Centerra Gold Inc. (TSX:CG)
(This news release contains forward-looking information that is subject to
assumptions and risk factors set out on page 18 and in our Cautionary Note
Regarding Forward-looking Information on page 26. Prior period comparative
numbers have been adjusted to reflect current IFRS reporting standards. All
figures are in United States dollars.)
To view the 2011 Management's Discussion and Analysis and the Audited Financial
Statements and Notes for the year-ended December 31, 2011, please visit the
following link: http://media3.marketwire.com/docs/CG2011MDAFS.pdf
Centerra Gold Inc. (TSX:CG) today reported fourth quarter 2011 net earnings of
$79.4 million or $0.34 per common share based on revenues of $248.0 million,
compared to net earnings of $150.8 million or $0.64 per common share on revenues
of $322.3 million in the same quarter of 2010 due to lower gold sales in the
period. Fourth quarter of 2010 results reflect the back-ended production profile
at Kumtor, which accounted for 40% of Kumtor's annual gold production and 37% of
its gold sales for the year.
Centerra's consolidated gold production for the fourth quarter of 2011 totalled
151,562 ounces at a total cash cost of $603 per ounce produced compared to
249,866 ounces at a total cash cost of $308 per ounce produced in the
corresponding quarter of 2010. During the fourth quarter 2011, production was
lower at both Boroo and Kumtor as planned, when compared to the fourth quarter
of 2010. (Total cash cost per ounce produced is a non-GAAP measure and is
discussed under "Non-GAAP Measures" in this news release.)
Cash provided by operations in the fourth quarter of 2011, net of working
capital changes and other operating items was $60.3 million compared to $129.5
million in the fourth quarter of 2010. The decrease reflects lower earnings due
to lower gold sales as a result of the lower production in the quarter.
2011 Fourth Quarter Highlights
----------------------------------------------------------------------------
-- Achieved milestone of $1 Billion revenue in 2011.
-- Replaced reserves mined at Kumtor.
-- Proven and probable gold reserves total 8.1 million ounces of contained
gold.
-- Initial resources reported for ATO in Mongolia and the Kara Beldyr joint
venture in Russia.
-- Earned a 50% interest in the Oksut joint venture project in Turkey,
which has returned significant intercepts of oxidized gold
mineralization.
-- Centerra became a supporting company of the Extractive Industries
Transparency Initiative ("EITI") which promotes good governance and
responsible mining. Both Kumtor and Boroo have played an active role in
promoting the EITI in the Kyrgyz Republic and Mongolia.
In 2011, the Company recorded net earnings of $370.9 million or $1.57 per common
share on revenues of $1,020.3 million reflecting a 27% increase in the realized
gold price in the year, partially offset by lower gold ounces sold, other
settlement payments and the contribution to community development projects. Net
earnings for 2010 were $322.3 million or $1.37 per share on revenues of $849.8
million. The 2010 comparative year included a gain of $34.9 million on the sale
of the REN exploration property in Nevada, USA.
Consolidated 2011 gold production was 642,380 ounces at a total cash cost of
$502 per ounce produced, compared with consolidated gold production of 678,941
ounces at a total cash cost of $440 per ounce produced for the prior year.
(Total cash cost per ounce produced is a non-GAAP measure and is discussed under
"Non-GAAP Measures" in this news release.)
During 2011, cash provided by operations was $434.9 million or $1.84 per share
up from $281.0 million or $1.19 per share in 2010, reflecting the higher net
earnings, primarily as a result of the higher average gold price realized.
Commentary
Stephen Lang, President and CEO of Centerra Gold commented, "2011 was a very
good year for the Company. We achieved our gold production guidance for the
year, replaced reserves and with the strong gold prices the operations generated
cash flow of $435 million or $1.84 per share for the year and achieved for the
first time revenue of over $1 billion. During the year, we continued to expand
our exploration efforts which are paying off with new exploration discoveries
such as ATO in eastern Mongolia, to delivering new resources on some of our
joint venture properties such as Kara Beldyr in Russia. Centerra ended the year
with a balance sheet that includes $568 million in cash and short-term
investments and no debt outstanding."
"For 2012, consolidated gold production is expected to be in the 635,000 to
685,000 ounce range and total cash costs are expected in the $465 to $500 per
ounce range. The production profile at Kumtor differs from last year in that it
will be significantly weighted to the fourth quarter, when we expect to recover
43% of the gold production."
Year-end Gold Reserves and Resources
Reserves
As reported in the Company's news release of February 9, 2012, Centerra's proven
and probable reserves as of December 31, 2011, increased 694,000 contained
ounces (before accounting for 2011 production) to 8.1 million ounces of
contained gold, compared to 8.2 million ounces as of December 31, 2010. This
represents an increase of 9% before accounting for 793,000 contained ounces
processed at Kumtor and Boroo during 2011. All 2011 year-end reserves were
estimated using a gold price of $1,200 per ounce compared to $1,000 per ounce at
December 31, 2010.
Resources
As of December 31, 2011, Centerra's measured and indicated resources increased
by 36% or 1.8 million ounces over the December 31, 2010 figures to total 6.7
million ounces of contained gold, compared to 4.9 million contained ounces as of
December 31, 2010. The increase from the 2010 year-end measured and indicated
resources is attributable to a 329,000 contained ounce increase in resources at
Kumtor together with the initial resource estimate for the ATO project in
Mongolia which has a measured and indicated resource of 824,000 ounces of
contained gold together with significant silver, lead and zinc and a resource
estimate on a 100% basis for the Gord Zone on the Kara Beldyr joint venture
project in Russia which has an indicated resource of 289,000 ounces of contained
gold.
The Company's inferred resources also increased by 570,000 contained ounces of
gold year-over-year. The majority of the inferred resources are at Kumtor, in
the high-grade underground SB Zone which totals 1.8 million contained ounces of
gold with an average grade of 13.6 g/t and in the high-grade underground
Stockwork Zone which totals 629,000 contained ounces of gold with an average
grade of 12.0 g/t.
Financial and Operating Summary
Highlights
----------------------------------------------------------------------------
Three Months Ended Year Ended
December 31 December 31
----------------------------------------------------------------------------
Financial and Operating % %
Summary 2011 2010 Change 2011 2010 Change
----------------------------------------------------------------------------
Revenue - $ millions 248.0 322.2 (23%) 1,020.3 849.8 20%
----------------------------------------------------------------------------
Cost of sales - $ millions
(1) 104.1 89.6 16% 382.3 342.2 12%
----------------------------------------------------------------------------
Earnings before other
income - $ millions (2) 79.4 150.8 (47%) 370.9 287.4 29%
----------------------------------------------------------------------------
Earnings per common share
before other income - $
basic and diluted 0.34 0.64 (47%) 1.57 1.22 29%
----------------------------------------------------------------------------
Other income - $ millions - - - - 34.9 (100%)
----------------------------------------------------------------------------
Net earnings - $ millions 79.4 150.8 (47%) 370.9 322.3 15%
----------------------------------------------------------------------------
Earnings per common share
- $ basic and diluted 0.34 0.64 (47%) 1.57 1.37 15%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash provided by
operations - $ millions 60.3 129.5 (53%) 434.9 281.0 55%
----------------------------------------------------------------------------
Capital expenditures -$
millions 30.0 55.4 (46%) 187.9 212.0 (11%)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted average common
shares outstanding -
basic (thousands) (3) 236,323 235,790 0% 236,088 235,488 0%
----------------------------------------------------------------------------
Weighted average common
shares outstanding -
diluted (thousands) (3) 236,621 236,266 0% 236,354 235,862 0%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Average gold spot price -
$/oz 1,688 1,367 23% 1,572 1,225 28%
----------------------------------------------------------------------------
Average realized gold
price - $/oz 1,690 1,376 23% 1,569 1,236 27%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Gold sold - ounces 146,704 234,148 (37%) 650,258 687,706 (5%)
----------------------------------------------------------------------------
Cost of sales - $/oz sold 709 383 85% 588 498 18%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Gold produced - ounces 151,562 249,866 (39%) 642,380 678,941 (5%)
----------------------------------------------------------------------------
Total cash cost(4) (5) -
$/oz produced 603 308 96% 502 440 14%
----------------------------------------------------------------------------
Total production cost(4)
(5) - $/oz produced 820 401 104% 687 555 24%
----------------------------------------------------------------------------
(1) Cost of sales excludes regional office administration.
(2) Net earnings before other income is a non-GAAP measure.
(3) As of December 31, 2011, the Company had 236,339,041 common shares
issued and outstanding.
(4) Total cash cost and total production cost are non-GAAP measures and are
discussed under "Non-GAAP Measures".
(5) As a result of Kumtor's Restated Investment Agreement signed in 2009,
total cash cost and total production cost per ounce measures exclude
operating and revenue-based taxes.
Revenue in the fourth quarter of 2011 was $248.0 million compared to $322.2
million during the same period the previous year. Fourth quarter 2011 revenue
reflects a 37% decrease in ounces sold (146,704 ounces in the fourth quarter
2011 versus 234,148 ounces in the fourth quarter of 2010). Lower ounces sold in
the fourth quarter of 2011 were partially offset by a higher realized gold price
($1,690 per ounce in the fourth quarter of 2011 versus $1,376 per ounce in the
fourth quarter of 2010).
The Company produced 151,562 ounces in the fourth quarter of 2011, 39% less than
the same period in 2010 due to lower grades and recoveries at both Boroo and
Kumtor. The Boroo production in the fourth quarter of 2011 was 8,567 ounces
lower compared to the same period of 2010 due to lower grades and lower recovery
of the stockpiled ore processed by the mill. The Kumtor production in the fourth
quarter of 2011 was 89,737 ounces lower compared to the same period of 2010 when
the production profile was back ended in the fourth quarter and the mill
processed higher grade material (averaging 7.1 g/t). The majority of the mill
feed processed by Kumtor in the fourth quarter of 2011 had an average mill head
grade of 3.8 g/t and lower recovery (77.6% vs. 84.1%) than the comparative
quarter in 2010, which reflects the higher mill head grade processed.
