Centerra Gold Inc (CGAU) 2020 Q3 法說會逐字稿

Greetings, and welcome to the Centerra Gold 2020 Third Quarter Results Conference Call and Webcast. (Operator Instructions) As a reminder, this conference is being recorded, Wednesday, November 4, 2020.

I would now like to turn the conference over to John Pearson, Vice President, Investor Relations. Please go ahead.

Thank you, operator. Welcome, everyone, to Centerra Gold's third quarter results conference call. Summary slides are available on Centerra Gold's website to accompany each of the 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; 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 these 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 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, and I trust everyone is safe and well. As John mentioned, I'm just going to be referencing our accompanying summary slides, which are available on our website. And I'm just starting off on Slide #5.

Just with regards to each of these bullet points, first bullet point here, throughout the quarter, throughout the year-to-date period, obviously, our primary focus has been on our Work Safe, Home Safe safety leadership program. One of the key highlights during the quarter, which Dan will mention, is the -- at Öksüt, our newest operating mine, we actually achieved a key milestone, whereby we've now achieved 3 million hours of consecutive lost time incident-free operations. It was a fantastic milestone. So I just want to commend the management operating team there.

Likewise, with regards to the to COVID-19 pandemic, this is a primary focus as well just in terms of the well-being of all of our employees. We've put in place a number of preventative measures and protocols as well as following the various public health measures. And to the best of our knowledge, each of our properties continues to be virus-free, and we haven't seen any meaningful impact in terms of our production or productivity levels.

In terms of the second bullet point here, a key focus for us is our social license. You can see we've now achieved a consecutive period of 87 months without interruption.

In terms of environmental, there was no environmental incident during the quarter, but we did have a biodiversity incident at our Kemess property in British Columbia. This was associated with the mortality of some migratory birds. The Canadian Wildlife Service's investigation concluded that our team took all the appropriate actions, including immediately notifying the authorities and implementing a corrective action policy.

Fourth bullet point there, diversity and inclusion is a big focus throughout the company. Here at Centerra, we've got a number of initiatives underway, a number of goals and objectives, and we're continuing to advance on those.

The next bullet point here, likewise, just in terms of our climate change initiatives. We've submitted our latest climate change reporting, and you'll see that being disclosed publicly shortly. Likewise, during the quarter, we've published our 2020 Tailings Storage Facility Disclosure as well.

And just lastly, the last bullet point there on the bottom left. In Centerra Gold, we are a signatory to the World Gold Council's Responsible Gold Mining Principles. There's actually 51 of these principles that we're rolling out at all of our operations. We're making really good progress. And as we continue to advance on these, we'll increasingly be looking to attest to compliance with these principles using a third-party service provider.

Just moving on to the next slide on Slide 6, just to sort of delve into the quarterly sort of operational and financial highlights. Again, you can see the first bullet point just in terms of the COVID-19 pandemic. As I mentioned, we didn't see any meaningful impact at either of our operations. And again, to the best of our knowledge, we think our properties are virus-free.

I spoke to the key safety milestone at Öksüt. Again, that was a very commendable achievement.

So fourth bullet point, very strong quarter in terms of gold output. We produced just over 240,000 ounces of gold and just over 23 million pounds of copper across the company.

When you look at the second last bullet point, just that high level of gold output correspondingly, you're seeing a very low, competitive all-in sustaining costs. On a company-wide basis, we achieved an all-in sustaining cost of $528 per ounce, which is a fantastic result.

I think, notably, if you look in parenthesis there, you can see the individual all-in sustaining cost result at each of the operations. And I think the key takeaway there is all of our mines are clearly operating within the lower-cost quartile. And this obviously positions us really well when it comes to profitability.

So if we transition to the next slide, on Slide 7. You can see just that strong level of metal production at a very low cost. In terms of our earnings result here, the first bullet point, we actually recorded net earnings of some $205.7 million or, correspondingly, $0.70 per share.

The third bullet point, obviously the strong earnings, the strong probability, that's also resonating in terms of our company-wide free cash flow generation. During the quarter, we generated $281 million of positive free cash flow. And you can see in parenthesis, each of our operations, on a stand-alone basis, are generating very meaningful positive free cash flow.

