Centerra Gold Inc (CGAU) 2020 Q4 法說會逐字稿

Greetings, and welcome to the Centerra Gold 2020 Fourth Quarter and Year-end Results Conference Call and Webcast. (Operator Instructions)

As a reminder, this call is being recorded, Wednesday, February 24, 2021. I would now like to turn the conference over to John Pearson, Vice President, Investor Relations. Please go ahead, sir.

Thank you, Carlos. Welcome everyone to Centerra Gold's 2020 Fourth Quarter and Year-end Results Conference Call. And today, we will also present an update on the extended mine life at Kumtor, as detailed in the new Kumtor 43-101 technical report filed on SEDAR today. Summary slides are available on Centerra Gold's website to accompany each speaker's remarks. Today's call is open to all members of the investment community and media in listen-only mode.

Following the formal remarks, the operator will give the instructions for asking a question and then we will open the phone line to questions. Please note that all figures are in U.S. dollars, unless otherwise noted. As we continue to work remotely, joining me on the call today is Scott Perry, President and Chief Executive Officer; Darren Millman, Chief Financial Officer; Dan Desjardins, Chief Operating Officer; Malcolm Stallman, our Vice President, Exploration; and Yousef Rehman, our General Counsel.

I would also like to caution everyone that certain statements made today may be forward-looking statements, and as such, are subject to known and unknown risks, which may cause our actual results to differ from those expressed or implied. Also, certain of the measures we will discuss today are non-GAAP measures. Please refer to the description of non-GAAP measures in our news release and MD&A issued this morning. For a more detailed discussion of the material assumptions, risks and uncertainties, please refer to our news release and MD&A along with the audited financial statements and notes and our other filings, all of which can be found on SEDAR and the company's website at centerragold.com.

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

Thanks, John, and good day, everyone. Thank you for joining us for our call. I'm just going to be referencing our accompanying presentation slide deck, and I'm just starting off on Slide #4. So just at the top left here on Slide #4, a number of sort of key highlights that I'd just like to expand on. Just starting with the first bullet point, and you can see 2020, it was a very strong year for the company. In terms of our gold output profile, we finished with 824,000 ounces of gold, which was above the upper end of our guidance. Our Mount Milligan mine produced 82.8 million pounds of copper and our corresponding all-in sustaining cost was a very low competitive $729 per ounce, which was below, favorably below our guidance. So an excellent operating result for the company.

Subsequent to year-end, we announced that we had divested our 50% share in the Greenstone Gold Mines partnership to some $200 million in cash considerations plus additional contingent payments of up to $75 million. Just looking at the third and fourth bullet points, you can see the strong level of production and the corresponding low unit costs really resulted in some significant profitability.

In terms of operating cash flow during the calendar year, we generated $930 million. And then if you look at the fourth thought point, in terms of the free cash flow metric, company-wide, our portfolio generated $604 million of positive free cash flow. As you can see in parenthesis, each of our individual operations contributed very meaningfully. Kumtor generating $438 million, Mountain Milligan generating $150 million. And then Öksüt, which is our newest operation in our portfolio, in its inaugural year of operations, it contributed $105 million of positive free cash flow. That next bullet point below, obviously, the strong level of free cash flow. You can see that we're quickly establishing a peer-leading balance sheet.

It's a debt-free balance sheet, and we finished the year with some USD 545 million of cash reserves. One of the other key highlights of today's announcements is we've also released our new technical report, our new 43-101 life-of-mine plan for Kumtor. It features a 5-year extension to the mine life, the new delineated mineral reserves of some 6 million ounces of gold, which is an increase of some 3.1 million ounces and also in terms of the grade, in situ reserve rate, it's increased by approximately 15%.

This is a fantastic development. And Dan, our Chief Operating Officer, will expand on this shortly. You can see the chart down the bottom here on Slide 4, you can see all of our operations. We're generating meaningful levels of free cash flow throughout the year. I think what really strikes me is the third chart, just on Öksüt. This is pretty exciting. This is our most -- this is our newest operating mine. We brought this mine into operations in January of this year -- I'm sorry, January of last year where we [reported] first gold at the end of May, we declared commercial production and then you can see in Q3, Q4, just the very meaningful levels of free cash flow and profitability that the mine is already demonstrating. So it's exciting.

As we make our way into this year and beyond just in terms of having a third source of high-quality, low-cost production and just what that means for our fundamentals moving forward. Just moving on to Slide 5, just in terms of Centerra's ESG profile, just a few bullet points here I'll reference. So first bullet point, obviously, our focus is on zero harm operations. We have a number of leading -- sort of safety leading initiatives underway as we speak.

We are seeing some benefits of our Work Safe, Home Safe program. I think 2 notable milestones during the year, Öksüt, our mine in Turkey celebrated 4 million hours of lost time incident-free operations. And at Kumtor, as we speak, we're getting relatively close to being 1 year of lost time incident-free operations, where, as of today, we're now at 331 consecutive days. The second bullet point just in terms of our social license to operate. We've now extended this record to 90 consecutive months without having any interruptions at any of our operations globally. So that's in good stead.

And the third bullet point, just in terms of environmental incidents. We had no reportable environmental incidents in the quarter as it should be. So that was great to see. And I'll just touch on the last bullet point. We, Centerra are a member of the World Gold Council and the World Gold Council recently rolled out their Responsible Gold Mining Principles. We are a signatory to these principles. There is 51 key sort of ESG principles, and we're looking to roll all of these out and obtain compliance over the 3-year period. We're in good stead at all of our operations. And in fact, at Öksüt, we're actually well ahead of schedule, whereby we've already established assurance in 2020, albeit that's not required until 2022. So it's progressing very well.

Just moving on to Slide 6, just a number of key corporate highlights here. I'll just reference 3 or 4. So just the fourth bullet point, I think one of the things that really differentiates Centerra is our low unit operating cost profile. You can see here on a company-wide basis, our all-in sustaining costs of $729 per ounce was very competitive. As I mentioned, that was favorably lower than guidance. You can see in parenthesis, just each of the individual mines, they really are operating at that sort of first quartile relative to the world industry's cost. You see Kumtor at $741, Mount Milligan at $541 and Öksüt at $494. That obviously always positions us really well just in terms of our margins regardless of what prevailing gold price environment we're in. The sixth bullet point, I mentioned this at the outset. A key update today is our new life-of-mine plan for Kumtor. It's a 5-year extension in the reserve mine life, and that's going to extend operations to 2031, which equates an 11-year delineated mine life moving forward.

With today's release, the next bullet point, we're providing our guidance for 2021, which is a component of our new multiyear 3-year guidance. But in terms of the 2021 guidance, you can see we're guiding for a midpoint of 780,000 ounces of gold and some 75 million pounds of copper. Last bullet point, at this level of sort of metal output, as well as the associated all-in sustaining cost guidance, we think the business will be generating cash flow from operations of $750 million to $800 million. And corresponding free cash flow of $350 million to $400 million. This is assuming a gold price of $1,750 per ounce.

Just on the next slide, on Slide 7, just some of the key financial highlights. The first bullet point, it was a good year financially for the company. We finished the year with calendar earnings of -- sorry, we finished the calendar year with net earnings of $408.5 million, which equates to $1.39 per share.

The third bullet point, as I mentioned earlier, a very strong year in terms of free cash flow, $604 million was generated during the calendar year. Fourth bullet point, that allowed us to finish the year with a very strong treasury position. We've got a debt-free balance sheet. And finishing the year with cash reserves of some $545 million. And just the fifth bullet point that yesterday, the Board, again, declared and approved a quarterly dividend of CAD 0.05 per share. Just moving on to Slide 8. So Slide 8 just gives you a little bit more detail just on our guidance for 2021. You can see just in terms of the first row here, this is our gold production guidance.

So at Kumtor, we're guiding up to 510,000 ounces of gold, Mount Milligan up to 200,000 ounces of gold and Öksüt up to 110,000 ounces of gold production. I just wanted to provide a bit of additional sort of commentary, just on the quarterly profile within the calendar year. So just in terms of Kumtor, gold production is expected to rise steadily throughout the year, with the first quarter contributing approximately 15% of the annual gold production target. And that will then be rising to approximately 35% of the annual target in the fourth quarter of 2021.

