Q2 2016 Centerra Gold Inc Earnings Call
Jul 27, 2016 AM EDT
CG.TO - Centerra Gold Inc
Q2 2016 Centerra Gold Inc Earnings Call
Jul 27, 2016 / 03:00PM GMT
==============================
Corporate Participants
==============================
* John Pearson
Centerra Gold, Inc. - VP of IR
* Scott Perry
Centerra Gold, Inc. - CEO
* Frank Herbert
Centerra Gold, Inc. - President
* Darren Millman
Centerra Gold, Inc. - CFO
* Gordon Reid
Centerra Gold, Inc. - COO
==============================
Conference Call Participants
==============================
* Mike Gilronan
Bank of America - Analyst
* David Houghton
CIBC - Analyst
* Daniel McConvey
Rossport Investments - Analyst
* Greg Barnes
TD Securities - Analyst
* Trevor Turnbull
Scotia Bank - Analyst
==============================
Presentation
------------------------------
Operator [1]
------------------------------
Ladies and gentlemen, thank you for standing by and welcome to the Centerra Gold 2016 second quarter results conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session.
(Operator Instructions)
As a reminder, this conference is being recorded, Wednesday, July 27, 2016.
I would now like to turn the conference over to John Pearson, Vice President, Investor Relations. Please go ahead, sir.
------------------------------
John Pearson, Centerra Gold, Inc. - VP of IR [2]
------------------------------
Thanks, Malika. I'd like to welcome everyone to Centerra Gold's second quarter conference call. Today's conference call is open to all members of the investment community and the media in listen-only mode. There are slides available on Centerra's website, which the speakers will refer to with their remarks. After the formal remarks are finished, the operator will give the instructions for asking a question, and we will the phone like to questions. Please note that all figure are in US dollars, unless otherwise noted.
Today on the call I have Scott Perry, Chief Executive Officer, Frank Herbert, President, Darren Millman, Chief Financial Officer, and Gordon Reid, Chief Operating Officer.
Also I'd like to caution everyone that certain statements made on the call today may be forward looking statements, and as such, are subject to known and unknown risks and uncertainties, which may cause actual results to differ from those expressed or implied. Also, certain measures we will discuss today are non-GAAP measures, and I refer you to our description of the non-GAAP measures in the news release and the MD&A.
For more detailed discussion of the material assumptions, risks and uncertainties, please refer to our news release issues last night along with the MD&A and unaudited financial statements and notes. And to our other filings, which all can be found on CDAR and the Company's website.
And now I'll turn the call over to Scott.
------------------------------
Scott Perry, Centerra Gold, Inc. - CEO [3]
------------------------------
Thanks, John. Good morning, ladies and gentlemen, and welcome to our second quarter earnings conference call. As John mentioned, I'll just be referencing our accompanying presentation that's on our website for this earnings conference call, and I'm starting off on slide number five.
Slide number five, just in terms of our sort of key highlights from our quarterly news release. First and foremost, just in terms of safety, I know in previous quarters we've discussed our focused safety leadership program that we've been rolling out company-wide. This is really a doubling down, if you will, in terms of a recommitted focus to safety. We've themed; Work Safe, Home Safe. And just in terms of some of the key metrics where we currently stand, one of the key metrics that we focus on within the Company is our total reportable injury frequency rate. We target a rate of 0.33 for the year. Year-to-date we're sitting at 0.31. So, we're in good stead. We're targeting further improvements moving forward, obviously, but pleased with the job that our operating teams are doing at the asset-base.
In terms of a key production results, as illustrated here, you can see it was a very strong quarter in terms of gold production, cost pro formance, earnings as well as cash flow. And generally, speaking all of the results are in line with plan if not slightly ahead of plan. So, at Kumtor itself, we produced just under 98,000 ounces of gold at a very sort of competitive all-in sustaining cost of $768 per ounce at Kumtor. Again, we think that really does position the asset as a lower cost quartile asset, and given our production profile is more heavily weighted towards the second half of this year, we would expect to see those very competitive unit costs continuing to decrease over the course of the year as we increase our gold output.