Fourth bullet point, just given that strong free cash flow, our balance sheet continues to grow. We finished the quarter with a cash balance of $484 million. We do not have any corporate debt outstanding on the balance sheet, so that is our net cash balance. And you can see, together with our revolving line of credit facility, we have a total treasury -- a liquidity profile of some $984 million.

The fifth bullet point, just with regards to our guidance. We haven't made any change to our production outlook for the year. We continue to maintain our originally guided levels at the beginning of this year. I think that's a conservatively sort of balanced approach that we're taking, just given some of the uncertainty with regards to the global pandemic.

Having said that, we're very well positioned, and we're certainly targeting the upper end of that production guidance at each of the individual operations. Where we did make a change was on our all-in sustaining cost profile, we've favorably reduced our guidance there to a new targeted range of $740 to $790 per ounce. And then last bullet point, again, for the quarter, we -- the Board did declare a quarterly dividend of CAD 0.05 per share.

I just want to talk to each of the charts at the bottom here on Slide 7. I think it really does illustrate a fantastic profile. You can see in each of our operations, generally speaking, quarter-over-quarter, this is the year-to-date period, we have been demonstrating growing levels of profitability and growing levels of positive free cash flow. But I think what's really impressive is the third chart, which is our Öksüt mine in Turkey.

So again, this is our newest operating mine in our portfolio. Last year, we were exclusively focused on construction here. We poured first gold in January, declared commercial production in Q2. And you can see here in Q3, now generating $74 million of positive free cash flow.

The mine is ramping up very, very well. And we're very pleased, obviously, to see this level of performance. And I think it's exciting. It bodes really well for Centerra's go-forward fundamentals.

Our ability to showcase a portfolio of 3 low-cost profitable operations, I think positions the company really well, and you can obviously see that in the chart in the bottom right-hand corner where, again, just the level of company-wide free cash flow has been growing quarter-over-quarter. We have been increasing our level of metal production, but all of this is obviously favorably coinciding with a growing gold price environment as well.

Just the next slide, on Slide 8. You can see the chart here in the top left. As you probably expect, now we're in quite a strong gold price environment and, correspondingly, our all-in sustaining cost profile. We've been managing our business really well.

During Q3, it was our lowest all-in sustaining cost of the year-to-date period. So as you would expect, in terms of our margin, over and above our all-in sustaining cost profile, we're seeing a record margin at the moment, so benefiting from higher gold prices, but also, we do have favorable tailwinds. We have been benefiting from currency devaluation in each of the jurisdictions where we operate, could be in the Canadian dollar, the Turkish lira or the Kyrgyz som, but also a favorable diesel fuel price environment. And again, just reminding everyone, all of our operations are open-pit mining operations and diesel fuel tends to be one of the larger commodity cost inputs.

The chart on the bottom left, I spoke about it earlier, just growing levels of positive free cash flow. And you can see, as per the red line chart, the prevailing gold price. Just a bit of these elevated gold prices are certainly resulting in growing levels of profitability and free cash flow generation.

And then the last chart, just on the bottom right there, is that -- our balance sheet profile. So you can see in terms of our treasury position, that continues to strengthen, finishing the quarter with $484 million in cash, 0 corporate debt outstanding. So I think in terms of our business model, it has been going from strength to strength. And obviously, when you look at our total liquidity position, I think in terms of Centerra moving forward, we're certainly well positioned to be an internally funded business model.

With that, I'd now like to pass the call over to Dan Desjardins, who is our Chief Operating Officer. Dan, please?

Thanks, Scott, and good morning, everybody. Please move to Slide 10.

In Q3, we had good safety and operational performance. Of note, our new operation, Öksüt, hit 1.5 years or 3 million man-hours LTI-free; and Endako had a milestone of 7 years LTI-free. Centerra continues to prioritize the health, safety and well-being of our employees, contractors, communities and other stakeholders during this current outbreak of COVID-19, and to take steps to minimize the effect of the pandemic on our business. We have established strict COVID-19 protocols at our mine sites to help prevent infection and reduce the potential transmission of the virus. In addition, the operating mine sites continue to assess our resilience of our supply chain. We increased our inventories of our key materials and developed and implemented contingency plans to allow for continued operations.

On the production front, we had another strong quarter, producing the 241,448 ounces of gold and 23.3 million pounds of copper at an all-in sustaining cost of $528 per ounce sold. Kumtor and Milligan are running steadily, but notable was the 51,412 ounces produced at Öksüt in the quarter.