In terms of Mount Milligan, both gold and copper production are expected to be slightly back-end weighted in 2021, with the first half of the year representing 45% or more of the annual target. Whilst the second half of the year will represent up to 55% of the annual target. And then just lastly at Öksüt, gold production is expected to be back-end weighted in the calendar year, with the first half of this year, representing 35% or more of the annual target, while the second half of this year will represent up to 65% of the annual target.

But again, as I said earlier, when I look at this sort of metal output profile that we're guiding to as well as the sort of corresponding operating cost structure, again, assuming a gold price at $1,750 we're expecting this year to be another meaningful year and guiding for free cash flow of USD 350 million to USD 400 million.

Just moving on to Slide 9, is our new multiyear guidance. So we're now providing a 3-year outlook for the business. And I think it really does illustrate the medium-term strength of our business. You can see the fourth row here, we're expecting a growing level of gold production here over the 3-year period. And that's being underpinned really by each of the operations. If you look at the first, second and third rows, each of the mines are generally increasing their levels of gold output moving forward, which is a nice profile because when you look down at the seventh row, just in terms of the all-in sustaining cost, that is kind of having a favorable economies of scale, deflationary impact in terms of our cost profile decreasing over that period of time.

So again, relative to the sort of current gold price environment, I think this is going to position us well just in terms of the margins within our business. And as we demonstrated in 2020, I think over this 3-year period, we're very well positioned for growing levels of profitability and positive free cash flow. So that really concludes the first part of our call. And as John mentioned in his introduction, I'd like to move into the second part of our call, and I'm going to look to pass proceedings over to Dan Desjardins and Malcolm Stallman. Obviously, one of the key highlights today was the release of our new life-of-mine plan for Kumtor. As I mentioned, it's a 5-year extension and the addition of some 3.1 million ounces of new gold reserves. And more importantly, the in situ reserve grade has increased by some 15%. So it's a fantastic development. And what I'll do now is I'll pass it over to Dan, our Chief Operating Officer, and he can provide a lot more color on that. So Dan, over to you, please.

Thanks, Scott. Good morning, everyone. Before I get started, I'd like to recognize the efforts of the many employees, contractors, consultants who worked tirelessly over the past year to bring forward this new technical report and extend the life of mine for Kumtor. I'd especially like to thank the Kumtor employees for the results that they put forward in 2020 under such challenging circumstances during COVID and after our tragic accident that we had in 2019 and early 2020. Since then, as Scott has indicated, we've had an excellent safety record at Kumtor, where today, we are at 331 consecutive days without lost time incident.

If I take you to the next slide, the agenda. This is the agenda we'll be going through. I will take you through the technical highlights, of which Malcolm Stallman after will -- he's our VP of Exploration. He'll discuss the Kumtor exploration potential. As an introduction, we've been operating the Kumtor Mine now for some 24 years and have been operating since 2009 under the concession agreement, which was a comprehensive rights agreement that runs until 2042. During this time, we have not had a meaningful operational interruption and we anticipate to be able to continue under the terms of this agreement going forward.

If you go to Slide 13, this is the layout of the concession. The gray area in the center is the footprint of the ultimate pits, and you can see that our Central Pit and Sarytor Southwest are now coming together along strike length, which extends both to the Southwest and the Northeast.

If you go to Slide 14. Kumtor is certainly a world-class asset. There have been many years with production in excess of 500,000 ounces. And we anticipate this level going forward with this new life-of-mine plan. At the end of 2020, Kumtor has now produced more than 13 million ounces of gold and at a sustained an average grade of 3 grams per tonne. The future sees us extending the pit in both directions and at depth with the new cutback Hockey Stick to the Southwest and cut-back 21 and 22 to the Northeast.

Next slide. In terms of performance, as a very large open pit with substantial ore stockpiles that we blend for the mill feed, Kumtor operates at a fairly steady gold production rate between 500,000, 600,000 ounces per year at an all-in sustaining cost of between $600 and $1,000 per ounce. The reserve has now increased to 6 million ounces at an average grade of 2.66. The previous announced increase in resources have been reduced because of this conversion. Just in the past year, in 2020, Kumtor had an operating cash flow of $661 million and a free cash flow of USD 438 million, which shows the quality of the asset.

With the exploration drilling program that commenced 2 years ago that had been previously stopped for 5 years, we successfully increased the proven and probable reserves by 87%. We have continued our near-mine exploration program in 2021 with the goal to identify further extensions of the current pits as well as nearby mineralization. Currently, we're not anticipating a start to the underground as current plans require access from the bottom of the Central Pit, which is currently an active mining phase. This opportunity continues to be analyzed and better understood.

If I take you to Slide 16, as a result of additional reserves, the mine life has now extended from 2026 to 2031. As part of the life-of-mine extension, we have planned to add a small percentage of new equipment, which I'll detail out in a future slide. The new life of mine reflects a $1.96 billion net cash flow at $1,350. This increases to just over $3 billion at $1,600 gold. There is limited additional capital requirement, but we have planned for focused capital improvements in the plant to increase recovery and throughput. These include additional leach tanks and a new tower mill.

The new life of mine calls for increasing the tailings dam each year in the same way that we have over the past few years by adding additional capacity as required within the current footprint. Finally, our near-mine exploration drilling has outlined significant oxide potential and future near-term drilling will be focused on this as well as extending the sulfide reserve and resources.

Taking you to the next Slide 17. Here, highlighted in red, you can see the reserves have increased to just over 6 million ounces. The year-over-year change in reserve and resources reflects a strong conversion of resources to reserves. The 87% increase in reserves gives Kumtor an additional 5-full years of production. Note, the grade in the reserves also increased from 2.31 to 2.66, giving robust economics at $1,350 in the technical report. The Kumtor Underground resource stays fairly much constant at 3.1 million ounces, and we continue to do engineering work to tighten up different approaches that it would take once the Central open pit is completed.

On the next slide, Slide 18, at $1,350 gold for 2021 is reflecting a breakeven in terms of net cash flow. This is a transformation year to allow the large stripping of cut-back 20 and accessing substantial ore starting in the second half of 2021. We are currently feeding from lower grade stockpile for the first half of this year. From 2022 to 2026, the release of ore is sufficient to feed the mill at a steady grade of an excess of 3.1 grams per tonne. Thus, we are forecasting to produce up to 600,000 ounces per year for these 5 years. For the years 2027 to 2031, the current plan is to feed full tonnage but at a lower grade blend, therefore, averaging 330,000 ounces per year.

As a result of the current near mine exploration, and as we learn more, the potential to bring forward higher grade blend to these future years to full potential is planned. The reason for final year of the life of mine being higher than previous years is we plan to mine out the step out we did for cut-back 19 that was taken to increase the stability of the pit wall below the plant. This step out is a higher-grade ore area but will only be accessed near the end of the open pit life. Again, at $1,350 gold, the overall net cash flow from 2020 to the end of the mine life is $1.96 billion, fairly spread over the years.

Taking you to the next slide. Cover sheet on stewardship for the Kumtor mine. Currently take -- Centerra currently takes its stewardship of the Kumtor mine very seriously and is making all efforts to fulfill its ECG obligations for the benefit of all stakeholders. On Slide 20, as a very large industrial operation in Kyrgyzstan, Kumtor is a substantial tax contributor to the state. Since inception, Kumtor has invested more than USD 2 billion, paid in excess of $1.4 billion in taxes and is near 10% of the GDP of the country. We also contribute to other social programs, both locally and nationally. The extended life of mine is projected to contribute a further $1 billion in taxes and royalties.

Taking you to the next slide, Kumtor has a very skilled national workforce with only 1% of workers coming from outside the country. Our competitive wages gives us stability and helps us reduce our turnover. That's giving us the ability to retain our top talent. Kumtor's payroll is near $100 million per year and a very large percentage of our near 4,000 employees and contractors live in the region of the mine.