On a company-wide basis, our consolidated all-in sustaining cost was around $822 per ounce. Again, this is in line with plans. So, things are in great stead. I think where this really resonates is in our guidance for the full-year, you would have noted in our earnings release that we are favorably reviving our gold production guidance as well as our company wide all-in sustaining cost guidance from on the gold out put profile. We're increasing the midpoint of the guidance by some 2%.
But probably more importantly in terms of our margins moving forward, we're decreasing the midpoint on our all-in sustaining cost guidance by 14%. So again, that's going to position us very well for ongoing profitability in the back half of this year.
In terms of the headline financial results, which Darren will speak to, just in terms of the net earnings; [Ops tax] basis was just under $3 million, or approximately $0.01 per share.
In terms of our cash flow from operations, it was a positive result of approximately $57 million, or $0.24 per share. In terms of balance sheet, we continue to put forward a peer-leading balance sheet. I'd reference the $527 million in cash that we finished the quarter with. We're on a net cash basis. We have net cash of approximately $427 million.
I just want to touch on Turkey quickly just in terms of our sort of development project pipeline. Oxford is our key asset that we're bringing forward through our project pipeline. And as we move into next year and beyond, we expect this to be the next asset in our operating asset-base, if you will.
On the project financing facility, I think as we've communicated during the quarter, this facility has been established now and we expect to have that closing in Q3 of this year. And again, that's a $150 million facility. Oxford itself, including contingency, is a capital construction budget of approximately $220 million. So, just given our existing balance sheet, our existing profitability and cash flow from Kumtor, we think we're in great shape for financing and moving Oxford forward.
During the quarter as well, still on Turkey, but on Oxford; investors in Centerra or those that are familiar with Centerra would appreciate that we're really just waiting on two key permits before we can commence construction. Those two permits are the Forestry Usage permit as well as the Pastoral Land Use permit. We just recently reported this news result; we're reporting some very good news that we have now received our Forestry Usage permit. In terms of the remaining Pasture Land permit, that's in process as we speak and we think we'll be receiving that here shortly, hopefully in Q3. Once we have that permit in hand, that really puts us in a great position, as I mentioned, to commence construction. So our capital projects team is particularly excited about this.
Just a last bullet point on this slide; obviously the key recent news event was the business combination acquisition of the Thompson Creek Metals that we recently announced. This is a very transformative transaction that's going to really reposition Centerra and really put forward a company or an enterprise that is just increasingly in a position for success. And I've got a couple of slides coming up on that in more detail.
With that, I'll transition to the next slide on slide six. Just in terms of a corporate update, you can just see the top segment in this slide is really just focusing on the strength of our cash flow and our balance sheet. So the year-to-date profile there on the top left is just illustrating the cash flow result for the first six months of this year. You can see, generally speaking, the business continues to operate as an internally funded business model. The one note I would make is our gold output profile is heavily weighted towards the second half of this year at Kumtor. We expect to see increasing contributions in terms of earnings and cash flow from Kumtor.
So in the context of this chart as we look forward as a remainder of this year, we'd expect to see Kumtor really underpinning Centerra building up its balance sheet. The pie chart near the top right really just reflects the net cash position of $427 million. So we're in great shape in terms of our financial foundation. Bottom left just really illustrates the point that there's been minimal share dilution over the years. So it's certainly a company that's very focused on the intrinsic value supporting each share outstanding.
And then just last with the chart in the bottom right; as we've demonstrated year-to-date and over the prior years, the profitability within the business, we continue to boast a very strong positive return earning balance of just under $800 million, which, again, obviously, speaks to the quality of the operating asset-base.
Just moving on to the next slide, on slide seven. Just in terms of the provide guidance for the year. As I mentioned in my opening remarks, just given how well things are performing, particularly at Kumtor. In terms relative to our internal plans, we're slightly ahead of plan on production and well ahead of plan on our cost profile, and that's what really underpinned our conviction and favorably revising our guidance. So what these charts are illustrating, in the bottom left, just in terms of gold production, and this is really just the midpoint of our guidance range. You can see we're increasing our guidance by approximately 2% in terms of full-year gold output.
