AuRico Metals Inc., Centerra Gold Inc. - M&A Call

Nov 07, 2017 AM EST
CG.TO - Centerra Gold Inc
AuRico Metals Inc., Centerra Gold Inc. - M&A Call
Nov 07, 2017 / 01:00PM GMT 

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Corporate Participants
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   *  Chris H. Richter
      AuRico Metals Inc. - CEO, President and Non Independent Director
   *  Darren J. Millman
      Centerra Gold Inc. - CFO & VP
   *  Dennis C. Kwong
      Centerra Gold Inc. - VP of Business Development and Exploration
   *  Gordon Dunlop Reid
      Centerra Gold Inc. - COO & VP
   *  John W. Pearson
      Centerra Gold Inc. - VP  of IR
   *  Stephen A. Lang
      Centerra Gold Inc. - Chairman

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Conference Call Participants
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   *  David Haughton
      CIBC Capital Markets, Research Division - MD & Head of Mining Research
   *  Greg Barnes
      TD Securities Equity Research - MD and Head of Mining Research
   *  Josh Wolfson
   *  Michael Jalonen
      BofA Merrill Lynch, Research Division - MD
   *  Michael Parkin
      National Bank Financial, Inc., Research Division - Mining Analyst
   *  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 conference call. (Operator Instructions) As a reminder, this conference is being recorded Tuesday, November 7, 2017.

 I would now like to turn the conference over to Mr. John Pearson, Centerra Gold. Please go ahead, sir.

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 John W. Pearson,  Centerra Gold Inc. - VP  of IR   [2]
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 Thank you, operator.

 I'd like to welcome everyone to our conference call this morning regarding the news release that we put out earlier this morning. There are slides available of the presentation that will follow on both Centerra's website and AuRico's website as well.

 Following the formal remarks, the operator will give the instructions for asking a question, and we will then open the phone line to those questions.

 Joining me on the call today is Steve Lange, Chairman and Director of Centerra; Darren Millman, Chief Financial Officer; Gord Reid, Chief Operating Officer; Dennis Kwong, Vice President, Business Development and Exploration; and Chris Richter, President and Chief Executive Officer of AuRico Metals Inc. Scott Perry, Chief Executive Officer of Centerra, will not be participating in the call.

 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, which may cause actual results to differ from those expressed or implied. For more detailed discussion of the material assumptions, risks and uncertainties, please refer to the news release and to our other filings, which can be found on SEDAR and the company's website.

 At this time, I will now turn the call over to Steve Lang.

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 Stephen A. Lang,  Centerra Gold Inc. - Chairman   [3]
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 Okay, thank you, John.

 I'd like to start with just a brief comment why I'm the one speaking and not Scott Perry. Scott, as CEO and a director at Centerra, is also a director at AuRico Metals. And so as such, he's been recused from all of the discussions leading up to this announcement.

 As we mentioned in our press release, as of last night, Scott has resigned from the AuRico board and, therefore, will be resuming the normal leadership role on completing the transaction and heading up the development. And on behalf of the board, I think we're looking forward to Scott's leadership in this area and the experience he brings on that project and in leading our team.

 Looking at Slide 3, I'll just make a few brief comments. The board was quite keen on this, has seen this as a good, high-quality asset to add into our portfolio. The fact that it has over $1 billion dollars already in infrastructure in place, the environmental approvals as well as well-advanced discussions with the First Nation agreements and permitting, I think leads us to a project that is significantly de-risked.

 It also fits very well into the Centerra portfolio. We have 2 solid, low-cost, long-term producing assets, and this one comes into the development portfolio along with Öksüt, Gatsuurt and Greenstone. We have a balance sheet that is capable not only of funding the acquisition but helping us move each of these forward into the production phase. And also, at Kemess, we see significant upside, particularly at the Kemess East and integrating that with Kemess Underground.

 So I think it's a great asset and a great jurisdiction. It fits well into our long-term strategy, and we're very pleased to be able to add that into the Centerra portfolio.

 I'll leave it to Dennis Kwong to walk through a lot of the details here. So I'll hand it over to Dennis.

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 Dennis C. Kwong,  Centerra Gold Inc. - VP of Business Development and Exploration   [4]
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 Thank you, Steve.