Total cash cost per ounce produced was $603 in the fourth quarter of 2011
compared to $308 per ounce in the same period of 2010 after allocation of costs
to capitalized pre-stripping. The higher unit costs were a result of the 39%
decrease in gold production combined with 19% higher cash operating costs. Gold
production in the fourth quarter of 2011 was significantly down by 98,304 ounces
or 39%, reflecting lower grades processed primarily from stockpiles at Kumtor
compared to the high-grade material from cut-back 12B mined and processed in the
fourth quarter of 2010, lower grade material processed at Boroo in the fourth
quarter of 2011, and lower recoveries at both sites. Total cash operating costs
of $91.4 million in the fourth quarter of 2011 were $14.4 million or 19% higher
than the $77.7 million in the same period in 2010 reflecting a larger equipment
fleet which increased throughput to move significantly higher levels of rock
waste and ice at Kumtor. The higher costs are due to increased mining activity
at Kumtor which includes higher diesel consumption and costs ($6.3 million
including a $1.9 million effect due to the price increasing from US$0.68 to
US$0.76 cents), higher national labour cost due to the increased workforce and
social fund payments as discussed in "Other Corporate Developments" ($3.4
million), and higher costs for explosives ($1.8 million) of which $1.4 million
is a result of a higher purchase price and higher maintenance, tire and
lubricant costs due to the expanded fleet ($1.5 million), lower allocation of
service equipment ($0.7 million) and other increases of $1.0 million. (Total
cash cost per ounce produced is a non-GAAP measure and is discussed under
"Non-GAAP Measure - Total Cash Cost.")
Cash provided by operations was $60.3 million for the fourth quarter of 2011
compared to $129.5 million for the fourth quarter of the prior year. The
decrease reflects primarily lower earnings from lower production in the fourth
quarter of 2011.
Exploration expenditures for the fourth quarter were $11.7 million dollars
compared to $11.2 million in the fourth quarter of 2010 reflecting higher
spending at the Kumtor property, the ATO project in Mongolia and at the Kara
Beldyr joint venture project in Russia. For a detailed update on fourth quarter
exploration activities please refer to the Company's news release of February 9,
2012.
Capital expenditures in the fourth quarter of 2011 totalled $30.0 million of
which $9.0 million was spent and accrued on sustaining capital projects and
$21.0 million invested in growth capital. The major growth components are
related to the underground development project at Kumtor ($11.1 million) and the
capitalized pre-stripping for cut-back 14A ($8.3 million) at Kumtor. In
addition, the Company spent $0.3 million at Boroo and the Gatsuurt in the fourth
quarter of 2011 on raising the main cell of the tailings dam to process Boroo
ores. Capital expenditures in the same quarter of 2010 were $55.4 million, which
included $9.4 million spent and accrued on sustaining capital projects and $46.0
million invested in growth capital.
Full Year 2011
For the full year 2011, revenue increased by $170.6 million, or 20%, to $1,020.3
million compared to $849.8 million in the same period of 2010 primarily due to a
27% increase in the realized gold price partially offset by fewer ounces sold.
The average realized gold price for 2011 was $1,569 per ounce compared to $1,236
per ounce in the same period of 2010 reflecting higher spot prices for gold
throughout the year. Gold sold in 2011 totalled 650,258 ounces (599,494 ounces
from Kumtor and 50,764 ounces from Boroo), compared to 687,706 ounces sold in
2010 (568,390 ounces from Kumtor and 119,316 ounces from Boroo).
Gold production was within the Company's guidance at 642,380 ounces in 2011
compared to the 678,941 ounces reported in 2010. The 5% decrease in gold
production in 2011 was due to lower production at Boroo. Production at Boroo was
47% lower in 2011 as a result of lower head grades and recoveries processed
through the mill. At Boroo, the ore was more refractory than expected during
2011 and the grades and recoveries continued to decline throughout the year.
Mining activities at Boroo ceased December 1, 2010 but have resumed in January
2012.
The heap leach operation at Boroo remained idle during 2011 pending issuance of
the final operating permit by the government authorities.
Total cash cost per ounce produced for 2011 increased to $502 compared to $440
per ounce in 2010. (Total cash cost per ounce produced is a non-GAAP measure and
is discussed under "Non-GAAP Measures".) The increase in 2011 reflects the
impact of lower production levels due to lower grades and recoveries and higher
operating costs at Kumtor as discussed in the "Results of Operating Segments"
for Kumtor and Boroo.
Exploration expenditures in 2011 were $39.6 million compared to $31.3 million in
2010 reflecting higher spending in Mongolia and an increase in exploration
activities elsewhere.
Other operating expenses in 2011 were $15.5 million compared to $8.0 million in
the prior year. The 2011 expense includes $12.6 million for donations and
sustainable development contributions made in both the Kyrgyz Republic and
Mongolia ($8.7 million in 2010), the settlement in the amount of $2.6 million
relating to a claim with government authorities in Mongolia regarding alluvial
reserves on the Boroo project licenses (see "Other Corporate Developments -
Mongolia"), the net income of $0.1 million ($0.7 million in 2010) related to the
production of alluvial reserves at the Boroo property and various other
community-based sustainability projects supported by both operations. The
results also include corporate sustainability spending by Kumtor totalling $10.0
million in 2011 for the construction and repair of 27 schools throughout the
Kyrgyz Republic, while in 2010 Boroo funded the construction of a maternity
hospital in Ulaanbaatar in the amount of $6.4 million.
Net earnings for 2011 were $370.9 million or $1.57 per share compared to $322.3
million or $1.37 per share in 2010. The increase reflects a 27% increase in the
realized gold price in the year, partially offset by lower gold ounces sold, the
settlement of $14.1 million with the Kyrgyz Social Fund, the settlement with the
Mongolian government of $2.6 million for the alluvial claim and the contribution
of $10 million to the Kyrgyz government for the construction and repair of 27
schools in the country (see "Other Corporate Developments"). The 2010
comparative year included a gain of $34.9 million on the sale of the REN
exploration property in Nevada, USA, partially offset by the contribution of
$6.4 million by Boroo to the construction of a maternity hospital in
Ulaanbaatar.
Cash flow provided from operations for 2011 was $434.9 million compared to
$281.0 million in 2010, primarily as a result of higher earnings and lower
working capital levels at the end of the year.
For the year 2011, capital expenditures totalled $187.9 million of which $34.6
million was spent and accrued on sustaining capital projects and $153.3 million
invested in growth capital. The major growth capital components are related to
spending at Kumtor mainly on fleet expansion and pre-stripping of waste ($148.5
million), the SB and Stockwork Zone underground development at Kumtor ($43.9
million), and raising the tailings dam at Boroo ($4.5 million). For the full
year 2010, capital expenditures (spent and accrued) totaled $212.0 million,
which included $44.0 million of sustaining capital and $168.0 million of growth
capital.
As at December 31, 2011, the Company had no outstanding debt and has an undrawn
$150 million revolving credit facility with the European Bank for Reconstruction
and Development ("EBRD") to support future growth initiatives. Net cash and
short-term investments increased to $568.2 million from $413.0 million at
December 31, 2010.
Operations Update
Summary of Key Operating Results
----------------------------------------------------------------------------
Three Months Year Ended
Ended December 31 December 31
----------------------------------------------------------------------------
% %
Kumtor Operating Results 2011 2010 Change 2011 2010 Change
----------------------------------------------------------------------------
Revenue - $ millions 239.7 288.9 (17%) 941.1 704.3 34%
----------------------------------------------------------------------------
Gold sold - ounces 141,897 209,929 (32%) 599,494 568,390 5%
----------------------------------------------------------------------------
Average realized gold
price - $/oz 1,689 1,376 23% 1,570 1,239 27%
----------------------------------------------------------------------------
Cost of sales - $ millions
(1) 96.9 72.1 34% 332.6 272.4 22%
----------------------------------------------------------------------------
Cost of sales - $/oz sold 683 343 99% 555 479 16%
----------------------------------------------------------------------------
Tonnes mined - 000s 37,124 29,561 26% 150,605 116,466 29%
----------------------------------------------------------------------------
Tonnes ore mined - 000s 1,095 2,812 (61%) 6,020 5,765 4%
----------------------------------------------------------------------------
Tonnes milled - 000s 1,450 1,303 11% 5,815 5,594 4%
----------------------------------------------------------------------------
Average mill head grade -
g/t (2) 3.80 7.06 (46%) 3.79 4.02 (6%)
----------------------------------------------------------------------------
Recovery - % 77.6 84.1 (8%) 80.8 79.5 2%
----------------------------------------------------------------------------
Gold produced - ounces 138,696 228,433 (39%) 583,156 567,802 3%
----------------------------------------------------------------------------
Total cash cost (3) (4) -
$/oz produced 580 261 122% 482 409 18%
----------------------------------------------------------------------------
Total production cost (3)
(4)-$/oz produced 808 349 132% 673 513 31%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capital expenditures - $
millions 28.5 53.3 (47%) 180.7 186.5 (3%)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Boroo Operating Results
----------------------------------------------------------------------------
Revenue - $ millions 8.3 33.3 (75%) 79.3 145.5 (46%)
----------------------------------------------------------------------------
Gold sold - ounces 4,807 24,219 (80%) 50,764 119,316 (57%)
----------------------------------------------------------------------------
Average realized gold
price - $/oz 1,719 1,374 25% 1,562 1,219 28%
----------------------------------------------------------------------------
Cost of sales - $ millions
(1) 7.2 17.5 (59%) 49.7 69.8 (29%)
----------------------------------------------------------------------------
Cost of sales - $/oz sold 1,504 724 108% 979 585 67%
----------------------------------------------------------------------------
Total tonnes mined - 000s 0 2,717 (100%) 0 11,358 (100%)
----------------------------------------------------------------------------
Tonnes mined heap leach -
000s 0 196 (100%) 0 1,694 (100%)
----------------------------------------------------------------------------
Tonnes ore mined direct
mill feed -000's 0 325 (100%) 0 2,399 (100%)
----------------------------------------------------------------------------
Tonnes ore milled - 000s 629 633 (1%) 2,340 2,466 (5%)
----------------------------------------------------------------------------
Average mill head grade -
g/t (2) 1.09 1.53 (29%) 1.11 1.86 (40%)
----------------------------------------------------------------------------
Recovery - % 66.5 69.0 (4%) 68.9 71.8 (4%)
----------------------------------------------------------------------------
Gold produced - ounces 12,866 21,433 (40%) 59,224 111,139 (47%)
----------------------------------------------------------------------------
Total cash cost (3) - $/oz
produced 849 810 5% 694 601 15%
----------------------------------------------------------------------------
Total production cost (3)-
$/oz produced 951 959 (1%) 828 770 8%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Capital expenditures
(Boroo) - $ millions 1.1 1.0 9% 6.3 7.9 (20%)
----------------------------------------------------------------------------
Capital expenditures
(Gatsuurt) - $ millions 0.0 0.9 (97%) 0.3 17.2 (98%)
----------------------------------------------------------------------------
(1) Cost of sales for 2010 and its comparative years exclude regional
office administration.
