Centerra Gold Inc (CGAU) 2013 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Centerra Gold's 2013 Fourth Quarter and Year-End 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, February 20th, 2014. And I would now like to turn the conference over to John Pearson, Vice President Investor Relations. Please go ahead, sir.

Thank you, Jasmine. Welcome everyone to Centerra Gold's 2013 fourth quarter and year-end results 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 our formal remarks, we will open the phone to questions. At that point, the operator will give the instructions again for asking a question. Please note that all figures are in US dollars unless otherwise noted.

Joining me on the call is Ian Atkinson, President and Chief Executive Officer; Gordon Reid, 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. Also, certain measures we will discuss today are non-GAAP measures. And I refer you to our description of non-GAAP measures in the news release and in the MD&A.

For a more detailed discussion of the material assumptions and risks and the uncertainties, please refer to our news release, the 2013 annual MD&A along with the audited financial statements and notes for 2013, which were issued last night and to all our other filings, which can be found on SEDAR.

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

Thank you, John and good morning everyone. We had a very good fourth quarter at both Kumtor and Boroo and a good year. In 2013, we exceeded our guidance for gold production with lower costs. We were successful in expanding the Oksut resource and converting the majority of the inferred resources to indicated resources.

We've now completed a preliminary economic assessment for Oksut and we announced the results last night, which show that the project has robust economics. We do not have any asset impairments and our reserve base only changed to account for our projections during the year. We've maintained our dividend at CAD0.04 per quarter as we also announced last night, which, at the current share price, represents an annualized yield of over 3%.

On the financial front, we reported net earnings in the fourth quarter of $107 million or $0.45 a share, which brings our net earnings for the full year to $158 million or $0.67 per share. Cash provided by operations in 2013 totaled $484 million or $2.05 per share. And the Company ended the year with a solid balance sheet as our cash and short-term investments grew to over $500 million or $425 million net of debt. During the year, we also extended our $150 million revolving credit facility with EBRD for another year. This will provide us with additional liquidity going forward.

So regarding our negotiations with the Government of Kyrgyz Republic, as you're all aware, on the 24th of December last year, we entered into a non-binding heads of agreement with the Kyrgyz Government. On February 6th, after the review of the agreement, the Kyrgyz Parliament passed a resolution which appears to support the concept of restructuring described in the HOA, in which Kyrgyzaltyn exchanges our equity interest in Centerra for a 50% interest in the joint venture concerning Kumtor. However, the resolution does contain a number of recommendations that are materially inconsistent with the terms of the HOA.

We will continue our discussions with the government regarding the potential restructuring transaction to resolve all of the outstanding concerns relating to the Kumtor project. However, the Company continues to maintain that any agreement to resolve the matters must be fair to all of Centerra's shareholders. In the meantime, maintaining continuous mining operations at Kumtor remains a government priority, as well as one of ours.

As I have already said, we completed the preliminary economic assessment on the Oksut project, which has confirmed our expectations that we have a robust project, which we can now move forward quickly. Based on the resources that we announced two weeks ago, the PEA indicates the potential open-pit heap leach operation with an 11-year mine life with production starting in late 2016. The all-in cost of the project going forward would be $849 per ounce. And if you include taxes, an attractive $914 per ounce.

The project would require construction and pre-production capital estimated to be a $166 million and the project has a good return with an NPV of $118 million using an 8% discount rate and a $1,300 gold price, and that gives an IRR of some 19%. We're also excited about the upside on the project. The Keltepe deposit is still open to the South towards the Guneytepe deposit which is some 300 meters away. And we also have a number of other exploration targets on the property that we're still going to test.

So with that, I will now turn it over to Gordon to talk about our operations.

Thanks, Ian. Both operations performed well during the quarter and as Ian mentioned, we did better than guidance for the year for both production and costs. At Kumtor, the operation had an excellent quarter as we mined and processed the high-grade SB Zone ore from cut-back 15 producing 348,000 ounces of gold.