 Turning to slide 4, just a few pictures of the Kemess site layout. You can see that there's a work camp, the metallurgical facility and all the existing infrastructure in place.

 Going to Slide 5, the transaction summary. In terms of consideration, each AuRico share outstanding will be exchanged for CAD 1.80 per share in cash for a total transaction value of around CAD 310. The transaction will be funded by cash on hand plus a new USD 125 million acquisition credit facility.

 Under the plan of arrangement, the transaction will require AuRico shareholders' approval through a vote cast 66 2/3%.

 In terms of time line, we expect closing in January 2018.

 Turning to Slide 6, which highlights the Centerra asset portfolio. The transaction adds another leg to our development pipeline as well as the cash flow-producing royalties in mining-friendly jurisdictions in Canada and Australia.

 On Slide 7, just on the left, the transaction is consistent with our corporate strategy of seeking diversified growth. On the top left chart, you'll see that 55% of the pro forma consensus NAV is now located in Canada, building on the transformative acquisition of Thompson Creek Metals last year. Similarly, on the right-hand side, you can see that on a pro forma basis, 60% of the reserves and resources will now be located in Canada.

 On Slide 8, in terms of cash flow distribution. We continue to generate strong key free cash flow from our 2 cornerstone assets at Kumtor and Mount Milligan. And with the addition of the royalty revenue from the portfolio -- royalty portfolio, 57% of the pro forma cash flow will now derive from top-tier mining jurisdictions. We see Kemess will add another low-cost, high-margin producing asset in the future for Centerra, again, consistent with our strategy of balancing growth and geopolitical risk.

 Moving to Slide 9, this illustrates the go-forward project development pipeline. Again, Kemess represents -- Kemess Underground represents significant de-risked brownfield development project, again, with about $1 billion of infrastructure in place, together with the environmental assessment approved and the First Nation agreement in place. And finally, just waiting for the final permits, which is under application. Again, this is a project that's been significantly de-risked.

 On Slide 10, just to credit AuRico's management, they've established a very good relationship with the First Nation, again, with having the IBA and the EA approved.

 The Kemess Underground offers significant upside in that its 12-year mine life already established in the feasibility study, and we see that there's further opportunity to extend the mine life significantly through the development of Kemess East, essentially having an asset with a potential 20-year-plus mine life asset.

 Going forward, we'll continue to evaluate the economic opportunity of integrating Kemess East with the current Kemess Underground development plans.

 The next milestone of the project will be the receipt of Kemess Underground permit application, which we expect in Q2 2018. We'll be looking at a potential construction decision towards the end of 2018 or early 2019.

 On Slide 11, again, just highlights the project in relations to the existing infrastructure. You see Kemess Underground and Kemess East to the north of the existing Kemess South infrastructure. Again, the project has all the infrastructure in place, including a mill, the grid power, road and all the supporting infrastructure, which, obviously, significantly de-risks the project.

 Kemess South was the past producer and it produced over 3 million ounces of gold and 750 million pounds of copper.

 Moving to Slide 12, which highlights the key parameters of the Kemess Underground feasibility study and the Kemess East PEA. What's clearly attractive for Centerra is the large resource base: about 5 million ounces of measured and indicated resource combined; again, mine life potentially in excess of 20 years.

 Moving to Slide 13. As we mentioned, we believe the mine life can be extended with the future development of Kemess East and further exploration potential.

 We anticipate certain operational synergies that can be achieved with Mount Milligan as well as tax synergies. We look to establish, for example, a shared services model at our Prince George office, or the kind of accounting back office, payroll, accounting, procurement, could be combined together. We'll be saving on the AuRico head office expense in the future. Again, just going back to the shared infrastructure, the power line corridor is really the same between Mount Milligan and Kemess. Again, this potentially provides additional savings.

 Again, in terms of concentrate marketing, the Kemess concentrate is very clean. And again, from a marketing perspective, we can combine the Kemess concentrate with our current Mount Milligan concentrate to give us greater flexibility in terms of marketing to Asian smelters and refineries.

 Of the synergies that could be achieved is both tax and operation. Again, a lot of the current employees that is working on Mount Milligan came from Kemess, so certainly, there's a lot of expertise that can be transferred between the 2 operations.