At our world class operation, Kumtor, the plant operated uninterrupted for the quarter and continues to produce good ore feed from the stockpile. Q3 production was 140,000 ounces poured at an all-in sustaining cost of $639 an ounce. Mine operations was affected by community-spread COVID, and there was a significant shortage of operators for our mobile equipment in the quarter.

Mine waste tonnage was also lower due to the longer hauls to Central Valley waste dump and, of course, the driver availability. But the Lysii waste dump permit was approved and received in late July, and construction and preparation of the haul roads was completed in the quarter. We started dumping waste rock at the bottom of the Lysii Valley, so tonnage has improved. By the end of the quarter, the mining activities were back to full planned levels.

We continue to advance the Kumtor technical report, which is taking slightly longer than we expected to finalize. Additional technical work is being incorporated into the new life-of-mine plan with respect to the mining costs, our recoveries and the waste rock dump stability assessments. Kumtor generated $157 million free cash flow in the quarter, bringing year-to-date cash flow to $410 million.

At Mount Milligan, there was little effect of COVID in the quarter as we continue our hygiene, distancing and camp protocols. We had a large build of storage-process water to run at full capacity, and our water level inventory is peaked going into the winter.

Mine activities were in phases 4, 5 and 8 of the open pit. Total tonnes mined were 11.3 million tonnes. And the mining cost was a respectable $1.65 as compared to $2.03 per tonne in the third quarter of last year. The decrease was due to the reduction in contract service costs associated with open-pit drilling, lower diesel fuel costs, lower labor costs and higher tonnage due to the improved mining efficiencies.

Total mill throughput at Milligan was a record of 5.3 million tonnes in the quarter, averaging 57,800 tonnes per calendar day. The processing costs were $5.11 as compared to $5.68 the year before. The decrease in this cost was due to water sourcing, lower electrical prices, decreased labor costs and higher throughput.

In the quarter, we did produce 49,854 ounces of gold at an all-in sustaining cost of $165 per ounce. The copper production was 23.3 million pounds. All-in sustaining cost was very low, preliminarily due to low mining and plant costs, decreased water sourcing costs, the increased copper credit and a favorable foreign exchange rate. Milligan generated $63 million free cash flow in the quarter and has generated $119 million so far this year.

At Öksüt mine, construction was substantially complete. The remaining item to complete is the heap leach phase 1C, which is expected to be completed by the end of the year. An expected additional $5 million is to be spent in the fourth quarter to complete construction, which will bring the total spend to approximately 17% lower than the $220 million construction cost that was disclosed in the technical report.

During the third quarter, the Öksüt mine obtained an amended -- amendment to the environmental impact assessment certificate from the Ministry of Environment and Urbanization. The amendment is to accommodate changes to the Öksüt mine open-pit design and pit optimization. Because of the delay in receiving the amendment of the EIA and further expected delays to obtain our related forestry permit, the Öksüt mine and design is currently being revised, with the exception that the high-grade ore of Güneytepe deposit will not be accessed in -- until later 2021.

The new construction has commenced, which includes an overflow pond, crusher modifications. Work are anticipated to be done by the end of the year. And the heap leach phase 2 extension has started, and we're expected to have that by the end of 2021.

During the third quarter of 2020, Öksüt operation continued normally, while maintaining active measures to prevent COVID outbreak at site. Gold production was the 51,000 we've spoken about, and all-in sustaining cost of $416 an ounce for the full quarter of commercial production. Q4 is expected to -- were expected to place lower-grade material on the heap pad and slower level production. Overall, Öksüt generated $74 million of free cash flow in the quarter.

Please go to Slide 11 for our overall operational key focuses. For 2020, we continue to focus on improving our safety performance, with a large focus on critical risks and fatal mitigation management as well as VFL and overriding Work Safe, Home Safe program.

At Öksüt, we continue to ramp up and are continuing to phase, as we indicated, 1C heat leach pad. And it's well ahead of time, where we need it, by May of 2021, and finish the modifications and overflow pond before the end of the year.

By the end of Q3, we had 2.8 million tonnes stacked in our heap leach irrigation. We have 300,000 tonnes crushed inventory, and we have over 1 million tonne stockpile waiting for crushing and placement at Öksüt.

