Centerra Gold Inc Earnings Call

May 02, 2017 AM CEST
Thomson Reuters StreetEvents Event Transcript
E D I T E D   V E R S I O N

CG.TO - Centerra Gold Inc
Centerra Gold Inc Earnings Call
May 02, 2017 / 12:30PM GMT 

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Corporate Participants
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   *  Darren J. Millman
      Centerra Gold Inc. - CFO and VP
   *  Frank H. Herbert
      Centerra Gold Inc. - President
   *  Gordon Dunlop Reid
      Centerra Gold Inc. - COO and VP
   *  John W. Pearson
      Centerra Gold Inc. - VP  of IR
   *  Scott Graeme Perry
      Centerra Gold Inc. - CEO and Non-Independent Director

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Conference Call Participants
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   *  David Haughton
      CIBC World Markets Inc., Research Division - Research Analyst
   *  Michael Siperco
      Macquarie Research - Gold Analyst
   *  Rahul Paul
      Canaccord Genuity Limited, Research Division - Director
   *  Robert Reynolds
      Crédit Suisse AG, Research Division - Research Analyst

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Presentation
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Operator   [1]
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 Ladies and gentlemen, thank you for standing by, and welcome to the Centerra Gold 2017 First Quarter Results Conference Call and Webcast. (Operator Instructions) As a reminder, this conference is being recorded Tuesday, May 2nd, 2017.

 I would now like to turn the conference over to John Pearson, Vice President, Investor Relations. Please go ahead, sir.

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 John W. Pearson,  Centerra Gold Inc. - VP  of IR   [2]
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 Thank you, Jennifer. I'd like to welcome everyone to Centerra Gold's First Quarter Conference Call. Today's conference call is open to all members of the investment community and media, in listen only mode at first, then we will turn it over for question and answers after our presentation. There are slides available on Centerra's website under the upcoming events webcast tab to supplement the speakers' remarks. So after the formal remarks, the operator will give the instructions for asking a question, and then we'll open the phone line up to questions. Please note that all figures are in US dollars unless otherwise noted.

 Joining me on the call today, is Scott Perry, Chief Executive Officer; Frank Herbert, President; Gordon Reid, Chief Operating Officer; and Darren Millman, Chief Financial Officer.

 I would like to caution everyone that certain statements made on this call may be forward-looking statements, and as such, are subject to known and unknown risks and uncertainties. Also, certain of the measures we will discuss today are non-GAAP measures and I refer you to our description of non-GAAP measures in both in the news release and the MD&A. For a more detailed discussion of the material assumptions, risks and uncertainties, please refer to our news release and MD&A issued last night along with the unaudited financial statements and notes and to our other filings, all of which can be found on SEDAR and the company's website.

 And now I'll turn the call over to Scott.

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 Scott Graeme Perry,  Centerra Gold Inc. - CEO and Non-Independent Director   [3]
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 Okay, Thank you, John. And good morning, everyone, and thank you for dialing into our First Quarter Earnings Conference Call. As John mentioned, we have an accompanying presentation that's on our website, and I'm just starting off with Slide #5 of that presentation deck.

 As always, we like to start off with safety, but unfortunately this time, we're going to be starting off in a bit of downbeat sort of beat, if you will. Outside of the quarter on April 11, a most unfortunate work accident took place at our Kumtor operation that tragically resulted in the loss of life of one of our employees who had been a key member of our Kumtor mechanical team for the last 8 years. We at Centerra are all deeply saddened by this event, and we extend our deepest condolences to the individual's family, friends and colleagues.

 Centerra is absolutely committed to the well-being of our employees and contractors at all our sites. So it goes without saying that this incident was very disheartening for all of our senior management team, as one of our core beliefs is that our people are our biggest assets. In such regard, a safe work place and the safeguarding of our people is the fundamental principle of the company, and this tragedy has strengthened our commitment to our company-wide safety leadership program: Work Safe, Home Safe. Again, we are deeply saddened by this event and we extend our deepest condolences to the individual's family, friends and work colleagues.

 Moving into some of the operating results for the first quarter. Q1 really represented the first quarter where Centerra could showcase 2 world-class lower-cost quartile assets. We're very excited, very pleased to now have Mount Milligan in the portfolio. When you look at the Q1 results that we posted in terms of gold output, copper production, unit cost, indicative sort of profitability, we think it's an asset that's going to very favorably complement our existing world-class assets at Kumtor.

 Looking at some of the highlights here. You can see during Q1, we generated net earnings of $57 million or $0.20 per share. And that, what was really underpinning that strong level of profitability was the gold output and the copper output on a company-wide basis. So the strong gold production of 172,000 ounces, and again, strong copper production of 12.6 million pounds.

