Fully funded Centerra on track to hit a million ounces annually by end of decade

TORONTO (miningweekly.com) – Canadian miner Centerra Gold is on track to hit yearly output of about a million ounces by 2020, as it expands its geographic exposure through a portfolio of robust, low-cost projects.

The Toronto-based miner was poised to grow organically using the company’s strong balance sheet, which, combined with strong cash flows generated by its flagship Kumtor mine, in the Kyrgyz Republic, provided a fully funded business plan to expand, noted CEO Scott Perry during a recent investor presentation.

“We are presenting a good blueprint for creating more and more value outside of the Kyrgyz Republic. As we do that, I believe our valuation multiples will improve as we continue to reward our shareholders,” he said.

He lamented the company’s underperforming TSX-listed stock price compared with its peers, saying that the uncertainty about renegotiating the future ownership profile of the Kumtor mine with the Kyrgyz government weighed heavily on the stock, as Kumtor accounted for about 42% of the company’s net asset value calculation.

The stock underperformed its midtier peers despite the company having the highest dividend yield of 2.4%, and despite it making cumulative dividend payments of $240-million over the Kumtor mine’s 18-year history.

Perry, the former AuRico Gold chief executive that took over the Centerra reins on November 1, advised that he had met with the newly elected Kyrgyz president in January, following successful elections in October. He noted that, owing to Kumtor mine playing an increasingly important part of the local economy, the incoming government was eager to ensure the continued operation and expansion of the mine, which was the country’s largest employer and largest tax payer.

According to Centerra, Kumtor accounted for up to 10% of the Central Asian State’s gross domestic product – up to 25% of all Kyrgyz industry – and up to half of the country’s exports.

Last year, the Kumtor mine put in a stellar performance, exceeding production guidance by 3% at 536 921 oz and reducing all-in sustaining costs (AISC) by 5% to $814/oz, which underpinned the company’s strong financial performance.

Perry noted that Centerra had been optimising the Kumtor business by trimming the workforce by 10% in 2015 to about 2 500 employees, and it was now turning its attention to re-evaluating third-party contracts. The low fuel price, which accounted for about a third of operating costs, and a much-devalued Kyrgyzstani Som had boosted margins.

Perry said that with about 5.6-million openpit ounces remaining, Kumtor provided the company with a low-cost, long-life platform from which to grow its business. Kumtor also had future expansion possibilities underground, where about 200 000 oz of gold grading 10.9 g/t were currently located in the inferred resource.

ORGANIC GROWTH
As at December 31, Centerra held $542-million in cash, with $76-million drawn under its revolving credit facility.

Perry demonstrated that Centerra found itself in a unique position in the midtier market, by being able to generate stable cash flows of about $350-million from its operating tier-one mine, and still being able to move the needle forward on its late-stage development project pipeline in 2015, all the while rewarding shareholders.

First up in the company’s project pipeline was the advanced-stage Öksüt gold project, in Turkey. The company expected to begin development at Öksüt soon, with first gold production pencilled-in for the second quarter of 2017. The $221-million project was expected to process 26.1-million tonnes of ore at an average grade of 1.4 g/t gold over eight years, producing 895 000 oz of gold at an average AISC of $490/oz sold.

Centerra received the final approval for the environmental-impact assessment for the Öksüt project from the Turkish Ministry of Environment and Urbanisation in November 2015.

Next in line was the Gatsuurt project, in Mongolia, which recently received governmental approval that ended a five-year impasse on the project’s permitting. The Mongol Parliament had now authorised the government to complete negotiations with Centerra on the terms of project ownership. Centerra was currently engaging government to finalise a fiscal assurance agreement that would govern the project over its lifetime.

The Gatsuurt project was located about 55 km by road from the company’s now defunct Boroo mine. As at December 31, 2014, the deposit held reserves of 17.1-million tonnes at an average grade of 2.9 g/t gold, containing 1.6-million ounces when using a cutoff grade of 1.4 g/t.

Centerra planned to mine the Gatsuurt ore and truck it to the existing Boroo mill to be processed, starting in the third or fourth quarters of 2017. The current Gatsuurt plan was to process about 3.6-million tonnes of oxide ore with an average grade of 2.86 g/t through the existing Boroo facility in the first two-and-a-half years of operation. During this time, a Biox plant would be added to the existing facility to be used for processing the remaining sulphide ores totalling about 13.5-million tonnes, with an average grade of 2.92 g/t gold.

Third in the project pipeline was the Greenstone project, located in the Geraldton-Beardmore greenstone belt, in north-western Ontario. This project was regarded as one of Canada’s most significant undeveloped openpit gold deposits.

Centerra was also moving ahead with a feasibility study on the Hardrock project, due for completion by the middle of the year, on which it expected to spend about $10.8-million this year. In the first quarter of 2015, the company announced a partnership with 50/50 joint venture partner Premier Gold to develop the Greenstone project, which included the Hardrock deposit.

“We’ve demonstrated that we’ve got everything we need to do this ourselves – we have the projects, the financial resources and the manpower, and it is really now just a matter of execution,” said Perry.

Centerra’s TSX-listed stock had gained about 4% since the start of the year to C$7.50 apiece, spurred higher in part by a 19% rise in the gold price to $1 267/oz on Monday.