At Mount Milligan, with a robust spring melt, we have accumulated 7.5 million cubes of water in our TSF. For 2020, Mount Milligan's team is focusing on achieving consistent improved mill throughput and recovery and getting a strong handle on our mechanical availability.

The operational team has been successful improving our cost performance throughout the company. We are taking advantage of the lower commodity prices to build inventories. At Mount Milligan, specifically, we have flattened the organizational structure, scrutinized rentals and all contracts as well as improving our mine productivity.

Kumtor is continuing to advance as 43-101, as we indicated, and is carrying our -- out further technical work on the Kumtor life-of-mine plan, including with respect to the mining cost, recoveries and waste dump stability, in view of the fatal incident that had occurred in the Lysii waste dump in December of 2019. Finally, we continue our brownfield exploration plan of $32 million company-wide and, specifically, at Kumtor, $20 million for 2020, which is slightly delayed due to COVID causing manpower shortages.

Move over to Slide 12. That's a simple graph of the Mount Milligan water inventories. And with the robust spring melt we had, we pumped over 7 million cubic meters of water into the TSF. Finally, on our last slide, 13, these are photos of the Öksüt mine heap-leach facilities in the summer.

Now I'll turn the call over to Darren. Thank you.

Thanks, Dan. For those following on the slide deck, I'm on Slide 15. Centerra recorded $515 million in revenue during the quarter. This consisted of $430 million in gold sales, $53 million in copper sales and $32 million from the molybdenum business unit.

During the quarter, the company's average gold price realized was $1,806 per ounce and $2.43 per pound of copper. In the quarter, we sold 238,000 ounces of gold, 142,000 ounces attributable to Kumtor, 45,000 ounces from Mount Milligan and 51,000 ounces gold from the new Öksüt mine. We sold 21.7 million pounds of copper, a slight decrease compared to the prior year quarter.

Just now on Slide 16. Net earnings of $205.7 million was recorded in this quarter. This included $169 million contributed from the Kumtor operations, a 41% increase compared to the prior year quarter; $48.2 million contributed from the Mount Milligan operations, an 83% increase compared to the prior year quarter; and importantly, $71.2 million contributed from Öksüt, our new operations. The earnings per share for the quarter was $0.70.

From a consolidated cost perspective, Centerra in the quarter recorded production costs of $386 per ounce and an all-in sustaining cost of $528 per ounce. At an asset level, Kumtor recorded an all-in sustaining cost of $639 per ounce, whilst at Mount Milligan recording an all-in sustaining cost of $165 per ounce for the quarter.

I would highlight that Mount Milligan mining and milling costs decreased by 19% and 10%, respectively, compared to the prior year quarter. For its first full quarter of commercial production, Öksüt recorded an all-in sustaining cost of $416 per ounce.

At all operations, we have recorded a significant betterment in cash provided by operations. Kumtor recorded $208 million in cash from operations, a $194 million increase. Mount Milligan recorded $70 million, an 82% increase from cash from operations, with Öksüt now demonstrating our key third source of cash flow generation, contributing $85 million in the quarter. This translated to $281 million in consolidated free cash flow for the quarter.

As highlighted by Scott, $150 million free cash flow from Kumtor, $63 million from Mount Milligan and with Öksüt delivering its first full quarter of commercial production, generating $74 million of free cash flow. As noted, year-to-date the company has generated $527 million in free cash flow.

As you will note on the bottom left-hand table on this slide, Centerra finished with $484 million in cash with no debt. Also on Slide 16, I would also refer you to the bottom right-hand chart. Year-to-date, the company has produced 651,000 ounces of gold, tracking to the higher end of guidance. Costs year-to-date have recorded all-in sustaining cost of $665 per ounce.

In our MD&A, you will note that we have reduced our all-in sustaining cost per ounce guidance at both Mount Milligan and Öksüt. At Mount Milligan, we set a new range of $750 to $800 per ounce, previously guiding to $885 to $935 per ounce from an all-in sustaining cost perspective, the decrease attributable to both mining and milling costs. At Öksüt, we are now targeting a new range of $500 to $550 per ounce, previously guiding to $650 to $700 per ounce from an all-in sustaining cost perspective, the decrease coming from a combination of both positive grade and tonnes reconciliation, and effective cost control during this initial year of production.