(2) g/t means grams gold per tonne.
(3) Total cash cost and total production cost are non-GAAP Measures and are
discussed under "Non-GAAP Measures".
(4) Kumtor's total cash cost and total production cost per ounce measures
exclude operating and revenue-based taxes.
Kumtor
At the Kumtor mine, gold production was 138,696 ounces in the fourth quarter of
2011, compared to 228,433 ounce in the same quarter in 2010 when the production
profile was back-ended for the year. The lower production in 2011 was the result
of lower grades processed, primarily from stockpiles, compared to the high-grade
material in the fourth quarter of 2010 with the associated lower recoveries and
a production profile in 2011 which had consistent quarterly production. The mill
head grade in the fourth quarter of 2011 averaged 3.8 g/t with a recovery of
77.6% compared to 7.06 g/t with a recovery of 84.1% in the same quarter of 2010.
Total cash cost per ounce produced, a non-GAAP measure of production efficiency,
was $580 in the fourth quarter compared to $261 a year earlier. The
quarter-over-quarter increase in total cash cost was primarily due to lower gold
production and higher operating costs. Operating costs (before allocation to
capitalized pre-stripping) increased by $17.9 million or 28% primarily due to
higher mining costs (up $14.7 million), higher milling costs ($1.3 million) and
higher site administration costs ($1.9 million). The higher mining costs of
$14.7 million or 39% compared to the same quarter in 2010 reflects the higher
mining rate achieved during the fourth quarter of 2011 where 26% more tonnes of
waste and ore were moved with Kumtor's expanded mining fleet. The higher costs
are due to the increased mining activity which includes diesel ($6.3 million
including a $1.9 million effect due to the price increasing from US$0.68 to
US$0.76 cents), national labour cost due to increased workforce and social fund
payments as discussed in "Other Corporate Developments" ($3.4 million), and
higher costs for explosives ($1.8 million) of which $1.4 million is a result of
a higher purchase price and higher maintenance, tire and lubricant costs due to
the expanded fleet ($1.5 million), lower allocation of service equipment ($0.7
million) and other increases of $1.0 million. The milling and site
administration costs increased due to higher national labour, reagents and
diesel costs.
Exploration expenditures totaled $2.7 million for the fourth quarter of 2011,
compare to $3.7 million in the fourth quarter 2010.
During the fourth quarter of 2011, capital expenditures were $28.4 million,
which included $7.8 million of sustaining capital spent mainly on the heavy
equipment overhaul program ($4.6 million), shear key, buttress and tailings dam
construction ($0.9 million) and other projects ($2.3 million). Growth capital
investment totalled $20.7 million mainly on pre-strip capitalization ($8.3
million), the underground development ($11.2 million) and other equipment and
projects ($1.2 million).
The underground development at Kumtor continued in the fourth quarter of 2011
with a total advance of 470 metres. Year-to-date total development advance was
1,864 metres, which includes 903 metres advance in Decline #1 and 961 metres in
Decline #2. The Stockwork Drive reached its design limit in October 2011 and
delineation drilling of the Stockwork Zone is ongoing. The underground
development project at Kumtor is on track to achieve the connection of Decline
#1 with Decline #2 in the third quarter of 2012. Decline #1 has approximately
125 metres of development advance remaining and Decline #2 has approximately 660
metres of development advance remaining to join the two declines. An additional
708 metres of development advance is required in order to access the SB Zone.
First ore from the SB Zone is expected in the second quarter of 2013.
Boroo & Gatsuurt
At the Boroo mine in the fourth quarter of 2011, gold production was 12,866
ounces 40% lower than the same period in 2010. The lower gold production was
primarily due to lower grade material processed which had an average mill head
grade of 1.09 g/t and lower recovery of 66.5%, compared to the average mill head
grade of 1.53 g/t and a recovery of 69.0% in the fourth quarter of 2010.
Total cash costs per ounce produced, a non-GAAP measure of production
efficiency, increased to $849 in the fourth quarter of 2011 from $810 in the
fourth quarter of 2010. The quarter-over-quarter increase in unit cash cost per
ounce produced was due to 40% lower gold production in the fourth quarter of
2011 compared to the prior year period.
Operating costs at Boroo were down $5.9 million quarter-over-quarter primarily
due to reduced costs for mining ($4.6 million), heap leaching ($0.4 million) and
royalties ($1.3 million), partially offset by an increase in milling costs ($0.4
million). The mining costs were lower as Boroo ceased mining activities at the
end of November 2010. Heap leaching costs were $0.4 million lower as no crushing
and stacking activities occurred starting in the fourth quarter of 2010, and the
recirculation of solution was stopped in the fourth quarter of 2011. Royalties
decreased in 2011 due to the 57% fewer ounces sold in the 2011 fourth quarter.
During the fourth quarter of 2011 exploration expenditures in Mongolia increased
to $4.2 million from $3.4 million in the same period in 2010. The majority of
the exploration work in the fourth quarter 2011 was conducted at the ATO
property in eastern Mongolia.
During the fourth quarter of 2011, capital expenditures at Boroo were $1.2
million, $0.9 million of sustaining capital and $0.3 million of growth capital
on raising the main cell of the tailings dam to process Boroo ores.
Minimal capital spending is planned on the Gatsuurt project going forward while
waiting for the final approvals and regulatory commissioning to commence mining.
Other Corporate Developments
Kyrgyz Republic
As previously disclosed, Kumtor Operating Company ("KOC"), the Company's Kyrgyz
Republic operating subsidiary was in a dispute with the Kyrgyz Republic Social
Fund (the "Social Fund") regarding whether Social Fund contributions were
required to be paid with respect to a high-altitude premium payable to KOC
employees. This dispute began in 2010 and eventually led to KOC filing a claim
in September 2011 to invalidate an assessment issued by the Social Fund
requiring KOC to pay approximately $6.7 million in contributions owing for the
2010 operating year. The matter was resolved in the third quarter of 2011 when
KOC and the Social Fund reached an agreement whereby Kumtor would voluntarily
pay to the Social Fund $14.1 million, covering the 2010 operating year ($6.7
million) and the first nine months of 2011 ($7.4 million), without any
penalties, fines and financial sanctions and agreed to apply the Social Fund
contribution to the high altitude premium in the future. Going forward, KOC will
pay the employer's portion of the Social Fund contribution for the high altitude
premium and the employees will be responsible for the employee portions of such
deduction.
On October 30, 2011, the Kyrgyz Republic held presidential elections which were
won by the former Prime Minister Almazbek Atambayev of the Social Democratic
Party of Kyrgyzstan, in the first round.
On December 5, 2011, the Company announced that it was experiencing an
interruption in the transfer of diesel fuel and other supplies from the Kumtor
marshalling yard to the mine site due to an illegal roadblock. The marshalling
yard is located in the town of Balykchy in the Issyk-Kul Region of the Kyrgyz
Republic and is approximately 270 kilometres from the Kumtor mine. The road
block was voluntarily lifted on December 6, 2011 and the transfer of diesel fuel
and other supplies resumed. The interruption did not affect the Company's 2011
production and cost guidance, nor were the mine or milling operations affected.
Kumtor's collective bargaining agreement expires at the end of 2012. A related
work stoppage during 2012 could have a significant impact on Kumtor achieving
its forecasted production (see "Risk Factors"). On February 6, 2012 unionized
employees at Kumtor began an illegal strike following a dispute regarding social
fund deductions. Production at the Kumtor operation was suspended. On February
16, 2012 an agreement was reached with the Kumtor Trade Union and unionized
employees returned to work. The cost of the settlement for 2012 will be
approximately $4 million. The impact of the strike on production is being
evaluated.
Mongolia
In the fourth quarter of 2011, Centerra's wholly owned subsidiary, Boroo Gold
LLC, which owns the Boroo project, resolved the previously disclosed very
significant claim for compensation that it received from the Mongolian General
Department of Specialized Inspection ("SSIA") in October 2009 following the June
2009 inspection at the Boroo project. The claim related to certain mineral
reserves, including state alluvial reserves, covered by the Boroo project
licenses, that are recorded in the Mongolian state reserves registry, but for
which there are no or incomplete records or reports of mining activity. Pursuant
to the resolution, Boroo Gold LLC accrued approximately $2.6 million in the 2011
year-end results and subsequently paid the amount in January 2012. While this
claim has been resolved, other regulatory issues remain outstanding in Mongolia,
including the issuance of a final heap leach permit. The Company continues to
have discussions with regulatory officials regarding the issuance of the permit.
See "Risk Factors".
As previously disclosed, the Mongolian Parliament enacted the Law to Prohibit
Mineral Exploration And Mining Operations At River Headwaters, Protected Zones
Of Water Reservoirs And Forested Areas (the "Water and Forest Law") in 2009.
Under the Water and Forest Law, mineral prospecting, exploration and mining in
water basins and forestry areas in Mongolia are prohibited, and the affected
licenses are subject to revocation. The legislation provides a specific
exemption for "mineral deposits of strategic importance", which exempts the
Boroo hard rock deposit from the application of the legislation. Centerra's
Gatsuurt licenses and its other exploration license holdings in Mongolia
however, are currently not exempt. Under the Minerals Law of Mongolia,
Parliament on its own initiative or, on the recommendation of the Government,
may designate a mineral deposit as strategic. Such designation could result in
Mongolia receiving up to a 34% interest in the Gatsuurt deposit.
