Centerra Gold Inc (CGAU) 2015 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Centerra Gold 2015 fourth quarter and yearend results. 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 25, 2016. I would now like to turn the conference over to Mr. John Pearson, Vice President of Investor Relations. Please go ahead, sir.

Thank you very much. I would like to welcome everyone to Centerra Gold's fourth quarter and 2015 yearend conference call. Today's conference call is open to all members of the investment community and to media. After our formal remarks, the operator will give the instructions for asking a question, and we will open the phone line to the questions.

Please note that all figures are in US dollars unless otherwise noted. So, joining me on the call today is Scott Perry, Chief Executive Officer, Frank Herbert, President, Jeff Parr, Chief Financial Officer, and Gordon Reid, Chief Operating Officer. As well, I have Darren Millman with us; he's our VP Finance and Treasurer, and Darren is being promoted to CFO in April upon Jeff's retirement at the end of March.

Also, 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 from those expressed or implied. Also, certain of the measures we will discuss today are non-GAAP measures, and I refer you to our description and definition of non-GAAP measures in the news release and the MD&A.

For a more detailed discussion of the material assumptions, risks and uncertainties please refer to our news release that was issues last night, as well as the MD&A and the audited financial statements and notes. And to our other filings, all of which can be found on Sedar and the Company's website.

At this point in time, I'll turn the call over to Scott.

Thank you, John, and good morning, ladies and gentlemen, and thank you for joining us today. Like we do with most of our meetings, we want to begin with safety in terms of this call.

We're going to walk you through our results today for 2015. We had an excellent year in 2015, both operationally, both financially, but as we came into 2016, we're off to a very disappointing start. Those of you who have known the Company may have seen our press release from January 24 where we had a tragic event that resulted in the loss of life of one of our employees at Kumtor. The Company is deeply saddened by these events; our condolences are with the family and we're doing everything we can to help our employees and the families involved.

I wanted to just put forward, though, that philosophically as a company, we recognize that we live or die by our geology, if you will, by our gold bodies, but our most important asset is our people. The geology, the gold bodies, the assets - they're not worth much if you don't have the people to develop them.

With this tragic event, we've made a firm commitment that will be retooling and doubling down on safety. Myself, on behalf of management and behalf of the Board of Directors, Centerra will be rolling out a new safety leadership program; and more than anything, we'll be looking to create leaders in safety at every level in the organization. We recognizer that we need to do better than this, and we can't have an event like this repeat itself, and most importantly, we need to make sure we're safe-guarding our biggest asset, which is our people.

Moving on to the operational results. 2015 was a very strong year in terms of execution; I want to make sure that I'm giving credit to Gordon Reid and his operations team and our management teams that the assets themselves - if you look at it on the production side of things, we finished the year producing just under 537, 000 ounces. This was a favorable out-performance relative to our original guidance at the beginning of the year. But it also favorably exceeded our revised guidance that we released in Q3 of this year. So again, very strong execution on the production front.

As you may expect, in terms of economies of scale, as you're getting your productivities up and your gold output volumes up, we saw a corresponding benefit in terms of our unit cost as well. Our original all-in sustaining cost grounds guidance at the beginning of 2015 was $925. In Q3 things are progressing very well through out the year; we favorably revised our guidance to a new target of $852 per ounce. And then here today, we're also reporting our yearend results, we can confirm that we actually favorably outperformed [that guidance] itself, finishing the year with a favorable all-in sustaining cost Company-wide of $814 per ounce.

As I just mentioned, this is obviously due to the significant productivity improvement that we're seeing, but it's also due to a number of business process improvements that we've been rolling out throughout operations. We've had some favorable tailwinds, obviously, with the industry-wide devaluation in oil prices and how that slows [proof] in terms of the unit pricing on our diesel fuel, but also the exchange rate environment in Turkestan where our flagship asset is located. We've seen a significant depreciation in the local currency, the [Kurgisam], and this is obviously also resonating favorably in our unit cost structure.

Over and above these favorable tailwinds, we've also been focusing on other aspects of the business; we've significantly reduced our manpower, both in terms of national labor, in terms of our expat labor force, but also in terms of our third party contract labor force. We've been focusing all our supply chain management, looking to renegotiate contracts, and as a result, have been getting some significant improvements in terms of price points and what have you. And I think you're seeing a lot of that resonate in our results here that we're reporting today, and obviously, that puts us in good stead as we make our way now into 2016.