A number of our Kyrgyz employees have been promoted to positions in Canada where we utilize their technical expertise that is world-class. As leaders in their respective communities, our employees participate in many ways to help improve the lives of their fellow citizens. In terms of supporting strategic community development. As part of our commitment to the stakeholders, Kumtor works closely with local communities with a focus on sustainable activities, female employment, youth employment and training as well as all other local community development and investment.

The microcredit agency that Kumtor initiated have helped small businesses start and develop and is credited for helping to create near 5,000 new jobs in the region. The extended mine life will contribute a further $17 million in direct support to these many activities.

Taking you to Slide 23 now. As part of our commitment to our host country, Kumtor has embraced the goal of local procurement. Over 25% of Kumtor supplies are procured locally from near 400 different suppliers. Since the beginning of the mine life, Kumtor has purchased in excess of USD 1 billion locally. A particular note for the past 5 years, 100% of the food required for our 1,800 person camp is locally sourced. The additional mine life will mean an additional local procurement of near $700 million for the country.

Slide 24, in terms of environmental stewardship as an important part of Centerra's social license, Kumtor applies the highest standards towards the approach of managing the environmental effects. We hold ourselves to the highest international standards and focus on transparency. Not only do we do constant monitoring on site, we also contribute to the local area in terms of water management for farming, supply of clean water to local communities and participate in waste management strategies in the region. We have a substantial budget and highly skilled environmental employees and consultants to help us achieve our goals and plan to spend in excess of $50 million over the life of the mine.

Now I'll take you to Slide 26 and get back to the reserves and resources. As indicated, the reserves over the year have increased 87% from 3.2 million ounces to 6 million ounces, reflecting the extension of the Central Pit on both sides. On Slide 27, this is a reflection of the changes of the dates of the technical report from July 1, 2020 to our announced reserve at year-end. This reflects the depletion of the ore from stockpiles during the latter half of 2020 as we were stripping waste from cut-back 20 during this time.

Slide 28. In terms of the plan view, there is only a small expansion of the footprint of the resource pit shell, the resource pit shell in the blue from 2019 is expanded only marginally to the left in the Hockey Stick Zone and on the right as part of cut-back 21 and 22. The total ounces in the resource shell only changed slightly, but the major change is moving ounces from resource to reserve.

On Slide 29, you can see that this is a sectional view over in cut-back 21. You can see that we have lowered the pit angle on the right side to account for better understanding of the geotech stability as a result, both actual mining and additional drilling. The section to the left shows that we are not changing the slope substantially due to good stability in this area. To note, the upper green line is the bottom of the pit at July 1, 2020.

I move you forward now to Slide 31. These are pictures of the open pit design. The ultimate pit -- mine pit plan are [picketed] here. The pictures on the top right labels the mining zones. It is important to note that we are not developing any new pit. On the right, you can see the areas that we call cut-back 22. Both cut-back 21 and cut-back 20 are below this cutback. On the left, you see the Hockey Stick and Southwest Sarytor. They are to the west of the Hockey Stick Zone. We are mining cut-back 20 currently up until mid-2022. Then we shift to approximately 25% of our efforts over to Southwest and 25% to Hockey Stick, beginning in 2021. Southwest is completed by 2023, but Hockey Stick continues all until 2025. Cut-back 22 starts after Hockey Stick in 2026, and it is our final mining cutback ending in 2028. Sarytor starts during that period of time in 2026 and is completed in 2027 as we need to release the ore while we're doing a large stripping of 2022.

The next slide, Slide 32. We've had questions before about the fleet. Kumtor has a very large fleet of CAT haul trucks combined with Liebherr and Hitachi shovels. The truck fleet is in excellent condition, but due to the longer hauling distances that life of mine calls for an additional 29 trucks. In anticipation of this requirement, Kumtor did procure 11 used 789s from Chile in 2020 last year, as well as ordering 10 new 789 D-trucks from CAT.

The first 11 trucks are on-site operating and 2 of our new trucks have already arrived. The remaining 8 of these trucks are in transit, 3 are in-country and 5 more will be arriving and operating by April. Due to productivity improvements, though, including more fully utilizing the MineSense technology, improving loading and the efficiency, truck speeds, we have postponed the final 8 trucks, and we'll only procure them if required. This is why our 2021 capital expenditures are forecasted to be less than what we reported in this technical report due to the 8 trucks being purchased, deferred and potentially canceled.

As for shovels, the lever shovels are our smallest and oldest shovels. So we are looking to trade in the 4 for 4 larger shovels, and that's what's depicted in the plan. The plan has not been finalized and will be continued to be studied. The smaller graders of the fleet are being replaced by larger graders as they are retired, giving the capability to maintain the longer haul distances. The remaining replacement equipment is simply to shut down. The older equipment as conditions warrant and replace them with new equipment.

I take you to the next slide, the mining schedule. In the mining schedule, you can see the phasing of ore release in Central Pit and separately Sarytor and Southwest. The Central Pit cutbacks of cut-back 20, cut-back 21 and cut-back 22 are large. Each take 2 or even 3 years, and the majority of the ore in these respective cutbacks are in their last year. To balance the ore release, the plan is to have ore released from Hockey Stick, Sarytor and Southwest during these large stripping segments. The plan is to keep the feed grade at over 3 grams per tonne to have enough ore in stockpile to always have targeted feed tonnage for the plant.

Slide 34. In 2020, we had focused on cut-back 20 in the Northeast with the majority of the waste going to Central Valley dump, as we would gain permission to utilize the Lysii Waste Dump.

On the next slide, 35. Currently, all of our equipment is in cut-back 20, and 50% of the waste is going to Lysii, and 50% is going to Central Valley. We will shift a small amount of equipment to the Southwest later in the year.

On Slide 36. In 2020, we are much more spread out in our mining zones in the Central Pit as well as a large cutback in the Southwest.

Slide 37. In 2023, a majority of the focus is the Hockey Stick, and we begin to kind of do cut-back 21 again back on the top. This is a projection of our stockpile balances both in past years and the future years. Kumtor has a number of large areas for stockpiling ore with different grades. 100% of the blend of our mill is managed by our metallurgist team to ensure maximum recovery.

A large amount of ore is released by cut-back 20 starting in the latter half of 2021. But a very high amount in 2022, thus reflecting the large stockpile at the end of 2022, which is subsequently depleted during 2023. You can see the same movements that we had in previous cutbacks during 2018, '19 and 2020. This is the addition and subsequent depletion from cutback 18 on the plant side and from cut-back 19, which was the cutback below cut-back 20.

The next slide, Slide 39, Kumtor has 3 main dumps from left to right, they are Sarytor, Central and on the right Lysii. These dumps have all been permitted for their footprints and no new dumps are planned at this time. Over the remaining life of mine, Central will receive 40% of the waste while Sarytor and Lysii received 30% each. The loading of each waste dump is tightly managed to limit any risk of movement.

Now we shift to the mill. The process flow of the plant, Slide 41, has only one change, that being the addition of a tower mill, which is planned to be commissioned in October of this year. The additional leach tanks have been delayed from the targeted operation in late of 2020 due to construction issues, mostly caused by limited manpower due to COVID. They are anticipated now to be operational in the second quarter of this year.

In terms of mill statistics, Slide 42, the Kumtor mill has an excellent mechanical availability of 97%, which has been demonstrated over the past few years. We have a strategy at 2x per year, a full maintenance shutdown, and it has proven very successful to keep the mechanical availability high. The plan is to run the plant at 6.5 million tonnes per year and with the additional leach time due to the new tanks and finer grinding with the tower mill, the recoveries are expected to be in the mid-80s with most of the different feeds. Recovery due to -- it will vary due to grade and ore type, but that is taken into account in our planning and focused on when we decide our ore blends by our metallurgists.

Slide 43 shows the tower mill and leach tanks. The capital addition of the tower mill and leach tanks are well in progress, and both will be contributing to improving our recoveries and increasing our ounces starting this year and will continue for the life of mine.

