Operating Results of the 3rd Quarter of 2014

Operating Results of the 3rd Quarter of 2014

published: 18 November 2014

Operating Results of the 3rd Quarter of 2014
Centerra Gold Inc. (Centerra) and Kumtor Gold Company have summed up their operating results in the 3rd quarter of 2014. In the nine months of 2014, KGC produced 276,058 ounces¹ or 8,586.4 kg of gold and contributed more than 4 billion soms in taxes and mandatory payments.

Gold Production and Sales

At the Kumtor mine, gold production in the third quarter of 2014 was 95,265 ounces, or 2,963 kg of gold compared to 90,289 ounces, or 2,808 kg in the comparative quarter of 2013 due to higher throughput achieved by the mill partially offset by lower recoveries from processing higher carbonaceous material in the current period.

During the third quarter of 2014, Kumtor’s mill head grade averaged 3.05 g/t with a recovery of 72.7%. Tonnes processed were approximately 1.43 million for the third quarter of 2014, which was 9% higher than the comparative quarter of 2013.

The total waste and ore mined was 48.6 million tonnes compared to 41.7 million tonnes in the comparative period of 2013, representing an increase of 17% as Kumtor mined proportionately less ice in the third quarter of 2014.

Gold sales in the third quarter of 2014 were 92,645 ounces, or 2.9 tonnes. Total revenues from gold sales in the third quarter of 2014 were $117 million2.

The Dore bars produced by the Kumtor mine are purchased by Kyrgyzaltyn JSC for processing at the Kara-Balta refinery pursuant to a Gold and Silver Sales Agreement signed by KOC, Kyrgyzaltyn and the Government of the Kyrgyz Republic. Kyrgyzaltyn JSC enjoys the exclusive right to sell refined gold and silver both in and outside the Kyrgyz Republic.

Production costs and capital expenditures

All-in sustaining costs per ounce sold4, which excludes revenue-based tax, for the third quarter of 2014 was $1,110 compared to $1,264 in the comparative period of 2013. The decrease results primarily from higher ounces sold and a higher charge for the build-up of inventory.

All-in costs per ounce sold4, which excludes revenue-based tax, for the third quarter of 2014 was $1,274 compared to $1,366 in the comparative period of 2013. The decrease in all-in costs is primarily due to a 7% increase in gold sold for the third quarter of 2014, partially offset by an increase in growth capital spending for the infrastructure relocation project.

Capital expenditures in the third quarter of 2014 were $82.9 million which includes:
– $14.2 million of sustaining capital4;
– $15.2 million invested in growth capital4; and
– $53.5 million for capitalized stripping.

Operating Results for the Kumtor Project

Three months ended September, 30 Nine months ended, September 30
2014 2013 % Change 2014 2013 % Change
Revenue from gold sales to Kyrgyzaltyn – $ millions2 117,0 116,8 0% 348,4 362,0 (4%)
Cost of sales3–total $ millions 84,9 86,0 (1%) 272,9 218,0 25%
Cost of sales3,4 – $/oz sold 916 991 (8%) 1 002 877 14%
Tonnes mined – 000s 48 649 41 741 17% 148 938 129 827 15%
Tonnes ore mined – 000s 1 422 2 087 (32%) 2 025 3 095 (35%)
Tonnes milled – 000s 1 426 1 312 9% 4 338 4 136 5%
Average mill head grade – g/t 3,05 3,04 0% 2,68 2,63 2%
Recovery – % 72,7 76,4 (5%) 74,0 73,6 1%
Gold produced – ounces1 95 265 90 289 6% 276 058 252 272 9%
Gold produced – kg 2 963,1 2 808,3 6% 8 586,4 7 846,5 9%
Gold sold – ounces1 92 645 86 699 7% 272 303 248 635 10%
Gold sold  – kg 2 881,6 2 696,6 7% 8 469,6 7 733,4 10%
Average realized gold price4   – $/oz 1 263 1 347 (6%) 1 279 1 456 (12%)
Adjusted operating costs4  $/oz sold 539 639 (16%) 476 556 (15%)
All – in sustaining costs4 $/oz sold 1 110 1 264 (12%) 1 205 1 327 (9%)
All – in costs4  s/oz sold 1 274 1 366 (7%) 1 310 1 488 (12%)
All – in costs including taxes4 $/oz sold 1 451 1 555 (7%) 1 489 1 689 (12%)
Capital expenditures (sustaining)4 – $millions 14,2 13,3 7% 35,3 40,1 (12%)
Capital expenditures (growth) 4 – $millions 15,2 7,9 92% 28,6 33,4 (14%)
Capital expenditures (stripping) $ millions 53,5 56,4 (5%) 228,5 207,8 10%

1 – One Troy ounce equals to 31,10348 grammes.
2 – Unless specified otherwise, all dollar figures in this news release are in US dollars.
3– Cost of sales does not include administrative expenses.
4– In 2013, the Company adopted non-GAAP performance measures recommended by the World Gold Council. See discussion under “Non-GAAP Measures” in Centerra’s news release of February 19, 2014.