In 2010, the Company received correspondence from the Minerals Resource
Authority of Mongolia ("MRAM") stating that certain of its mining and
exploration licenses, including the Gatsuurt mining licenses, could be revoked
under the Water and Forest Law. In 2010, the Company was also informed by the
Ministry of Mineral Resources and Energy ("MMRE") that since the Gatsuurt
licenses were within the area designated, on a preliminary basis, as land where
mineral mining is prohibited under the Water and Forest Law, and that the MMRE
would communicate further with the Company on negotiations with respect to an
investment agreement for the Gatsuurt project once the MMRE received additional
clarity on the impact of the Water and Forest Law on the Gatsuurt project. In
November 2010, the Company also received a letter from the MMRE indicating that
operations at the Gatsuurt project cannot be commenced while the implementation
of the Water and Forest Law is being resolved. Accordingly, it is anticipated
that further approvals and regulatory commissioning of Gatsuurt will be delayed
as a result of the Water and Forest Law.
In November 2010, the Mongolian cabinet announced its intention to initiate the
revocation of 1,782 mineral licenses under the Water and Forest Law on a staged
basis, beginning with the revocation of 254 alluvial gold mining licenses, the
list of which was finalized by the Mongolian Parliament in 2011. The Company has
three licenses on the list of alluvial gold mining license that may be revoked.
None of these licenses are material to the Company. In particular, the Company's
principal Gatsuurt hardrock mining licenses are not on the list of alluvial
licenses to be revoked. In accordance with the Water and Forest Law, the Company
submitted in February 2011 a formal request for compensation for the three
licenses to be revoked, which requests were updated again in January 2012 as a
result of the finalization of the list.
The Mongolian Government announced in 2010 that it is considering taking the
following actions as the next stages of its implementation of the Water and
Forest Law:
-- preparing and submitting to the cabinet a proposal to designate as
"strategic" those deposits, the development of which would contribute to
regional social and economic development and, at the same time, require
significant amounts of compensation;
-- revoking all licenses for non-gold mining operations which utilize
surface water;
-- revoking all 460 gold exploration licenses and providing compensation;
-- revoking all 931 non-gold exploration licenses and providing
compensation;
-- revoking and providing compensation to all remaining affected mining
licenses.
Of the Company's 55 mineral licenses, 36 licenses (including the Gatsuurt hard
rock licenses) are included in the 1,782 licenses referred to in the cabinet
announcement as subject to staged revocation.
The Company understands that Mongolia's cabinet expects that the Water and
Forest Law will take until approximately November 2012 to fully implement.
According to statements by officials, the Mongolian Government estimates that
the total compensation due to mining companies for the revocation of their
licenses will amount to approximately US$4 billion, representing a very
substantial part of Mongolia's annual gross domestic product for 2010.
The Water and Forest Law has attracted opposition from Mongolia's alluvial
miners, the Mongolian National Mining Association and other groups. A group of
parliamentarians proposed amendments to the Water and Forest Law in 2011 to
reduce its impact on environmentally-sound mining operations. The Company
understands that as drafted, such amendments would allow the Gatsuurt project to
proceed. Such amendments were discussed by a Mongolian parliamentary committee
in 2011 which then referred it to Parliament for further discussion. The
Parliament did not discuss the amendment during the 2011 but such amendments may
be tabled for discussion in 2012.
Centerra is reasonably confident that the economic and development benefits
resulting from its exploration and development activities will ultimately result
in the Water and Forest Law having a limited impact on the Company's Mongolian
activities. There can be no assurance, however, that this will be the case.
Unless the Water and Forest Law is repealed or amended such that the law no
longer applies to the project or Gatsuurt is designated as a "mineral deposit of
strategic importance" that is exempt from the Water and Forest Law, mineral
reserves at Gatsuurt may have to be reclassified as mineral resources or
eliminated entirely and the Company may be required to write-off the associated
investment in Gatsuurt and Boroo. As at December 31, 2011, the Company had net
assets recorded amounting to approximately $36 million related to the investment
in Gatsuurt and approximately $25 million remaining capitalized for the Boroo
mill facility and other surface structures which are expected to be utilized for
the processing of ore from Gatsuurt. Although the Company expects to exploit the
Gatsuurt deposit, should this not be the case, the Company would be required to
write-off these amounts. A revocation of the Company's mineral licenses,
including the Gatsuurt mineral license, or the reclassification of mineral
reserves or the write-off of assets could have an adverse impact on Centerra's
future cash flows, earnings, results of operations and financial condition.
The heap leach operation at Boroo remained idle during the fourth quarter of
2011 awaiting issuance of the final operating permit from the Mongolian
Government. Unless the Company is successful in obtaining the final heap leach
operating permit, it will be required to write-off the associated investment
which totals $15.9 million at December 31, 2011.
In November 2010, the Mongolian Parliament passed amendments to its Minerals Law
that modified the existing royalty structure on mineral projects. Pursuant to
the amended royalty structure, the royalty rate is no longer a fixed percentage
but is graduated and dependent upon the commodity price in US dollars. In the
case of gold, there is a basic 5% royalty fee that applies while gold is less
than $900 per ounce. For any increase of $100 to the price of gold, there is a
corresponding 1% increase to the royalty fee. Accordingly, at $900 per ounce,
the royalty fee increases to 6% which continues until the gold price reaches
$1,000 per ounce at which point, the royalty increases to 7%, at $1,100 per
ounce, the royalty increases to 8%, and at $1,200 per ounce, the royalty
increases to 9%. The highest royalty fee rate is reached at 10% when gold is
$1,300 per ounce and above. The graduated royalty became effective as of January
1, 2011 for all mining projects in Mongolia. On January 19, 2011, the Standing
Committee of the State Great Hural of Mongolia issued a resolution to the
Mongolian Government which, among other things, resolved to direct the
Government to enter into negotiations to have the graduated royalty structure
apply to business entities that have already entered into a stability agreement
and/or an investment agreement. This would include the Company's Boroo project
which is currently operating pursuant to a stability agreement entered with the
Mongolian Government. The Company is of the opinion that the Boroo stability
agreement provides, among other things, legislative stabilization for its Boroo
operations and accordingly the graduated royalty fee is not applicable to
Boroo's remaining operations. As of the date of this news release, the Company
is not aware of any response or activity by the Mongolian Government on this
State Great Hural of Mongolia resolution. Despite this, the Company cannot
provide any assurances that Boroo will not be made subject to the graduated
royalty fee. If the graduated royalty fee does apply to Boroo, it may have an
adverse impact on Centerra's future cash flows, earnings, results of operations
or financial condition. Regardless of whether the graduated royalty fee applies
to the Boroo operations, it will apply to gold produced from the Gatsuurt
project, when developed.
The Boroo stability agreement expires in July 2013, after which time Boroo's
operations will be subject to prevailing tax and royalty fees.
Corporate Matters
In April 2011, Centerra declared a special dividend of C$0.30 per share and an
annual dividend of C$0.10 per share, payable on May 18, 2011 to shareholders of
record on May 12, 2011. This was the Company's first special dividend.
In March 2011, Centerra was served by a Turkish company, Sistem Muhenkislik
Insaat Sanayi Ticaret SA ("Sistem"), with a notice of enforcement to seize any
shares and dividends in Centerra held in the name of the Kyrgyz Republic,
followed by a notice of garnishment in April 2011 for any debts owed by Centerra
to the Kyrgyz Republic (the "Republic"). These notices were served by Sistem
through the Sheriff in Toronto as part of the enforcement proceedings brought by
Sistem in the Ontario Superior Court to collect approximately US$11 million with
additional interest, owed to Sistem by the Republic in accordance with a
judgment of the Ontario Superior Court enforcing an international arbitration
award against the Republic. In these Ontario proceedings, Sistem alleges that
the shares in Centerra owned by Kyrgyzaltyn JSC, and any dividends paid in
respect of those shares, are in fact legally and beneficially owned by the
Republic and are therefore subject to execution to pay the judgment. Based on
legal advice received, Centerra disputes those allegations and maintains that
Kyrgyzaltyn JSC alone is the legal and beneficial owner of the shares and any
dividends in respect of those shares, based on the applicable legal principles
and the binding agreements with Kyrgyzaltyn JSC. As a result and notwithstanding
such notices of enforcement and garnishment, Centerra paid its May 18, 2011
dividend (as discussed above) in the total amount of approximately C$31 million
to Kyrgyzaltyn JSC. Sistem is continuing with its claim regarding the Centerra
shares owned by Kyrgyzaltyn JSC. If this claim is successful in the Ontario
court proceedings, Sistem may have a right to execute its judgment against those
shares and may assert a claim against Centerra in respect of the payment of the
dividends to Kyrgyzaltyn JSC. However, Centerra believes it has a strong defence
to that claim based on the facts and the law. At a motion in September 2011,
Kyrgyzaltyn JSC was formally added as a party to the proceeding.
Kyrgyzaltyn has brought a motion to be heard by the Ontario Superior Court (to
be heard in April 2012) to set aside the Ontario judgment enforcing the
arbitration award on the basis that the court did not have jurisdiction to
entertain the application or in the alternative that there is a foreign court
which is a more convenient forum to hear and decide the issues of legal and
beneficial ownership of the shares as between Kyrgyzaltyn and the Kyrgyz
Republic.
Subsequent to 2011 year-end, Centerra decided to close its exploration office in
Reno, Nevada and to refocus its exploration efforts outside of the Great Basin
in Nevada, USA to those areas in which it is having more success, such as in
Mongolia, Turkey, Russia and Kyrgyzstan.
For information on forward-looking information, see "Caution Regarding
Forward-Looking Information". For information regarding risk factors relevant to
Centerra and its operations, please see "Risk Factors" in the most recently
filed MD&A and in the Company's most recently filed Annual Information Form.