The full year gold production guidance for 2020 is being maintained at between 740,000 to 820,000 ounces of gold. In the fourth quarter of 2020, the company expects higher all-in sustaining cost per ounce as a result of lower production levels at both Kumtor and our Öksüt mine.

At Kumtor, the company is planning to process lower-grade stockpiles and has a scheduled 5-day mill maintenance plan in December of 2020. The Öksüt mine is expecting to have lower levels of production in the fourth quarter of 2020, as mentioned by Dan, compared to the third quarter due to placement of lower grade of ore on the heap leach.

We have also reduced our capital spending guidance, reducing Kumtor capitalized stripping to $193 million, previously guiding to $223 million, a combination of longer waste haulage distances and temporary reduction in workforce due to the COVID-19 pandemic. Finally, the Centerra Board declared a quarterly dividend of CAD 0.05 per share for the quarter.

With that, I'll now pass back to Scott.

Thanks Darren. Just to wrap up the -- our prepared sort of remarks, just on Slide 19. Just in terms of the top left section here, just some of the key bullet points I just want to reiterate.

So again, you can see in terms of our gold production guidance, we continue to guide up to 820,000 ounces of gold this year. As I mentioned earlier, I think this is a conservatively balanced level of guidance. We haven't made any change to our guidance since we first put it out at the beginning of this year, again just being cognizant of the heightened uncertainty from a global perspective with regard to the COVID-19 pandemic.

Then as we've spoken to, we have reduced our all-in sustaining costs, just reflecting the strong year-to-date position. And just in terms of our production levels, I think we're certainly targeting the upper level of that guidance at each of our operations as well.

Second bullet point, you've seen a continued run of strong operating momentum. It's just carried over from quarter-to-quarter, and it continued in Q3, with our company-wide gold output being in excess of 240,000 ounces of gold. And again, that high-level gold output, just in terms of the corresponding all-in sustaining cost result, the quarterly result of $528 per ounce was our lowest of the year-to-date periods. Obviously, that makes for significant margins, just given the elevated gold price that we're in.

And you can see that in the fourth bullet point, again, a record quarter in terms of our company-wide free cash flow of $281 million. The balance sheet is growing and is strong, again finishing the quarter with $484 million. And that's a net cash position, just given that we don't have any corporate debt outstanding. And again, just in terms of shareholder-friendly initiatives, as I and Darren spoke to, the Board did again declare a quarterly dividend of CAD 0.05 per share.

And then just lastly, if you look at the chart down the bottom, I spoke about this in our opening remarks. But when I look at Centerra's business and our fundamentals, I think they're very well positioned, growing as you can see here, over the year-to-date period, at all of our operations. We continue to generate meaningful levels of positive free cash flow.

But hopefully, the key takeaway here, what certainly excites myself is Öksüt, the third chart here, just our newest mine. I think it is certainly positioned to be an important third source of high-quality, low-cost production, and that's going to bode really well in terms of Centerra's go-forward fundamentals.

So with that, I thank everyone for joining us and their attention. And I'd now like to pass the call over to Dana, our operator. And Dana will move us into a Q&A session. So Dana, please?

(Operator Instructions) And our first question comes from the line of Mark Mihaljevic with RBC.

Excellent quarter of cash flow here. I guess, to start off with Kumtor, I guess you mentioned mining rates have been impacted by the longer hauls and workforce availability. Can you just give us a sense of how we should be, a, thinking about that in the medium term. And then, two, kind of at what point do you need to -- would that start impacting the production outlook?

Obviously, you've had -- you've got pretty big stockpiles there for now, and the 2020 output is pretty locked in. But kind of when you think into '21, kind of at what point do you really need to start getting direct ore out of the pit to keep the production profile up?

Thanks, Mark. Dan, would you like to respond to that, please?

I certainly can, Scott. Thanks, Mark. Very good question. Obviously, we've reset ourselves to make sure that we have the proper ore feed to the mill. We've been working on our life-of-mine update, which is not quite ready to release. So what we're looking at for next year is production numbers very similar to our previous life-of-mine update.

What we've done is obviously, we've reset. We'll -- we are now mining at or above our updated forecast, internal forecast. But we're not -- I don't think we're prepared to put out guidance for next year yet, but we are looking at similar to the old 43-101.

