2013 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the 2013 First Quarter Results Conference Call and Webcast. 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, Thursday, May 9, 2013. It is now my pleasure to turn the conference over to John Pearson Vice President Investor Relations. Please go ahead sir.

Thank you, Lindsay. Welcome everyone to Centerra Gold's 2013 First Quarter Conference Call.

Today's conference call is open to all members of the investment community and to the media, first in listen-only mode and then after the formal remarks, we will open the phone to questions and the operator will give the instructions for asking the questions. Please note that all figures are in U.S. dollars unless otherwise noted.

Joining me on today's call, is Ian Atkinson, President and Chief Executive Officer, Jeff Parr, Chief Financial Officer, Gordon Reid, Chief Operating Officer, and David Groves, Vice President, Global Exploration.

Before we begin, I would like to caution everyone that certain statements made on this call may be forward-looking in nature 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 issued last night, the MD&A, along with the unaudited interim condensed consolidated financial statements and notes and our annual and other filings on SEDAR.

Now, I will turn the call over to Ian Atkinson.

Okay. Thank you, John, and good morning everyone. I have a few comments before turning things over to Gordon and Jeff.

Both of our operations performed very well in the first quarter which is reflected in our quarterly results which shows a gold production of 115,220 ounces at an operating cash cost of $471 per ounce produced.

On the financial front, we reported over $51 million or $0.21 per share of net earnings on 2012 basis. And the operations generated $0.39 per share from $92 million of cash flow for the quarter.

As you're all aware, last week, we reported that the waste dump at Kumtor, was moving faster than we had in our plans which has required us to vacate and demolish the maintenance of administrative building, and relocate some of the impacted infrastructure sooner than planned. Gordon will speak to this in more detail a little later.

Also at Kumtor, we're continuing to have our discussions with the Kyrgyz government and its working group to resolve the outstanding issues.

Most recently, in our discussions with the government, we recommended that they retain external independent advices on both the financial and legal fronts. They've now done that and so we can now continue our discussions on the various matters to come to a resolution on the issues as quickly as possible.

As we stated many times, the 2009 agreement was negotiated in an open and transparent manner, and received all the necessary government and parliamentary approvals. The 2009 agreement has been the fundamental building block for Centerra's continued investment in the Kyrgyz Republic and the Kumtor project, and also for investors in Centerra.

We've always been successful in resolving matters with the Kyrgyz government through constructive dialogue, and we're confident that we will come to an acceptable resolution which will be fair to all the shareholders.

Also in Mongolia, we recently had some very positive meetings with the Mongolian government concerning Gatsuurt in regards to finding a way to move the project forward. We will update you as things progress.

As a final note, yesterday, we announced the quarterly dividend of CAD0.04 per common share, and even at these lower gold prices, we feel that this is a sustainable level for our dividend.

So with that, I'll now turn it over to Gordon Reid, to discuss our operations.

Thanks, Ian. As Ian has indicated, other than the increased movement of the waste dump which I will talk about shortly, both of our operations are performing well.

Boroo had an excellent quarter producing 25,602 ounces of combined production from the mill and heap leach facility. Also during the quarter, Boroo achieved a significant safety milestone of 3 million hours work without a lost time injury -- a significant achievement from any mining operation anywhere.

Mining at Kumtor is also progressing well. The unload activity is on track. We have not experienced unusual movements of the ice, and all of our working benches are on schedule to access the SB zone ore at the end of the third quarter as planned.

The mill is also performing well, continuing to process primarily stock piled ore from the Hockey Stick area that was mined and stock piled late last year and in the early part of this year.

As Ian mentioned, we are experiencing increased movement in the Davidov Valley Waste-rock Dump at Kumtor which we more commonly refer to as the Central Valley waste dump.

Beginning in mid March, the rate of movement of the waste-rock dump increased beyond what we had forecast in our plan to abandon and replace certain mine infrastructure as was described in the Kumtor technical report and in the life-of-mine.

In the life-of-mine plan, we had allocated about $56 million for the surface infrastructure movement and reconstruction which included spending of about 11 million this year on infrastructure work, most of which was plan for later in the year.

Due to this increased movement, we have had to speed up the planned abandonment of the lower maintenance workshop, the administration building, and the relocation of the power line and the electrical substation. We are actively working on that now.

Employees in the affected buildings have been moved to temporary work locations until our new permanent facilities are constructed. We do not expect an impact on 2013 gold production.

In response to the increased movement, the company has discontinued deposition of waste-rock on the affected portions of the waste-rock dump.

In the short term, we are placing waste-rock at locations unaffected by the movement and within the limits of the approved 2013 mine plant. An alternative 2013 and life-of-mine waste-rock deposition plan is being finalized. The company is working with the Kyrgyz regulatory authorities and external engineering advisers to expedite approval of such a plan.

Based on discussions with the authorities to date, the company believes that such approvals are likely to be forthcoming.

The government has established a special commission to investigate the circumstances around the increased movement. The commission has visited the Kumtor mine site and inspected the waste-rock dump. The company is fully cooperating with the commission.

I will turn the call over to Jeff to provide a review of our financial performance.