2012 Outlook
Centerra's 2012 consolidated gold production is forecast to be between 635,000
and 685,000 ounces. The Kumtor mine is expected to produce between 575,000 and
625,000 ounces in 2012. Kumtor's 2012 planned mining sequence results in a
production profile with a large portion of the gold production occurring in the
fourth quarter. The high-grade material from the SB Zone is only available for
mining at the end of the third quarter of 2012 when it is exposed by cut-back
14A. On a quarterly basis, Kumtor's 2012 gold production is forecast to have 12%
of gold production being recovered in the first quarter, 20% in the second
quarter, 25% in the third quarter and 43% in the fourth quarter. Gold production
in the first quarter of 2012 will also be impacted by four days of scheduled
mill maintenance of the ball and SAG mills. The Company is also evaluating the
impact of the 10 day strike which occurred in February 2012.
Kumtor's collective bargaining agreement expires at the end of 2012. A related
work stoppage during the year could have a significant impact on Kumtor
achieving its forecasted production (see "Risk Factors"). A work stoppage in the
fourth quarter would have a larger negative impact on Kumtor achieving its
forecasted production for the year. The Company's production forecast is
contingent on its ability to strip enough material from cut-back 14A during the
year to expose the high-grade SB Zone by the end of the third quarter.)
Additionally, achieving the 2012 production is dependent on the timely delivery
of new mining equipment and successfully maintaining the mining rates of the
waste and ice in the southeast portion of the pit to gain access to the higher
grade ore.
At the Boroo mine, gold production is forecast to be approximately 60,000 ounces
and assumes mining of Pit 6. The 2012 forecast also assumes no production from
the heap leach facility or the Gatsuurt project due to uncertainties with
permitting. The Boroo mill is expected to process mostly higher grade heap leach
ore stockpiles for the first eight months of 2012, followed by processing the
higher grade ore from Pit 6 from September 2012 to January 2013. During
September to December 2012, the Boroo mill is expected to process a mixture of
higher grade Pit 6 ore with an average grade of approximately 2.1 g/t and
stockpiled heap leach material with grades between 0.67 - 0.76 g/t.
Receipt of the final heap leach operating permit would add approximately 2,000
ounces of gold a month. At Gatsuurt, the project is ready to begin mining the
oxide ore on receipt of the final approvals and regulatory commissioning.
Centerra's 2012 gold production and unit costs are forecast as follows:
----------------------------------------------------------------------------
2012 Production Forecast 2012 Total Cash Cost(1)
(ounces of gold) ($ per ounce produced)
----------------------------------------------------------------------------
Kumtor 575,000 - 625,000 430 - 465
----------------------------------------------------------------------------
Boroo approx. 60,000 810
----------------------------------------------------------------------------
Consolidated 635,000 - 685,000 465 - 500
----------------------------------------------------------------------------
(1) Total cash cost is a non-GAAP measure and includes mine operating costs
such as mining, processing, regional office administration, royalties
and production taxes (except at Kumtor where revenue-based taxes are
excluded), but excludes amortization, reclamation costs, financing
costs, capital development, community investments and exploration.
2012 Exploration Expenditures
Exploration expenditures of $45 million are planned for 2012, a 13% increase
from the $39.6 million spent in 2011. The 2012 program will continue the
aggressive exploration work at the Kumtor mine together with an increase in the
exploration in the Kumtor district; planned expenditures are expected to be
about $15 million. In Mongolia, $8 million is allocated for exploration programs
and work will continue along the Onon trend in eastern Mongolia and to follow up
on the positive results on the Altan Tsagaan Ovoo ("ATO") project.
In 2012, drilling programs will continue on the Kara Beldyr and Dvoinoy projects
in Russia and expenditures for the two projects are expected to be approximately
$6 million. Drilling programs will also continue in Turkey on the Company's
joint venture projects with expenditures expected to be approximately $6
million. Drilling of the Laogouxi project in China is expected to commence in
the second quarter. In addition, generative programs will continue in Central
Asia, Russia, China, and Turkey to increase the pipeline of projects that the
Company is developing to meet the longer term growth targets of Centerra.
Subsequent to 2011 year-end, Centerra decided to close its exploration office in
Reno, Nevada and to refocus its exploration efforts outside of the Great Basin
in Nevada, USA to those areas in which it is having more success, such as in
Mongolia, Turkey, Russia and Kyrgyzstan.
2012 Capital Expenditures
The capital expenditures for 2012 are estimated to be $389 million, including
$49 million of sustaining capital and $340 million of growth capital.
Capital expenditures include:
----------------------------------------------------------------------------
2012 Growth Capital 2012 Sustaining Capital
Projects (millions of dollars) (millions of dollars)
----------------------------------------------------------------------------
Kumtor mine $328 $45
----------------------------------------------------------------------------
Mongolia $12 $3
----------------------------------------------------------------------------
Corporate - $1
----------------------------------------------------------------------------
Consolidated
Total $340 $49
----------------------------------------------------------------------------
Kumtor
At Kumtor, 2012 total capital expenditures are forecast to be $373 million
including $45 million of sustaining capital. The largest sustaining capital
spending will be the major overhaul maintenance of the heavy duty mine equipment
($21 million), expenditures for dewatering and infrastructure ($8 million),
effluent treatment plant relocation ($5 million), tailings dam construction
works ($4 million) and for equipment replacement and other items ($7 million).
Growth capital investment at Kumtor for 2012 is forecast at $328 million, which
includes pre-strip costs related to the development of the open pit ($128
million), purchase of new mining equipment including 25 CAT 789 haul trucks, 4
drills and 4 Hitachi 3600 shovels ($126 million), and other items ($11 million).
Growth capital for 2012 has increased compared to the most recent Kumtor
technical report as purchases of mine expansion equipment planned for 2013 ($61
million) have been brought forward to 2012. This was done to ensure that all of
the new CAT 789 haul trucks were of the same model "C" series, given that CAT is
discontinuing the C series in late 2012. Additionally, the added capacity will
help to ensure the required mine production rate is maintained. Also included in
2012 growth capital investment is $63 million for the underground project to
continue to develop the SB and Stockwork Zones, as well as for delineation
drilling and capital purchases in 2012.
The underground development project at Kumtor is on track to achieve
breakthrough of Decline 1 with Decline 2 in the third quarter of 2012 and is
expected to intersect first ore in the SB Zone in the second quarter of 2013.
Mongolia (Boroo & Gatsuurt)
At Boroo, sustaining capital expenditures in 2012 are expected to be about $3
million primarily for component change-outs and mill maintenance. Growth capital
is forecast at $12 million, which includes capitalized pre-stripping costs of
Pit 6 at Boroo ($11 million).
No capital for the development of the deeper sulphide ores at Gatsuurt has been
forecast and will only be invested following successful regulatory commissioning
of the Gatsuurt project. The engineering and construction of the bio-oxidation
facility to be located at the Boroo mill, which is needed to treat Gatsuurt
sulphide ores, will be restarted only after the approval to begin mining at
Gatsuurt has been received from the Government of Mongolia.
2012 Depreciation, Depletion and Amortization
Depreciation, depletion and amortization ("DD&A") expenses included in costs of
sales expense for 2012 are forecast to be approximately $133 million. Changes in
DD&A are a result of increases or decreases to certain of the Company's capital
assets. Refer to the Company's 2011 Audited Financial Statements note 9 for
further details on the related capital assets.
----------------------------------------------------------------------------
2012 2011 2010
DD&A DD&A DD&A
(In millions) Forecast Actual Actual
----------------------------------------------------------------------------
Kumtor
----------------------------------------------------------------------------
Mine equipment $ 80 $ 69 $ 36
----------------------------------------------------------------------------
Less DD&A capitalized to pre-stripping
costs (1) (34) (14) (4)
----------------------------------------------------------------------------
Pre-stripping costs amortized 54 32 -
----------------------------------------------------------------------------
Mine development and other mining assets 8 5 7
----------------------------------------------------------------------------
Mill assets 9 8 9
----------------------------------------------------------------------------
Administration assets and other 10 10 10
----------------------------------------------------------------------------
Inventory movement (non-cash) (14) (22) 1
----------------------------------------------------------------------------
Subtotal for Kumtor $ 113 $ 88 $ 59
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Boroo
----------------------------------------------------------------------------
Mine equipment $ 4 $ 2 $ 3
----------------------------------------------------------------------------
Less DD&A capitalized to pre-stripping
costs (2) - -
----------------------------------------------------------------------------
Pre-stripping costs amortized 12 - 4
----------------------------------------------------------------------------
Mine development and other mining assets 1 1 1
----------------------------------------------------------------------------
Mill assets 1 1 2
----------------------------------------------------------------------------
Administration assets and other 2 3 9
----------------------------------------------------------------------------
Inventory movement (non-cash) 2 3 (2)
----------------------------------------------------------------------------
Subtotal for Boroo $ 20 $ 10 $ 16
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Consolidated Total $ 133 $ 98 $ 76
----------------------------------------------------------------------------
(1) Use of the Company's mining fleet for pre-stripping activities results
in a portion of the depreciation related to the mine fleet to be
allocated to capitalized pre-strip costs.
Kumtor
At Kumtor, the forecast for 2012 DD&A expensed as part of costs of sales is $113
million. The increase over the three years reflects a significant expansion of
the mining fleet in order to achieve higher throughput levels of materials moved
and the increasing stripping of waste required by the deposit. This is the
largest component of depreciation expense in 2012 totalling $80 million. The
mine equipment assets are depreciated on a straight-line basis over their
estimated useful lives. The depreciation expense related to mine equipment
engaged in a stripping campaign is capitalized as pre-stripping costs.
During 2012 Kumtor will be mining the remaining ore from cut-back 12B and
continuing stripping campaigns on cut-backs 14A and 14B. The costs to remove
waste within the various cut-backs include mining operating costs such as
labour, diesel and maintenance costs, as well as the depreciation expense for
the mine equipment used in the stripping campaign. Labour and consumables costs
(such as diesel costs) have been steadily increasing over the last several years
due to both increases in price and demand with the expanding operation at
Kumtor. These costs are capitalized as pre-stripping costs and amortized over
the ounces contained in the ore body exposed by the stripping campaign.