 I think what really distinguishes our portfolio and our asset base is our company-wide all-in sustaining cost. Looking in the fourth bullet point here, you can see on a company-wide basis, our cost of gold production, our all-in sustaining cost was around $756 per ounce. That's very competitive. That definitely positions our portfolio in the lower-cost quartile. And I think importantly, it's showcasing a portfolio that should be profitable at all phases of the metal price cycle moving forward.

 What's really driving these lower costs is Mount Milligan. In Q1, our all-in sustaining cost per gold ounce came in at $530 for the quarter. Again, that's world-class, that's very competitive. And one of the things I've highlighted, if you reference our guidance for the full year, we are expecting consecutive quarter-over-quarter increases in our gold output, again, in the back half of this year. It's a back-ended gold production profile. So in terms of that all-in sustaining unit cost, we'd expect it to continue to benefit from the growing gold production denominator.

 The next bullet point there, just in terms of operational cash flow generation. Strong quarter, both at Kumtor and Mount Milligan. Kumtor generated around $102 million of positive operating cash flow before working capital. Likewise, Mount Milligan generated $32 million positive operating cash flow before working capital.

 Again, referencing our guidance, as we grow our metal output over the course of this year, we expect that level of cash flow generation and indicative profitability to grow as well. Just the last point here on Slide 5. Obviously, with our news release today, we are reconfirming our outlook for 2017, both in terms of production and cost guidance.

 If I can just transition to the next slide of the presentation deck, just on Slide #6. There's a waterfall chart here in the top left of Slide 6 that just looks to graphically illustrate our cash flow statement for the quarter. You can see we commenced the quarter with $409 million in aggregate cash. First 2 green increments there just illustrate the positive operating cash flow before working capital changes from our asset base, being Kumtor and Mount Milligan. And you can see the first red decrement is just -- represents unfavorable working capital changes, primarily reflecting March's concentrate shipment from Mount Milligan with the monetization of this shipment not coming in until the subsequent quarter. And you can see our capital expenditure investment requirement.

 And the one thing I'd note, which Darren will talk to, is you can see, during the quarter, we paid down $25 million of our EBRD revolving line of credit facility. And then we also had the $12.5 million principal amortization payment on our Thompson Creek facility. Pretty much in aggregated, if you were add back these 2 debt facility principal repayments, the closing cash balance of $358 million would be very consistent with the opening cash balance in terms of the way we started the year.

 The pie chart here on the top right just, again sort of summarizes the treasury position for the company. You can see, our debt is $438 million, this is down from $475 million at year-end. And then you can see our aggregate cash position, we have restricted cash of $277 million and unrestricted cash of $81 million. The restricted cash represents the cash reserves of our subsidiary, Kumtor Gold Company. This restriction is associated with the -- a number of disputes that have been referenced in our disclosure. All of this cash is actually domiciled in the U.S., but in terms of the legal owner of this -- of these bank accounts is actually our subsidiary, Kumtor Gold Company.

 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-encompassing sort of dispute resolution agreement that would see all of these restrictions released and would see this cash becoming fully unencumbered.

 I think there's some things that both ourselves and the leadership of Kyrgyzstan would point to, symbolically, that the level of engagement is constructive and proceeding well. What I would point to is particularly our mine permits. As you may know, we've got all of our permits in place for the full calendar year. Part of this year's mine plan, we're now developing the Sarytor open pit deposit which is adjacent to our existing open pit operation. That's fully permitted. We've recently just received our permit to expand our tailings storage facility as well.

 So in terms of the dynamic, symbolically, good things are taking place. This level of dialogue continues. And cautiously optimistic that we should be seeing some positive news flow here at some point this year, shortly.

 The chart in the bottom right is just on our retained earnings profile. As at the end of Q1, you may note in the balance sheet that we finished with positive retained earnings in excess of $900 million. Obviously, that speaks to the strong profitability at Kumtor. But again, something that's going to be favorably complemented by the high-quality, low-cost production from Mount Milligan.

 With that, I'll pause, and I'm going to pass it over to Gordon Reid, our Chief Operating Officer. And Gord will walk through some of the production highlights.

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 Gordon Dunlop Reid,  Centerra Gold Inc. - COO and VP   [4]
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 Thanks, Scott. In the quarter, there was 1 reportable injury. In the process of welding 2 pieces of HDPE dewatering pipe together, a contract worker at Kumtor broke his collarbone when he fell to the ground after being struck by a section of dewatering pipe being slung under an excavator.