On the next Slide, 44, the current tailings storage facility is very robust. With the additional 5 years of life, the current footprint is only slightly increased and the lifts each year will give us sufficient capacity for non-stop operations.

The following slide shows some details on the raising of the dam. The dam is engineered to world-class standards by third-party experts and external experts to do an annual audit and inspection of the condition and manage -- help us manage the dam. To improve stability, the strategy of excavating a sheer key at the foot of the dam to the depth of 20 meters into the base has proven to be very effective. As can be seen on the table, the capital cost of the tailings raising is spread over the remaining life of mine. Construction is contracted out to local earthwork contractors and is completed during the warmer summer months of April through to October of each year.

Finally, we'll bring you to the financials on Slide 47. As indicated in the summary highlights, the new life of mine reflects $1.96 billion in free cash flow at $1,350 in gold. Starting in 2022, we have 5 solid years of production, each producing near $200 million free cash flow at $1,350. The all-in sustaining cost during the same time is in the $650 to $900 range and the life of mine comes in at a very competitive $828 an ounce.

Mining costs per tonne were higher in 2020 due to the reduced tonnage, but at full mining rates, the mine can run at an average of $1.39 life of mine. Milling costs are steady near average at $11.34 a tonne milled, and administration costs come in at $9 and $7.87 life of mine.

The next slide, for net cash flow at $1,350, it is only during the large stripping years of 2021 this year and 2027 where we are feeding lower grade stockpile ore, resulting in a breakeven cash flow. The NPV comes in at a robust $1.55 billion at a 5% discount rate and $1.37 billion at an 8% discount rate.

Next slide, in terms of operating costs, quickly. Centerra has a long history and experience operating the Kumtor mine. Therefore, the cost of operating are well understood and very world competitive. Even with including sustaining capital, the mining cost comes in at USD 1.66 per tonne mined. The milling cost is just over $12 per tonne milled and administration just over $8 per tonne milled.

On the next slide, Slide 50. As Kumtor is well-established and the additional life -- life as extension of the current pits, there is little growth capital required to extend the life of mine. Our all-in sustaining costs per year in the full mining years ranges between $400 million and $510 million per year. Once mining is completed in 2028, then the remaining 3 years, the all-in sustaining cost drops to $250 million to $300 million per year. The whole life of mine average all-in sustaining cost per ounce comes in at the $853 per ounce. And inclusive of gross revenue tax and capital growth, we are still very competitive at just over $1,000 at a $1,044 per ounce.

In terms of capital expenditures on Slide 51, a majority of new equipment needed to execute the plan is scheduled to be purchased in the first 3 years. After that, the majority of capital is mobile component replacement, then the annual raising of our tailings dam, followed by our annual mill maintenance-type repairs.

If you look at sensitivities, at a 5% discount rate, the NPV does come in at $1.6 billion. The value fluctuates most with the price of gold. When gold is increased 20% to $1,620 an ounce, the NPV increases to $2.5 billion, at a 20% decrease in gold price down to $1,080, the NPV is still $600 million. The NPV is second most sensitive to our operating costs. And with an additional 20% of operating cost, the NPV drops to $950 million. Both FX and capital fluctuations have little effect on the overall life-of-mine NPV of Kumtor.

And finally, Kumtor's opportunities in the future. We call it the Golden Sunrise. There are a number of large opportunities that we are investigating with Kumtor. The current extension of the Kumtor's life of mine has all been well assessed. There are also a number of additional opportunities that we can add substantial value to the company. First, the gold in the Kumtor ore is very fine with the recovery over life of mine of 83%, giving an opportunity to continue to find ways to improve that. As the Kumtor pit deepens, it is now constrained to the Northwest by our plant. Additional drilling has shown the ore body does extend in this direction. Therefore, at some point, it may be economic to develop a new plant.

This is also tied to the opportunity #3 as exploration is uncovering a potential oxide resource. This would also require a new processing plant, which could be tied to movement of the old plant. Currently, the operation utilizes a truck shovel configuration. As mining methods change, there may be an opportunity to move to a conveyor or the like type system, which would also change the location of the waste dumps and potentially use green hydropower. The company has been doing work on testing different methods of recovering gold through the tailings processing. Currently, there are in excess of 3 million ounces in our tailings.

Finally, the underground resource is well delineated and open in a number of directions, and we continue to study that. Now Malcolm will take us through the Kumtor's exploration opportunities.

Great. Thank you, Dan, and good morning to everyone. I'll now briefly discuss the exploration completed at Kumtor in the recent past and will then outline the planned exploration for 2021 and beyond.

The first slide will be Slide 55. As mentioned, exploration drilling resumed at Kumtor in mid-2018 after a 5-year hiatus. In 2018 and 2019, and drilling was mainly focused on the development of resources in the Hockey Stick and Stockwork Zones, and this work defined mineralization outside of the ultimate open pits in these areas. The photo on this slide is looking towards the southwest and shows the Hockey Stick Zone, and you can see the substantial size of the Central Pit. In 2020, drilling focused on extending sulfide mineralization at the Southwest -- I'm sorry, saw the deposit resources, evaluating oxide gold mineralization potential along the Kumtor lower thrust at Sarytor, Hope, Triangle, Muzdusuu and Northeast. And also, we began testing the potential of our peripheral targets in the Bordoo, Akbel, Lysii Gap and Petrov areas.

Slide 56. I'm sorry -- Sorry, back on Slide 55. The map on the left, you can see the Kumtor concession area in red and the location of the main prospects. The Kumtor gold trend runs through the concession in a northeasterly direction for a distance of over 15 kilometers. It should be noted that only around 6 kilometers or so of the trends has been subjected to substantial exploration.

Slide 56. This slide shows extended mine life out to 2031, based on the updated reserves. There is significant potential for aggressive exploration in the coming years to extend the mine life even further and, in particular, to fill in the drop in ounces that occurs after 2027.

Slide 57. Kumtor is a world-class orogenic gold deposit located on the Tien-Shan Suture Zone in Southern Kyrgyzstan. Within the Kumtor concession, brownfield ex targets include sulfide gold mineralization in the vicinity of existing pits and oxide gold mineralization outside the existing pits. Greenfields targets include new styles mineralization and previously underexplored targets along the strike of the Kumtor gold trend.

Infill drilling walls will be undertaken to update resource categories around the existing pits. Since exploration drilling resumed in mid-2018, 550 drill holes have been completed for over 143,000 meters of mainly diamond drilling. For 2021, we have a $21 million exploration budget, which will include 75,000 meters of drilling. We believe that there is significant potential to increase the existing sulfide gold resources and to delineate new oxide gold resources within the Kumtor concession.

Slide 58. This slide gives more specific information on the main areas to be drilled in 2021. I won't go into the details for each area, as you can read them from the slide. But there are some main takeaways from this slide. Firstly, preliminary metallurgical test work in the form of bottle roll tests on oxide gold material from the Sarytor and Hope areas has returned gold recoveries in excess of 80%.

Detailed metallurgical test work will commence in 2021. Secondly, some very significant drill intercepts were returned from the Southwest Deep Oxide Zone last year, and I'll refer to these again later on. Thirdly, there is a gap known as Lysii Gap of over 1 kilometer between the Central and Northeast deposits that has previously been drill tested with only a handful of holes. This gap was covered by the Lysii glacier, but as the glacier is retreating due to the effects of climate change, the potential of this zone to host sulfide gold mineralization can now be tested.

Slide 59. This slide shows a cross section, which is looking towards the Northeast, and it explains a simple schematic model for the 3 main types of gold mineralization at Kumtor.

On the right-hand or southeastern side, the majority of the sulfide gold resources at Kumtor are hosted within Unit 2, which comprises phyllites and black shales. Moving to the left or further northwest. oxide gold mineralization is hosted within Unit 0, which comprises sandstone, siltstone and limestone. And moving further to the Northwest again, dispersed gold mineralization is mineralization that has been eroded from both Unit 2 and Unit 0 and is hosted in much younger conglomeratic rocks. The dispersed mineralization is also oxidized. There have been no resources calculated at this stage for the oxide and dispersed styles mineralization.