Based on the sequencing of production at Kumtor for 2012, ore from cut-backs 12B
and 14A will be mined resulting in the amortization through cost of sales of $54
million in capitalized pre-stripping costs. As Kumtor mines the ore from
cut-back 12B, it will amortize the remaining unamortized capitalized
pre-stripping costs of $13 million related to that cut-back. The forecast
assumes that the stripping campaign for cut-back 14A is completed by the fourth
quarter of 2012 providing access to the ore in the fourth quarter. The ore in
cut-back 14A will be partially mined in the fourth quarter and the amortization
expense for 2012 for the capitalized pre-stripping costs related to cut-back 14A
is forecast at $41 million. The stripping campaign for cut-back 14B was started
in December 2011 and is expected to continue throughout 2012 with the goal of
reaching ore in 2013. Therefore, no amortization expense is expected to be
recorded on cut-back 14B in 2012.
Boroo
At Boroo, the forecast for 2012 DD&A expensed as part of costs of sales is $20
million, compared to $10 million in 2011 and $17 million in 2010. The increase
in 2012 reflects the resumption of mining in Pit 6. The largest component of
depreciation expense is related to amortization of capitalized pre-stripping
costs related to Pit 6.
In January 2012, Boroo re-commenced mining activities in Pit 6 requiring the
stripping of waste before ore is exposed. The costs of removing waste for this
stripping campaign before the ore is mined will be capitalized as pre-stripping
costs and amortized over the ounces contained in the Pit 6 ore. The forecast
assumes that the stripping campaign for Pit 6 is completed early in the third
quarter of 2012 and the processing of Pit 6 ore through the mill completed in
January 2013. The amortization expense for 2012 for the capitalized
pre-stripping costs related to Pit 6 production is forecast at $12 million.
2012 Corporate Administration and Sustainable Community Investment
Corporate and administration expenses for 2012 are forecast at approximately $41
million.
Total sustainable community investments for 2012 are forecast at $26 million, in
accordance with Centerra's Community Investment policy. Note that these costs
are not included in total cash cost per ounce produced. (Total cash cost per
ounce produced is a non-GAAP measure and is discussed under "Non-GAAP Measures"
in this news release.)
Centerra has a history of investing in various community sustainable development
and strategic investment projects in the countries and communities where it
operates. For example in 2010, Boroo invested $6.4 million towards the
construction of a new maternity hospital in Ulaanbaatar and in 2011 Kumtor
contributed $10 million for the construction and repair of 27 schools throughout
the Kyrgyz Republic. The Company intends to include sustainable community
investment expenditures as part of its regular guidance.
Taxes
Pursuant to the Restated Investment Agreement, Kumtor's operations are not
subject to corporate income taxes. The agreement replaced the prior tax regime
applicable to the Kumtor project with a simplified regime effective January 1,
2008. This simplified regime, which assesses tax at 13% on gross revenue (plus
1% for the Issyk-Kul Oblast Development Fund effective January 2009), was
approved and enacted by the Parliament of the Kyrgyz Republic in 2009.
The corporate income tax rate for Centerra's Mongolian subsidiary, BGC is 25%
for taxable income over 3 billion Mongolian tugriks (approximately $2.2 million
at the 2011 year-end foreign exchange rate) with a tax rate of 10% for taxable
income up to that amount.
Regulatory Matters
In January 2012, Centerra's wholly owned subsidiary, BGC, which owns the Boroo
project, resolved the previously disclosed very significant claim for
compensation that it received from the Mongolian General Department of
Specialized Inspection ("SSIA") in October 2009 following the June 2009
inspection at the Boroo project. The claim related to certain mineral reserves,
including state alluvial reserves, covered by the Boroo project licenses, that
are recorded in the Mongolian state reserves registry, but for which there are
no or incomplete records or reports of mining activity. Pursuant to the
resolution, Boroo Gold LLC has accrued approximately $2.6 million in its 2011
year-end statements. While this claim has been resolved, other regulatory issues
remain outstanding in Mongolia, including the issuance of a final heap leach
permit.
Sensitivities
Centerra's revenues, earnings and cash flows for 2012 are sensitive to changes
in certain variables and the Company has estimated their impact on revenues, net
earnings and cash from operations.
----------------------------------------------------------------------------
Impact on
($ millions)
----------------------------------------
Earnings
before
Change Costs Revenues Cash flow income tax
----------------------------------------------------------------------------
Gold Price $50/oz 5.1 33.5 28.4 28.4
----------------------------------------------------------------------------
Diesel Fuel (1) 10% 7.1 - 7.1 7.1
----------------------------------------------------------------------------
Kyrgyz som 1 som 2.6 - 2.6 2.6
----------------------------------------------------------------------------
Mongolian tugrik 25 tugrik 1.2 - 1.2 1.2
----------------------------------------------------------------------------
Canadian dollar 10 cents 3.8 - 3.8 3.8
----------------------------------------------------------------------------
(1) a 10% change in diesel fuel price equals $11/oz produced
Major Assumptions
The following material assumptions have been used to forecast production, costs
and future capital expenditures;
-- a gold price of $1,700 per ounce,
-- exchange rates:
-- $1USD:$1.01 CAD
-- $1USD:46.00 Kyrgyz Som
-- $1USD:1,235 Mongolian Tugrik
-- $1USD:0.74 Euro
-- diesel fuel price assumption:
-- $0.71/litre at Kumtor
-- $1.13/litre at Boroo
The assumed diesel price of $0.71/litre at Kumtor assumes that no Russian export
duty will be paid on the fuel exports from Russia to the Kyrgyz Republic.
Diesel fuel is sourced from separate Russian suppliers for both sites and only
loosely correlates with world oil prices. Political and supply pressures and
policies may cause the average price of fuel from Russia to be higher. The
diesel fuel price assumptions were made when the price of oil was approximately
$99 per barrel.
Other important assumptions include the following:
-- Any recurrence of political and civil unrest in the Kyrgyz Republic will
not impact operations, including movement of people, supplies and gold
shipments to and from the Kumtor mine,
-- grades and recoveries at Kumtor will remain consistent with the life-of-
mine plan to achieve the forecast gold production,
-- the dewatering program at Kumtor continues to produce the expected
results and the water management system works as planned,
-- the remedial plan to deal with the Kumtor waste and ice movement
continues to be successful, see "Kumtor Mine - Geotechnical Issues
Affecting the Kumtor Open Pit" in the Company's most recently filed
annual information form,
-- no unplanned delays in or interruption of scheduled production from our
mines, including due to civil unrest, natural phenomena, labour,
regulatory or political disputes, equipment breakdown or other
developmental and operational risks,
-- any labour dispute that occurs at Kumtor does not impact the Company's
mine plan regarding the stripping of cut-back 14A and subsequent access
to the SB Zone in the third quarter,
-- inflation rates in the countries where Centerra operates remain stable,
-- no further suspension of Boroo's operating licenses, and
-- all necessary permits, licences and approvals are received in a timely
manner.
Production and cost forecasts and capital estimates are forward-looking
information and are based on key assumptions and subject to material risk
factors. If any event arising from these risks occurs, the Company's business,
prospects, financial condition, results of operations or cash flows could be
adversely affected. Additional risks and uncertainties not currently known to
the Company, or that are currently deemed immaterial, may also materially and
adversely affect the Company's business operations, prospects, financial
condition, and results of operations or cash flows. See the sections entitled
"Risk Factors" in the Company's most recently filed annual information form,
available on SEDAR at www.sedar.com and see also the discussion below under the
heading "Cautionary Note Regarding Forward-looking Information".
Non-GAAP Measures
This news release presents information about total cash cost of production of an
ounce of gold and total production cost per ounce for the operating properties
of Centerra. Except as otherwise noted, total cash cost per ounce produced is
calculated by dividing total cash costs by gold ounces produced for the relevant
period. Total production cost per ounce produced includes total cash cost plus
depreciation, depletion and amortization divided by gold ounces produced for the
relevant period. Total cash cost and total production cost per ounce produced
are non-GAAP measures.
Total cash costs include mine operating costs such as mining, processing,
administration, royalties and operating taxes (except at Kumtor where
revenue-based taxes are excluded), but exclude amortization, reclamation costs,
financing costs, capital development and exploration. Certain amounts of
stock-based compensation have been excluded as well. Total production costs
includes total cash cost plus depreciation, depletion and amortization. Total
cash cost per ounce produced and total production cost per ounce produced have
been included because certain investors use this information to assess
performance and also to determine the ability of Centerra to generate cash flow
for use in investing and other activities. The inclusion of total cash cost per
ounce produced and total production cost per ounce produced may enable investors
to better understand year-over-year changes in production costs, which in turn
affect profitability and cash flow.