 The total reportable injury frequency rate for the quarter and year-to-date is 0.1. On April 24, Mount Milligan achieved 1 million man-hours work without a lost time incident. This is a significant achievement and is a testament to the dedication to safety of the Mount Milligan workforce and leadership.

 Work Safe, Home Safe continues to be rolled out across the organization. It is our expectation that all Centerra employees will receive the Work Safe, Home Safe training by the end of the year.

 Moving to operating results. For the quarter on a consolidated basis, we produced 172,644 ounces of gold at an all-in sustaining cost of $756 per ounce. Copper is treated as a byproduct, and the revenue from the 12.6 million pounds produced at Mount Milligan in the quarter is included as an offset to the all-in sustaining cost. Kumtor produced 127,400 ounces at an all-in sustaining cost of $762 an ounce. And Mount Milligan produced 45,244 ounces at an all-in sustaining cost of $530 per ounce.

 Consolidated production guidance for 2017 is unchanged at 715,000 to 795,000 ounces of gold produced at an all-in sustaining cost of $743 per ounce to $824 per ounce on a byproduct basis. Kumtor will produce 455,000 to 505,000 ounces of gold, and Mount Milligan will produce 260,000 to 280,000 ounces of gold. Copper production will be 55 million to 65 million pounds of copper.

 Unit mining cost at Kumtor in the first quarter was a $1.22 per tonne mined. Mining costs were favorably impacted by improved haul roads that have resulted in improved tire life and higher average haulage speeds, by the addition of greedy boards, which has increased payload by as much as 10 tonnes per load, by a favorable downhill haulage profile resulting in lower fuel consumption and by other business improvement initiatives. Kumtor continues to benefit from the low diesel fuel prices.

 Mine production at Kumtor remains on track to access the Sarytor ore in the second half of the year, which is scheduled to provide mill feed in the fourth quarter. Milling cost at Kumtor was $10.05 per tonne for the quarter.

 At Mount Milligan, average unit mining cost for the quarter was $1.60 per tonne. Mine production is ahead of target as mining has been decoupled from processing, allowing for the buildup of ore stockpiles that will allow us the flexibility to blend ore feed to the mill to provide a consistent feed, thereby improving metallurgical recovery and to pull grade forward. Milling cost at Mount Milligan was $4.35 per tonne for the quarter.

 At Mount Milligan in the first quarter, we undertook an operational review with subject matter experts from across the organization that identified several value-adding projects that, when implemented, we anticipate will result in improved recovery, throughput and unit cost performance by year-end.

 The molybdenum business had a solid quarter, selling 4 million pounds of molybdenum prices into the market at an average sales price of $8.52 per pound, resulting in $1.7 million in positive operating cash flow before accounting for working capital changes.

 The business model of toll processing and the purchase and upgrade of substandard molybdenum concentrate for further processing and resale to offset the cost of care and maintenance of the Endako and Thompson Creek mines has demonstrated to be successful. We are encouraged by the strengthening of the molybdenum market since our acquisition of Thompson Creek mines in October.

 I draw your attention to Slide #10. In Turkey, the power line being constructed by TEAS, who is the state power authority, to our Öksüt project, is approximately 75% complete. And the pictures, the photos on slide 10 show the poles and the substation that's been dedicated to our OMAS project.

 We have the necessary permits in hand to continue exploration drilling on our Öksüt land package. This drilling is expected to commence in the second quarter. We remain confident that the final permit required to begin construction in Öksüt is forthcoming.

 I will now turn the meeting to Darren.

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 Darren J. Millman,  Centerra Gold Inc. - CFO and VP   [5]
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 Thanks, Gord. Good morning, everyone. To those following on the slide deck, I'm on Slide 12. Total revenue from operations during the quarter was $285 million. Gold revenue increased 200% to $222 million, with Kumtor's revenue increasing to $164 million or 124% increase from the prior year quarter. This was largely attributable to this additional 73,000 ounces sold during the quarter.

 This quarter was also the first full quarter of the Mount Milligan operations, contributing $56 million and $28 million in gold and copper sales, respectively, from 3 concentrate shipments.

 In total, 187,914 ounces of gold was sold during the quarter and 13.6 million pounds of copper. The average realized gold price for the quarter was $1,172. This accounts for both third-party gold sales and the gold stream. As mentioned by Gord, the molybdenum business unit had a solid quarter, selling 4 million pounds of molybdenum products, with total sales of $34 million.