Where it really resonates is the chart in the bottom right just in terms of our all-in sustaining cost profile. We're actually decreasing our guidance by approximately 14%, so you can hopefully appreciate that in terms of our margins moving forward; we really are guiding for a material expansion relative to our previous guidance.
Just moving on the next slide, on slide eight. As I mentioned, again, in my opening remarks, I think really the key news event recently was the transformational business combination that we're embarking on with Thomas Creek Metals. Speaking on behalf of the Board and the management team, this is a very exciting transaction because it's going to - on a pro forma basis, create a geographically diverse gold producer with a much higher quality producing platform, and importantly, an accompanying growth pipeline that's fully funded.
If you look at some of the key bullet points there, I think one of the key benefits of the transaction is it's going to very favorably reposition our geopolitical profile. If you look at the net asset value of all the assets in our portfolio on a pro forma basis, up to 47% of our net asset value will be domiciled in North America, which is obviously deemed a top-tier jurisdiction in terms of the mining industry. And I think that's going to position us very well through a favorable rerating moving forward.
In terms of the gold productions from the key asset, Mt. Milligan, is actually a lower cost than our existing operating asset-base, so that's going to favorably compliment our profile moving forward.
One of the key items I'd also touch on is the fourth bullet point here; you'll recall that we've amended the Royal Gold stream at Mt. Milligan. We were very focused on maximizing gold exposure through Centerra shareholders. I think the amendment works in favor of that in that previously the gold stream covered 52.25% of all of Mt. Milligan's gold. We've now amended that to be 35% of the gold moving forward, as well as 18.75% of the copper moving forward. So this really makes it a much more gold-heavy asset, which again, I think is beneficial to our shareholders, just recognizing that the capital markets tend to ascribe premium valuation multiples to gold assets as opposed to base-metal assets.
Transactions [itself], just from a financial perspective, it screens very well just in terms of being accretive on a net asset value basis, but also in terms of cash flow per share, earnings per share, production per share, reserves per share and likewise; it represents a very strong - greater return opportunity for Centerra.
Just the last bullet point in terms of the [Luzermen] business; we see a lot of deep value here that is not being recognized as given where we're at in the [moly] price cycle. Obviously we're looking to retain that and as the [moly] price cycle returns to favor in the future, we'll be looking to daylight a lot of that value for the benefits of Centerra's shareholders.
Moving on to the next slide, on slide nine. Slide nine is a very detailed slide; really I'd just highlight the transaction summary at the top. The total transaction value is around $1.1 billion, but in terms of that consideration, approximately 75% of the consideration is cash, with the remainder being Centerra equity. And that's what really underpins the strong accretions that we're seeing on some of the previous metrics that I spoke about earlier.
At the bottom of the slide is the anticipated timeline. Based on what we're seeing in terms of remaining approvals and the shareholder vote on Thompson Creek's, side we think we'll be in the position to be closing this transaction in the fall of this year.
Moving on to the next slide, on slide 10. Again, still just on the Thompson Creek acquisition and the transformative impact that we think this is going to have on the Centerra business model; just looking to illustrate some of the key themes here, these charts. So just in the top left here in terms of production guidance, you can see on a Pro forma basis. This is going to, you know, very meaningfully increase Centerra's company-wide gold output profile. Again, obviously, very beneficial Centerra's shareholders in terms of maximizing their exposure to this constructive gold price environment.
In the top right, just in terms of the all-in sustaining cost profile. As I mentioned earlier, Mt. Milligan is quite complimentive to our existing operating asset-base just given its lower cost profile. So again, that's going to move Centerra down towards the lower quartile here in terms of the comparative peer group, and now operating cost profile.
