Centerra Gold Inc (CGAU) 2020 Q2 法說會逐字稿

Greetings, and welcome to the Centerra Gold 2020 Second Quarter Results Conference Call and Webcast. (Operator Instructions) And as a reminder, this conference is being recorded Friday, July 31, 2020. I'd now like to turn it to John Pearson, Vice President, Investor Relations. Please go ahead, sir.

Thank you, operator. I would like to welcome everyone to Centerra Gold's Second Quarter Results Conference Call. We have summary slides, which 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. And 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.

Joining me today, remotely, 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 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 our description of non-GAAP measures in the news release and MD&A.

For a more detailed discussion of the material risks, assumptions and uncertainties, please refer to our news release and MD&A issued this morning, along with the unaudited 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 Perry.

Thanks, John, and good morning, everyone, and thanks for dialing into our Q2 earnings conference call. I hope and wish that everyone is safe and well during these extraordinary times with the COVID-19 pandemic.

In terms of my remarks, I'm just referencing Slide 5 of our accompanying earnings conference call presentation deck. Just looking at each of these bullet points. First bullet point here, just with regards to the COVID-19 pandemic, obviously, extraordinary times. I think we, as a team, as a company, we've been very diligent in terms of the preventative measures and the protocols that we put in place. And I think it's been serving us well. To the best of our knowledge, all 3 of our operations are currently virus free. And so you see that in terms of our operating results, our levels of productivity, et cetera. Generally speaking, we've been unaffected by the COVID-19 pandemic.

In terms of safety, continues to be a primary focus for us as well as the COVID-19 pandemic. The wellbeing, the health and the safety of our employees is our #1 focus. In terms of safety, we had a number of milestones in the quarter, but really one of the key notable ones was Öksüt, our new operation in Turkey, just recently achieved 3 million man-hours of lost time incident-free operations, which is a fantastic milestone for the property and full credit, very commendable to our leadership team in Turkey.

Likewise, you can see here in the third bullet point, one of the key milestones during the quarter was Öksüt, which is our new gold mining operation, our third operation. We actually declared and achieved commercial production during the quarter. This has been, again, a fantastic milestone. We poured first gold in January and to be so quickly declaring commercial production thereafter, I think, is very competitive.

In terms of the operational results, I think it was a great quarter for the company. You can see here in the fourth bullet point we produced just under 220,000 ounces of gold and just over 19 million pounds of copper. There's an excellent level of gold production and copper production. And you can see that really resonates in the bullet points below, or if I reference the last bullet point, our all-in sustaining costs company-wide was very competitive, $804 per ounce. You can see it in parentheses there. Each of our operations were each producing gold lower than an all-in sustaining cost of $700 per ounce.

So at Kumtor, $696 per ounce; at Mount Milligan, $679 per ounce; and at Öksüt, a very low-cost at $537 per ounce. So albeit Öksüt is still in its sort of initial ramp-up phase, but already is presenting as one of our lowest cost operations in our portfolio. So obviously, in terms of the prevailing gold price environment, this makes for a very high-margin business.

If I move to the next slide, on Slide 6, just to address some of the financial highlights. You can see the first bullet point here, just given that low all-in sustaining cost, the high level of productivity and the high margins that I referenced earlier, you can see that's really flowing through in terms of the bottom line profitability, and I'll talk to free cash flow. But first bullet point here, our net earnings during Q2 was $80.7 million, which equates to $0.27 per share. But when you look at the free cash flow, if I move to the second bullet point and the third bullet point, the cash provided by operations was a very strong $268 million. But here in the third bullet point, I think it is really the key takeaway, the business is performing really well, just given the current gold price environment, the level of production, the low all-in sustaining cost, and you can see that's really resonating in terms of our free cash flow generation.

So in Q2, on a company-wide basis, we generated $169 million of positive free cash flow. But really, I think one of the key takeaways, I mean you look at in parentheses there, all of our operations are generating very meaningful positive free cash flow. So Kumtor itself generated $157 million of positive free cash flow. Mount Milligan generated $34 million positive free cash flow. And what I was most pleased with is Öksüt, we only just declared commercial production, but in its first sort of stub quarter of commercial production, it's already generating positive free cash flow of $5 million. And I think this presents well in terms of where our business is going. As we move forward here quarter-over-quarter, we're expecting meaningful progressive increases in production from Öksüt, and that's going to put us in really good stead to see growing free cash flows coming out of Turkey.

The fourth bullet point here, just given the strong level of profitability, strong free cash flow, as you can see, one of the things that Darren, our Chief Financial Officer, he's been very focused on eliminating all the debt on our balance sheet. And we've now finished the quarter with a debt-free balance sheet, which I think presents really well. And I think it's a very competitive balance sheet relative to our comparative peer group. So we finished the quarter with a net cash position of $212 million. And if you take into account our available credit lines, we now have a total liquidity of $712 million. So a very strong treasury position, and obviously, positions our business very well moving forward.