What really impressed me the most in terms of our result that we're reporting today is our yearend all-in sustaining cost at Kumtor. We finished the year with a result of $731 per ounce; I think that's very impressive, very competitive relative to the industry and I think it definitely positions Kumtor as a lower cost quartile asset. In terms of bottom-line cash flow, the impressive level of production with the low operating cost - this allowed Kumtor to generate some $158 million in cash flow. That's very impressive just given the weak gold price environment that we and the industry know we were experiencing in 2015.

In terms of the financials, Jeff will obviously elaborate on these, but I guess in terms of the headline result, for the fourth quarter it was actually a net-loss of $2.9 million, or $0.01 per share. Just note, that this does include a $27.2 million inventory impairment charge at Kumtor. However, in terms of the actual full-year net-earnings result, we came in at positive earnings with $41.6 million, which equates to $0.18 per share. And again, this does reflect or incorporate the $0.11 per share inventory impairment that I just mentioned as well as an $0.08 per share non-cash write down of Kumtor goodwill.

Again, last year was a difficult year in terms of the prevailing gold price environment. Not withstanding Centerra's business model continued to demonstrate profitable production, and as a result, strong profitability in cash-flow. This is probably most evident in our balance sheet and our positive retained earnings. We continue to boast a very robust balance; we finished the year with $727 million of positive retained earnings. Again, I just point that out because I think it really highlights the high margin nature of our flagship - as Kumtor.

From a cash-flow perspective, we reported Company-wide positive cash-flow from operations of approximately $333 million; this equates to approximately $1.41 per share. This is leveled with strong operational cash-flow with, again, obviously, underpinned by Kumtor, which in and of itself generated some $158 million in net cash-flow. Again, despite a challenging gold price environment, we as a company continued to demonstrate an internally funded business model, whereby prior to the funding requirements to the Greenstone Project acquisition, as well as our dividend distributions, our Company-wide consolidated model generated some free cash-flow of approximately $90 million.

As a result, from a balance sheet perspective, our cash in short-term investments were essentially consistent year-over-year, and as we make our way into 2016, we continue to operate from a peer-leading balance sheet, given our $542 million cash position, or $466 million on a net-cash basis.

Just a couple of additional points on the liquidity front, and Jeff will touch on these - incorporated in today's announcement, we've refinanced our five year, $150 million revolving credit facility with ABRD. Obviously, that really solidifies and compliments our overall treasury position. And again, just referencing our guidance for this year. I think, even though we though we may be in somewhat of a weaker gold price environment, we at Centerra continue to hold the upmost confidence we'll be able to internally fund all of our growth initiatives and our overall business plan.

With that, though, I'm going to turn it over to Gordon Reid, and Gordon will talk in a little bit more detail about the operations and the Team's commendable results.

Thanks, [Gus]. As Scott mentioned, we have preformed our annual guidance for both gold production and unit costs. Kumtor produced 131,000 ounces of gold in the fourth quarter, as we expected.

For the full-year, Kumtor produced 521,000 ounces of gold, at an all-in sustaining cost of $731 per ounce sold; outperforming our revised guidance on both measures, and generated net-cash of $158 million. Kumtor implemented several cost and productivity improvements during the year, including reducing the workforce by 10%, the affect of which won't be fully realized until 2016.

Completing modification to [mel], which, by yearend, improved recovery and throughput, and be improving blending techniques to better manage the preg-robbing characteristics of the [mill feed]. Kumtor also benefited from the decline in global oil prices that resulted in lower cost for diesel fuel, and from the depreciation and [Kurgisam] and other currencies versus the US dollar that favorably impacted the cost for labor and other consumables.

During the fourth quarter, operating costs at Kumtor decreased by $60 million to $47 million as compared to the fourth quarter of 2014, reflecting lower mining, milling, and site support costs. In the quarter, total consumable costs were down 32%, including a 39% reduction in diesel fuel cost at a 12% reduction in labor cost. We do this continuing to add [cyanide] to the [Eblich] pad, and we'll rinse the pad this year as we transition the [Eblich] facility to closure. On a consolidated basis, Centerra produce 537,000 ounces at an all-in sustaining cost per ounce sold of $814 per ounce.

I'll now turn it over to Jeff to talk about the finance.

Thanks, Gordon. Good morning, everyone. On a consolidated basis, our fourth quarter revenue of $148 million reflects 55% pure ounces sold compared to the same quarter of last year if the production wasn't bated as much to the end of the year 2015 as it was in 2014.