And just lastly, what I believe is the most important chart, which is the chart here at the bottom of slide 10; we think this is what's going to transaction and the consternation's transaction is really going to position Centerra for a very meaningful rerating in terms of our valuation multiples. You can see Centerra currently, and this is on a consensus basis, currently trades at an asset value multiple 0.8 where the majority of our comparative peer group is trading at a multiple of 1.5. The reason for that is we've always been a single-asset company with our main asset being domiciled in Kyrgyzstan. With this transaction, we've really repositioned a lot of our geopolitical footprint in that up to half of our asset value will now be domiciled in North America.
And obviously, a second producing asset, a second source of earnings, a second source of cash flow, through that diversity as we move forward, I think that's going to position us very well, again, for a positive evaluation rerating.
With that, that sort of concludes my opening remarks, and I'm now going to turn the call over to Gordon Reid, our Chief Operating Officer.
------------------------------
Gordon Reid, Centerra Gold, Inc. - COO [4]
------------------------------
Thanks, Scott. I'll be speaking to slide 12. Safety performance in the quarter was very good with two reportable injuries; both at Kumtar. And six reportable injuries year-to-date. Our industry-leading total reportable injury frequency rate for the quarter was 0.24, and year-to-date is 0.31.
As we announced earlier, Kumtar received all of the necessary permits and approvals required to operate the mine until the end of the year. In the quarter, Kumtar produced 97,724 ounces of gold, as expected, at an all-in sustaining cost of $768 per ounce sold. Year-to-date, Kumtar's production is 184,168 ounces of gold at an all-in sustaining cost of $816 per ounce sold. Kumtar continues to benefit from the low price for diesel fuel, up from the weakness in the Kyrgyz som verses the US dollar. We have narrowed the range of our year end production guide to Kumtar to 500,000 to 530,000 ounces, and lowered our all-in sustaining cost guide to Kumtar to $717 to $759 per ounces sold.
Prior to the end of the quarter, Kumtar intersected the higher grade ore from Cutback 17 in the SB zone, which will provide the majority of the ore to be processed during the remainder of the year. More mining and Cutback 17 will continue into the fourth quarter, at which time there will be approximately two years of no production capacity in the surface ore stockpiles.
In Turkey during the quarter, our Oksut project received its Forest Re-land use permit; the Pasture Use Land land use permit is still in the review process and is anticipated to be reviewed in Q3. With these permits approved, Oksut will be applying for its operating license, which will allow us to begin construction within the project area.
The environmental and social impact statement for Oksut was completed, and public hearings were held with no significant concerns expressed. At this time, we believe the failed coupe attempt will have no impact on project development or on the security of our employees in Turkey.
In Mongolia during the quarter, drilling continued at our Gatsuurt Project to gather information for the update to the technical economic study and to increase the resource-base. We remain on track to complete the update to the Gatsuurt technical economic study in Q1 2017. Negotiations on the Gatsuurt investment agreement and deposit development agreement were suspended in the quarter pending the parliamentary election held in June. It is anticipated that negotiations will be reinitiated in Q3 after parliament resumes.
The environmental and social impact statement for Gatsuurt was completed in June; public hearings were scheduled for and subsequently held in early July. Meetings of further engagement with the local communities continue.
In Ontario, at our 50% on Greenstone Project, work continues on the development of a bankable feasibility study. It is anticipated the feasibility study will be completed in Q4, followed by the publication of an NI43 1:1 compliant technical report. The final environmental assessment will be filed several weeks following the publication (inaudible) report.
Greenstone's relationship with its local stakeholders, including the township of Greenstone and the local First Nation's communities, is positive. Negotiations continue on the development of mutually beneficial impact benefits agreements with the impacted communities.
I'll now turn it over to Darren to talk about financials.
------------------------------
Darren Millman, Centerra Gold, Inc. - CFO [5]
------------------------------
Thanks, Gordon. Referring to slide 14 for these initial remarks. Revenue for the quarter was $161 million from selling 127,909 ounces, reflecting 4% more sold from the prior year quarter. Our average gold price realized was $1,264 per ounce, which was up 6% from last year.