The fifth bullet point here, we continue to maintain our guidance, which was originally issued at the beginning of this year. As I mentioned at the outset, we haven't seen any meaningful impact in terms of the COVID-19 pandemic. So we didn't withdraw our guidance. We'd actually continue to maintain and reiterate that guidance moving forward.

Last bullet point I reference here is our dividend. Shareholders may have noted that we've now increased our quarterly dividend by 25%. So on a go-forward basis, we're going to be looking to maintain that quarterly dividend at $0.05 per share.

Last thing I'll reference on this slide is just the charts here at the bottom. I think it just speaks to some of the bullet points above, but you just look at where our business is going, and I think it's a scenario of our fundamentals are strengthening here quarter-over-quarter just given the rising gold price environment, but we're also benefiting from a lot of the devaluation that we've seen in the local currencies in terms of the jurisdictions where we operate as well as a lower diesel fuel price environment. So the margins that we're seeing in our business now are potentially the highest margins that I personally have seen in the 5 years that I've been in the company.

So just looking at the charts, moving from left to right, you can see Kumtor. We had a fantastic Q1. But in Q2 here, it's been even better. More than anything because of the higher gold price, but you can see Kumtor's, the quarter-over-quarter increase in free cash flow, $157 million in Q2. Likewise, at Mount Milligan, you can see the growth quarter-over-quarter. But likewise, Öksüt, again, this is our new operating mine in Turkey, and very pleased to see that already transitioning to positive free cash flow. And as I mentioned earlier, as we move forward over the course of this year, we are expecting a meaningful progressive quarter-over-quarter increase in gold production. So that's going to bode well in terms of where Öksüt profitability and free cash flows are going to be going here in Q3 and Q4. And then obviously, it all resonates in the chart there on the bottom right in terms of the company-wide free cash flow. Again, I think that was a very competitive sort of peer-leading level of free cash flow with the company generating $169 million of positive free cash flow.

Just moving on to Slide 7. Again, just focusing on the free cash flow theme. You can see the chart here on the top left. It's just the typical waterfall chart just illustrating the level of free cash flow that was generated by the operating mines. So you can see all 3 mines together generated $294 million of free cash flow. And this is sort of the first 6 months of this year; that's on a year-to-date basis. And then the red decrements, you can just see how we've been deploying that cash flow. So the first decrement there, obviously, one of our key focus has been eliminating any sort of debt facilities on that balance sheet. And as I mentioned earlier, we now finished the quarter with a debt-free balance sheet. You can see we've also been -- we've redistributed $17 million in terms of dividend distributions. And then you can see the remaining decrement associated with our development projects, corporate G&A and exploration.

I reference the chart on the bottom left. Again, I've spoken to these numbers, the positive free cash flow, but whenever I'm presenting this chart, I'd like to talk to 2019. So when you look at Q2, Q3, Q4, you can see the level of positive free cash flow that we're generating on a company-wide basis was relatively modest. But you can see the significant step-up that took place in Q1 of 2020. And so what I'd like to reference is, in 2019, obviously, the company, we're very focused on the construction of Öksüt. And so a lot of the positive free cash flow that we're generating from Kumtor and Mount Milligan, we're using that free cash flow to finance the construction at Öksüt. But as we exited 2019, construction was essentially pretty close to being complete. And so you can see the immediate step-up in positive free cash flow in Q1 of 2020. That step up, it's even more pronounced when you look at the Q2 result of $169 million of positive free cash flow because, obviously, Öksüt, we're no longer in construction, has now transitioned into operations. We declared commercial production. And as you saw in our Q2 results, Öksüt was actually generating positive free cash flow. So again, I think this puts us in really good stead. It bodes really well for what we can expect in terms of Centerra's go-forward profile, as Öksüt is going to be increasingly contributing meaningful positive free cash flow. And again, this puts us in really good stead as we move forward here.

And last point I'd reference is our realized gold price during the quarter was just over $1,600 per ounce. Obviously, we're in a much stronger gold price environment as we speak. So if that does continue, again, just bodes really well for where our profitability and positive free cash flow is going. The chart on the bottom right just speaks to the debt-free balance sheet that I spoke to earlier. You can see year-over-year here, we've been very progressively paying down our debt. And we've now successfully achieved a debt-free balance sheet and finishing the quarter with a net cash balance of $212 million.

With that, I'm now going to look to pass the call over to Dan Desjardins, who's our Chief Operating officer, and Dan will expand a bit more on some of the operational highlights. So Dan, please?