For the full year, Kumtor produced 600,402 ounces of gold at an all interest gaining cost of $775 per ounce sold, which includes capitalized stripping and sustaining capital. The all-in cost, which includes growth capital, but excludes the revenue based tax, was a very attractive $853 per ounce sold for the year.

This year, similar to 2013, over half of Kumtor's gold production is expected to occur in the fourth quarter when mining will again reach the high-grade section of the SB Zone in cut-back 16. We estimate that the Kumtor mine will produce between 550,000 and 600,000 ounces of gold in 2014 at a very attractive all-in cost in the range of $833 to $909 per ounce.

Boroo continued to perform well during the quarter and for the year produced 90,318 ounces of gold, exceeding our guidance by 5,000 ounces. Crushing and stacking of ore at the Boroo heap leach operation was completed in the fourth quarter. For 2014, Boroo will continue to process stockpiled ore through the mill and will continue to operate the heap leach facility. The mill stockpiles are expected to be fully depleted in November 2014.

Active heap leaching will continue until early 2015 and then transition to a drain down/closure status. Boroo is expected to produce about 45,000 ounces in 2014 consisting of about 24,000 ounces from the mill and the remainder from the heap leach operation.

With that, I will turn the call over to Jeff to discuss our financial performance.

Thanks, Gord, and good morning, everyone. On a consolidated basis, our fourth quarter revenue of roughly $470 million reflects a 71% increase in gold sales for the quarter compared to the same period last year, mostly reflecting increased production from Kumtor. Our average realized gold price at $1,271 an ounce was 26% lower than the $1,711 we achieved in the fourth quarter of 2012.

During the fourth quarter, we posted net earnings of $107 million or $0.45 a share. For the full year, our net earnings was $158 million or $0.67 a share. The increase in our 2013 earnings reflects a 78% increase in ounces sold over 2012. We also had a $4.8 million or $0.02 a share write-down of the exploration inventory at Kumtor after we closed the exploration program there.

Our results were also impacted by the adoption of IFRIC 20 in the first quarter of 2013, which had an effective date of January 01, 2012. Now IFRIC 20 relates to the accounting standard for the treatment of stripping costs.

This ultimately resulted in increasing our 2012 income retroactively with a corresponding reduction in 2013. Effectively, we had to capitalize about $40 million or $0.17 a share of previously expensed stripping costs in 2012, which was then fully amortized in 2013. And you'll have seen that our 2012 statements were restated. This resulted in our actual DD&A in 2013 exceeding our prior guidance which we gave you last February.

The impact on EPS of the exploration inventory write-down and the IFRIC 20 adoption totaled about $0.19 a share, all of which is non-cash. Cash provided by operations was $484 million for the year, representing $2.05 a share. Our cash and short-term investments totaled $503 million at the end of the year and this is after investing $309 million in our properties, $30 million in exploration, paying $31 million in dividends and spending $20 million to acquire the remaining 30% interest in the Oksut property.

In 2014, our outlook for capital expenditures is $86 million which includes $43 million of sustaining capital but excludes capitalized stripping of $191 million. Growth capital is expected to be $43 million which is all at the Kumtor property primarily for relocation of certain infrastructure related to the KS-13 life of mine expansion.

We begin 2014 with a healthy cash balance of just over $500 million and we have $76 million of debt outstanding under our $150 million revolving credit facility with EBRD. The drawn amount is due to be repaid in August or, at the Company's discretion, could be extended until February 2015.

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

Thank you, Jeff. Just a few comments in summary. We had a good year at both of our operations. The Company has a solid financial position and we've maintained our dividend. We completed the PEA for the Oksut project and we'll commence a feasibility study for potential gold production in late 2016. We're continuing our discussions and working with the Kyrgyz Government to resolve all of the outstanding concerns relating to the Kumtor project and to achieve an agreement that is fair to all shareholders.

For 2014, we have a very attractive consolidated all-in cost which we expect to be in the range of $990 to $1,074 per ounce, which includes all our sustaining and growth capital, exploration and admin costs, but excludes taxes.