This results in a $2.9 million net earnings, or $0.01 per share, and also generating $57.2 million of operating cash flow, or $0.24 per share. We produced just under 98,000 ounces, which is down 22% from last year. However, we are tracking to plan.
The next comments referring to slide 15. The other financial highlights during the quarter, which Scott has also mentioned, was we established $150 million project financing for the Oksut Projects, which we are targeting to be complete in Q3. We also put in place a new $325 million revolver and term loan with Scotia Bank as part of the TCM transaction. Also, as part of the TCM transaction, we closed a board deal with net proceeds of approximately CAD185 million.
These new facilities, along with a strong cash flow position and projected free cash flow from our operations will result in Centerra still being a lower-levered company, and provides us with the financial flexibility to fund our project pipeline.
At the end of the quarter, we favorably revised our guidance on the lower all-in sustaining cost guidance, and you'll see the magnitude in the bottom left hand corner, with volume reduction in access of $18 per ounce. Also, $18 per ounce on lower sustaining capital, and $89 per ounce on lower operating and stripping costs.
The key costs, such as diesel and local Kyrgyz som expenditures represent about 40% of our operating cost, and we're trading below our guidance. So our new guidance reflects the Kyrgyz som now trading at KGS71 to $1 compared to previous assumptions of KGS65 to $1. Our diesel now at $0.43 a liter at Kumtor versus our prior guidance of $0.55 per liter. And as you will note in the sensitivities on slide 22, both assumptions have significant cost impact and cash flow impact.
Finally, all our physical and financial metrics indicate we are well on track to meet our (inaudible). I'll turn it back to Scott.
------------------------------
Scott Perry, Centerra Gold, Inc. - CEO [6]
------------------------------
Thanks, Darren. Just moving on to slide 17, which is the final slide in the deck. And so, really just a few comments to summarize or just reiterate in terms of recapping our Q2 results.
The Company continues to be in a solid financial position just given the high level of profitability in cash flow, but also the very strong financial position that we're in. That's what gives us very high confidence in terms of our ability to deliver on our growth pipeline moving forward.
For 2016, in terms of this new guidance, we're on track to meet the favorably revised production guidance and cost guidance. So again, that's going to position us very well throughout the year. Also, yesterday we just ordered a separate press release, just in regard to our dividend policy. Centerra has maintained its CAD0.04 per share dividend policy for the quarter. I think at our current share price that represents and annualized dividend yield of approximately 2.1%.
As Gordon mentioned in his remarks, all of our development projects continue to move forward and things are progressing well there. And really just last week - again, on Thompson Creek, hopefully you can appreciate that we, management, are really looking forward to closing this transaction in the fall of this year. We think this is really going to create a geographically and operationally much more diversified gold producer with very high quality producing platform and strong growth pipeline moving forward.
With that, I'll conclude it there and we'll open up the call for questions. So, Operator, if you could please give instructions on the process.
==============================
Questions and Answers
------------------------------
Operator [1]
------------------------------
(Operator Instructions) Mike Gilronan from Bank of America.
------------------------------
Mike Gilronan, Bank of America - Analyst [2]
------------------------------
Just going to the Greenstone Project, I just wonder if you could elaborate what certain aspects of the study are being optimized. And for a bankable feasibility study, what IRR are the banks looking for, what minimum threshold?
------------------------------
Gordon Reid, Centerra Gold, Inc. - COO [3]
------------------------------
The work that's being done on the feasibility study is just to update all our assumptions, to review all our assumptions, to make sure that we're presenting the Project as properly as we can.
In terms of the bankable aspect of it, the banks I don't think - they do look at a rate of return, and I don't want to comment on what proper rate of return they are looking for, but certainly from our perspective we want one that is of sufficient quality that a bank can use it to make a decision. And that is within 15% on cost, plus or minus, and in the range of 30% of the engineering or better complete.
------------------------------
Operator [4]
------------------------------
David Houghton from CIBC.