 Moving on to Slide 14, just really a description of the kind of the royalty portfolio. You see there's 4 cash flow-producing royalties and -- of which 2 of them are key royalties in Young-Davidson and Fosterville.

 And I refer you to Slide 15. Both of these operations achieved record production in the recent quarter. Again, with exploration upside and continued investment by a very reputable management team, we continue to see further upside in these royalties.

 Moving on to Slide 16. Again, I think just want to reemphasize kind of the low -- first -- or bottom quartile cash cost of the existing Centerra operations. I think the Kemess Underground project fits very nicely into that category. Again, we see that these operations will be profitable through many parts of the price cycle.

 So moving on to Slide 17. In summary, we have -- we believe we have 2 cornerstone low-cost assets that generate significant free cash flow in Kumtor and Mount Milligan. We see Kemess Underground over time will become another significant asset in our portfolio.

 The company remains in a very strong financial position that will allow us to move our development pipeline forward.

 With that, I'll pass the discussion to Chris Richter, CEO of AuRico Metals.

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 Chris H. Richter,  AuRico Metals Inc. - CEO, President and Non Independent Director   [5]
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 Thank you, Dennis, and good morning, everyone. It's a pleasure to be here with the Centerra team in their offices.

 When I think back to the middle of 2015, when we were spun out, the background there really had a lot to do with a conviction that was held by directors and management that the Kemess asset was undervalued and that significant value could be created by the continued advancement and de-risking of that asset. And that was done at a time when metal prices were quite challenged, both for gold and copper, which are, of course, sort of the metals at Kemess.

 Today, I can really say I'm very proud. I think the board is also very proud, of the significant progress the team has done in advancing Kemess in terms of delivering a positive feasibility study for Kemess Underground, a positive PEA for Kemess East. There's been a lot of positive drilling results since 2015, significantly expanding the resource potential on the property today. At Kemess, we have over 12 million ounces of gold equivalent in all categories. We've delivered positive environmental approvals for Kemess Underground, both federally and provincially, and, of course, that Impact Benefit Agreement with our Tse Keh Nay partners. So we're very proud of the team's success in pushing things forward.

 And really, as that progressed, we've, of course, given a lot of thought as to funding and, as part of that, thinking also broader strategic alternative in terms of taking the company forward. Really, this announcement this morning with Centerra is the culmination of that. And the $1.80 per share offer from Centerra, we feel is a very compelling outcome for our shareholders and one that the board and management fully support and are excited to have that in front of our shareholders. And of course, given our conviction in Kemess, I think there's still a lot of value to be created for the benefit of Centerra's shareholders as well.

 With that, again, it's a pleasure to be here, and I'll turn the call back over to the operator to perhaps commence 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 David Haughton of CIBC.

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 David Haughton,  CIBC Capital Markets, Research Division - MD & Head of Mining Research   [2]
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 I guess looking at the KUG, I'm just wondering what do you need to firm up in your mind, before you make a decision, to proceed with it. What additional steps will you be taking?

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 Gordon Dunlop Reid,  Centerra Gold Inc. - COO & VP   [3]
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 David, this is Gordon Reid. We actually intend to continue to progress the project the way it's been progressed. We will be entering into discussions with the project team to ensure that we can keep them with the project. And we will continue down the process of receiving the permits and moving down that path. We did -- in our own acquisition model, we did build in a suggestion of a little bit of a delay in receiving those permits. But other than that, it's business as usual.

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 David Haughton,  CIBC Capital Markets, Research Division - MD & Head of Mining Research   [4]
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 And similar kind of questions for Kemess East. I mean, less advanced than KUG, but how confident are you of that shaping up into being a potential mine?

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 Gordon Dunlop Reid,  Centerra Gold Inc. - COO & VP   [5]
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 It's Gordon again, David. We based our acquisition decision on Kemess Underground. We do recognize Kemess East as having potential upside. We believe the optionality exists, and -- but we are -- we will continue to evaluate that for future development.

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 David Haughton,  CIBC Capital Markets, Research Division - MD & Head of Mining Research   [6]
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 All right. In your press release, you did talk about tax synergies. Are these potentially losses that you're carrying forward at Mount Milligan that could be used to protect the tax situation at Kemess? Or exactly what are you referring to there?