 Operating cash flow before changes in working capital increased to $118 million. While Kumtor operating cash flow contributed a significant share of this cash flow. I would highlight the addition of the Mount Milligan operations, which -- with a $32 million contribution, is meaningful when you also consider that only $26 million total capital expenditure is planned for the Mount Milligan operations in 2017.

 And our net earnings was $57 million or $0.20 per share. I'll just move to Slide 13 for those following. During the quarter, we repaid $25 million of the EBRD facility and $12 million of the term facility.

 In January, we also commenced a copper hedging program. The objectives were set -- were to set levels of minimum cash flow generation from the copper production while still providing potential exposure to copper price movements. The 2 forms of copper hedges entered into for 2017 are forward contracts with contract prices outstanding ranging from $2.68 to $2.70 per pound and 0-cost collars prices ranging from a minimum of $2.25 up to $3.21 per pound. More details are provided on page 11 of the news release.

 In April, we also entered into a 0-cost collar hedge for gold production at the Mount Milligan mine for 2017 with a minimum price set at $12.25 per ounce and an average up to $13.71 per ounce. This represents approximately 10% of the midpoint of the unstreamed gold production.

 You will note that the cash balance reduced to $358 million at the end of the first quarter. This was expected. Based on forecast, we expect both mine sites' cash flow to considerably grow throughout the year, with Q4 2017 playing to be the highest level production at both mines.

 With that, I'll hand back to Scott.

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 Scott Graeme Perry,  Centerra Gold Inc. - CEO and Non-Independent Director   [6]
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 Okay. Thank you, Darren. Just referencing Slide 15, which is the last slide in our deck. You can see the pie chart there in the top right just really illustrates the transformative impact, with the addition of Mount Milligan following the Thompson Creek acquisition into our portfolio and our operating asset base. Very transformative just in terms of recalibrating are our geopolitical risk profile, in terms of where our net asset value is now domiciled.

 As the pie chart illustrates, you can see that nearly up -- just under half of our value, and this is on a consensus analyst basis, is now domiciled in North America. So I think it's been very favorable from that perspective. But hopefully, more importantly, as we've been demonstrating with these sort of inaugural Q1 results, where we've got a full quarter contribution from Mount Milligan, we're also seeing the transformative impact that it's having on our profitability, our level of cash flow generation, our all-in sustaining unit cost, as well as our overall gold production profile. We think it's a pretty set -- a pretty competitive set of results.

 In terms of the business plan moving forward, that's really illustrated by the waterfall chart in the bottom right. As you can see, with these 2 blue increments being Kumtor and Mount Milligan, this is now our asset base moving forward. We think both assets are pretty close to world-class, just given the level of gold production, the low-cost, significant asset life moving forward. And particularly at Mount Milligan, currently, we've have a delineated reserve asset life of some 21 years. We think that's going to be a good asset to really build the company around.

 In that regard, we'll be looking to increasingly deploy the cash flows from the profitable production at Kumtor and Mount Milligan, and be looking to build out our project pipeline, which is illustrated by the gold increments here, being Öksüt in Turkey, Gatsuurt in Mongolia and then our Greenstone joint venture project here in Canada.

 So with that, I think what would make sense now is to pass the call back over to Jennifer. And we management will be more than happy to take any Q&A.

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Questions and Answers
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Operator   [1]
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 (Operator Instructions) And our first question comes from the line of Rahul Paul with Canaccord Genuity.

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 Rahul Paul,  Canaccord Genuity Limited, Research Division - Director   [2]
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 At Kumtor, that was a really strong quarter. Do you have any more of the high-grade stuff, as in cutback 17, that could go through the middle in Q2?

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 Gordon Dunlop Reid,  Centerra Gold Inc. - COO and VP   [3]
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 Yes. We actually break our stockpiles down into 5 or 6 stockpiles that vary based on grade and metallurgical characteristics, like high carbonaceous material or not. In terms of our highest-grade stockpile, we still have about 300,000 tonnes of -- averaging 20 grams per tonne, that we blend into the feed at about 1,500 tonnes a day. We bring up the total tonnage to the 17,000 by adding lower-grade material from the lower-grade stockpiles. But in the terms of the highest-grade stockpile, yes, we still have the 300,000 tonnes of 20-gram material.

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 Rahul Paul,  Canaccord Genuity Limited, Research Division - Director   [4]
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 Okay. And then just moving on to Mount Milligan, looks like you're expecting much improved results by Q4, specifically on the throughput. When would you expect the plant to ramp up to nameplate capacity? I.e., I believe its 60,000 to [200,000] tonnes a day. And have you seen any specific issues during commissioning of the -- the secondary crusher?

