Centerra reports strong start to 2017, builds up to crescendo by year-end

VANCOUVER (miningweekly.com) – Canadian miner Centerra Gold has impressed the market with its notable first-quarter earnings increase of 215% year-on-year, underpinned by strong performance at its flagship Kumtor mine, in Kyrgyzstan, and the Mount Milligan mine, in British Columbia.

The Toronto-headquartered company reported net earnings for the three months ended March of $57-million, or $0.20 a share, beating average Wall Street analyst forecasts calling for earnings of $0.10 a share.

Revenues in the period increased by 290% to $285.3-million, boosted by more gold ounces sold at the two operating mines.

Gold output doubled to 172 644 oz, with Kumtor lifting output 47% year-on-year to 127 400 oz because of milling higher-grade ore from stockpiles, compared with the lower-grade ore mined and processed from the initial benches in cut-back 17 during the comparative period. During the quarter, Mount Milligan, which the company acquired through the $1.1-billion buyout of Thompson Creek Metals in October last year, produced 45 244 oz of gold and 12.6-million pounds of copper, compared with 53 000 oz of gold and 19-million pounds of copper a year earlier.

Gold ounces sold tripled to 187 914 oz in the first quarter, partly influenced by a sales delay at Kumtor in the comparable period. Copper sales totalled 13.61-million pounds.

The molybdenum business contributed $36.5-million in revenues, derived from the sale of four-million pounds of molybdenum and 1.7-million pounds tolled during the quarter under review, generating sales revenue of $36.5-million.

Centerra’s after-tax all-in sustaining costs on a by-product basis per ounce of gold sold fell 25% to $885/oz of gold.

CASH CRUNCH
Centerra said that, although it expects to be able to fund all planned capital and operating expenditures of the company for 2017 out of cash, short-term investment and cash generated from the Mount Milligan mine, there can be no assurance of this.

Without access to cash held by the Kumtor Gold Company (KGC) – the owner and operator of the Kumtor gold mine in the impoverished Central Asian country – owing to a Kyrgyz interim court order, Centerra might be required to raise financing in the market to fund construction and development expenditures on its development properties or to defer such expenditures.

CEO Scott Perry stated during an analyst telephone call on Tuesday that the company continued to advance its discussions with government of Kyrgyz Republic to resolve all outstanding issues affecting the Kumtor project.

“We continue to engage on a very constructive basis with the leadership of Kyrgyzstan. The spirit of this engagement is we’re trying to work towards putting in place an all-in encompassing dispute resolution agreement that would see all of these restrictions released and would see this cash becoming fully unencumbered.

“I think there are some things that both ourselves and the leadership of Kyrgyzstan would point to symbolically that the level of engagement is constructive and proceeding well,” Perry stated.

Excluding $273.9-million of restricted cash held in KGC, which can only be spent on Kumtor operations, first-quarter cash and equivalents were $81.3-million, of which $25-million can be spent only on its Mongolian projects and $24.8-million can be used only for Mt Milligan, leaving $31.5-million of discretionary cash.

Total debt outstanding is $438-million at the end of the first quarter, down from the maximum $475-million outstanding at year-end 2016.

The company plans to start cash dividends distributions from Centerra BC Holdings to Centerra in the current quarter, as cash balances increase. 

Meanwhile, after the first quarter ended, Centerra entered a series of zero-cost collars covering about 19 000 oz of Mount Milligan gold, with settlements occurring monthly from May through to December. The minimum price is set at $1 225/oz and an average maximum price is $1 371/oz. Under the zero-cost collar, the company can put the number of ounces to the counterparty at the minimum price, if the price were to fall below the minimum; and the counterparty has the option to require the company to sell to it the number of ounces at the maximum price, if the price were to rise above the maximum.

Centerra is awaiting the pastureland permit for its Öksüt project, in Turkey. Should it receive the permit in the current quarter, construction activities could start in July, which will pave the way for first gold production in the fourth quarter of 2018.

Meanwhile, Centerra is working to diversify its asset base, having entered into agreements to earn interest in joint venture exploration properties located in Armenia, Canada, Nicaragua, Portugal, Sweden and Mexico.

Centerra’s 2017 gold production is expected to be between 715 000 oz and 795 000 oz, with production weighted towards the second half of the year. Kumtor and Mount Milligan are expected to generate 30% and 35% of their full-year production, respectively, in the fourth quarter.

Centerra's TSX-listed stock rose almost 5% on Tuesday to an intra-day high of C$7.34.