Centerra revises 2016 forecast amid half-year gold production, sales decreases

JOHANNESBURG (miningweekly.com) – Canadian gold miner Centerra Gold has seen a 36% decrease in gold ounces sold in the first half of 2016, with recorded net earnings of $21.1-million, or $0.09 a common share, for the period under review, against $62.6-million, or $0.26 a share, recorded in the first half of 2015.

Gold production for the first six months of 2016 also saw a year-on-year decrease, with 185 316 oz recorded, compared with 292 176 oz recorded in the comparative period in 2015.

The TSX-listed miner attributed this decrease in production to lower average mill head grades processed, and lower recoveries at the Kyrgyzstan-based Kumtor gold mine.

Nevertheless, Centerra CEO Scott Perry noted on Tuesday that Kumtor had delivered strong gold production in the second quarter, producing 97 724 oz, which was in line with the company’s expectations and plans.

“Kumtor's all-in sustaining costs (AISC) were a competitive $768/oz sold – well below our original guidance for the year. With mining activities at Kumtor slightly ahead of plan and the business improvement opportunities achieved so far this year, combined with the favourable diesel fuel costs and currency exchange rate environment, we have decided to favourably revise our guidance for gold production, AISC and capital expenditures (capex)."

The company revised its 2016 forecast to reflect lower operating costs, capex and depreciation, depletion and amortisation expenses at Kumtor, as well as lower exploration and development costs at the Gatsuurt property. It also revised its 2016 forecast for capital costs at the Öksüt, Greenstone and Gatsuurt development.

Centerra noted that discussions with the Mongolian government regarding finalising definitive agreements relating to the Gatsuurt project continued, and that discussions were expected to continue in the third quarter of 2016.

The company’s revised gold production guidance for the year reflects narrowed expected gold production of between 500 000 oz and 530 000 oz, as well as lowered expected AISC for Kumtor of between $717/oz and $759/oz sold. The production guidance for the company at large is now between $776/oz and $824/oz sold.

Centerra also lowered its overall expected capex for the year by 48% to $140-million, excluding capitalised stripping.

“We are well positioned to achieve our revised gold production and cost guidance for the year, since mining at Kumtor recently intersected the higher grade ore in the SB zone in cut-back 17," said Perry.

Centerra’s operating costs for the half-year increased by $1.2-million to $80.7-million, compared with the first six months of 2015, mainly as a result of higher per unit operating costs for the ounces processed and sold in the first six months of 2016.

AISC per ounce sold for the first six months of 2016 were $885, compared with $808 in the first half of 2015. The company attributed this increase to the higher per unit cost for the cut-back 17 ounces sold in the first six months of this year, as well as higher sustaining capital.

Meanwhile, Centerra's cash, cash equivalents and short-term investments at the end of the second quarter of 2016 increased by $25.6-million quarter-on-quarter to $527.4-million. During the second quarter of 2016, the company drew $24-million from its $150-million corporate revolving credit facility, provided by the European Bank for Reconstruction and Development, to bring its current principal amount outstanding to $100-million, as at June 30. The funds are available to be re-drawn on a semi-annual basis and, at the company's discretion, repayment of the loaned funds may be extended until 2021.

Following the release of Centerra’s half-year and second-quarter results, the company’s board of directors authorised a quarterly dividend of about C$9.69-million, or C$0.04 a common share, which will be payable to shareholders on August 25.

THOMPSON CREEK METALS ACQUISITION
Following the end of the second quarter, Centerra announced a transformational $1.1-billion business combination of Centerra and Thompson Creek Metals that aimed to diversify Centerra's operating platform and add low-risk production and cash flow from a high-quality, long-lived asset in Mount Milligan.

In connection with this business transaction, Centerra has entered into a binding commitment letter with Thompson Creek’s joint venture partner at Mount Milligan, Royal Gold, whereby, upon the closing of the arrangement, Royal Gold's 52.25% gold streaming interest at Mount Milligan will be amended to a 35% gold stream and 18.75% copper stream.

“This business combination is complementary in nature, combining Centerra's robust balance sheet with Thompson Creek's high-quality asset base. We expect the transaction to close in the [third quarter] of 2016 and will create a geographically and operationally diversified gold producer with a high-quality producing platform and a strong fully-funded growth pipeline," said Perry.

Centerra expects to finance the acquisition through a combination of a new $325-million senior secured revolving and term loan facility provided by the Bank of Nova Scotia and a recently completed bought deal offering of subscription receipts of C$170-million. This acquisition is subject to the approval of Thompson Creek shareholders and other applicable regulatory approvals. It is also subject to the satisfaction of other customary conditions. If approved, the transaction is expected to close in the third quarter of 2016.