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 Gordon Dunlop Reid,  Centerra Gold Inc. - COO and VP   [5]
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 With respect to the secondary crushers, they're fully operational and they're part of our combination circuit. Now we continue to evaluate the combination circuit to try to optimize the feed to get the most throughput and not reduce recovery. We did have some slight maintenance issues in the first quarter, just nagging issues, nothing major, including the freezing of the fine -- of the screens at the secondary crusher. But that's been resolved, of course, and -- because it's warm melt, but also for next winter, we've put a system in place so that those fines don't freeze. We continue to see incremental improvements in the processing plant. And we anticipate achieving guidance by the end of the year.

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 Rahul Paul,  Canaccord Genuity Limited, Research Division - Director   [6]
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 (inaudible), but specifically on a -- from a throughput standpoint, I guess, should I expect the plant to be operating at nameplate capacity closer to the end of the year?

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 Gordon Dunlop Reid,  Centerra Gold Inc. - COO and VP   [7]
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 We expect it to be operating at nameplate capacity at the end of the year, yes.

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 Rahul Paul,  Canaccord Genuity Limited, Research Division - Director   [8]
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 Okay. And then, this may be a question to Scott. On the dispute with the Kyrgyz Government, you mentioned in the press release that you expect the arbitrator to render a decision mid-2017. Is that based on typical timelines for something like this? Or is it based on any other specific developments or other indications?

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 Scott Graeme Perry,  Centerra Gold Inc. - CEO and Non-Independent Director   [9]
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 I don't know if I caught all your question. But I think if your question was in with regards to the interim measures application as part of the international arbitration, yes, I think as part of our disclosure, we've -- we and the other party have made all filings and it's now essentially with the arbitrator. And in terms of a indicative timeline, you could be looking at anything from 6 to 8 weeks before she may be in a position to opine. So all sort of filings have been made, and we're really just been in a holding pattern right now.

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 Rahul Paul,  Canaccord Genuity Limited, Research Division - Director   [10]
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 So I guess the timeline that you indicated, sort of mid-2017, it looks like that's based on the typical time line for rulings of this nature. Is that correct?

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 Scott Graeme Perry,  Centerra Gold Inc. - CEO and Non-Independent Director   [11]
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 In terms of this specific interim measures application, that timeline that we've put forward remains valid.

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Operator   [12]
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 Our next question comes from the line of David Haughton with CIBC.

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 David Haughton,  CIBC World Markets Inc., Research Division - Research Analyst   [13]
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 Just looking at the Kumtor sequencing through 2017, you're running on the stockpiles in the first quarter. You got a little bit of stockpile, it sounds like, into the second quarter. And then you get into the Sarytor pit at the back of the end of the year. So would we see a bit of a dip then in production in the second quarter, a bit lower in the third quarter, and then a very big step up in the fourth quarter? Is that kind of profile, we should be thinking about?

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 Gordon Dunlop Reid,  Centerra Gold Inc. - COO and VP   [14]
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 Well, maybe I didn't explain myself well in the earlier question. We have about 11 -- 10 million to 11 million tonnes of material in the stockpiles that is broken into various grades. The highest-grade stockpile is the 20-gram per tonne stockpile. And we only feed that in at 1,500 tonnes a day. So that's going to last through the year. So we don't expect a significant dip in grade during the year, there will be a slight gradual decline in grade. We anticipate feeding Sarytor ore in the fourth quarter, where we'll see a bump up in grade because of that ore.

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 David Haughton,  CIBC World Markets Inc., Research Division - Research Analyst   [15]
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 All right. So the fourth quarter would be expected as the best quarter for the year them, most likely.

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 Gordon Dunlop Reid,  Centerra Gold Inc. - COO and VP   [16]
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 It'll be the best quarter for the year. 30% of our gold will come in the fourth quarter.

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 David Haughton,  CIBC World Markets Inc., Research Division - Research Analyst   [17]
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 Got you. And as far as that strip ratio for the year goes, I suppose that -- would it then start to decline as we move into the back half of the year?

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 Gordon Dunlop Reid,  Centerra Gold Inc. - COO and VP   [18]
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 Well, it's hard to talk about a strip ratio because we're not mining ore in the central zone. And the -- so there's no ore to be mined, so you don't have the ratio. In the Sarytor deposit, the ore is near surface. And I don't remember the strip ratio at the top of my head, but it's not a large strip ratio.

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 David Haughton,  CIBC World Markets Inc., Research Division - Research Analyst   [19]
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 Okay. So yes, probably, the more accurate description is waste movement then?