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 Darren J. Millman,  Centerra Gold Inc. - CFO & VP   [7]
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 It's a combination -- David, Darren here. It's a combination of both the existing tax pools that get built up at Mount Milligan, the G&A expenditure that will be encouraged, I guess, in Canada as well. And the plan will be to push those down over the proceeding years as well. So it's a combination of both.

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 David Haughton,  CIBC Capital Markets, Research Division - MD & Head of Mining Research   [8]
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 All right. And a reasonable package of royalties. What's your intention with those royalties for now?

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 Darren J. Millman,  Centerra Gold Inc. - CFO & VP   [9]
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 Well, I guess, like any asset we hold, we'll continue to evaluate that, whether we decide to hold it or sell it. At the end of the day, we feel they're a great asset portfolio. We feel if there is further opportunities to create value for our shareholders and pursuing other opportunities, which may or may not require the sale of that royalty, so that's what we'll assess at that time. So the board's very comfortable with holding the royalties at this stage. Once again, we will evaluate that if we need further liquidity. But as you see in one of the slides, we're very strong and there's no need for that in the short term.

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Operator   [10]
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 Our next question comes from the line of Robert Reynolds of Crédit Suisse.

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 Robert Reynolds,  Crédit Suisse AG, Research Division - Research Analyst   [11]
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 My first question just relates to what this means for the Centerra project pipeline outside of Kemess. Where do you see the other projects now stacking up in terms of your capital allocation priorities? And then as a follow-on to that, is -- would you see them as something that could be fully funded, an internally funded project plan? Or are some projects going to be sort of slipped down the pecking order as a result of this?

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 Darren J. Millman,  Centerra Gold Inc. - CFO & VP   [12]
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 Robert, it's Darren here. So I guess the first project I'll talk to outside of Kemess will be Öksüt. So Öksüt is fully funded with a USD 150 million project funding facility in place. So minimal capital outlay required from a, I guess, Centerra perspective. The next project, we released the results of the Gatsuurt project in Q3. The key for making a decision on that will be the renegotiation of the Mongolian royalty regime, which, as you know, is [burdensome] on this current asset. So we don't see a decision in the near term. We'll continue to negotiate with the Mongolian government to look to make the economics sort of improved on that project. The other pipeline project will be the Greenstone project. As you know, we're continuing to focus on de-risking this project. We're looking to put in place First Nations, looking to get the EA approved. So obviously, they've still got a way to go with this project compared to Kemess. So we'll continue to monitor the progress with Greenstone. From our perspective, the Greenstone probably is the only project that may look to put additional financing in place, but that being said, you saw the Q3 results with both the Mount Milligan and Kumtor mine generate significant cash flow. So we don't see the need for a significant additional debt capacity required given our free cash flow and the current conceptual timing of those other projects.

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 Robert Reynolds,  Crédit Suisse AG, Research Division - Research Analyst   [13]
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 Okay, that's helpful. And then just a question on Kemess. I think Gord mentioned that you plan on continuing with the development path that AuRico Metals had followed. But my understanding is AuRico Metals was working on an integration of Kemess Underground and Kemess East with that feasibility study to be released in 2018. Is that still the plan under Centerra's stewardship, to look at integrating those 2 deposits?

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 Gordon Dunlop Reid,  Centerra Gold Inc. - COO & VP   [14]
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 Well, we'll evaluate that, but our -- but that's not the basis of the acquisition. We -- our intention is to progress on developing the Kemess Underground and get production started from that asset, and then bring in Kemess East once we've better evaluated the project. Once the information is available on this revised feasibility study, we'll evaluate it. And if we change tack, we'll do it then.

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 Robert Reynolds,  Crédit Suisse AG, Research Division - Research Analyst   [15]
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 Okay, so just so I understand, there is still going to be a revised integrated feasibility study done or not?

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 Gordon Dunlop Reid,  Centerra Gold Inc. - COO & VP   [16]
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 Well, the -- I'll evaluate that and then we'll decide. Once I've discussed with the project team where they're at on that, we'll make that decision down the road.