“Adjusted operating costs”, “all-in sustaining costs”, “all-in cash costs” pre-tax and including tax as well as “average realized gold price” and “cost of sales” per ounce sold are non-GAAP measures.

Quarterly Dividend

Centerra’s Board of Directors has authorized a dividend of Cdn $0.04 per common share. The dividend of Cdn $0.04 per common share is payable on November 27, 2014, to shareholders of record on November 13, 2014.

Payments to the Kyrgyz National Budget and Mandatory Contributions

During the first nine months of 2014, contributions to the national budget in taxes, deductions to the Social Fund and other mandatory payments were more than 4 billion soms.

Kumtor’s Contributions in Taxes and Mandatory Payments for the First Six Months of 2014

As of September 30, 2014 USD thousands
Gross Proceeds Tax 53 036,71
Issyk-Kul Development Fund 4 848,98
Pollution Tax 310,00
Employee Income Tax 3 696,30
Contributions to the KR Social Fund 15 630,81
Customs Administration Fee 796,66
Tax on nonresident companies 416,32
Other taxes and mandatory payments 71,55
Total                                                                                 78 807,32
US$ official exchange rate to the Kyrgyz Soms as of September 30, 2014 54,52
Equivalent of payments effected in thousands Kyrgyz Soms 4 296 590,60

Note: Under the Agreement on New Terms dated as of April 24, 2009, the revenue-based tax and contributions to the Issyk-Kul Region Development Fund are estimated based on actual cash revenues from sales during the period under review.

Commentary

Michael Fischer, President of Kumtor Company, stated, “I am pleased to report that gold production and operations continued uninterrupted at Kumtor in the third quarter of 2014. We are on track to achieve our 2014 guidance.”

Outlook for 2014

According to preliminary estimates, the Kumtor mine will produce between 550,000 and 600,000 ounces or 17.1-18.7 tonnes in 2014 which is unchanged from the previous guidance. Over 50% of this gold production is expected during the fourth quarter when the mine gets back to the high-grade section of the SB Zone.

2014 total capital expenditures, excluding capitalized stripping, are forecast to be $99 million including $47 million of sustaining capital relating primarily to the major overhaul maintenance of the heavy duty mine equipment, purchase of replacement mining equipment and ball mill girth gear, tailings dam construction raise and other items. Growth capital investment at Kumtor for 2014 is forecast at $52 million and includes the relocation of certain infrastructure at Kumtor related to the KS-13 life-of-mine expansion plan, dewatering projects, and the purchase of new mining equipment.

Capitalized stripping costs (cash) are expected to be $195 million in 2014.

* * *

The Kumtor open pit mine, located in the Kyrgyz Republic, is the largest gold mine in Central Asia operated by a Western-based gold producer. It has been operating since May 1997 and, as of September 30, 2014, has produced approximately 9.6 million ounces or 297 tonnes of gold.

Kumtor Gold Company is the operator of the Kumtor project responsible for the entire production cycle.

Centerra Gold Inc. (Centerra) is a North American-based gold producer and is the largest Western-based gold producer in Central Asia. The Company is focused on operating, developing, exploring and acquiring gold properties in Asia, the former Soviet Union and other markets worldwide. Centerra’s shares trade on the Toronto Stock Exchange (TSX) under the symbol CG. The Company is headquartered in Toronto, Ontario, Canada.

The Kyrgyz Republic, via Kyrgyzaltyn JSC, is Centerra’s largest shareholder owning 77,401,766 shares (about 33%). As of November 17, 2014, Kyrgyzstan’s interests were estimated at more than $336 million.

Currently, Centerra has two producing gold mines in the Kyrgyz Republic and Mongolia. The Company also owns the Gatsuurt development project in Mongolia, the Öksüt Gold Project, Turkey, and has interests in the promising exploration properties in Mongolia, Turkey and Western Canada.

Additional information on Centerra and the full text of the news release on the results of the third quarter of 2014 are available on SEDAR at www.sedar.com and the corporate websites at www.centerragold.com and www.kumtor.kg.