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 Gordon Dunlop Reid,  Centerra Gold Inc. - COO and VP   [20]
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 Yes, we'll be moving waste all year in the central pit.

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 David Haughton,  CIBC World Markets Inc., Research Division - Research Analyst   [21]
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 Okay. You mentioned also some cost-saving initiatives and also rethinking at Mount Milligan, potential for improvement in recovery. Do you have a target for where that recovery could go to?

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 Gordon Dunlop Reid,  Centerra Gold Inc. - COO and VP   [22]
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 I don't want to speculate on that. I mean, the improvements we've made, we're seeing some improvements over the grade recovery curve and we hope to continue that. But I don't want to speculate where that might go at this time.

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 David Haughton,  CIBC World Markets Inc., Research Division - Research Analyst   [23]
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 Okay. So we're kind of in the -- for the copper, we're in the high 70s. Is it possible to go into the 80s?

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 Gordon Dunlop Reid,  Centerra Gold Inc. - COO and VP   [24]
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 Again, I'd rather not speculate at this time.

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 David Haughton,  CIBC World Markets Inc., Research Division - Research Analyst   [25]
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 Okay. Over to Turkey. What's the holdup with the pasture land approval?

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 Scott Graeme Perry,  Centerra Gold Inc. - CEO and Non-Independent Director   [26]
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 Yes. So David, it's Scott. I mean, the way you frame the question, that's difficult to answer. What I can say is that in terms of our social license and what have you, we have very good support. I think you've seen that in terms of our track record to date, be it our environmental impact assessment approval, forestry permit approval, [GSM] business licenses approval. Most of these things have been delivered in record time. We believe we were in very good stead midyear last year to receive the last remaining permit, which is the pastureland use permit. And then as we all know, the attempted military coup took place. Since that event, there's been a lot of uncertainty in terms of permitting timelines and what have you. All I can say is there's nothing deficient with our permit application or what have you. We know it's with the Minister for consideration, along with a number of other permits from other business entities in Turkey. It's really just a matter of sort of being patient right now. The one thing we would point to, Dave, as Gord mentioned in his remarks, is the national power utility company in Turkey is currently constructing the power line out to our project. And I don't if you've looked at presentation deck, but pretty impressive. There’s about 26 kilometers of power line infrastructure being put in place. Power lines, substations. Getting ready to string the cable as we speak. We are the sole customer on that line. We're the sole power consumer. So again, that gives us a lot of confidence or reassurance that this is not a matter of if we're going to receive the permit, it's more a matter of when we're going to receive the permit.

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 David Haughton,  CIBC World Markets Inc., Research Division - Research Analyst   [27]
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 Okay. So it looks like [Alessa Gold] got there pastoral permit, so I guess things are starting to move along from the bureaucratic point of view. Is that a reasonable way to think about it?

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 Scott Graeme Perry,  Centerra Gold Inc. - CEO and Non-Independent Director   [28]
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 Yes, I think we as an industry certainly would -- can only take confidence from that. It's obviously -- it's assuring to see that.

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 David Haughton,  CIBC World Markets Inc., Research Division - Research Analyst   [29]
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 And see that Gatsuurt is getting an update on its study numbers. Do you plan any such thing for Öksüt? A refresh on some of the numbers there?

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 Scott Graeme Perry,  Centerra Gold Inc. - CEO and Non-Independent Director   [30]
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 No, I don't think so. Not with Öksüt because the feasibility was published in February 2015. Generally speaking, it's still pretty current. Other than obviously the Turkish lira exchange rate devaluation. But that, in of itself, we don't see that as a requirement for publishing a refreshed version.

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Operator   [31]
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 (Operator Instructions) Our next question comes from the line of Robert Reynolds with Crédit Suisse.

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 Robert Reynolds,  Crédit Suisse AG, Research Division - Research Analyst   [32]
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 Just on the operational review team that you have mobilized at both of your operating sites. I was hoping for a little more color on what you might be looking to get out of that program. I understand at Mount Milligan, it's focused on recoveries and throughput. But just in terms of -- is there anything over and above what would already be included in guidance? As well from a shorter-term perspective, are there any restructuring costs that we should be looking for?

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 Gordon Dunlop Reid,  Centerra Gold Inc. - COO and VP   [33]
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 No, the work from the operational review team was meant to leverage their knowledge and experience to try to identify additional value. Most of this additional value is operational short-term gains, some of them have -- are longer-term gains that we will to build and will require capital. Those would have to be built in budgets going forward. But certainly, the majority of the gains we saw are low-cost, short-term implementation that we hope we would implement by the end of the year.