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 Robert Reynolds,  Crédit Suisse AG, Research Division - Research Analyst   [17]
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 Okay. And then just a final question. If you could talk maybe a little bit more on the due diligence that was done, specifically around the capital estimates. I know that there's a significant amount of surface infrastructure already in place. But maybe if you could just talk about some of the key capital items that would need to be spent as part of the Kemess Underground development and what sort of due diligence might have been done around that feasibility study.

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 Gordon Dunlop Reid,  Centerra Gold Inc. - COO & VP   [18]
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 Well, certainly, the -- I mean, the bulk of the capital is in underground development. It's in the declines and it's in the hardware that goes into those declines, the conveyer belts. In terms of -- and it's development capital primarily. In terms of surface capital, there's not a lot. There's an overland surface conveyer and there's some upgrades to the mill in the range of $38 million we've estimated to add additional upgrades to the mill. But the surface capital is really minimal in comparison to the overall capital. It's mostly development. And that is being driven by the productivity rates and the unit costs. And we looked at those quite closely.

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 Robert Reynolds,  Crédit Suisse AG, Research Division - Research Analyst   [19]
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 And this is a block cave design?

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 Gordon Dunlop Reid,  Centerra Gold Inc. - COO & VP   [20]
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 It is.

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Operator   [21]
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 And our next question comes from the line of Mike Jaloney (sic) [Jalonen] of Bank of America.

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 Michael Jalonen,  BofA Merrill Lynch, Research Division - MD   [22]
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 Not quite right, but good morning, all. Just going back to Robert's question there about the pecking order of projects. There was no pecking order quite given from my point of view. I'm just wondering, Öksüt seems pretty obvious, but is it Kemess after that, followed by Greenstone, followed by Gatsuurt? Or will Gatsuurt go ahead of Greenstone if the government comes to their senses in Mongolia? So just maybe if you can give more clarity on that pecking order.

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 Darren J. Millman,  Centerra Gold Inc. - CFO & VP   [23]
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 Okay, this is all very conceptual. But if we were to come to terms acceptable to Centerra from a -- to renegotiation of the existing Mongolian royalty regime, given the fact that the Gatsuurt project has got significant infrastructure with the utilization of the Boroo facilities, then that's a project that can be put into production within 18 months. So that sort of -- that will be a decision point that's dependent on negotiations. So obviously, Öksüt's the next sort of cab off the rank. In regards to Greenstone, Kemess is probably following Öksüt -- or sorry, so I'll start again. So Öksüt will be there for the next cab off the rank. Gatsuurt is dependent on the negotiations with the Mongolian government, so we sort of can't give a clear direction on that. And then at the moment, obviously, Kemess is the most advanced project with the de-risked element with infrastructure in place and with the permit and First Nations well progressed. So if you -- that's probably the -- where I'm leaning. But once again, it's -- there's still a lot of hurdles to reach. And then, obviously, Greenstone, at this stage, still needs to advance the First Nations and the environmental assessment and, obviously, permits to follow after that. So it's a hard question because there's significant hurdles to obtain. But sort of that's the general concept.

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 Michael Jalonen,  BofA Merrill Lynch, Research Division - MD   [24]
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 And I guess it's an embarrassment of riches in one respect; lots of options.

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 Darren J. Millman,  Centerra Gold Inc. - CFO & VP   [25]
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 Yes, yes. I feel the same way.

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 Michael Jalonen,  BofA Merrill Lynch, Research Division - MD   [26]
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 And a second question. You mentioned the First Nations are on board with Kemess. What about the NDP government in B.C.? Are they pro mining? Or -- I haven't seen much in the press about their views on mining, so maybe some clarity there, please?

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 Gordon Dunlop Reid,  Centerra Gold Inc. - COO & VP   [27]
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 Yes, it's Gordon here, Mike. But the NDP government is pro on jobs. And we've had some interactions with them on our Mount Milligan project, and they're clearly interested in retaining jobs, particularly in the northern interior. So our expectation is, is that the permitting process will proceed apace and things will work through its normal course.

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Operator   [28]
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 Our next question comes from the line of Mike Parkin of National Bank.

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 Michael Parkin,  National Bank Financial, Inc., Research Division - Mining Analyst   [29]
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 Just a few questions. Regarding the tax savings, can you give us an idea of what that could equate to in like millions of dollars per year?