------------------------------
David Houghton, CIBC - Analyst [5]
------------------------------
Now, just following on from Mike's question; you noted that the Greenstone Study now due in the fourth quarter. I think previously it was going to be in the middle of the year. And also the spend that you've got there is up from $11 million to $37 million.
I'm wondering if you could explain whether that slower time for the study is as a result of change in scope or you're just being more cautious, and what the additional spend might relate to.
------------------------------
Scott Perry, Centerra Gold, Inc. - CEO [6]
------------------------------
In terms of the first part of your question, I'm really going to repeat a lot of what Gordon said. But ourselves and our partners, I think we recognize that this project is obviously a very high value proposition, especially given the current Canadian denominating gold price.
But having said that, it's a project or and asset that we really want to make sure we can establish product financing for as well. So we were very cognizant that when it comes to the feasibility study, in terms of the finalized draft, that was available in June, but the management team had identified a number of optimization opportunities, and we took the view of our partner that we really wanted to capture some of those optimization opportunities to make sure, in terms of the finalized document that we're going to put forward to the market, but more importantly that we're going to present to the potential lenders; we want to have all those value opportunities captured in the document.
Again, ourselves and Premier, we said, look, timeline is not a negating item; the most important aspect here is recognizing that the lenders are the ones that are going to have a large influence on the overall decision. So let's make sure that we're putting forward the most robust, exhaustive feasibility study that we can. And that's why, again, ourselves and our partners chose to extend the timeline to capture those optimization scenarios.
In terms of the second part of the question, in terms of the increased spend; that's really just due to the additional time for feasibility.
------------------------------
Gordon Reid, Centerra Gold, Inc. - COO [7]
------------------------------
Yes, actually, the original estimate was just that. We only budgeted and forecast what would be required to complete the feasibility. And as Scott just noted, with the extension of that timeline, additional cost came into our guidance that we hadn't captured before. The current cost guidance is our expectation to the end of 2016 -
------------------------------
David Houghton, CIBC - Analyst [8]
------------------------------
Okay, so -
------------------------------
Gordon Reid, Centerra Gold, Inc. - COO [9]
------------------------------
-- fixed cost stays, if you can appreciate that.
(Multiple Speakers)
------------------------------
David Houghton, CIBC - Analyst [10]
------------------------------
Yes, the commentary also says that additional spend as you've assumed a positive study coming out. Would some of the Project spend be included in that? Or some of what you're spending be applied to the project?
------------------------------
Gordon Reid, Centerra Gold, Inc. - COO [11]
------------------------------
Yes; the current guidance does assume the project continuing beyond the completion of the feasibility study.
------------------------------
David Houghton, CIBC - Analyst [12]
------------------------------
Good news on the improvement on the cost guidance for Kumtor, just changing topics here. And I presume that a good part of that improvement relates to what was discuss on the call about better energy prices and the weaker som. Is that all of the improvement, or are there some other areas that you're seeing some cost improvements as well?
------------------------------
Gordon Reid, Centerra Gold, Inc. - COO [13]
------------------------------
Well, we have a very active continuous improvement program at Kumtar, and in addition to the savings in fuel and the savings in the foreign exchange, improvements we've made including hot changes in the mine, including converting our traditional truck trays to a lighter weight tray to carry more capacity; we've seen some benefit to that as well.
------------------------------
David Houghton, CIBC - Analyst [14]
------------------------------
And it looks like some of the strip is going to be increasing from what we had previously assumed in the second half. Is that correct?
------------------------------
Gordon Reid, Centerra Gold, Inc. - COO [15]
------------------------------
Well, the strip doesn't change, but it's no longer capitalized since we've now intercepted the ore zone. So now it will be expanse going forward.
------------------------------
Operator [16]
------------------------------
Daniel McConvey from Rossport Investments.
------------------------------
Daniel McConvey, Rossport Investments - Analyst [17]
------------------------------
First off, just to follow up on David's call. I think what he was asking was on that feasibility. Is there anything in that $37 million to $38 million for long-lead items, or anything of that nature, or is that just all the study?