I think with the longer hauls that we will have, our mining costs would have been a little bit higher than historic. But with the lower fuel cost countering that and the favorable exchange rate, we are still seeing costs on approximately about the same per tonne going forward.

Okay. Mark, just from my perspective, I just want to add. As you probably know, and I think it was implied in your question, all of this year's gold production is already sitting on surface in stockpile as well as the first 9 months of next year. It's pretty much all stockpiled inventory.

So as Dan already mentioned, when we look at next year's gold production profile -- and we're in our budget cycle as we speak -- we're seeing a level of gold production that's very similar to what was in the 2021 year in the old 43-101, which, from memory, was around 517,000 ounces. So it's not going to be too dissimilar to what we were previously forecasting to the 2021 year.

Great. Perfect. Yes, that's helpful there. And I guess continuing with Kumtor, obviously, a lot of changes in the country over the past, I guess, say, 3 months. Can you kind of give us an update on how you're thinking about investments in the country during the uncertain transition period that you're -- we're kind of in right now? And also, can you just, quick one, give us the cash balance in-country in Kyrgyzstan?

Yes. So in terms of the situation in Kyrgyzstan right now, I think, in all honesty, Mark, we're just doing what we do best, which is just putting our heads down and just focusing on optimizing operations at the mine, focusing on maximizing production.

You've probably heard me speak to this before. We just want to make sure that we're always being a good steward of the asset. We don't pay an income tax in the country. We pay a gross revenue tax. So we're maximizing our production levels, that means we're maximizing our tax contributions to the government.

And I think more than ever, that's a sensitivity within the country because, not too dissimilar to other jurisdictions around the world, they have taken an economic hit in terms of their economy contracting. So we're just putting our heads down and just staying below the radar screen and not looking to be a part of the political narrative. If anything, I think the country -- in terms of the country's leadership, 1 big sensitivity is obviously the continued operations at Kumtor, just given that we are the largest tax contributor in-country.

With regard to investments in-country, I mentioned earlier on your previous question, we're in our budget cycle right now. We've had a lot of success with our exploration program. We reported on that previously.

In terms of our go-forward exploration budgets, they're always success-driven. And so we were actually discussing with the Board yesterday, and we're contemplating a similar-sized sort of exploration program next year in-country. And I think that's likely to be approved when we go through our budget cycle in December. So I'm giving you a long answer, Mark, but in terms of the business environment, we continue -- we are very comfortable investing in the assets and obviously continuing to enjoy the economic benefits.

Mark, sorry, it's Darren here. Just on the final point you had on the cash balance in-country. So the setup we have is that all cash receipts from our gold sales, we deposit into a New York bank account, so it actually doesn't flow into country. And we just simply disburse our local requirement needs locally. So that range is $15 million to $20 million at any one time. So minimal cash is in the subsidiary.

Okay. Perfect. Yes, that's helpful clarification. And then, I guess, finally, for me, obviously, kind of huge free cash flow in the quarter. You did kind of sound a little more cautious in the dividend press release, just given probably the COVID uncertainties and kind of dialing in your life-of-mine updates and budgeting.

So should we kind of expect an update on -- additional capital allocation update or potential more capital returns with the full year results? Or do you think it will take you a little longer just to get that confidence and clarity before you'd make another decision?

I think, first and foremost, I have to say it's a Board decision when it comes to our level of dividend distributions. We had a lot of discussion around that yesterday at our Board meeting, and I think we'll be discussing it again at our next Board meeting, which is in December, which is, again, to approve our budget for next year. So I think it's just going to be a standing agenda item at each of our upcoming Board meetings here in the short term.

And [that's] probably as much as I can say, Mark, because I just -- I just don't want to get ahead of the Board. But as you saw in our press release, there has been heightened uncertainty this year with regards to the pandemic and then, more recently, with regards to the political sort of changeover in leadership in-country in Kyrgyzstan. But I think as soon as we have good visibility and a good line of sight on these items, then I think that will be an ongoing discussion with the Board.

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

Congrats on the really strong quarter. A few questions here. One, you mentioned the life-of-mine update on Kumtor is tracking a little bit behind what you were originally planning. Should we still expect that to come out in the fourth quarter or will that maybe roll into 2021?