Thanks, Scott. Good morning, everyone.

Please move to Slide 9. Our Q2 operational highlights start with safety, and we have a number of highlights. In April, both Kemess and Öksüt both achieved 1 year lost time injury-free. At Kumtor, where you have 900 contractors, they've just achieved 2 years without a lost time incident. And then at -- in July at Öksüt, the 1,100-strong workforce there hit 3 million man-hours without an LTI. This is -- a majority of these hours were during the very difficult winter we had through construction and with all, a majority of new employees, so we feel very, very proud of that operations.

On the production front, we had a very strong quarter. We produced 219,692 ounces of gold and 19.1 million pounds of copper at an all-in sustaining cost of $804 per ounce sold. In terms of the Q2 results by operation, Kumtor continues to produce at a steady rate. We're blending the cutback 19 ore feed from the stockpile. And in the quarter, we had a recovery rate of 84%, which was very strong.

On the COVID front in Kyrgyzstan, it was substantially under control in April and May in the country due to the strong measures taken by the government, although recently there has been a large increase in cases in Kyrgyzstan. Due to the remoteness of our operation, the company is able to test and quarantine employees and contractors at our offsite quarantine facility before going to the mine site. This has allowed us to, to the best of our knowledge, keep the property virus free.

On the operating supplies, we've built up in case of interruptions, and we do have strong support from government to continue operations. Kumtor, in the second quarter, produced 173,245 ounces. That's what they poured at an all-in sustaining cost of $696. The site did have some large capital equipment purchases in the quarter, and we'll benefit from that long into the future.

We finalized our new design for the Lysii waste dump in the quarter, taking into account all the learning lessons from the tragic failure that we had. This was submitted to government in the quarter. And just the past week, we did receive approval from the government to return to the Lyssi waste dump, which will see us get back up to planned tonnages for cutback 20 in Q3, given the benefit from the haulage profiles, the reduced haulage distance and the resulting efficiencies.

Kumtor generated $156.9 million free cash flow in Q2, and that brought our year-to-date free cash flow to $253 million. Taking into account the successful drilling campaign of 2018-2019, Kumtor is on track to release an updated 43-101 technical report this fall, validating that its mine, it really is a Tier 1 mine.

Shifting over to Mount Milligan. COVID in Northern British Columbia is very much under control. We continue to keep strong discipline according to government guidelines, which has helped us run at full capacity since late May. We did have 2 weeks where we shut down the mine, but we also brought the mill down for a full maintenance shut in April, which set the site up for success, and we've been able to run at our full complement of employees since. The -- we achieved a throughput average in the quarter of 48,000 tonnes per day, which reflected a planned shutdown for the mill that we did. But we also achieved a record throughput tonnage mark in June, exceeding 63,500 tonnes per day, along with excellent recovery of both copper and gold.

So in the quarter, Mount Milligan produced 35,656 ounces of gold at an all-in sustaining cost of a very strong $679, and they produced 19.1 million pounds of copper.

On the processed water topic, we had a very wet spring, and it's been continuing to be cool and wet. So we have ample water to run at full capacity. At the end of June, we had 6 million cubic meters of water in inventory, and that's continued to build. So we continue to pursue medium and long-term solutions that will give us ample water to have no impacts on operations.

Milligan generated $34 million in free cash flow in the quarter and $56 million for the year. At our Öksüt, our new mine, as Scott mentioned, our first gold pour was at the end of January, and we achieved commercial production May 31. The COVID situation in Turkey is stable, as the country executed a full control opening April 15. Our mine has been operating -- it did have 2 weeks of interruption for the first 2 weeks of April, but there's been little to no effect on operations since that time.

On gold production front, we did 10,791 ounces for the quarter at an all-in sustaining cost of $537 per ounce for 1 month of commercial production. Even as we continue to ramp up, the operation generated $13.5 million in cash from operations and $5 million in free cash flow in the quarter.

Go over to Slide 10, and we can talk about our operationals key focus. For 2020, we continue to focus on improving our safety performance. We've engaged some subject matter experts and adjust ourselves to improve our controls, especially of key risks. At Öksüt, we have ramped up commercial production in mine tonnes, crushed ore placed on the heap and our ADR plant is running as designed. Subsequently, the heap will keep increasing its leaching of ounces as per our plans. By the end of Q2, we did have 1.2 million tonnes stacked on the heap under irrigation and a large ore stockpile waiting for crushing and placement.

For 2020, Mount Milligan's team is focused on achieving consistent and improved mill throughput and recovery, and is getting a stronger handle on the plant and mechanical availability. The operations team also is taking steps to improve its cost performance throughout the company. We are taking advantage of this lower commodity pricing to build our inventories. At Mount Milligan, we have flattened our organizational structure. We've scrutinized our rentals and all contracts as well as improving mine productivity.