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 Scott Graeme Perry,  Centerra Gold Inc. - CEO and Non-Independent Director   [34]
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 So just from my perspective, Rob. In terms of the benefits that we're going to be pursuing as part of the operations review team exercise, none of it is reflected in our guidance. As Gord mentioned in his presentation remarks, we really only marshaled this team and the associated resources in Q1 of this year. But without a doubt, they're looking at Kumtor as an operating business unit, they're looking at Mount Milligan and They're looking at all the different unit operations. All its systems, all the processes, what's best practice, what's good, what are things that Kumtor does great and we can roll out of Mount Milligan and vice versa. And they're looking at everything, be it productivities in the mine operation, productivities in the mill, unit cost efficiencies, supply chain management, you name it. Just a whole number of things. It's all part of Centerra's sort of business process improvement system. It's still early stages. We've already identified a large number of initiatives, and each initiative has a certain sort of incremental benefit that we'll be pursuing. But also each initiative has a certain ease of capture as well. And so we have to prioritize these to really determine which one's we're going to go after in the short term versus the medium term. And that's why it makes it difficult to answer your question. But -- because we're still going through that evaluation. It's definitely upside over and above what's reflected in our guidance moving forward. So...

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 Robert Reynolds,  Crédit Suisse AG, Research Division - Research Analyst   [35]
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 So are these external consultants you brought in? Or is it an internal team?

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 Scott Graeme Perry,  Centerra Gold Inc. - CEO and Non-Independent Director   [36]
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 No, it's an internal team. The team itself comprises what we -- the terminology we use is it's subject matter experts from every discipline within the company. So we have got representatives from Kumtor, from Mount Milligan, from Toronto head office, as well as our molybdenum business unit. And we put together this team. And this team, the first operation they went and reviewed was Kumtor and then the exact same team, same composition, went to Mount Milligan. We have had third-party sort of facilitation guidance in terms of administrating this program and getting it kick-started. But it's definitely an internal exercise.

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 Robert Reynolds,  Crédit Suisse AG, Research Division - Research Analyst   [37]
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 Okay. And then just on the Kumtor mill throughput, still above 17,000 tonnes per day. Quite a bit above your technical report from a few years ago about sort of what you'll be able to achieve over the last year and a bit. Is 17,000-plus what we should be looking for, for the remainder of the year? Are there any extended shutdowns to consider? And I guess, going forward, longer term, is 17,000 tonnes per day really the standard mill throughput to look for out of Kumtor?

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 Gordon Dunlop Reid,  Centerra Gold Inc. - COO and VP   [38]
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 Yes. The production that we experienced last year and so far this year, we believe is sustainable. There are just normal routine shutdowns. So we budget 96% availability at Kumtor.

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 Robert Reynolds,  Crédit Suisse AG, Research Division - Research Analyst   [39]
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 Okay. And then maybe a clarification question on the mining cost per tonne at Mount Milligan. I think in the opening remarks, it was mentioned to be $1.60, but the press release shows $1.38. So I just wanted to clarify, which is the correct number? And then in either case, quite a bit lower than I believe maybe what had been previously mentioned as the mining cost there. So if you could talk about what's driving those better mining costs at Mount Milligan and if that is sustainable.

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 Gordon Dunlop Reid,  Centerra Gold Inc. - COO and VP   [40]
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 Yes. Well, the $1.60, the...

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 Scott Graeme Perry,  Centerra Gold Inc. - CEO and Non-Independent Director   [41]
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 USD 1 versus Canadian dollar?

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 Gordon Dunlop Reid,  Centerra Gold Inc. - COO and VP   [42]
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 Yes, perhaps. Anyway, perhaps the variance is US dollars versus Canadian dollars. I'm not exactly sure. But our mining cost at Mount Milligan have improve because we decoupled the mine from the mill. But what we've done, is we're mining to capacity. We're stockpiling the ore so that we can blend a better feed to the mill. And we're mining to the plan, and actually, we're ahead of target in the mine, about 5% ahead of target. In the past, the strategy was to mine the amount needed to put the tonnes through the mill and we didn't have substantial stockpiles. So we've changed that strategy. So that's tended to reduce the unit operating cost because the denominator went up.

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 Robert Reynolds,  Crédit Suisse AG, Research Division - Research Analyst   [43]
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 So as we go forward, should we see, I guess, sort of stockpiles continuing to build at Mount Milligan and perhaps that part of the inventory buildup in the working capital as well? Or is there an optimal stock pile level you're trying to get to there?