Yes. Mike, it's Scott. It's hard for me to gauge that. There is some follow-up technical work that Dan and his engineering team are working on. And in terms of time line, I would say at the latest I would expect that we'd be in a position to hopefully publish it before the end of February, the reason being that's when we typically always report our year-end reserves and resources for all of our operations. So I think in terms of our -- at the latest, that would be our targeted publishing date.

Okay. It doesn't seem like it's the case, but has there been any discussion with the interim Kyrgyz's PM since his -- him taking power?

No. As of today, there has not been any direct discussions with the interim Prime Minister or the interim President. They haven't reached out to us and, likewise, we haven't reached out to them. And as I mentioned, when I was responding to Mark's question, we're just focusing on what we do best.

Okay. And what about some of your kind of like ESG initiatives in terms of support with local peoples with respect to COVID-19, is there any heightened increase to communicate that work that you've been doing in-country as a good steward?

Yes. I mean, Dan, do you want to speak to that just because I know you're personally leading some of those initiatives with your team?

Well, certainly I think it was -- it's very telling to the proof of the pudding is in the eating, and there was a lot of upheaval in the country, obviously, yet our local region and our local people that we deal with certainly did not take any aggressive stance against Kumtor.

We have a lot of programs, especially lately; we've modified them because of COVID. So we've done some very local donations and contributing to the medical supplies in the immediate region, and we also contributed a large fund to the central government so that they could be more prepared.

But we've had robust community initiatives, and we've really focused on our environmental stewardship and transparency for years. And it really came to rest during this upheaval because we were seen really almost as the only mining company that was not affected by the political turmoil.

Great. Okay. Just switching over to Öksüt. It's obviously had a brilliant ramp up. The mining costs are looking quite impressive there relative to what was in the technical study. Should we read into that, that's sustainable, possibly on lower fuel and favorable FX rates there as well? Or is it more just you're in the upper portions of the mine and maybe it's a little easier mining to start with? How should we kind of think about the performance?

Dan, do you want to respond to that?

Yes. Again, we have a long-term contract with our mining contractor, as indicated in our life-of-mine plans. There's no reason to think, nor -- or did -- this isn't typical like a Kumtor deep open pit, we're more on the edge of a valley. So our rates should stay similar. And you hit the 2 key things, fuel and FX. And just depending on what happens with those, but at this time, it is reflecting on very -- [swung to money has begun].

Okay. On that, is it -- you purchase and supply the fuel? Or is that through the contractor as well? And is that where the benefit kind of flows from?

Yes. It's contractual. He manages his own fuel, but we have benefit within the pricing and the contract, depending on his pricing.

All right. That's great. And then with Öksüt, great expectations for Q4. Should we expect something similar to Q3? Or starting to move into lower grade as early as this quarter?

I think what I'd guide you towards, Mike, is we're targeting the top end of guidance at Öksüt. And obviously, we saw what we've done year-to-date, 67,000 ounces, so I think you can kind of back out the rate there in terms of your modeling.

Okay. And then with Mount Milligan, too, you've got impressive costs. You're benefiting from ample water supply, turning off some of the pumping requirements. Can we read into any reserve upside there by potentially lowering cut-off rate and bringing in some lower-grade tonnes?

Dan, do you want to respond to that?

Certainly. As you know, we did update our life-of-mine plan only a year ago. We're obviously looking at that carefully. And any time you have robust costs or get a more consistent, higher throughput in the mill, then it will have a positive effect. We are studying that, along with a few other initiatives that we have.

At this time, we're not prepared to go forward with a longer life of mine. But certainly, that is one of our key goals is to run as efficiently as possible on the cost side and on the production side, with the goal that it's a large resource there. And also, Dennis and his team continue to explore in the area to get better definition and understanding of what really is available. But at this time, we're not updating our life of mine.

Okay. Maybe another way also to look at it, too, is as you come across lower-grade material that, in that life-of-mine plan, is modeled as a waste block, but given superior metal prices, beneficial cost structure, does that get brought into the mill plan on a, whatever, week-by-week, month-by-month basis, given that it's there and you can take advantage of it? Or do you stick to a more conservative budget scenario and put it to a waste pile?

Yes, the setup at Mount Milligan is much of our waste goes to building the tailings dam. If it is mineralized waste, potential asset-generating, then it has to go within the tailings pond. We only have limited ability to stockpile. But right now, we're just working on the best way to look at as a smaller footprint.