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 Darren J. Millman,  Centerra Gold Inc. - CFO & VP   [30]
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 Yes, we don't want to sort of discuss that at this stage. At a later stage, we'll provide that direction but not at this point in time.

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 Michael Parkin,  National Bank Financial, Inc., Research Division - Mining Analyst   [31]
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 Okay. What about care and maintenance? If I recall correctly, it's been a while, but I think it was something around $10 million a year to keep Kemess South mill in care and maintenance. Do you see any potential to lower that with like a combination with the Mount Milligan crew?

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 Darren J. Millman,  Centerra Gold Inc. - CFO & VP   [32]
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 It's around about $5 million to $6 million is the range. The other expenditures were more on project development associated with the Kemess project.

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 Gordon Dunlop Reid,  Centerra Gold Inc. - COO & VP   [33]
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 Yes, carrying on to the question, there are synergies with our Mount Milligan and Prince George offices, and I would expect to see some incremental savings due to that.

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 Michael Parkin,  National Bank Financial, Inc., Research Division - Mining Analyst   [34]
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 Okay. And then with regards to the permit, if you pursue Kemess East, would it be included in that permit? Or would that basically require an amendment to the permits? So it's better to push forward with KUG, get that permitted and then seek an amendment to that permit if you were to bring in KE? Is that how we should view it?

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 Gordon Dunlop Reid,  Centerra Gold Inc. - COO & VP   [35]
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 The current permit process is only for the Kemess Underground. And as I said earlier, we valued the acquisition based on Kemess Underground only, so that is what we're pursuing. We will look at the integrated feasibility study with Kemess East and Kemess Underground and decide then whether we want to bring Kemess East in earlier. But certainly, our go-forward intent is to bring in Kemess East towards the end of Kemess Underground, not concurrent with Kemess Underground.

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 Michael Parkin,  National Bank Financial, Inc., Research Division - Mining Analyst   [36]
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 Okay. But would KE just require an amendment or a full separate permit?

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 Gordon Dunlop Reid,  Centerra Gold Inc. - COO & VP   [37]
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 No. We -- I can't answer that question. I don't know if we need a completely new permit application or just an amendment.

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Operator   [38]
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 And our next question comes from the line of Greg Barnes of TD Securities.

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 Greg Barnes,  TD Securities Equity Research - MD and Head of Mining Research   [39]
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 If you do make a development decision late 2018, early 2019, what is the development time frame to develop the block cave at Kemess Underground?

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 Gordon Dunlop Reid,  Centerra Gold Inc. - COO & VP   [40]
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 Yes, it's a 4-year development time frame.

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 Greg Barnes,  TD Securities Equity Research - MD and Head of Mining Research   [41]
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 Okay. I'll just go back to a couple of the other questions. The due diligence you did on the feasibility study, I know we've had several examples of companies assuming feasibility studies from other companies, more [genie] companies, and then surprises happening in terms of time frames and CapEx. So it sounds like you're very comfortable with the work that AuRico did.

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 Gordon Dunlop Reid,  Centerra Gold Inc. - COO & VP   [42]
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 We evaluated the feasibility study, and based on our own experiences and examples from other similar operations in B.C. and around the world, we adjusted them accordingly if we felt they needed adjusting, and that's what we built into our acquisition model. But it's probably worth…

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 Greg Barnes,  TD Securities Equity Research - MD and Head of Mining Research   [43]
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 Okay. So the development CapEx...

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 Darren J. Millman,  Centerra Gold Inc. - CFO & VP   [44]
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 Yes, it's probably worth mentioning we signed a [CA] with AuRico back in August of 2016. So we've been watching the progress of this asset for a long period of time and obviously, studying the CapEx, OpEx, elements of this for a significant period of time.

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 Gordon Dunlop Reid,  Centerra Gold Inc. - COO & VP   [45]
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 Yes, I just want to say that we feel very confident in our analysis of the capital and operating cost required to bring the project into production.

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 Greg Barnes,  TD Securities Equity Research - MD and Head of Mining Research   [46]
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 So do they differ materially from what you've included in the presentation, so the $604 million CapEx and the (inaudible)?

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 Gordon Dunlop Reid,  Centerra Gold Inc. - COO & VP   [47]
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 Yes. What's in the presentation -- sorry, what's in the presentation does reflect our view.