Thanks, Gordon, and good morning everyone. The industry is still working out how to report cash cost, so we've taken the approach that we would disclose all the components of our cost, while this exercise is underway.

Our operating cash cost per ounce produced was $471 for the quarter. On a pretax basis, our all-in cash cost per ounce totaled $1,327. This includes all corporate G&A exploration, and capital, including capitalized stripping. Essentially, everything but taxes.

After revenue based taxes in the Kyrgyz Republic and income taxes in Mongolia, our all-in cash cost were $1,552 for the first quarter.

Looking at our outlook, our consolidated all-in cost including all capital G&A exploration and taxes, are forecast to be in the range of $1,247 to $1,360 per ounce of gold produced for 2013. We are very focused on keeping our margins high, and even at the current lower gold price, the company will continue to generate good cash flow.

On a consolidated basis, our first quarter revenue of $192 million reflects a 53% increase from the same period last year when we had the 10-day strike and revision to the mine plan as a result of the ice and waste movement.

Our average realized gold price of $1,619 an ounce reflects movement in the price of gold over the quarter.

During the quarter, we had net after tax earnings of $51 million or diluted earnings per share of $0.21 which reflects significantly higher out sold produced at both Kumtor and Boroo when compared to last year.

Cash divide by operations was $92 million for the quarter, up significantly from last year's amount of 32 million. We spent in accrued, $13 million on sustaining capital, $16 million on growth projects, and $74 million on capitalized stripping.

And I'll turn it back to Ian to wrap up.

Okay. Thank you, Jeff. Just a few comments in summary. We're on track to achieve our production guidance for 2013. We're working with the Kyrgyz authorities on the new waste dump permits and approvals for Kumtor which we're expecting to receive promptly, and we're cooperating with the special commission.

We're continuing our discussions with the Kyrgyz government on the issues arising from last year's state commission to find an acceptable solution which will be fair to all shareholders.

With that, let's open up the call for questions. So operator, would you please give the instructions on the process for the question-and-answer session?

(Operator instructions). Our first question comes from the line of Greg Barnes with TD Securities. Please go ahead.

Thank you, operator. Ian, I'm just curious about the cost guidance of Boroo which is unchanged at basically $1,100 an ounce versus the cost that you reported for Q1, of $450 or $500 whatever the number was.

It kind of implies you're going to beat the guidance handily or is this something going on for the rest of the year that will take cost higher?

It's Jeff, Greg. You know, we had a really good first quarter, so obviously, the unit cost are going to be lower.

I think that for the full year, we will expect the level of production at Boroo to reduce slightly, so I think we're going to stick with our current guidance just to be on the safe side so to speak.

So the production in Q1, was it really, I guess a flash of gold coming out of the heap leach or something that really pushed the ounces up?

I think both the heap leach and the mill performed a little better than expected.

Okay. Thank you.

All right.

Our next question comes from the line of Greg Johnson Scotiabank. Please go ahead.

Hi, guys. Just in terms of the Davidov Valley dump, is there a point where the dump reaches, you know, somewhat of a natural angle of repose and will not be expected to move further?

Or do you think it is prone to ongoing movement due to poor underlying ground conditions like, you know, the permafrost we discussed?

This is Gordon Reid. No, the dump will eventually stop moving. The angle of repose is currently about 7 degrees, it's fairly flat. We are going to limit the waste dumping on the Central Valley waste dump and it will stop moving in the near term.

Okay, great. And then just in terms of the other dump sites, is there any concerns that any other dumpsites would kind of face similar instability issues due to permafrost or is this kind of just specific to Davidov?

It is not specific to Davidov, but the foundations in the area are all similar and will have similar challenges at each dumpsite, however, the only other major dumpsite is in the adjacent Sarytor Valley of the same scale as the Central Valley.

We are doing substantial soil investigation and any movement will be managed effectively. There is nothing downstream of the Sarytor Valley. No.

Okay, great. That's all for me. Thanks a lot.

Our next question comes from the line of Alec Kodatsky with CIBC. Please go ahead.

Thanks, good afternoon. I guess just a couple of questions just to get back to the waste dumps again. With respect to the permitting that is still outstanding that you're working on, what's required for the permitting?

Are you actually changing the existing plans for the other waste dumps or is this just part of let's say the normal course of permitting to access the plant dumps that you already had in the technical report?

Yes, this is Gordon Reid again. The way the system works in Kyrgyzstan is that we provide them with an annual mine plan and they approve that mine plan. And that is what we then work towards.

And if there's any potential variance, or any potential change to the mine plan, we have to go back for a variance or a revised mine plan. And that's the situation we're in.

The other sites we're looking at are, they are actually existing sites in the life-of-mine plan, but hadn't been considered for use in the current 2013 mine plant so we have to go back to the variance for permission to basically use those sites.

Okay.

And just more of a background question, but given the number of changes that have occurred in the last few years with the mine plan, I'm assuming that this variance process is reasonably straight forward and standard?

It is a routine process that we have to go through, yes.

Okay. And I guess maybe just one more on the waste dumps, just more out of curiosity, what is moving faster than expected in terms of rate?