Kumtor is on track to deliver its updated 43-101 in the fall of 2020. We'll be converting a meaningful portion of our measured and indicating resources into reserves and showcasing an extended mine life.

Finally, we continue brownfield exploration with a planned $32 million in investment company-wide, including $20 million at Kumtor.

Move over to Slide 11. This is the graph of our water inventory in the TSF. And as you can see, we have a substantial inventory as compared to the levels at the same time in the previous 3 years.

On Slide 12, these are photos of Öksüt, including last fall's mining, heap leach pad and facilities. As you can see, there's blue sky over the site.

Now I'll turn the call over to Darren.

Thanks, Dan, and good morning, everyone. For those following on our investor deck, I'm on Slide 14. Centerra recorded $412 million in revenue during the quarter. This consisted of $346 million in gold sales, $40 million in copper sales and $26 million from our molybdenum business unit.

During the quarter, the company's average gold price realized was $1,620 per ounce and $2.06 per pound of copper. In the quarter, we sold 217,000 ounces of gold, 170,000 ounces attributable to Kumtor, 35,000 ounces from Mount Milligan and 12,000 ounces gold -- 12,000 gold ounces being sold at Öksüt. As previously mentioned by Scott and Dan, Öksüt achieved commercial production on May 31.

In comparison to prior year quarter, gold ounces sold had an increase by 10%, and a 7% increase in comparison to the first quarter of 2020. We sold 19.3 million pounds of copper, a slight increase in comparison to the prior year quarter.

I'll just move over to Slide 15. Net earnings of $80.7 million was recorded in the first quarter. This included a $17.1 million noncash adjustment to our closed site asset retirement obligation, the expenses associated with the movement in the underlying discount rates with reference to U.S. and Canadian treasury bond rates. There was no change to the underlying activities required to remediate the properties.

The adjusted earnings after excluding the noncash ARO expense was $97.8 million. The adjusted earnings per share for the quarter was $0.33. From a consolidated cost perspective, Centerra in the quarter production costs were $410 per ounce, and all-in sustaining cost of $804 per ounce.

At an asset level, Kumtor recorded all-in sustaining cost of $696 per ounce, while Mount Milligan recorded an all-in sustaining cost of $679 per ounce for the quarter. For the month of June, Öksüt recorded an all-in sustaining cost of $537 per ounce.

At all our operations, we recorded significant betterment in cash provided by operations. Kumtor recorded $220 million in cash from operations, a 138% increase. Mount Milligan recorded $42 million, a 158% increase from operations, with Öksüt contributing $13 million in the quarter. This translated to [$160 million] in consolidated free cash flow for the quarter, with Öksüt delivering $5 million in free cash flow while still in the early phases of ramp-up.

Year-to-date, the company has generated $246 million in free cash flow. As noted in the bottom left-hand table, Centerra repaid all of its debt and finished with $212 million in cash and $712 million in total liquidity.

On Slide 15, I'd also refer you to the bottom right-hand chart. Year-to-date, the company has produced 410,000 ounces of gold, tracking very well to achieve gold -- to achieve guidance as Öksüt ramps up in the second half of 2020. Cost year-to-date also tracking well with all-in sustaining cost of $804 per ounce, below the current guidance range.

In the second half of 2020, the company expects that Kumtor will process more lower grade material than in the first half 2020, but also expects an increase in production from the Öksüt mine as it continues to ramp up its gold production.

Full year gold production guidance for 2020 is being maintained between 740,000 ounces to 820,000 ounces for the year. Year-to-date, the company has spent $166 million on capital expenditure, slightly below target, with the remainder expected to be incurred in the second half of the year. Total CapEx for 2020 is guided to $415 million.

Given the financial strength of the company and free cash flow generation, now from all 3 mines, the Centerra Board increased our quarterly dividend to $0.05 for the quarter, a 25% increase, and it's expected to be at this consistent level quarter-on-quarter, while still subject to regular Board approvals.

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

Thanks, Darren. I'll just look to wrap up the presentation here on Slide #17. Just referencing the top left quadrant here. Just a couple of these bullet points I want to reference. Obviously, the first bullet point, as Darren just spoke to, this is our guidance and just gives you a bit of an appreciation for our scale in terms of our gold output that we're targeting this year. So we're targeting up to 820,000 ounces of gold with an all-in sustaining cost as low as $820 per ounce. Obviously, in the prevailing gold price environment, this is going to present very well in terms of our profitability and ongoing free cash flow generation potential.