Slide 60. This slide shows the ultimate pit outlines in pale green. The zones of sulfide gold mineralization are shown in red, and these are hosted by Unit 2, which is in pink. The oxide gold mineralization in the sector to-date is shown in orange and is hosted in Unit 0, which is shown in green. And it can be seen from this map that there are substantial intervals within Unit 0 that have not been tested by drilling.

I will now show a series of cross sections through some of the deposits, all the sections are looking towards the Northeast. So Slide 61 shows a section through the central deposit. On the right-hand side, you can see that there are zones of sulfide gold mineralization within Unit 2 below the ultimate pit.

The pit outline is a fat gray line. Apologies, it's a little hard to see. Moving to the left or Northwest, the potential for oxide gold mineralization within Unit 0 remains largely untested in this area. Further to the Northwest, drilling has intersected wide zones of low-grade dispersed-style oxide gold mineralization, which require follow-up.

Slide 62. This shows the section through the Southwest deposit. On the right-hand side, you can see that there are zones of sulfide gold mineralization within Unit 2 below the ultimate pit, again, shown as a gray line. Moving to the left or Northwest, oxide gold mineralization has been intersected at depth within Unit 0 in the Deep Oxide Zone. Where whole SW-20-317 between 158 meters at 2.95 grams per tonne gold. Further to the Northwest, a shallower zone of oxide gold mineralization called the Hope Zone has returned some significant drill intercepts. And then further to the Northwest again, drilling has intersected dispersed-style oxide gold mineralization, which requires further followup.

Slide 63 shows the section 40 meters further to the southwest of the previous slide. Here, recent drilling returned oxide gold mineralization at depth in the Deep Oxide Zone, Hole 2386 returned 222 meters at 4.11 grams per tonne gold.

Slide 64 shows another section, 40 meters further to the southwest again. Again, recent drilling returned oxide gold mineralization at depth in the Deep Oxide Zone or SW-20-380, returned 225 meters at 3.11 grams per tonne gold.

Slide 65 shows a section through the Sarytor deposit. On the right-hand side, you can see that there are zones of sulfide gold mineralization within Unit 2 below the ultimate pit, again, shown as a gray line. Moving to the Northwest, shallow oxide gold mineralization has been intersected within Unit 0.

Slide 66 shows a section through the Northeast deposit at the other end of the Kumtor gold trend. On the right-hand side, you can see that there are zones of sulfide gold mineralization within Unit 1, in pale pink. Generally, we don't see significant gold mineralization in Unit 1, so this may open up new zones with potential for sulfide gold mineralization. Moving to the left on Northwest, shallow mixed oxide and sulfide gold mineralization has been intersected within Unit 0.

Slide 67. This slide shows an image from an airborne electromagnetic survey that was completed in 2019. The bright Pink colors on the left represents zones of low resistivity that relate to altered and potentially gold mineralized rocks along the Kumtor gold trend. The 4 main deposits are shown and it can be seen that there's still a considerable strike length of the Kumtor gold trend that is underexplored.

Slide 68. This slide summarized what has been achieved over the last few years and what our objectives will be over the coming years. After restarting exploration in 2018, we successfully increased measured and indicated resources by 112%, which is now reflected in the expanded reserve and longer mine life. In 2020, drilling focused on further expanding sulfide and oxide gold mineralization in a number of areas.

For 2021, our exploration budget is $21 million, representing some 75,000 meters of drilling. And going forward, we would expect to maintain this level of spending. Our 4 key objectives this year are to expand the Southwest, Sarytor and Northeast sulfide gold resources. Evaluate gold -- oxide gold mineralization potential along the Kumtor lower thrust at Sarytor, Hope, Triangle, Muzdusuu and Northeast. And there's potential of peripheral targets in the Bordoo-Akbel, Lysii Gap and Petrov areas. We aim to be calculating maiden resources for the Hope, Northeast and Koshuluu Zones at the end of 2021 or early 2022.

Thank you. That now completes the Kumtor exploration update. I'll now pass back to Scott.

Thanks, Malcolm. And congratulations to yourself and Dan and your respective teams. This is a very meaningful development and still a lot of excitement. There's still some significant exploration potential here for further success moving forward. So again, congratulations.

Just on Slide 70, just to wrap things up. Just in terms of our 3-year outlook, again, really on the back of Kumtor's optimized and expanded life-of-mine plan, you can see it's really going to underpin a significant increase in our company-wide gold output levels. You can see that in the fourth row here in this table. Likewise, just in terms of the corresponding unit costs, if I look at the all-in sustaining costs metric, for example, in the seventh row, you can see we're going to have a peer-leading cost structure here in the medium term. Obviously going to make for a very robust margin. And that's going to really benefit the organization when it comes to our sort of go-forward profitability and free cash flow. And I think that's going to see this continuing to strengthen our peer-leading financial profile. So pretty exciting developments, particularly so as we look to continue delivering sustainable value and growth for the organization and our shareholders.

So look, with that, Carlos, our operator, if I can pass it back to you, and we can open up the call for the Q&A session, please.

(Operator Instructions) Our first question comes from the line of Fahad Tariq, Crédit Suisse.

2 questions. Maybe first on Öksüt and the difference between 2020 production and 2021 production. Can you just provide more commentary on -- I know you've given more guidance on grades and things like that. But just is that what was expected previously? Was -- were -- are grades expected to be lower than before? Any color around kind of the cadence of the production and the grade specifically will be helpful.

Yes. It's Scott here. I'll go first. And Dan, you can chime in with any additional commentary, but it's really just a function of grade. If you look at last year 2020 calendar year, our stat grade was 1.4 grams per tonne. This year, 2021, we're budgeting for a stacked grade of approximately 1.27 grams per tonne. So that's really what's driving the year-over-year profile. But then in terms of our sort of mine sequencing, mine phasing as you would depict from our 3-year outlook, we're going to be moving into a very high-grade sequence in calendar year 2022, 2023. And you're going to see very significant increases in Öksüt gold output profile.

So short answer is really just a function of the mine grade and how that's disseminated for the ore body and where we're currently sequencing in terms of our mine plan. Dan, is there anything I missed there or anything that you want to add to that?

No, you hit a spot on. It is the sequencing, and there is just differences a little bit between the original technical reports and what we're executing now, but certainly, we're seeing a good bit positive reconciliation against our resource models. So that's -- that all bodes well, but it's simply the release of the different grades ore as we blend it, put it on the heap.

Okay. Great. That's helpful. And then my only other question, on capital allocation, maybe provide your most recent thoughts on how you're thinking about it? I know previously, you had indicated that you've done an exercise comparing distribution as a percentage of free cash flow, and there was an opportunity to maybe raise the dividend. Maybe talk about how you're thinking about capital allocation now knowing the revised concurrent life-of-mine plan?

Yes. Look, it's an ongoing discussion with our Board of Directors. It's pretty much a standing agenda item at each Board meeting. And as you'd expect, it's obviously a Board decision. We have been consulting or liaising with all of our key shareholders, taking their views as well in terms of what they think would be the best measure or the best step in terms of go-forward capital return initiatives. Likewise now that we've published this new life-of-mine study for Kumtor. We're also looking to reach out to the political leadership in Kyrgyzstan. Obviously, Kyrgyzaltyn is our largest shareholder. So looking to get their views as well.

But really, everything is on the table. We've been having discussions around potential share buyback initiatives all the way through to our sort of regular quarterly dividend program. Unfortunately, I can't provide any additional sort of color other than it's all under evaluation, and we're continuing -- we continue to revisit that with the Board at each of our Board meetings.

Our next question comes from the line of Brian MacArthur, Raymond James..

I just wanted to follow-up on the Öksüt permit because obviously, there's a fair rate of gross going in there. What actually has to be done there to get that permit to get to the higher grade in 2022?

Dan, do you want to take that question, please?

