Centerra remains open to negotiations with Kyrgyz govt on Kumtor mine

TORONTO (miningweekly.com) – Canadian miner Centerra Gold on Wednesday said the Kyrgyz Republic had “very recently” voiced its dissatisfaction with the current arrangements governing Centerra and the Kumtor project, but had made no proposals to address the situation.

TSX-listed Centerra noted earlier in the week that the Kyrgyz government had repeated certain historical concerns and allegations regarding Centerra’s and its subsidiary Kumtor Gold Company’s (KGC’s) management and governance and the operations of the Kumtor mine.

According to Centerra, government had expressed a desire to resolve all outstanding matters through proposals to be provided by it to Centerra.

Among the issues facing Centerra were claims made by the Kyrgyz Republic General Prosecutor relating to a $200-million intercorporate dividend declared and paid by KGC to Centerra in December 2013; and efforts by the General Prosecutor’s Office (GPO) seeking to invalidate Kumtor’s land use certificate and to seize certain lands.

Centerra reported late last month that the country’s GPO had raided KGC’s Bishkek office to collect documents relevant to an investigation relating to alleged financial violations regarding the intercorporate dividend declared and paid by KGC to Centerra.

Centerra CEO Scott Perry on Wednesday said the company had communicated to the Kyrgyz government its openness to receive and discuss proposals to resolve such concerns but in a manner that was fair to all of Centerra’s shareholders. However, to date, no negotiations with the government had taken place.

SALES HICCUP
Meanwhile, Centerra reported a 66% fall in first-quarter revenues to $73.2-million, after gold shipments from Kumtor to State miner Kyrgyzaltyn were delayed for a brief period in March, while Kyrgyzaltyn held contractual discussions with its offtake bank. These discussions were completed early in April, after which shipments to Kyrgyzaltyn resumed as normal.

The 33 165 oz of gold doré built up at Kumtor in the quarter ended March 31, had been sold to Kyrgyzaltyn by the end of April, and $35-million in cash flow would be captured in the second quarter.

Centerra said that, as at quarter-end, $200 000 was outstanding under the sales agreement, compared with $25.7-million as at December 31, 2015, and this amount was collected after the quarter had ended. The obligations of Kyrgyzaltyn were partially secured by a pledge of 2.85-million shares of Centerra owned by Kyrgyzaltyn.

In an analyst teleconference on Wednesday, Perry said favourable tailwinds of lower fuel costs and more favourable than planned foreign currency gains had helped improve the company’s cost structure. As part of its cost-cutting initiatives, the company undertook corporate office restructuring, having reduced manpower by about 20%, by making a leaner, stronger enterprise moving forward, he asserted.

Companywide all-in sustaining costs per ounce sold for the period were 41% higher year-on-year at $1 015/oz, excluding revenue-based tax in the Kyrgyz Republic and income tax, owing, in part, to lower ounces sold. Gold output was expected to grow towards the second half of the year.

Cash flows in the quarter at $9.4-million were impacted by lower sales; however, Perry noted that Centerra was an internally funded business with substantive cash of $502-million in the bank. As at the end of the quarter, it had a peer-leading net cash position of $426-million.

During the first quarter, Centerra sold 61 744 oz of gold, which was 24 700 oz less than the gold produced from Kumtor in the quarter, owing to the delay in gold shipments.

Gold output in the first quarter decreased by 49% year-on-year to 86 444 oz, compared with 170 683 oz a year earlier, reflecting the processing of lower grades mined from the upper benches in cutback 17, blended with low-grade stockpiled ore, along with lower recoveries. In contrast, in the comparative quarter of 2015, Kumtor mined and processed the high-grade final benches from cutback 16, Centerra pointed out.

Net earnings totalled $18.1-million, or $0.08 a common share, compared with net earnings of $40.7-million, or $0.17 a common share, for the same period in 2015.

FUTURE PERFECT
Perry underscored that Centerra was building up its retained-earnings profile, which assisted it to continue to demonstrate peer-leading profitability.

Centerra was awaiting a permitting decision on its next growth project – Öksüt, in Turkey. With a $150-million project financing facility established for the project and, having successfully eliminated all royalties on the property, Perry was confident that Centerra could swiftly move forward with construction once permits were in place. The company had also renewed a $150-million revolving credit facility during the quarter.

Meanwhile, the company was engaged with the Mongolian government over the Gatsuurt project development and was negotiating the investment development agreement. “I am cautiously optimistic to have news on that in the short term,” Perry stated.

Centerra was also moving ahead with a feasibility study on the Hardrock project, in north-western Ontario, due for completion by the middle of the year.

The company reaffirmed that it was on track to meet cost and production guidance and also maintained its dividend of C$0.04 – which was a 2.3% yield.

Perry noted that Centerra was working towards the possibility of profitably doubling output to one-million ounces in the next five years, as the Öksüt, Gatsuurt and Greenstone projects came on line.