As we've referenced here throughout the deck, the second bullet point here, we had a very strong, competitive quarter. Good level of gold output and again, at a very competitive all-in sustaining cost. That obviously really resonated here in the third bullet point. You see that flowing through in terms of our profitability and our free cash flow generation. I think it was a peer-leading result in terms of the quarterly free cash flow generation of $169 million.

Fourth bullet point, you can see that in terms of how we've been deploying that cash, we've been very focused on presenting a debt-free balance sheet. We've now achieved that here in Q2, finishing the quarter with a net cash position of $212 million. And if you take into account our available credit facility capacity, as Darren mentioned, we have over $700 million of total treasury liquidity. So certainly an internally-funded business model moving forward.

The fifth bullet point here just in terms of the dividend. As Darren just mentioned, the Board declared a 25% increase in our quarterly dividend. So it increases to $0.05 per share. This is a quarterly dividend that we expect to be maintaining moving forward.

And the last bullet point here, Dan spoke to this earlier. Everything -- we continue to be on track with releasing Kumtor's new 43-101 life of mine technical report. We're targeting to release that in the fall of this year. And with that study, we're looking to convert a meaningful portion of the measured and indicated resource increase that we announced back in March this year. So looking to convert a meaningful portion of that into reserve category, and that's going to allow us to showcase a meaningful expansion in Kumtor's delineated asset reserve life moving forward.

In terms of the chart here on the top right, we've now got in excess of $1.1 billion of positive retained earnings. And if you just look at the history there in terms of the blue segment, on these columns within this chart, you can see Centerra's had a very good history in terms of profitability and, obviously, growing that retained earnings balance regardless of where we've been in the prevailing gold price cycle, which is illustrated by the red line chart.

And then what I think is one of the key takeaways from the quarter is the chart to the bottom of the slide. You can see that each of our operations, we've been producing positive free cash flow. But what I'm very pleased with is when you look at the quarter-over-quarter progression at each operation, all of our operations are showing very meaningful improvements in their profitability and their positive free cash flow. And that reflects the underlying productivity, the underlying cost efficiency, but also just the benefit of this -- the higher gold price environment that we're benefiting from.

And as Darren mentioned at Öksüt, we're expecting meaningful progressive increases in the gold output profile from Öksüt. So again, that's going to potentially present very well in terms of where our profitability, our free cash flow generation is going in the back half or the second half of this year.

With that, I'll look to wrap up the presentation there, but what I'd like to do is now pass the call back to the operator, and we can move into a Q&A session. Operator, if I can pass it to you, please?

(Operator Instructions) And the first question is from the line of Bryce Adams from CIBC.

I have 2 operational questions. Firstly, the feed grades at Kumtor coming from the stockpiled ore were a tick under 4 grams per tonne, and the stockpiled ore grade is 1.8 grams, to my understanding. In that context, my question is, for how long is that elevated grade profile sustainable? And what's your grade outlook for the second half?

Bryce, I'll give that call to -- sorry, I'll give your question to Dan, our Chief Operating Officer. Dan, do you want to touch on that just in terms of the different categories of stockpiles we have, in terms of the 1.8 grams that Bryce touched on? But also maybe just speak to some of the positive grade reconciliations that we're seeing on the high grade and the medium grade?

Absolutely. Okay. Thanks, Bryce. It's a good question. Bryce, we have a large stockpile. Actually, in our life of mine plan, we see that we end up milling for a couple of years after the end of the mine life. So we do have a very large low-grade stockpile set aside. Our cutoff grade is 0.8 of a gram. So when you see the average of the 1.8, that's the averaging of the whole thing. So our second half, as Darren indicated, we will be lowering the grade slightly, but we're blending both our high grade, medium grade and whatever amount of our low-grade that we want to put in, in order to maximize our recoveries and make our plans through to the end of feeding the stockpile.

So to answer your question, we'll still be -- we'll be lower than the second quarter. That's our current plan right now, but we have a lot of flexibility depending on how much of our -- are very high grade. As Scott alluded to also, we've been seeing some very good positive grade reconciliations in our high-grade stockpile. And that we anticipate that probably to go forward, but we don't budget for that, so those are additional ounces we end up getting on a regular basis.

I think I got it. So for the second half, you think it would normalize back to sort of Q1 levels? Is that a good guide to use?

We're targeting guidance. We still believe we're going to be within guidance. So yes, it's certainly back closer to the quarter 1, yes.

Got it. My second question relates to Mount Milligan unit cost. So 2020 costs per tonne for mining and milling continue to demonstrate significant improvement over the 2019 levels. Could you touch on and remind me what the key drivers are of that cost improvement?

Well one of our -- that's a good question. And Scott, I can dig down. That's fine.

Yes, please.