Certainly. The effect on the grade in both 2021 and '22, there is no effect by the permitting right now. What we have is we have an update in our environmental permit, but we're looking for a final forestry footprint permit in our Güneytepe pit. So as -- if we were to get that earlier, we could access more ore from Güneytepe earlier. But right now, there is no effect and against our 3-year guidance that we've just put out in terms of the timing of receiving that permit.

Okay. So just so I'm clear, that permit for that other pit is post that other -- I thought it when I read it, that other pit that you're just saying could be accelerated even faster into it if you get that forestry permit? So that it would be even better in '22 and '23? That's just what I'm trying to figure out.

We have not scheduled the ore from Güneytepe in 2021, '22. That's correct. So because of needing that forestry permit.

Great. So I was just making sure I read that right. And the second question, sorry to go back to this, Scott, and I know you're somewhat constrained. But on the dividend or capital return, some of your competitors, obviously, you sold Hardrock, which gives even more money and with your cash flow, you have $1 billion potentially at the end of next year.

Is there any thought given to -- I mean, some of the other companies have dividended out the, what I would call, excess proceeds from sales. Is that even being considered? And I realize it's a Board decision.

Yes. I mean, look, Brian, we had our Board meeting yesterday, and we actually -- we spoke about that. In terms of what Barrick, for example, in terms of what they're doing with their -- I'm going to designate it as a special dividend, the way they're doing it. But in terms of what they're doing, we discussed that. We -- I think it's just difficult right now. We've got new political leadership in Kyrgyzstan. They are our largest shareholder, and there are some preliminary discussions underway with regards to what we could be doing with regards to capital return initiatives, but we have not concluded those discussions. So that's a key data point that I would like to have in hand, and I think the Board would like to have in hand. And until we have that it's just difficult to talk about it any further.

Next question comes from the line of Trevor Turnbull, Scotiabank.

I had a question maybe on the Kumtor mine plan, just specifically on mining costs. I know that you've talked a little bit about longer haulage distances with the waste dump configurations. And we can see the overall costs and they look very good. But I was just curious, have unit costs gone up given the longer haulage? Can you just kind of give us a sense of kind of where they are today and what they are kind of assuming in the new mine plan?

I'll let you take that Dan, please.

Sure. Actually, we're doing very well today. The -- as an example, the last month of the year, and in January, we are well below the life-of-mine estimate. We have done some sensitivities on the life of mine. But because it's a large open pit in terms of hauling an extra kilometer, 1.5 kilometers each way is not putting much additional cost. And we are actually operating now substantially below the estimate in the new technical report.

Okay. And I just haven't had a chance -- I know you've posted it, which is great. So we will have a chance to go through it. But can you give us a sense of what is that unit cost in the new report? I haven't had a chance to see it yet.

I'm going to -- I believe it's $1.35 per tonne.

Yes. Okay. That's close enough. I was just curious. I did have a question also just with respect to the new reserves you guys have put out. I know you're using $1,250 for Mount Milligan and Öksüt. And I'm trying to remember if that's also what you've told us in the past, Scott, that you've used to look at project evaluation, things like Hardrock. But I was wondering why the difference at Kumtor, why that one is slightly different at $1,350 versus the $1,250 in the other parts of the company?

Yes. Trevor, just your previous question, I've got it in front of me, it's $1.39. So Dan was essentially correct when he quoted $1.35. It's $1.39, when you get a chance to review the report. Trevor, when we were looking at the economic analysis for Greenstone and Kemess, the long-term gold price assumption that we've always used is the $1,350. So you and I may just not be recollecting correctly, but in past conversations, it has always been $1,350 and then yes, you're correct, as you noted, that's the same gold price assumption that we've used in Kumtor's 43-101. So I don't think there's been any change.

Sorry, yes, I couldn't remember. And that's partly what I was asking. So why still stick with $1,250 on Mount Milligan and Öksüt? Is that just for historic reasons rather than kind of true it all up to the same level?

Primary reason being that with this year's -- with the reserve compilation that we did, it's just a depletion of the existing 2019 year-end reserve. And so given that we're just depleting it, we just left all the assumptions the same.

Okay. Yes, that makes sense. And maybe just a quick question with respect to project evaluation. Brian was mentioning you've certainly got a lot of cash. You're on track to have more cash. And you've divested of some non-core projects. Going forward, when you do look at things and opportunities, is one of the things you factor into the economics when you say look at a project at $1350, do you also factor in any acquisition costs that go with that? Does that have to get factored into the -- to the economics at $1,350 to make that decision? Or is the project kind of ex the acquisition cost?

Yes. No, if we were to be looking at an acquisition opportunity, absolutely, our Board would insist that the acquisition cost is included. So what we'd be looking at is the all-in acquisition cost rate of return. So the answer is yes. Absolutely. The acquisition costs would have to be included in the economic analysis.

Right. Okay. And then I guess my final question, just going back to Kumtor and the government. It doesn't sound like from some of your answers that you've had a chance to really sit down and go through the new mine plan with the government yet. Can you remind us kind of what the next step from the government is with respect to the new mine plan? Do they have to issue approvals, still give you annual approvals? Do they need to look at this new mine plan and then get back to you on anything going forward?

No. In terms of the approvals and our permits and what have you, it's just -- that's issued annually. And we received all of those approvals back in December of last year. So we're fully permitted for calendar year 2021. Yes. In terms of this new life-of-mine plan, yes, we welcome the opportunity to sit down in the government and discuss this because I think it's a fantastic development for Kyrgyzstan, just in terms of ongoing contributions, as Dan spoke to, in those various stewardship slide. But Dan, do you want to chime in? I can't think of anything else that we'd need in terms of sitting down with the government, in terms of approvals and what have you?

No. You hit it exactly right. We get an annual approval of subsoil and safety and environment. And you can only apply for them 2 months ahead of time. So we do that at near the end of the year and we've had a really excellent relationship with the state agencies in the last few years. So we're always working closely with them, so... (inaudible)

Since the elections and the new government, have you had them reaching out or Kyrgyzaltyn kind of reaching out to you at all with a respect to Kumtor? I know there's been a few headlines out of the country with respect to mining in general, but has Kumtor come up at all? Or have they initiated any discussion on their end?

No, not really, Trevor. I mean, obviously, we've got 3 directors on our Board who are representatives of the Kyrgyz government. So we've had a lot of discussion with those 3 directors. But in terms of liaising with Kyrgyzaltyn, the most recent correspondence was really with regards to this new life-of-mine plan that we issued today, whereby they were looking to understand what is kind of our go-forward development plan for the next 5 years, plus for Kumtor. And so now that we've got this in the public forum, it's going to really facilitate good and healthy discussions.

And just with respect to the directors, there's been a little bit of a change, I think, in the exact people from the Kyrgyzaltyn side. Is that fairly typical that, as governments change, that the directors representing the Kyrgyzaltyn interest tend to change as well?

I would say in the time that I've been with the company, Trevor, which is 5.5 years. Yes, it has been typical. When you've seen a change in leadership, we have often seen some changes in terms of their representatives, in terms of their appointees to the Board. And as you noted, I think it was back in December of last year, one of the directors, that there was a change. But to the best of my knowledge -- and I've got an annual general meeting coming up. To the best of my knowledge, the current 3 appointees are likely to be continuing, moving forward over the next 12 months.

Our next question comes from the line of Mike Parkin, National Bank.

With respect to -- like if you go back into the early Slides of 61, 62, this oxide zone that you're drilling, you've got really big widths, very decent grades. What's the thought on that? Is it something that you would approach through an open pit? Or is it something given that kind of width a potentially implied strip, you'd prefer to go at it as an underground?

Dan, do you want to take that, please?

No. Certainly, obviously, still in the exploration phase, but I believe right now, all of the plans we'd be starting to look at would be open pit. The ground material in the whole concession is very, very weak, and they would be very tricky to do anything like that underground. But right now, our whole focus and our whole set up is open pit. So -- but we still have to bring it to much further study. These are exploration results. We don't have a resource pit yet or -- to bring it to that stage. But grade and all, I would be thinking that we'd be at a large open pit.