I think in the technical report you sort of highlighted that it was moving about 15 millimeters per hour. Just curious to where that would be moving at today in terms of rate?

Yes. The increased rate of movement has exceeded 100 millimeters per hour at the moment.

Okay. And then just, if I could, on the situation at Gatsuurt, do you have a sense yet as to what might be a reasonable timeline sort of to expect either a resolution and when would you like to see some movements so that you can sort of mesh the operations together?

Alec, it's Ian. Unfortunately, we don't have, we can't give you a time line at this point in time. We've have been having some, we feel a very positive discussions with the government about moving Gatsuurt forward.

They certainly seem to be, as well, very encourage to want to do that. But it is a government process, so that we have to work through that process and get the necessary resolutions and approval from the government themselves.

And ideally, we got about two years of continued operation at Boroo from the current stockpiles about the heap leach and mill so that we certainly like to get things moving forward so that we could be delivering the ore to Boroo before the end of that period.

Okay. And then maybe just to clarify, the expected process, is it still anticipated that you'd need to shift the current Headwaters Act, and who puts that forward for consideration of the government? Is this something that you put before the government or are they the mine's ministry or somebody internally within the government that puts it before legislative body?

You know, the -- I think the, one of the avenues -- there are two avenues that you can pursue, one is to, you know, there have been various discussions about making changes to the Headwater Forest Law that would essentially grandfather operations or at least licenses I should say, like Gatsuurt. That's still something that's out there potentially.

And the other one as I think we pointed out, under the current Headwater Forest Law, if your deposit is declared strategic, that provides an exemption to the law. So that's the other opportunity there is for moving Gatsurrt forward.

And the Mongolian government is currently considering other deposits that they should consider to be designated as strategic deposits. And Gatsuurt is one of those being given that consideration.

Okay. Thank you very much.

(Operator Instructions). Our next question comes from the line of John Kratochwil with Canaccord Genuity. Please go ahead.

Hi, good morning, guys. Just switching back to Boroo for a moment. The production in the first quarter was almost half of your guidance for the year, how should we think about production for the remainder of 2013 at that asset?

Hi, this is Gordon Reid again. I'll just reaffirm what Jeff had said that we're staying with our original guidance. Although the first quarter was very successful, we do anticipate lower gold production through the rest of the year until such time as we basically achieve, our slightly better than our guidance.

Okay. Thanks. And then switching back to the waste dumps, you're basically switching to the other two waste dump areas at Kumtor, how long do you have until those start filling up too quickly and you need to start permitting third or fourth waste dump there or you know, how much leeway do you have in terms of that?

Sorry, this is Gordon again. If I understand your question, our life-of-mine plan includes enough storage capacity for all the waste produced during the life-of-mine. The permitting that we're going through right now is because some of those areas weren't permitted for use in 2013.

So we are bring those permits into this year's plan which requires us to go to the Kyrgyz authorities for approval, therefore, we can use them this year in 2013.

Okay, understood. I appreciate it. That's the end of my question. Thanks.

Our next question comes from the line of Patrick Chidley with HSBC. Please go ahead.

Good morning everybody. Just a question on Boroo, just on the grade again.

So you processed some refractory ore, and I'm wondering if that was already part of the previous plan, or it's just sort of a new initiative that you're starting that maybe you're a little bit happier with taking the loss on the recovery at the expense of obviously giving the benefits of a high production?

This is Gordon. Yes, it was part of our plan to process this higher grade, albeit refractory ore this year. We only have until the end of next year of stockpiles remaining at Boroo and they would have to be either be processed or left as wastes. And they make money.

Okay, Okay. Right, thanks. And then just on the dumps again, there's a few buildings in the part of where this dump is moving.

Is there anything else that's in the way that is a problem? Or is there an environmental concern or can you maybe flesh out the picture a little bit more there?

Certainly. There was always a plan to relocate or to abandon and replace the infrastructure, down valley of the waste dump because it was moving, it just increased in movement beyond what we had forecast which required us to move more quickly.

The main facility, the impacted was our lower warehouse, administration warehouse, it's a combined building. And that has been totally abandoned. Most people are in temporary facilities that they'll use until we have a new permanent facility.

The only other infrastructure down valley are our power line and a substation. Both of which had plan to be moved previously and are currently being worked on and will be moved out of the half of the movement of the waste dump in the near term.

Okay, thanks. And is there anything else downstream that presents an obvious environmental hazard? Would the government be worried about that? Do you think?

Well certainly in our view, it's just an open valley at the bottom and the waste dump shall move and spread out a bit and stabilize. But there's nothing else it could reach. It can't flow anywhere that would impact anything.

Okay. And was it effectively permitted to do that being as it's been in your plan?

Correct.

Okay. Good. Thank you very much.

There appear to be no further questions at this time.

Thank you, Lindsay. And if there are no further questions at this time, we will wrap up here.

Tomorrow, Centerra is holding its annual meeting of shareholders, and we may see some of you there. If you have further questions, the management team is available here in Toronto to answer those. And we thank you for your participation.

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