First of all, our new general manager for me, he's been there 1.5 years ago, has been doing an excellent, excellent job just looking for efficiencies, and we brought in different experts to do that. So it's on -- but they've also benefited from the lower diesel fuel price, which is one of our major cost drivers, and he's flattened his organizational structure. So some of the labor costs are down. So -- and overall, he's found some efficiencies in mining. So we're anticipating a continued benefit on the mining side.

And how significant is the Canadian dollar for those unit costs?

Not highly unless it's affected by the oil price, all our labor costs there, and we buy pretty much 100% locally, so.

The next question is from the line of Dalton Baretto from Canaccord Genuity.

I'd like to talk a little bit about this COVID situation that seems to be escalating in Kyrgyzstan and potentially around Kumtor. And more specifically, I'm trying to understand the implications on your 2021 production profile. So in a year to date, you've only mined 585,000 tonnes of ore, and that's been a function of the haul distances and so on. But if you're going to be curtailing rates going forward to keep the headcount down, what are the implications for 2021? I mean what's the plan to keep the mill fed there?

Dan, do you want to address -- Dan, can I let you address that? But Dan, just also touch on the fact that we're never scheduling to mine any ore this year and exclusively on waste lining, but, Dan, I'll pass it over to you.

Yes. Thanks, Dalton. Very good question. And yes, we have been affected on our total mine tonnes, but mostly due to our terrible incident in Lysii, which caused us to have to haul from cutback 20, which is our -- we're very high up in one ridge down to our Central Valley, which greatly extended our haul distances.

Another complication that we've been having that we're getting through now is much of that haul distance is at the maximum of 10% grade. And during the past few months, this is our snowy season in the spring. And so we've lost some time just from weather conditions, slippery conditions. So we believe we're coming around a corner now, now that we've -- now that we've got our permits to go back into Lysii, and we've also come down quite a ways on that cutback, more than 100 meters down. So we're looking much better.

The implications are -- right now, we were not going to be mining any ore in the remainder of this year and very little in the first 2 quarters of next year. So it's all out the release of ore. What we've done is we've relooked at our mine plans, and with the drilling results, we have adjusted our mine plans. So we're really seeing substantially similar ounce production for 2020 with our actuals that we know up to today as was in the original 43-101 life of mine plans that is public.

Okay. So if I understood. Sorry, go ahead.

Sorry, Dalton. Dan misspoke a little bit when he said we're seeing a consistent level of production in 2020. I think Dan is referring to 2021. So there was success, we've had a number...

Yes, sorry.

Coming from the resource and what have you. In terms of our mine plan, which is draft right now, we'll be releasing that in the fall of this year. But in terms of how we're recalibrating that, we are seeing a similar level of gold production in 2021 which is similar or consistent with what was in the original 43-101. So that exploration success has alleviated any challenges that we may be facing right now in terms of mining productivity level.

Okay. Great. So 2021 production isn't at risk despite the fact that you may be mining less or no ore this year?

Correct.

And I -- and I'm being repetitive, I apologize. But in our original plan for this year, we weren't even scheduled to be mining any ore. The plan always for this year, even pre-pandemic, was that we're going to be exclusively treating ore from our stockpile inventory. In terms of our mining activity, we'd be exclusively focused on waste mining.

Right. No, I understood that, but I'm just wondering where the ore for 2021 will come from. So that's all stockpiled ore as well?

For the first half of 2021 is from stockpiled ore. And then as we sort of increasingly move into later Q3, Q4, then it's the release of ore from cutback 21.

Understood. Okay. And then just maybe one more question on the COVID issues and the impact on your workforce there. Is that a function of you actually catching it before the mine gate and quarantining people? Or are you actually seeing absenteeism up as well just given the increasing rates?

Dan, do you want to take that, please?

Yes, be happy to. Yes, well there is a little bit of absenteeism due to all the family stresses when -- obviously, when family members are affected either moderately or severely, we can have people calling in and being sick. But a majority is that on our screening process, we're very strict. We -- for most of up until now, we -- and we still do now -- we test people twice. And so that's picked up a lot of positive cases. And because of that, if they were quarantined with other people, those other people even will go off for 2 weeks longer because they had exposure to someone who's tested positive. So we've been very strict, which did then affect some of our crew changes because we anticipated certain 30, 40 people coming up and if 1 or 2 -- as 1 was positive than all 45, for example. So we've adjusted our strategies since February to account for the different changes, but we're feeling positive. And we continue to feel positive that we can operate through this time and we're getting great cooperation from government when we've had different challenges.

Okay. Great. Just maybe one last one for me, then I'll jump back in queue. So at Öksüt, I understand the leach [kera] kinetics. But year-to-date, you're just 19% of the low end of guidance from a production perspective. Is that in line with your plans, in line with what you were thinking?