Total Cash Cost per Ounce Produced and Total Production Cost per Ounce
Produced can be reconciled as:
Year ended Fourth Quarter
(unaudited) December 31, (unaudited)
($ millions, unless otherwise specified) 2011 2010 2011 2010
-----------------------------------
Centerra:
Cost of sales, as reported $ 382.3 $ 342.2 $ 104.1 $ 89.6
Less: Non-cash component 98.4 75.6 30.3 19.7
-----------------------------------
Cost of sales, cash component $ 283.9 $ 266.6 $ 73.8 $ 70.0
Adjust for:
Refining fees & by-product credits (3.3) (0.1) (0.3) (0.3)
Regional office administration 21.3 21.1 5.9 6.7
Mining Standby Costs 0.2 1.3 - 1.3
Non-operating costs (14.2) (0.1) - 0.7
Inventory movement 34.4 10.1 11.9 (1.4)
-----------------------------------
Total cash cost - 100% $ 322.3 $ 298.8 $ 91.3 $ 76.9
Depreciation, depletion,
amortization and accretion 99.3 76.3 30.5 19.8
Inventory movement - non-cash 19.5 1.6 2.5 3.5
-----------------------------------
Total production cost - 100% $ 441.1 $ 376.7 $ 124.3 $ 100.2
Ounces poured - 100% (000) 642.4 678.9 151.6 249.8
Total cash cost per ounce produced $ 502 $ 440 $ 603 $ 308
Total production cost per ounce produced $ 687 $ 555 $ 820 $ 401
Kumtor:
Cost of sales, as reported $ 332.6 $ 272.4 $ 96.9 $ 72.1
Less: Non-cash component 88.3 59.4 29.1 17.7
-----------------------------------
Cost of sales, cash component $ 244.3 $ 213.0 $ 67.7 $ 54.4
Adjust for:
Refining fees & by-product credits (3.3) (0.2) (0.3) (0.3)
Regional office administration 15.4 14.3 4.1 4.7
Mining Standby Costs - 1.3 - 1.3
Non-operating costs (14.2) - - 0.7
Inventory movement 39.1 3.6 8.9 (1.2)
-----------------------------------
Total cash cost - 100% $ 281.3 $ 232.0 $ 80.4 $ 59.6
Depreciation, depletion,
amortization and accretion 88.9 59.6 29.2 17.7
Inventory movement - non-cash 22.0 (0.5) 2.5 2.4
-----------------------------------
Total production cost - 100% $ 392.1 $ 291.1 $ 112.1 $ 79.7
Ounces poured - 100% (000) 583.2 567.8 138.7 228.4
Total cash cost per ounce produced $ 482 $ 409 $ 580 $ 261
Total production cost per ounce produced $ 673 $ 513 $ 808 $ 349
Boroo:
Cost of sales, as reported $ 49.7 $ 69.8 $ 7.2 $ 17.5
Less: Non-cash component 10.1 16.2 1.1 2.0
-----------------------------------
Cost of sales, cash component $ 39.6 $ 53.6 $ 6.1 $ 15.5
Adjust for:
Refining fees & by-product credits (0.1) 0.1 - -
Regional office administration 6.0 6.7 1.8 2.0
Mining Standby Costs 0.2 - - -
Non-operating costs - (0.1) - -
Inventory movement (4.7) 6.5 3.0 (0.2)
-----------------------------------
Total cash cost - 100% $ 41.1 $ 66.8 $ 10.9 $ 17.3
Depreciation, depletion,
amortization and accretion 10.4 16.7 1.3 2.1
Inventory movement - non-cash (2.5) 2.1 - 1.1
-----------------------------------
Total production cost - 100% $ 49.0 $ 85.6 $ 12.2 $ 20.5
Ounces poured - 100% (000) 59.2 111.1 12.9 21.4
Total cash cost per ounce produced $ 694 $ 601 $ 849 $ 810
Total production cost per ounce produced $ 828 $ 770 $ 951 $ 959
Centerra Gold Inc.
Condensed Consolidated Statement of Financial Position
December December
(Unaudited) 31 31 January 1
2011 2010 2010
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(Expressed in Thousands of United States
Dollars)
Assets
Current assets
Cash and cash equivalents $ 195,539 $ 330,737 $ 176,904
Short-term investments 372,667 82,278 145,971
Restricted cash 179 795 -
Amounts receivable 56,749 100,562 44,281
Inventories 279,944 181,633 151,822
Prepaid expenses 26,836 22,221 11,718
----------------------------------
931,914 718,226 530,696
Property, plant and equipment 590,151 519,019 382,250
Goodwill 129,705 129,705 129,705
Long-term receivables and other 24,674 17,299 6,554
Long-term inventories 12,174 12,877 23,120
Deferred income tax asset - 3,367 62
----------------------------------
756,704 682,267 541,691
----------------------------------
----------------------------------
Total assets $1,688,618 $1,400,493 $ 1,072,387
----------------------------------
----------------------------------
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued
liabilities $ 76,385 $ 70,909 $ 49,098
Revenue-based tax 15,178 25,489 29,355
Taxes payable 1,074 1,865 5,711
Current portion of provision 1,848 9,553 7,399
----------------------------------
94,485 107,816 91,563
Provision 53,777 30,880 26,546
Deferred income tax liability 1,897 - 8,700
----------------------------------
55,674 30,880 35,246
Shareholders' equity
Share capital 660,117 655,178 646,081
Contributed surplus 33,994 33,827 35,376
Retained earnings 844,348 572,792 264,121
----------------------------------
1,538,459 1,261,797 945,578
----------------------------------
----------------------------------
Total liabilities and shareholders'
equity $1,688,618 $1,400,493 $ 1,072,387
----------------------------------
----------------------------------
Centerra Gold Inc.
Condensed Consolidated Statements of Earnings and Comprehensive Income
(Unaudited) Three months ended Twelve months ended
December December December December
31, 2011 31, 2010 31, 2011 31, 2010
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(Expressed in Thousands of United States Dollars, except per share amounts)
Revenue from Gold Sales $ 247,962 $ 322,225 $ 1,020,344 $ 849,753
Cost of sales 104,083 89,611 382,295 342,190
Mine standby costs - 1,280 213 1,280
Regional office
administration 5,929 6,709 21,322 21,074
----------------------------------------------------------------------------
Earnings from mine
operations 137,950 224,625 616,514 485,209
Revenue based taxes 33,558 40,452 131,750 98,597
Other operating
expenses 3,894 6,327 15,471 7,987
Exploration and
business development 11,069 11,745 42,894 32,446
Corporate
administration 10,279 18,654 44,902 52,270
----------------------------------------------------------------------------
Earnings from operations 79,150 147,447 381,497 293,909
Other (income) and
expenses (1,677) 210 (1,056) 590
Finance costs 521 440 3,545 1,467
Gain on sale of
mineral property - - - (34,866)
----------------------------------------------------------------------------
Earnings before income
taxes 80,306 146,797 379,008 326,718
Income tax expense
(recovery) 894 (3,962) 8,130 4,427
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings and
comprehensive income $ 79,412 $ 150,759 $ 370,878 $ 322,291
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Basic and diluted
earnings per common
share $ 0.34 $ 0.65 $ 1.57 $ 1.37
---------------------------------------------------
---------------------------------------------------
Centerra Gold Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited) Three months ended Twelve months ended
December December December December
31, 2011 31, 2010 31, 2011 31, 2010
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(Expressed in Thousands of United States Dollars)
Operating activities
Net earnings $ 79,412 $ 150,759 $ 370,878 $ 322,291
Items not requiring
(providing) cash:
Depreciation, depletion
and amortization 30,366 19,793 98,840 76,087
Finance costs 521 440 3,545 1,467
Loss on disposal of plant
and equipment 383 598 1,305 1,964
Gain on disposal of REN
property - - - (34,866)
Stock - based compensation
expense 483 282 1,759 1,107
Change in long-term
inventory - 17,431 703 10,243
Provision (12,481) - - -
Income tax expense 894 (3,962) 8,130 4,427
Other operating items (251) (595) (2,430) (1,622)
-----------------------------------------------
99,328 184,746 482,730 381,098
Change in operating
working capital (40,560) (51,931) (44,150) (79,778)
Income tax (paid) recovery 1,546 (3,346) (3,657) (20,279)
-----------------------------------------------
Cash provided by operations 60,313 129,469 434,923 281,041
-----------------------------------------------
Investing activities
Net movement in restricted
cash (19) 795 (616) 795
Additions to property,
plant and equipment (29,833) (59,123) (175,155) (208,224)
Net (purchase) redemption
of short-term investments (106,971) (30,023) (290,389) 63,693
Long-term other assets 77 6,388 (7,375) (10,745)
Proceeds from disposition
of REN property - - - 34,866
Proceeds from disposition
of fixed assets 11 - 19 44
-----------------------------------------------
Cash used in investing (136,734) (81,963) (473,516) (119,571)
-----------------------------------------------
Financing activities
Dividends paid - - (99,322) (13,620)
payment of transaction
costs related to
borrowing (57) (356) (630) (458)
Proceeds from common
shares issued for cash 321 1,184 3,347 6,441
-----------------------------------------------
Cash provided by (used in)
financing 264 828 (96,605) (7,637)
-----------------------------------------------
(Decrease) Increase in cash
and cash equivalents during
the period (76,157) 48,334 (135,198) 153,833
Cash and cash equivalents at
beginning of the period 271,696 282,403 330,737 176,904
-----------------------------------------------
Cash and cash equivalents at
end of the Period $ 195,539 $ 330,737 $ 195,539 $ 330,737
-----------------------------------------------
Cash and cash equivalents
consist of:
Cash $ 75,193 $ 81,314 $ 75,193 $ 81,314
Cash equivalents 120,346 249,423 120,346 249,423
-----------------------------------------------
$ 195,539 $ 330,737 $ 195,539 $ 330,737
-----------------------------------------------
Centerra Gold Inc.
Condensed Consolidated Statements of Shareholders' Equity
(Unaudited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(Expressed in Thousands of United States Dollars, except share information)
Number of
Common Contributed Retained
Shares Amount Surplus Earnings Total
----------------------------------------------------------------------------
Balance at January
1, 2010 234,857,228 $646,081 $ 35,376 $264,121 $ 945,578
----------------------------------------------------------------------------
Stock-based
compensation
expense - - 1,107 - 1,107
Shares issued on
exercised of stock
options 1,012,169 9,097 (2,656) - 6,441
Dividend declared - - - (13,620) (13,620)
Net earnings for the
period - - - 322,291 322,291
----------------------------------------------------------------------------
Balance at December
31, 2010 235,869,397 $655,178 $ 33,827 $572,792 $1,261,797
----------------------------------------------------------------------------
Stock-based
compensation
expense - - 1,759 - 1,759
Shares issued on
exercised of stock
options 469,644 4,939 (1,592) - 3,347
Dividend declared - - - (99,322) (99,322)
Net earnings for the
period - - - 370,878 370,878
----------------------------------------------------------------------------
Balance at December
31, 2011 236,339,041 $660,117 $ 33,994 $844,349 $1,538,460
----------------------------------------------------------------------------
To view the 2011 Management's Discussion and Analysis and the Audited Financial
Statements and Notes for the year-ended December 31, 2011, please visit the
following link: http://media3.marketwire.com/docs/CG2011MDAFS.pdf
The 2011 Audited Financial Statements and Notes and Management's Discussion and
Analysis for the year-ended December 31, 2011 have been filed on the System for
Electronic Document Analysis and Retrieval ('SEDAR') at www.sedar.com and are
available at the Company's web site at: www.centerragold.com
Qualified Person & QA/QC
The reserves and resources estimates and other scientific and technical
information in this news release were prepared in accordance with the standards
of the Canadian Institute of Mining, Metallurgy and Petroleum and National
Instrument 43-101 - Standards of Disclosure for Mineral Projects ("NI 43-101")
and were reviewed, verified and compiled by Centerra's geological and mining
staff under the supervision of Ian Atkinson, Certified Professional Geologist,
Centerra's Senior Vice-President, Global Exploration, who is the qualified
person for the purpose of NI 43-101. Sample preparation, analytical techniques,
laboratories used and quality assurance-quality control protocols used during
the exploration drilling programs are done consistent with industry standards
and independent certified assay labs are used with the exception of the Kumtor
project as described in its technical report.