Okay. And on that, you mentioned plans to have some maiden resources. Will you have maiden resources on the oxides? Or just are you focused more on getting that maiden resource focused on the additional sulfides in that region or a combination thereof?

Malcolm, do you want to respond to that one, please?

Yes. It will be a combination. Some of the shallow oxide material, we hope to have maiden resources on that. And also some of the extensions to the sulfides like the Koshuluu Zone instance, where you have to have resources announced on that towards the end of the year or early next year.

Next question from the line of Dalton Baretto, Canaccord.

Scott and team, congrats on what looks like a very robust medium-term outlook here. Just a couple of quick questions from me. First of all, just on what Brian and Trevor were asking with regards to the new Kyrgyz leadership. And I know you've just engaged them post this mine plant. But do you have a sense for what stream the new leadership prefers in terms of capital return to them? Are they happy with receiving dividends at the corporate level to Kyrgyzaltyn? Are they looking at the revenue based tax number at all? Just anything around that?

Yes. Dalton, they've always been -- they've always had a high affinity to our dividend distribution. So that is certainly on strategy from that perspective. And I think I'm comfortable saying that if we were to increase the level of our dividend distribution, that would be received well. But just in terms of some of our thinking, our evaluation, just some recent conversations, they are our largest shareholder. They own 26% of our -- at the parent entity level. And so as you know, we've got pretty much a peer-leading balance sheet that's continuing to grow. So in terms of our valuations, we're also looking at would there ever be merit in like doing a substantial issuer bid? Is that something the Kyrgyz would want to participate in? That could benefit both sides in terms of the Kyrgyz taking some money off the table. But likewise, we're compressing our overall share count. They maintain the same equity ownership. That's one scenario. Much -- we need to have further discussions on that and do further evaluation. But you can imagine, there's whole kind of hodgepodge of different capital return initiatives that we could be pursuing. And so these are the things that we're kind of deliberating on, discussing with our Board as well. Does this make sense, is it on strategy? And these kind of conversations will continue.

Okay. Great. And then a somewhat related question. Now that you've sold Hardrock, does -- is M&A on the table at all? And do these discussions have to be a precursor of any M&A? Or can that happen separately?

If you look at the current sort of gold price environment that we're in, and valuations are kind of prohibitive in terms of finding compelling sort of acquisition opportunities right now. I feel that what we've been doing at Centerra is just trying to put our heads down and just really focus on execution. And I think that served us well, particularly so at Öksüt, just in terms of the very smooth ramp up, et cetera. But I find, by and large, we've been pretty focused on just execution. But look, if an opportunity was to present itself that had a compelling all-in acquisition rate of return, then it's something we'd have to consider and evaluate. But right now, it's not something that we're going to be -- right now, we're not spending an inordinate amount of activity on that. We're still pretty internally focused. And as you get a chance to digest the new 43-101 for Kumtor as well as the exploration upside that we're seeing there. I actually think that's our most compelling short-term opportunity for the organization in terms of creating ongoing additional value. So that's where I would see us spending a significant amount of our time.

Okay. Great. And then -- so I have had a chance to actually take a brief look at the tech or -- and a couple of questions for me. Number one, the tech report, and I don't know how much of the risk it is. I'm hoping you can tell me, but the tech report flags the possibility that you may not get permitted to raise the tailings dam anymore, in which case, you would need to build a new dam. Can you just give us a sense of how much of a possibility or probability that is? And what the associated costs would be if you did have to build a new tailings dam?

Yes. Dan, do you want to take that, please?

Yes, certainly. It's an outstanding item, and that's why we include it on the risk. In terms of conversations we're having, we don't believe that it would be rejected. Our engineering information is such that it well supports raising the stability of the dam.

That being said, we do have areas where we currently excavate for material for the dam. We haven't costed it all out. But those are starting to be studied, not only for tailings capacity, but also for potential reprocessing because we would need a second tailings dam anyway. But I -- right now, we don't have final engineering costs on that. But I wouldn't have thought it would be that much different than the raising of the current dam.

Okay. And then just maybe one last one for me. These Golden Sunrise projects look fairly compelling. What stage are some of these? I mean, can we expect to see feasibility level studies on some of these in the near to medium term? Or are these still very early stage?

Dan, do you want to take that, please?

Certainly. Obviously, there's -- they're all in different stages. We've already started, for example, we continue to look at our recoveries. But in terms of tailings reprocessing, we have taken a number of samples. We are working with different consulting companies to study those, to see what type of methodology we could use to recover. So that is certainly in this -- certainly early studying.

In terms of understanding the ore zone underneath the current plant, it's part of our infill drilling and also some of the exploration drilling. So as we understand that better, but it's still certainly early days. We haven't costed up. We have a large range of what it would cost to build a new plant. But as we understand the oxide opportunity, that would substantially affect our approach to the size of plants and its ability to process different types of ores.

In terms of conveyor belting, we have -- a couple of our engineers are taking a look at that, looking at different activities around the world to see how other people are approaching it. As well as other new methodologies for moving waste rock. Our strip ratio is quite high, and we've moved the rock a long way. So certainly as part of our -- embracing climate change activities and utilizing green power, we will continue to study that. But I wouldn't -- we're not at a point where we're getting -- engineering to a stage of pre-feasibility or anything that on any of these opportunities.

Okay. And just maybe one last one for me, Scott. Kemess, given what copper prices have done, are you thinking any differently about that now?

We're not -- as you and I have discussed in the past, and that hopefully, I've discussed this in past earnings conference calls. But we had our strategy session back in September with the Board and we looked at both of our sort of development projects being Greenstone and Kemess. And based on our long term assumptions, which was $1,350 gold and kind of $2.50 copper, we're not seeing a compelling rate of return or a compelling value proposition on either project. So we've actually deprioritized both of those projects. As you've now seen, we've actually divested of the Greenstone project.

In terms of Kemess, where I think the current copper price environment comes into play is that if we have to deprioritize it, is there an opportunity for us to surface value here for our shareholders in terms of, is there some kind of earn-out structure that we could do by combining with a more strategic partner? Or someone who's got more of that skill set when it comes to underground block caving? Or even as part of those sort of discussions you could end up seeing us doing an outright trade sale, similar to Greenstone. So that's how I'd kind of characterize Kemess at the moment. So just to make sure I answer your question, the current copper price environment, having no influence on us in terms of changing our mind on that project, having been deprioritized.

Next question comes from the line of Anita Soni, CIBC World (sic) [Capital] Markets.

Most of my questions have been asked, but one thing that I just wanted to clarify is when you do your ASIC, you're not including the stripping costs, are you?

When we -- in our quarterly results or in the new 43-101, capitalized stripping is included in our all-in sustaining cost metric. It is included.

It is included. So then what's the difference between the all-in sustaining costs and the all-in costs?

It is the gross revenue based taxes that we pay. And if you're referring to the 43-101, it's also the additional growth capital, a large portion of which is associated with the mining equipment fleet expansion. Darren, I know you're on the line, have I missed anything there?

Well done. You get 10 points for your accounting there, Scott.

Okay. And then in terms of the resources on the Kumtor that are not included in reserves, what -- I mean, first question is, what is your dilution rate as it goes from resources to reserves? And secondly, what would it take to get those -- that mineralization into the mine plan?

Dan, do you want to take that? If you have that on hand?

I don't, but we do potentially -- Bob could potentially speak to that. Bob, please?

Yes. Sure. Thank you. Yes, we have a dilution estimated between 8% to 10% in conversion from the resources to reserves. And majority -- majority of the resources that hasn't been included currently are outside of the current ultimate pit design, based on the current economical parameters.

Okay. So it might just be the gold price? Or is there a significant -- is it the stripping ratio as well that might be impacting that? Or...

It will be a combination. Of course, stripping ratio would be correlated with the gold price and which would give us overall the profitability and potential conversion for the remaining resources to reserves.

Right. And what -- I mean, can I just ask are -- I admit, this is getting a little too fine tuned. But when we're looking at where you are in proximity to the pit are, like what -- are they evenly distributed around the pit wall and below the pit? Or is it predominantly maybe where the glaciers are?