Yes. No, certainly it is, Dalton. I think what I've been representing to the investment community, is that the fact when we were sort of speaking to the capital markets investment community in Q2, as I said, you're going to see that Q2 production will be double what we achieved in Q1. And then here in Q3, again, I'm expecting that we'll be producing more than double what we produced in Q2.

So for example, if you look at our guidance, you'd be expecting us to be producing sort of in excess of 10,000 ounces per month here in the back half of this year. And I can confirm that we already achieved that level of run rate here in the month of July at Öksüt. So it's going to be a very meaningful progressive ramp-up in gold production, and it's progressing well.

The next question is from the line of Mike Jalonen from Bank of America.

Just I had a question on Greenstone, Scott. I'm sure you noticed IAMGOLD is moving ahead with Côté Gold, used a $1,900 gold price for their IRR, which was interesting, or high price. Just wondering what -- with gold where it is, what the status of this project is?

Yes. No, thanks, Mike, for the question. No change in status. Both of our organic growth projects, we obviously have the Kemess project in British Columbia, and then we have the Greenstone joint venture project here in Ontario. In terms of the economics that we've been looking at in terms of our prior economic assessments, from our perspective in our boardroom setting, we're not seeing a value proposition or a rate of return that would compel the Board to make a proceed decision or a construction decision. And that continues to be the case. So as I look at the course of this year and moving into next year, consistent with our guidance, I presently don't see us making a construction decision on either of our -- a project.

The next question is from the line of Mike Parkin from National Bank.

Congrats on a really solid quarter. Just wondering for -- you mentioned you're continuing to progress on the long-term water solution for Mount Milligan. Is there any major milestone that we should be watching for in the back half of the year?

Yousef, do you want to address that?

Sure, Scott. In terms of milestones, but I wouldn't say that as a milestone. We are -- we have made a formal application, and we expect to file more detailed materials and analyses to support all the water sources that we're looking for. But in terms of milestones, I don't see anything on the long term. It's taking a long and -- but as you can appreciate, it's a relatively long process in terms of consultation with regulators and First Nations. So that's about all I can say on the long term. We are looking at potentially expending the current medium-term water sources that we have. But again, that's all part of the process.

Okay. And then just one other follow-up to Bryce's question on the grade performance at Kumtor in the second quarter. Can you tell us what your internal budget was, just to have a sense of like what that positive reconciliation factor was?

I don't think I can, Mike. As a matter of practice, I try to never quote what our internal budget numbers are, because you can imagine our budgets are always more of a stretch target relative to guidance, which is somewhat discounted. So no, I don't think I'm in a position to disclose that, Mike.

The next question is from the line of Trevor Turnbull with Scotiabank.

Maybe just a quick kind of housekeeping question on the coronavirus-related questions you addressed a minute ago. I was just wondering, does the Kyrgyz Republic have any sort of travel restrictions that makes it hard to either bring in people that you need as consultants for Kumtor or even people on rotation that are trying to come in from other countries? And just how are you addressing that?

Dan, do you want to take that, please?

Yes, very happy to. Yes, certainly, since the beginning, the Kyrgyz government greatly restricted regular flights. They did repatriate a lot of their nationals from around the world, and that's really what brought the virus in.

And in terms of -- the government made it clear more than 2 months ago that any mining company or business that required their expats to come in, they approved that. But we have not taken advantage of that. We did not want to be contributing to any increase. So we've dramatically decreased the number of expats that we have in country. But we've learned very well to manage from a distance, and just as we have been doing here in Canada and Toronto.

So we don't see any effect right now on that. In terms of consultants, we have had some small delays in a few of our capital projects, but we've been now been able to bring in the consultants we required for both the different construction capital projects that we have. And we've had to find different ways to be able to complete our 43-101 and to have all the consultants sign off support. So we're looking okay.

In terms of our shift changes, et cetera, we've extended our stay at the mine site, which just makes it easier to do the screening. But we've been able to shift in and out people as we require.

Okay. You just mentioned the 43-101, and you've said that's coming out this fall. Any tighter -- I mean can you tell us if that's going to be Q3, Q4? Any sense of better timing on that?

Dan, why don't I take that? Trevor, I don't think we can give you any specific firmer timing on that. We just had our board meeting yesterday. Obviously, in terms of discussing it with the Board, the Board wants to make sure that we produce a very high-quality product, just given what we've been referencing. And we still don't have a fixed time line in terms of when we're going to caucus the Board and have a board meeting, et cetera. So I don't think we can address that question.

Okay. Then the other thing I wanted to ask about Kumtor and with respect to the new trucks and the increase to the fleet, I think you said there was 11 trucks getting added. What does that kind of work out to in terms of increased haulage capacity that you've got compared to the existing fleet?