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 Greg Barnes,  TD Securities Equity Research - MD and Head of Mining Research   [48]
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 It does reflect your view, okay.

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 Gordon Dunlop Reid,  Centerra Gold Inc. - COO & VP   [49]
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 Yes.

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Operator   [50]
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 (Operator Instructions) Our next question comes from the line of Josh -- sorry, my apologies, of Josh Wolfson, Desjardins Securities.

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 Josh Wolfson,    [51]
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 Just following up with a quick question on the royalty portfolio. I recall when the initial transaction was done to create AuRico Metals, there were a couple of [ROFERs] or existing agreements in place with the operators. Are those still in place? And is there any expiry date associated with them?

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 Dennis C. Kwong,  Centerra Gold Inc. - VP of Business Development and Exploration   [52]
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 It's Dennis here. I mean, the -- under the current transaction, the [ROFERs] are -- does not apply.

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 Josh Wolfson,    [53]
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 So all the existing [ROFERs] for the key royalties at least, being Young-Davidson and Fosterville, would not be applicable?

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 Dennis C. Kwong,  Centerra Gold Inc. - VP of Business Development and Exploration   [54]
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 They would not apply, no.

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 Josh Wolfson,    [55]
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 And would not -- how would they -- would those agreements affect a sale by Centerra of those assets?

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 Dennis C. Kwong,  Centerra Gold Inc. - VP of Business Development and Exploration   [56]
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 The transaction is happening at the topco. That's not a (inaudible) of the royalty performance.

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 Josh Wolfson,    [57]
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 Sorry, could you please repeat that?

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 Dennis C. Kwong,  Centerra Gold Inc. - VP of Business Development and Exploration   [58]
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 Right. I mean, the transaction is at the top company level, so that -- there's no [ROFER] trigger. And there is no ROFER for Young-Davidson, just to be clear.

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 Josh Wolfson,    [59]
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 Okay, got it. And then in the event that there was a strategic evaluation of those assets, would the [ROFERs] in place potentially affect that if Centerra was to choose to divest those assets?

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 Dennis C. Kwong,  Centerra Gold Inc. - VP of Business Development and Exploration   [60]
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 Well, I think it's -- at the end of the day, it depends on how the deal is structured. Obviously, it's something that we have to take into consideration if we were to go down that path.

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Operator   [61]
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 (Operator Instructions) And we do have a follow-up question from the line of David Haughton of CIBC.

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 David Haughton,  CIBC Capital Markets, Research Division - MD & Head of Mining Research   [62]
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 There was a comment made that it could be a 4-year development for the block cave, and yet, I'm looking at Page 21 of the presentation, and it suggests that the Kemess time line could have first production by 2022. I'm wondering how I should be thinking about the ramp-up of -- the construction and then the ramp-up of production.

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 Dennis C. Kwong,  Centerra Gold Inc. - VP of Business Development and Exploration   [63]
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 David, I think there's the -- I mean, there's the difference between first ore versus commercial production, and I think the 4-year time frame is first ore production.

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 David Haughton,  CIBC Capital Markets, Research Division - MD & Head of Mining Research   [64]
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 Okay. So if a decision is going to be made late 2018, early 2019, we should be expecting commercial production in 2023? Is that correct?

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 Gordon Dunlop Reid,  Centerra Gold Inc. - COO & VP   [65]
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 Could you repeat the question? Sorry about that.

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 David Haughton,  CIBC Capital Markets, Research Division - MD & Head of Mining Research   [66]
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 All right. So we should be expecting commercial production in 2023 given the time line for your decision is late '18, early '19?

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 Dennis C. Kwong,  Centerra Gold Inc. - VP of Business Development and Exploration   [67]
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 Yes, I think that's about right.

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Operator   [68]
------------------------------
 (Operator Instructions) And at this present time, we do not have any additional questions from the phone line. Please continue with your presentation or closing remarks.

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 John W. Pearson,  Centerra Gold Inc. - VP  of IR   [69]
------------------------------
 Thank you all for joining us today on the conference call. Centerra management team will be around to answer any further questions. Thank you.

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Operator   [70]
------------------------------
 Thank you. 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.




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