So 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 period?

Thank you. (Operator Instructions) The first question comes from the line of [Botier Sharapov] from HSBC. Please proceed with your question.

Congratulations on a great quarter. My first question is on 2014 CapEx. Your guidance including capitalized stripping is around $280 million, which is about $100 million lower than outlined in the new mine plan for Kumtor, with about $50 million in reductions coming from capitalized stripping and growth CapEx each.

I guess my question is this; has there been any adjustments to mine plan and hence -- I mean, that is, you're stripping less in 2014? Or are we going to see a bump in your CapEx somewhere down the road?

Bo, I'll answer part of the question and pass it over to Jeff I think to finish it off as well. But, no, we won't -- there's no change to our mine plan that is continuing -- was outlined in the KS-13 technical report at the end of 2012. So that's continuing going forward.

In terms of the stripping for this year, I don't think there's any material change in it in terms of actual volumes being moved. And with respect to the capital costs, we have deferred some capital this year, but not significantly. Just again, responding to the current gold price environment, we implemented a cost reduction program for capital and operating in June of last year that has obviously carried over into this year.

Jeff, do you have anything else to add?

No, I think that covers it, Ian.

So, I guess most of the reductions in capitalized stripping capital expected in 2014 is coming directly from the actual cost reductions, not the volumes moved? (multiple speakers) Because we've seen about $50 million in capitalized stripping for 2014 versus the plan, I think.

Yes, you're correct. That's primarily from cost reductions that we've managed to achieve.

Okay. And as far as the cut-back 16, can you give us a little bit of color on that? Obviously it's -- your Q4 production is very sensitive to how fast you advance there, so if you could maybe provide some additional detail how that's going.

Certainly. This is Gordon Reid. Yes, cut-back 16 is on schedule to reach the high-grade portion of the SB Zone ore at the end of the third quarter. It's very similar to cut-back 15 in that we won't allow anything to slow down that cut-back. We'll make sure that it is moving as per schedule and we're hoping to get ahead of schedule but of course we can't guarantee that. Again -- but it is on track at the moment.

Okay. Thank you.

(Operator Instructions). The next question comes from the line of Alec Kodatsky from CIBC. Please proceed with your question.

Just maybe some questions around Oksut in terms of the process going forward. Clearly, you have some idea of what you want to do there; are you going to continue to expand on the exploration side? And what point would you sort of consider permitting? And then timelines around moving it forward?

Yes. This is Gordon. We're moving forward with the full feasibility study and the full EIA as required under Turkish legislation, and that has begun. There are timelines in Turkey to achieve certain milestones. And one of the timelines is that we need to have an approved EIA three years from the time we receive the operating license, which was January 2013; so January 2016.

Our internal schedules suggest we'll be completed six months before that and we do have a little lead time if that schedule slips. So that's where we're at. Exploration will continue. In the meantime, we are starting a full feasibility study and continue with the EIA process.

Okay, great. And maybe just one for Ian, always a difficult question to answer, but just with respect to the discussions with the government, given that some time has passed since the Parliamentary decision, do you have any better sense as to what the process might be with the discussions? And sort of -- is there a framework around pushing things forward at this point?

Yes, good morning, Alec. Yes, we have a better sense now -- particularly, of course, we just finished our quarter-end Board meeting, had our three Kyrgyz directors here. So we've been in touch with the government and the Prime Minister, and will be meeting with them actually in a couple of weeks' time to continue our discussions. So that we need to -- would like to move forward as quickly as we can so that -- and it will get -- we'll be in Bishkek on the 2nd of March for a few days to continue the discussions in detail.

Okay. I think that's it for me. Thanks guys.

Okay, thank you, Alec.

(Operator Instructions) And Mr. Pearson, there appears to be no further questions over the phone lines at this time. I will turn the call back over to you.

Thank you, Jasmine. Thank you everyone for joining us on the call today and your interest in Centerra Gold. If there are further questions, please get a hold of us, we're here in the office. So at this point in time, we'll end the call. Thank you.

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.