------------------------------
Scott Perry, Centerra Gold, Inc. - CEO [18]
------------------------------
No, there's nothing like that. It's more just sort of ongoing engineering, et cetera. But yes, no infrastructure sort of purchases, if you will.
------------------------------
Daniel McConvey, Rossport Investments - Analyst [19]
------------------------------
On Oksut, I'm happy to hear that you're not anticipating any delays. I'm just, you know, given all the news flow from Turkey in the last couple of weeks, is there any more details on the ground that you're hearing from your guys, i.e., the people giving the permits? They're the same people; there hasn't been any rotation of some key people that were involved in this?
And second, just on the banks; it's also good hear that they're all on board and just your confidence level that they're going to follow through on this is high. I mean, I just would expect with the situation everything to turn out fine. But maybe there'd be a temporarily hold of some time, but it doesn't sound like that's the case.
------------------------------
Scott Perry, Centerra Gold, Inc. - CEO [20]
------------------------------
No, I mean, our guys on the ground continue to be cautiously confident that we'll be receiving that remaining permit, the Pastoral Land permit potentially here in Q3. That was always the understanding. But you know, I feel like I want to hedge that response because I accept what you're putting forward, the context of what you're putting forward.
There's been a lot of change in Turkey that within the industry, if you will, or within the business circles, if you will, the government, the Administration, has been very clear that it's business as usual. So, ourselves as well as yourself are looking to see that validated. I'll conclude it there; we, as per our guidance and our commentary, we do expect to receive that permit here shortly.
------------------------------
Operator [21]
------------------------------
Trevor Turnbull from Scotia Bank.
------------------------------
Trevor Turnbull, Scotia Bank - Analyst [22]
------------------------------
I was just looking at the slide where you detailed the capital for Kumtor. It looked like $75 million in sustaining, $22 million in growth. And I don't have it in front of me, but it seemed like last night you were saying that in the press release, I think total CAPEX for Kumtor was supposed to be $140 million. I guess I somehow was missing on the math. Is that the pre-strip that's already be capitalized in the first half of the year that takes us to $140 million?
------------------------------
Scott Perry, Centerra Gold, Inc. - CEO [23]
------------------------------
I may have to get back to you offline on that, Trevor. We don't have all the information materials in front of us. But I guess where we're at Kumtor is we're ahead of mine plans in that we've liberated the higher grade ore now that Cutback 17 is finalized. We're about 2.5 weeks ahead of schedule.
On a go-forward basis, in terms of capitalizing our stripping, you're not going to see that moving forward.
------------------------------
Trevor Turnbull, Scotia Bank - Analyst [24]
------------------------------
So as per the earlier question, that does get expensed in the second half of the year. Yes, sorry, I think I - just as we talked it all fell into place. The only other question I had is just following up a little bit more on Turkey.
So, to get that permit for Forestry, kind of with the backdrop of everything that's been happening in Turkey seems very positive just given that the government must feel the distractions of everything going on. Is the Pastoral Land Use permit - are these things that go all the way to the Prime Minister's office? Or are they being handled more at the Ministry level?
------------------------------
Scott Perry, Centerra Gold, Inc. - CEO [25]
------------------------------
At a high level, right, illustratively how it works is it starts off by going through all the sort of sub-agencies and makes its way up to the Prime Minister's office. And thereafter, once it's approved, it sort of comes back through the sub-agencies in the form of the certification, which is presented to the Company.
So where we're currently at with our Pastoral Land Use sort of permit application is we've received the sort of the informal approvals by all the sub-agencies, and now it's sitting in the Prime Minister's office. And again, I'm being repetitive. Our understanding was that we could be expecting potential approval of that pretty shortly. And that's really where things stand at the moment.
------------------------------
Operator [26]
------------------------------
(Operator Instructions) Greg Barnes from TD Securities.
------------------------------
Greg Barnes, TD Securities - Analyst [27]
------------------------------
I just want to follow up on a comment in the MD&A about the cash distributions from Kumtor being held up by one of these legal disputes. I think it's with the SAEPF. Where does that stand and how long do you think this is going to last for?