No, it's not reflected by the glaciers. This particular organization we are talking about, that's a strictly sulfide one that is on the main Northeast, Southwest trend of the Kumtor deposit. And it's included in the bolt in the Central Pit and the one, the smaller one to the Southwest, Sarytor and Southwest, and they're below the current pit design, simple like it's not currently economical to go deeper with the pit and get -- and pick up those because it would require pretty big pushback as well. And also keep in mind that we have a buffer zone due to the mill, as Dan noticed that we have Golden Sunrise, and we have to evaluate all resources together including oxide and potential additional sulfides and how that new pit design will look in the future.

Okay. And then just moving back to Öksüt for a minute. I know the old technical report had a different number. I think somewhat closer to 200,000 ounces for year 2. Can you just walk me through what the changes were? I know you're talking about grade, but why a grade change? Most people are trying to get their capital costs back upfront?

Dan, do you want to respond to that? I think the theme on the sequencing and the phasing?

Yes. Exactly. It is certainly both the combination of the sequencing between pits, Güneytepe and Keltepe, but also the sequencing of the release of ore in Keltepe. We have been studying the geotech stability on certain walls and we've just adjusted our mining plans to do further stripping ahead of -- out of hitting the higher grade ore at the bottom. So it's simply the safest sequencing within the current pit shells.

Okay. So then what did the old technical report have of -- at the end of this year, what would it have been in terms of your overall pit angle and what are you changing it to?

We'll have to take that offline, about the (inaudible) material.

Next question comes from the line of John Tumazos, John Tumazos Very Independent Research.

Your stock trades at a single-digit PE, maybe it implies a discount rate of 12% by the market. What is your policy on share buybacks and how big of a discount would your stock have to trade at for you to buy back shares?

John, it's Scott. We don't actually have a formal policy when it comes to share buybacks. As I mentioned in responding to an earlier question, it is something that we've been discussing with our Board.We are looking at potential, possible capital return initiatives. I mean, we're looking at every inlet typical in terms of what you'd find in that sort of toolkit, dividends, looking at normal clause issuer bid, substantial issuer bid. I mean, all of that is being deliberated and discussed. I've been having a number of discussions with our sort of institutional shareholders, and we're also looking for input from our number one shareholder which is effectively the government of Kyrgyzstan through Kyrgyzaltyn. We're also seeking their input. And we're looking to take that all into account. We'll discuss that with the Board and see where we land. It's hard for me to answer your question because we don't have any sort of formal policy in place.

With the sale of Hardrock and Kemess being not a priority, what do you expect would be your largest capital needs over the next several years? And with acquisitions being expensive. does that sort of create return to capital by default?

I think that's something that we're evaluating, John. Absolutely, because as you've noted, the balance sheet is strong. Your question, with regards to capital expenditure requirements, I mean all of their operations are positively free cash flowing. And we expect that to be the case as per our guidance for the next 3 years. Nonetheless, when it does come to your sort of capital investment opportunities, I think there are various opportunities that Dan and Malcolm spoke to at Kumtor, in terms of some of those Golden Sunrise opportunities. We're going to continue to invest in drilling and we've potentially got this new oxide gold mineralization system, which is potentially exciting. And with the passing of time, if we can prove up the scale of that and prove up the merits of that, that could be an exciting step change between the property, which would come with a capital investment. None of this is currently reflected in the now recently released 43-101, but it's an exciting opportunity in terms of a subsequent chapter over and above what we're currently illustrating in the new life of mine.

If I could ask one more question, forgive me. And it's sort of water over the dam. I'm surprised the price for selling half of Hardrock wasn't a little bit more. And the projects would seem to have improved with Equinox arriving as the 50% partner.

Was the rationale there is simply capital cost avoidance?

The rationale there was that we use a long-term gold price assumption of $1,350. And when you run it at that assumption, you look at the result in sort of economics and value proposition, it wasn't meeting Centerra's internal sort of hurdle rates. And so as I mentioned, we deprioritized that project. I think it ended up being a win-win for both partners in terms of ourselves and Premier.

The face value of that deal, the indicative valuation was approximately USD 300 million. And from memory, that's at $1,650 gold price because I'm including the contingent consideration payment. But anyway, if you take that number, if you accept that number that I just quoted, USD 300 million. As and when we announced that deal, that was higher than the street consensus estimates for the value of the project. And I think it was received well as and when we announced it, and we have had positive feedback from our shareholders. So I don't think we have any regrets in terms of what we've -- in terms of that deal.

Our next question comes from the line of Terence Ortslan with TSO Mining Analysts.

A couple of questions. Scott, to you actually as well. Just a fragment of it has shown up so far. With respect to capital allocation, how much of room do you have to increase your exploration budget? Because we see so many juniors right now with great land positions, but scarcity of capital, but the land positions are pretty important in the gold belts. In North America, for instance. But given the geopolitics that you have, would you be spending more exploration money in North and South America, for instance?

Our global exploration budget for this year is USD 50 million to USD 55 million, which is a significant increase relative to the trailing sort of 5-year period. So we have been growing our exploration budget. And that's largely success-based driven. If you look at the majority of our budget dedicated to Kumtor, as Malcolm mentioned, we're attempting to achieve a record budget this year. We're looking to invest $21 million in drilling. But what we're targeting is an additional 75,000 meters of drilling. And if we can successfully achieve that, that will be a record level. Again, that's just based on all these additional targets that we're now pursuing.

The majority of our budget is really brownfield focused. So when I say brownfield, it's focused on our existing operations. So again, we've got meaningful budgets at Mount Milligan as well as Öksüt in Turkey. And then in terms of our sort of greenfield exploration budget, which is sort of early-stage opportunities, we tend to be focused on those jurisdictions where we're currently operating. So North America and let's say, Central Asia. We don't have any presence in South America, which was a part of your question.

Okay. On Kumtor, I have a few questions. How much flexibility is there if the price of gold on a sustaining basis goes above $1,600, $1,700, $1,800, let's say. What flexibility is there for a cutoff grade change and also the expected mine plans?

Dan, do you want to take that, please?

Yes. Yes, certainly. So we're currently using a cutoff of 0.85 grams. We have studied that quite extensively. There isn't very -- it's not a high percentage of ounces that are below that. So we already have a very high strip ratio and the pit is very large. So we're obviously mining it all. But the cutoff is 0.85, and there's just not that many ounces in -- below that.

So the higher price would not dictate, then, much of a change there.

Okay. And in the discussions with the government that you have, it goes back to the revenue-based taxation that's been an issue in mining industry. How much of a discussion is there if revenue-based taxation changes, which also will change your cutoff grade one more time. It's another reason for that. So there will be a longer mine life.

The revenue-based tax. So we remit 13%, [1-3] of our gross revenues to the government in the form of our annual taxes. We don't pay any income tax, so that gross revenue tax of 13%, that's dictated by our 2009 investment agreement, which is like our stability agreement. And so that really dictates what is the fiscal code for Kumtor up until 2042, which is the length of duration of all of our concessions. So that's kind of a stability agreement. It's like subject to international law, international arbitration. So that has not been a discussion with the government.

Okay. And not likely to come up. Coming back to the oxides at Kumtor, what were the magic number of grades and ounces to justify a - a let's say, an economic sized mill to follow it up? 3 grams, 3 million ounces, 4 versus 4? What would be the minimal number you would consider too [small] to put a mill up there?

I apologize, Terence. We're just not in a position to answer that right now. It's just too preliminary. We have to do a lot more evaluation and what have you to fully appreciate what is the scale? It looks like it leaches well, but we've got a truly -- a lot of engineering to do just to truly ascertain how you would develop and extract it, et cetera. So it's just too early.

And we have no further questions on the phone line.

Okay. Thank you, Carlos. John, did you want to close the meeting? Or...

Yes. Thank you. Thank you, everyone, for joining us on our call today, and we will end the call right now. Thank you.

That concludes today's call. We thank you for your participation and ask you to please disconnect your lines.