Our average realized gold price was $1,098, which was 80% lower than the $1,199 achieved in the fourth quarter of 2014. During the quarter, we posted a net loss of $3 million, or $0.01, after reflecting the $27 million, or $0.11 per share inventory impairment charge at Kumtor that Scott mentioned.

I might just spend a minute to talk about this. As a result of the design of Cutback 17, it hit lower grade, or earlier than previous cutbacks. The accounting impact of this is that we have to stop capitalizing cost as striping and put the cost instead to inventory. So, the end of the reporting period you have lower-grade ounces in inventory carrying a lot of costs. This is what causes the impairment. The important thing to note here is that the costs have not gone up; in fact, as Gordon noted, they have gone down. It's just the reallocation of cost from capitalize stripping to inventory.

If you could look at Cutback 17 in its entirety, it's obviously very profitable, and we expect to hit the higher grade ore at the bottom of the pit later in the third quarter. For the full-year, we recorded net earnings of $42 million, or $0.18 a share. This reflects the $27 million inventory impairment along with the non-cash impairment charge of $19 million for goodwill at Kumtor that we recorded in the third quarter. In 2016, our outlook for capital expenditures is expected to be $269 million, which includes $85 million of sustaining capital and $184 million of growth capital, which is mostly related to the construction of Oksut.

Most importantly, the Company continues to generate good cash flow with cash provided from operations of above $47 million, or $0.20 a share of the quarter. And as Scott mentioned, $334 million, or $1.41 for the year. In 2015, Centerra generated cash of $158 million from the Kumtor operations, and we used just over a $100 million for project development, including the acquisition of the Greenstone partnership, exploration, and other business development activities. Centerra continues to focus on optimizing operations and reducing costs. Our cash-flow remains positive, and the balance sheet is very healthy with above $542 million at the end of the year. And as Scott mentioned, we've renewed out revolving credit facility with EBRD for $150 millions for five years.

With that I'll turn it back to Scott.

OK, thanks, Jeff. Just a few comments in summary and really more from a 2016 outlook perspective. Gordon mentioned in his commentary, this calendar year we expect to produce 480,000 to 530,000 ounces of gold production. We expect this to come in at a Company-wide all-in sustaining cost range of $877 to $968 per ounce.

As we demonstrated in 2015, we think this level of production profile and associated cost structure will continue to result in profitable production and robust cash-flow margins. Therein, we should be in excellent shape to continue internally funding our business plans and our business model. The strong financial position is important as we had three late-stage development projects that we are moving forward and looking to day light considerable value on.

Just quickly by way of update on the project pipeline, I'll start with the Oksut Project. Oksut is our leading development project in Turkey with things that are progressing very well. We secured the Environmental Impact Asset Approval last November and we have now applied for our land use permits. Currently, work on the detailed engineering and the procurement of contractors and equipment is well underway. So, once we get the get the necessary permits in place, our team can pretty much immediately get started on the ground in terms of entering into the construction phase.

In Mongolia, parliament just recently passed the resolution, setting the State ownership interests in Gatsuurt. We have agreed with the government of Mongolia that the State ownership will be replaced with a special royalty of 3%. This now allows Centerra to focus on finalizing the deposit development and investment agreements on the Gatsuurt Project. We're looking forward to advancing Gatsuurt, and are going to update the existing technical and economic studies on the Project, and undertake a program of exploration drilling and additional technical and hydrogeological drilling in support of the eventual project development here in Gatsuurt.

Just lastly, at the Greenstone Project, we remain on track to complete the feasibility study in the middle of this year; obviously this is a very important project to Centerra as well as our partner. This is probably one of the largest undeveloped, open pit gold deposits here in Canada. Obviously with a prevailing Canadian dollar sort of denominated gold price environment, it's demonstrating a lot of optionality in terms of this project moving forward and the potential value to be surfaced here, and that's something that we look forward to showcase with the pending feasibility.

Just lastly, as we announced yesterday, Centerra has maintained its dividend at CAD0.04 per share for the quarter, which at our current prevailing share price, represents a peer-leading annualized dividend yield of approximately of 2.2%.

With that, that really concludes our prepared remarks. What we will do here is open the call for question. And I guess with that, Operator, if I can pass it over to you, please.

Thank you. (Operator Instructions) There appear to be no questions at this time, sir.

Well, thank you, Operator. If there should be any questions after the call, please feel free to reach out to John Pearson, our VP of Investor Relations, or any of the members of the management team. And with that, we will conclude the call, and thank you, everyone, for your participation.

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.