Dan, won't you take that, please?

Yes. No problem. So our existing fleet is just -- was just shy of 100 trucks, 2/3 being 789s. We're adding -- we're look to be -- we're adding 11 here. So that would be adding about 10% to our capabilities. And then we'll be adding additional equipment, most likely in -- as we move forward with the 43-101.

And with respect to those trucks, obviously, it increases your ability to move everything, but you're also facing some of these issues, as you alluded to earlier, with the relocation of the waste dump. Is some of the new fleets excess capacity, is that actually getting -- is that a way of mitigating some of the longer haulage distances? Or is that truly all, say, 10% increase in capacity? Or is some of that eroded by the longer haulage distances?

Yes, certainly. You're correct. [So some as we will], we are planning to move more tonnes per year, but not 10% more tonnes. So it is because of the additional hauling distance.

All right. I appreciate that. And then finally, just one last kind of strategic question for you guys. Scott, you went through a number of kind of bullet points with respect to the debt, the balance sheet, liquidity and not only where you stand in terms of a very comfortable liquidity position, but also you're adding to that with free cash flow and Öksüt continuing to ramp up. I'm sure you're starting to get capital allocation priority questions from investors. We're getting them with respect to all of our companies and especially those that are building up more and more cash.

You raised your dividend, so there's a little bit there. But then you also, I think, just mentioned that neither of your 2 kind of pipeline projects are quite ready to make decisions on. So what are you telling investors with respect to capital allocation? What happens to all this cash?

Trevor, your question is very appropriate and very valid. As I mentioned, we just had our Board meeting yesterday, and we spent a lot of time talking about this in terms of capital allocation. We management are having a strategy session with our Board in September. And as you can imagine, that's one of the key agenda items is capital allocation and what we're going to do with this growing profitability, the strong free cash flow, especially if the strong gold price environment continues. So we recognize that. As I mentioned earlier, we don't see ourselves making a construction decision in our 2 organic growth opportunities. So capital allocation is going to be paramount.

But Trevor, I can't -- honestly, I can't answer your question because we're going to be strategizing on that with the Board in the month of September. But obviously, if you're kind of referencing shareholder-friendly initiatives, I would acknowledge that there's certainly potential there for us to be considering that, but that's about as much as I can say, Trevor. I'm sorry.

The next question is a follow-up from Brian MacArthur from Raymond James.

Most my questions have been answered, but I just want to clarify a couple of things. First of all, in the 43-101, are we going to have the benefit of the permits that you've just got from the Lysii waste dump, i.e., the benefits of the shorter hauls than you maybe would have had if you hadn't been able to use that going forward? Is that all going to be incorporated into this study? I mean I think it originally was, but I wasn't sure what you were doing, given that was an uncertain situation.

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

Yes, absolutely. Yes, we're -- we've definitely incorporated that. We never really thought it was uncertain the government would approve us going back, but we had to go through the steps to get -- to actually get the adjusted permits, so from a safety angle, from an environmental angle. So all those have been received. We're going to -- we're building off of our end of June, possibly even the end of July actuals for the 43-101. So it will reflect everything that, as we understand it, going forward.

Great. And I apologize to go back to the grades at Kumtor, because obviously you have flexibility with all the stockpiles there. But I just want to make sure some of the benefits, positive reconciliation. But are you actually -- and you mentioned you had to blend it to keep everything to get recoveries. But are you actually trying to manage -- obviously, you got a stockpile there. Gold prices are higher. Are you actually trying to manage to the gold price here? What -- therefore, taking a little higher grade near term? Or is it purely just balancing the blending to get the recoveries of what you're doing?

Dan, you or I can take that, but I just want to reiterate, we are not managing to the gold price more than anything, Brian. We have been seeing positive grade reconciliations. And I recognize when you look at our guidance for Kumtor and look at where we stand for the first half of this year, that we're very well positioned in terms of what that could mean moving forward. But in terms of our guidance, we continue to maintain it. We continue -- we haven't made any changes because I think we just want to be very measured in how we're guiding the market because there is uncertainty with regards to the COVID-19 pandemic, but we're definitely not managing to the gold price. It's just been positive stockpile and mill reconciliations. But Dan, is there anything you want to add to that?

Scott, that's right. We -- because we're feeding off stockpile over starting 6 months ago and going for another almost year, yes, we're trying to have a steady state. Maximizing our recovery really is the greater focus.

And there are no other questions. I'll turn it back over for closing remarks.

John, do you want to close the call?

Yes. That's great, Scott. Thank you all for joining us on the call today, and I look forward to answering any further questions. So with that, we'll wrap up the call. Thank you.

That does conclude the conference call for today. We thank you for your participation, and you can now disconnect your lines.