So our strip ratio is still about the same, and there wouldn't be that much or that -- or potential sub-grade ore at this time. But as we see our efficiencies and our cost structure change, you would have a bigger footprint. And that's where you would come across a greater ore.

Our next question comes from the line Fahad Tariq with Crédit Suisse.

2 questions. First, on the production guidance. So you maintained it for the year, which suggests lower production in Q4. But just following up on Mike's question on grade, maybe talk a little bit about what grades you're seeing at Kumtor and Öksüt in October. I'm just trying to get a sense of how to bridge it because it's -- even the high end of the full year guidance would suggest there's quite a substantial drop quarter-over-quarter on production.

Dan, how should we respond to that? I mean we're targeting the upper end of the gold production guidance at Kumtor. And Dan, in terms of throughput rates, et cetera, I think we are seeing a continued level quarter-over-quarter. I think what really is so hard, we're just guiding you to kind of back calculate from there what the grade would be. I mean, Dan, anything that you want to add to that?

Right. We're feeding from stockpile, so we do have some flexibility. But I don't think we can look that specific on -- toward the guidance and certainly at Kumtor. Yes.

Okay, no problem. No problem. My only other question was on the balance sheet, obviously, very strong. You're almost at $500 million of cash now. Is there a minimum cash balance that you're targeting before you would feel more comfortable on the dividend? Or anything else in terms of capital allocation?

Darren, I don't think there really is. I mean when we look at our profile moving forward, we had our strategy session with the Board back in September. And we just see year-over-year, we're going to be generating meaningful free cash flows. So it's not like there's a minimum cash balance that we require. We're not building anything. There's no growth projects moving ahead. We're really just focusing on maximizing existing operations. Darren, is there anything that you want to add to that?

No. I think, I said we're going through this budgeting cycle. I think that'll give us that medium-term picture that, once again, we'll have a lot more thinking and thought around that. And to your question, but right now, the Board has got a limit or a number in mind.

Our next question comes from the line of Anita Soni with CIBC World Markets.

Just a question with regards to the capital that was not spent at Kumtor this quarter. Is it safe to assume that it will get pushed into next year?

Dan, do you want to take that?

Yes. Again, majority of that is deferred mining tonnes. We have a limit on how much we can mine in terms of shovel equipment. We have 13 shovels. So those tonnes will be into next year, but we only have the ability to move between about 180 million and 200 million tonnes per year. So there won't be an excess more next year. It's more of shifting of the excess to the ore, and we were updating all our plans to reflect that going into stockpile.

Okay. And then in terms of the actual stockpile level at Öksüt, can you tell me how many tonnes and at what grade it sits on right now?

Yes. We have that in one of our write-ups, but I don't know specifically. We -- in terms of ore stockpile, we have approximately 1 million tonnes in stockpile, and we have about 300,000 tonnes crushed. It's all in that average pit grade, but we don't really give that specific a guidance in terms of the exact grading of that and when we would place it.

Okay. And then just looking at the capital expenditures for next year, so far you're tracking pretty well on the Kumtor technical report that you had put out previously for 2020. You mentioned that the production would be similar than the old technical report for 2021. Would the capital similarly also have a drop-off that's from the prior technical quarter? Or would that be revised with any technical report that's coming out?

I think there'd be a...

Yes, that's...

Sorry, go ahead, Dan.

No, I was going to say that there would be some changes versus that. That technical report is quite old. So -- but go ahead, Scott.

I was just going to say, Dan, I think that neither -- in the 2021 year, in the draft technical report, we're most likely envisioning some addition to our mining equipment fleet, just given that the mine life is expanding meaningfully. When you think about the useful life of the composition of our existing fleet, the current truck, et cetera, they won't last, the entire mine life, just given the meaningful increase. So we're probably going to be taking advantage of upgrading some of those trucks. So that will be a capital item. But the quantum of that capital item, I think, is insignificant relative to the level of cash flow that the mine does produce on a per yearly basis.

And we have no further questions at this time.

Over to you, John.

Very good. I just got myself off of mute. Thank you, everyone, for joining our call today. And if there are further questions, please reach out to us. At that point in time, we'll end the call. Thank you.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.