------------------------------
Frank Herbert, Centerra Gold, Inc. - President [28]
------------------------------
You are correct; there is a court order in the Kyrgyz Republic that ring-fences the cash that comes into Kumtor Gold Company. It's worth adding here that Kumtor Gold Company's accounts are not located in the Kyrgyz Republic. So in fact, the cash from our gold sales comes into a bank account in New York, Kumtor Gold Company bank account in New York. Lines are held outside the Kyrgyz Republic, and will continue to be held outside the Kyrgyz Republic.
We are engaged in discussions with the Kyrgyz government now around all of the issues that relate to the Kumtor mine, including that matter. And we will be working with them, our counterparts in the Kyrgyz Republic, to try to resolve those issues. And obviously, that's an important matter for us in terms of our continuing to operate the mine and enjoy the benefits of the mine. So, we'll continue to generate free cash from the mine. We'll continue to put it into our account in New York and work with our Kyrgyz counterparts to free that up in due course.
------------------------------
Greg Barnes, TD Securities - Analyst [29]
------------------------------
Is this going to have any impact on the cash that you're required to close on the Thompson Creek transaction?
------------------------------
Frank Herbert, Centerra Gold, Inc. - President [30]
------------------------------
No. No, it will not.
------------------------------
Scott Perry, Centerra Gold, Inc. - CEO [31]
------------------------------
Absolutely not.
------------------------------
Greg Barnes, TD Securities - Analyst [32]
------------------------------
And how much cash do you anticipate being generated from Kumtor over the second half of the year?
------------------------------
Scott Perry, Centerra Gold, Inc. - CEO [33]
------------------------------
We don't provide guidance on cash flow.
------------------------------
Greg Barnes, TD Securities - Analyst [34]
------------------------------
So it's just stuck in New York right now, but you're working with the government to release dividends from that account. Is that basically where things stand?
------------------------------
Scott Perry, Centerra Gold, Inc. - CEO [35]
------------------------------
That's correct. Yes.
------------------------------
Operator [36]
------------------------------
(Operator Instructions) And I'm showing no further question at this time, sir.
------------------------------
Scott Perry, Centerra Gold, Inc. - CEO [37]
------------------------------
With that, thank you for everyone for joining our call and we look forward to touching base shortly. Thank you.
------------------------------
Operator [38]
------------------------------
Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation, and ask that you please disconnect your lines.
------------------------------
Definitions
------------------------------
PRELIMINARY TRANSCRIPT: "Preliminary Transcript" indicates that the
Transcript has been published in near real-time by an experienced
professional transcriber. While the Preliminary Transcript is highly
accurate, it has not been edited to ensure the entire transcription
represents a verbatim report of the call.
EDITED TRANSCRIPT: "Edited Transcript" indicates that a team of professional
editors have listened to the event a second time to confirm that the
content of the call has been transcribed accurately and in full.
------------------------------
Disclaimer
------------------------------
Thomson Reuters reserves the right to make changes to documents, content, or other
information on this web site without obligation to notify any person of
such changes.
In the conference calls upon which Event Transcripts are based, companies
may make projections or other forward-looking statements regarding a variety
of items. Such forward-looking statements are based upon current
expectations and involve risks and uncertainties. Actual results may differ
materially from those stated in any forward-looking statement based on a
number of important factors and risks, which are more specifically
identified in the companies' most recent SEC filings. Although the companies
may indicate and believe that the assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate or
incorrect and, therefore, there can be no assurance that the results
contemplated in the forward-looking statements will be realized.
THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION
OF THE APPLICABLE COMPANY'S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO
PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS,
OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS.
IN NO WAY DOES THOMSON REUTERS OR THE APPLICABLE COMPANY ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER
DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN
ANY EVENT TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S
CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE
MAKING ANY INVESTMENT OR OTHER DECISIONS.
------------------------------
Copyright 2018 Thomson Reuters. All Rights Reserved.
------------------------------