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 Gordon Dunlop Reid,  Centerra Gold Inc. - COO and VP   [44]
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 Well, we are limited by the amount of space we have for stockpiles. But that's the limiting factor. And we don't expect to hit that limiting factor for a few years. But otherwise, we'll continue to mine the rate we need to get that, to be able to supply enough stockpiles that we can blend to the strategy we want to blend to.

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 Robert Reynolds,  Crédit Suisse AG, Research Division - Research Analyst   [45]
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 And then just not to monopolize the time, but one final question. It was mentioned that you plan on starting dividends from Centerra B.C. Holdings, I guess the Mount Milligan subsidiary, in the second quarter, which I understand would require an equal early repayment on the term facility. How should we think about the amount you plan to dividend? Will it essentially be all excess cash that would be held in the Centerra B.C. sub will be dividended to the ultimate parent company? Or what's your strategy around that funds flow?

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 Darren J. Millman,  Centerra Gold Inc. - CFO and VP   [46]
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 We'll -- it's Darren here. We will continue to monitor that on a quarterly basis. At this stage, we are looking to ensure, obviously, required working capital stays in the Mount Milligan operations in that whole business unit. So at this stage, we are looking to maximize the cash generated and bring it up to the parent.

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Operator   [47]
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 Our next question comes from the line of Michael Siperco with Macquarie.

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 Michael Siperco,  Macquarie Research - Gold Analyst   [48]
------------------------------
 Could you just talk a little bit more about the potential outcomes from the arbiter's decision made the year, as you stated? What remedy powers do they have? Could we see all of that cash get unrestricted? And then following from that, do you or the Kyrgyz Government have any recourse or means to appeal following that decision when it comes?

------------------------------
 Frank H. Herbert,  Centerra Gold Inc. - President   [49]
------------------------------
 This is Frank Herbert. I think the best response to your question, really, is to point out the interim measure application is an application to the arbitrator to ask her to set aside or to stay, that is, to suspend the relevant Kyrgyz republic court decisions. It's again an interim step. It's not a final decision on the arbitration. Of course, as Scott has said, we don't yet have a decision from the arbitrator on that matter. And it really wouldn't be appropriate for me to speculate about that until we have the decision of the arbitrator. Obviously, I think when that is forthcoming, we hope middle of this year, we'd be speaking to that publicly. And really, I think it -- until we have that order and have read it and understood it and spoken about it publicly, I don't think it would be helpful for me to speculate. Broadly speaking, broadly speaking, that is a final decision of the arbitrator. There's no court of appeal or similar appeal from the decision of the arbitrator as to her decision.

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 Michael Siperco,  Macquarie Research - Gold Analyst   [50]
------------------------------
 Okay. Fair enough. Just a follow-up. Would it be fair to say if those -- if the Kyrgyz claims are stayed, however, that following from that, at least some of the cash that's restricted would become unrestricted? Or is that not something you want to comment on at this point?

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 Frank H. Herbert,  Centerra Gold Inc. - President   [51]
------------------------------
 That is part of the relief that we at Centerra have requested from the arbitrator. And again, the answer to your question depends entirely on what order/award she chooses to make in the circumstances. So again, it is possible that, that is the outcome. But until we have her decision, I don't think I can speculate further about that.

------------------------------
 Michael Siperco,  Macquarie Research - Gold Analyst   [52]
------------------------------
 Understood. Thanks. Maybe one follow up from there. I guess we're making assumptions on assumptions now, but assuming that for one reason or another, the cash from Kumtor is still restricted into the second half of the year following the award, can you talk a little bit about your corporate liquidity going forward? Any flexibility that you may have on debt repayment? Especially as I understand the capital leases that mature within the next 12 months. Any flexibility from that perspective, net of course, of the dividends that you'll be receiving from Mount Milligan?

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 Darren J. Millman,  Centerra Gold Inc. - CFO and VP   [53]
------------------------------
 Darren again. There is some flexibility there. I'm not going to go into the details, but we do have a strong relationship with all our providers, CAT included as well, which you're referring to there which is due in February of next year. So we do have some flexibility. We are working on those plans, but at this stage, we are comfortable with liquidity in the near future.

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Operator   [54]
------------------------------
 And we're showing no further questions at this time.

------------------------------
 Scott Graeme Perry,  Centerra Gold Inc. - CEO and Non-Independent Director   [55]
------------------------------
 With that, if there's no further questions, we'll thank everyone for being on the call. Management will be around today. We do have our annual meeting at 11:00. So if you're trying to get a hold of us, we won't be in the office. But thank you for your attendance on the call.

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Operator   [56]
------------------------------
 Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.




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