The Kumtor deposit is described in Centerra's most recently filed AIF and a
technical report dated March 22, 2011 prepared in accordance with NI 43-101. The
technical report has been filed on SEDAR at www.sedar.com. The technical report
describes the exploration history, geology and style of gold mineralization at
the Kumtor deposit. Sample preparation, analytical techniques, laboratories used
and quality assurance-quality control protocols used during the drilling
programs at the Kumtor site are described in the technical report.
The Boroo deposit is described in Centerra's most recently filed AIF and a
technical report dated December 17, 2009 prepared in accordance with NI 43-101,
which is available on SEDAR at www.sedar.com. The technical report describes the
exploration history, geology and style of gold mineralization at the Boroo
deposit. Sample preparation, analytical techniques, laboratories used and
quality assurance-quality control protocols used during the drilling programs at
the Boroo site are the same as, or similar to, those described in the technical
report.
The Gatsuurt deposit is described in the Company's most recently filed AIF and
in a technical report dated May 9, 2006 prepared in accordance with NI 43-101.
The technical report has been filed on SEDAR at www.sedar.com. The technical
report describes the exploration history, geology and style of gold
mineralization at the Gatsuurt deposit. Sample preparation, analytical
techniques, laboratories used and quality assurance-quality control protocols
used during the drilling programs at the Gatsuurt project are the same as, or
similar to, those described in the technical report or AIF.
Cautionary Note Regarding Forward-looking Information
Information contained in this news release which is not statements of historical
facts, and the documents incorporated by reference herein, may be "forward
looking information" for the purposes of Canadian securities laws. Such forward
looking information involves risks, uncertainties and other factors that could
cause actual results, performance, prospects and opportunities to differ
materially from those expressed or implied by such forward looking information.
The words "believe", "expect", "anticipate", "contemplate", "target", "plan",
"intends", "continue", "budget", "estimate", "may", "will", "schedule" and
similar expressions identify forward-looking information. These forward-looking
statements relate to, among other things, the statements made under the heading,
"2012 Outlook", including the Company's expectations regarding future growth,
results of operations, future production and sales, operating capital
expenditures, and performance; expected trends in the gold market, including
with respect to costs of gold production; capital and operational expenses for
2012 and the ability to fund them from cash flow or to access public markets
(and its ability to do so successfully); exploration plans for 2012 and the
success thereof; mining plans at each of the Company's operations; the receipt
of permitting and regulatory approvals at the Company's Gatsuurt development
property; the impact of the Water and Forest Law on the Company's Mongolian
activities; the application of the new graduated royalty fee regime under the
2006 Mongolian Minerals Law to the Company's Mongolian properties; permitting of
the Company's heap leach activities at the Boroo mine; anticipated delays and
approvals and regulatory commissioning of the Company's Gatsuurt development
property as a result of the Water and Forest Law; the continued success with the
management of ice and water movement at Kumtor; the Company's business and
political environment and business prospects; and the timing and development of
new deposits.
Forward-looking information is necessarily based upon a number of estimates and
assumptions that, while considered reasonable by Centerra, are inherently
subject to significant political, business, economic and competitive
uncertainties and contingencies. Known and unknown factors could cause actual
results to differ materially from those projected in the forward looking
information. Material assumptions used to forecast production and costs include
those described under the heading "2012 Outlook". Factors that could cause
actual results or events to differ materially from current expectations include,
among other things: the sensitivity of the Company's business to the volatility
of gold prices; the political risks associated with the Company's principal
operations in the Kyrgyz Republic and Mongolia; the impact of changes in, or
more oppressive enforcement of, laws, regulations and government practices in
the jurisdictions in which the Company operates; the effect of the 2006
Mongolian Minerals Law; the effect of the November 2010 amendments to the 2006
Mongolian Minerals Law on the royalty payments payable in connection with the
Company's Mongolian operations; the effect of the Water and Forest Law on the
Company's operations in Mongolia; the impact of continued scrutiny from
Mongolian regulatory authorities; the impact of changes to, or the increased
enforcement of, environmental laws and regulations relating to the Company's
operations; the Company's ability to replace its reserves;
ground movements at the Kumtor Mine; waste and ice movement at the Kumtor Mine;
litigation; the accuracy of the Company's reserves and resources estimate; the
accuracy of the Company's production and cost estimates; the success of the
Company's future exploration and development activities; competition for mineral
acquisition opportunities; the adequacy of the Company's insurance;
environmental, health and safety risks; defects in title in connection with the
Company's properties; the impact of restrictive covenants in the Company's
revolving credit facility; the Company's ability to successfully renew any
collective agreements and to avoid any labour disturbances; the Company's
ability to successfully negotiate an investment agreement for the Gatsuurt
development property and the Company's ability to obtain all necessary permits
and commissions needed to commence mining activity at the Gatsuurt development
property; seismic activity in the vicinity of the Company's operations in the
Kyrgyz Republic and Mongolia; long lead times required for equipment and
supplies given the remote location of the Company's properties; illegal mining
on the Company's Mongolian properties; the Company's ability to enforce its
legal rights; the Company's ability to accurately predict decommissioning and
reclamation costs; the Company's ability to obtain future financing; the impact
of current global financial conditions; the impact of currency fluctuations; the
effect of recent market conditions on the Company's short-term investments; the
Company's ability to attract and retain qualified personnel; the Company's
ability to make payments including payments of principal and interest on the
Company's debt facilities; risks associated with the conduct of joint ventures;
risks associated with the Company's largest shareholder, the Kyrgyz government;
and possible director conflicts of interest. There may be other factors that
cause results, assumptions, performance, achievements, prospects or
opportunities in future periods not to be as anticipated, estimated or intended.
See "Risk Factors" in the Company's most recently filed AIF available on SEDAR
at www.sedar.com.
Furthermore, market price fluctuations in gold, as well as increased capital or
production costs or reduced recovery rates may render ore reserves containing
lower grades of mineralization uneconomic and may ultimately result in a
restatement of reserves. The extent to which resources may ultimately be
reclassified as proven or probable reserves is dependent upon the demonstration
of their profitable recovery. Economic and technological factors which may
change over time always influence the evaluation of reserves or resources.
Centerra has not adjusted mineral resource figures in consideration of these
risks and, therefore, Centerra can give no assurances that any mineral resource
estimate will ultimately be reclassified as proven and probable reserves.
Reserve and resource figures included in this news release are estimates and
Centerra can provide no assurances that the indicated levels of gold will be
produced or that Centerra will receive the gold price assumed in determining its
reserves. Such estimates are expressions of judgment based on knowledge, mining
experience, analysis of drilling results and industry practices. Valid estimates
made at a given time may significantly change when new information becomes
available. While Centerra believes that these reserve and resource estimates are
well established and the best estimates of Centerra's management, by their
nature reserve and resource estimates are imprecise and depend, to a certain
extent, upon analysis of drilling results and statistical inferences which may
ultimately prove unreliable.
Centerra has not adjusted resource figures included herein in consideration of
these risks and, therefore, Centerra can give no assurances that any resource
estimate will ultimately be reclassified as proven and probable reserves or
incorporated into future production guidance. If Centerra's reserve or resource
estimates or production guidance for its gold properties are inaccurate or are
reduced in the future, this could have an adverse impact on Centerra's future
cash flows, earnings, results of operations and financial condition. Centerra
estimates the future mine life of its operations and provides production
guidance in respect of its mining operations. Centerra can give no assurance
that mine life estimates will be achieved or that actual production will not
differ materially from its guidance. Failure to achieve estimates or production
guidance could have an adverse impact on Centerra's future cash flows, earnings,
results of operations and financial condition.
Mineral resources are not mineral reserves, and do not have demonstrated
economic viability, but do have reasonable prospects for economic extraction.
Measured and indicated resources are sufficiently well defined to allow
geological and grade continuity to be reasonably assumed and permit the
application of technical and economic parameters in assessing the economic
viability of the resource. Inferred resources are estimated on limited
information not sufficient to verify geological and grade continuity or to allow
technical and economic parameters to be applied. Interred resources are too
speculative geologically to have economic considerations applied to them to
enable them to be categorized as mineral reserves. There is no certainty that
mineral resources of any category can be upgraded to mineral reserves through
continued exploration.
There can be no assurances that forward looking information and statements will
prove to be accurate, as many factors and future events, both known and unknown
could cause actual results, performance or achievements to vary or differ
materially, from the results, performance or achievements that are or may be
expressed or implied by such forward looking statements contained herein or
incorporated by reference. Accordingly, all such factors should be considered
carefully when making decisions with respect to Centerra, and prospective
investors should not place undue reliance on forward looking information.
Forward looking information is as of February 23, 2012. Centerra assumes no
obligation to update or revise forward looking information to reflect changes in
assumptions, changes in circumstances or any other events affecting such forward
looking information, except as required by applicable law.
About Centerra
Centerra Gold Inc. is a gold mining company focused on operating, developing,
exploring and acquiring gold properties primarily in Asia, the former Soviet
Union and other emerging markets worldwide. Centerra is the largest
Western-based gold producer in Central Asia. Centerra's shares trade on the
Toronto Stock Exchange (TSX) under the symbol CG. The Company is based in
Toronto, Ontario, Canada.
Additional information on Centerra is available on the Company's website at
www.centerragold.com and at SEDAR at www.sedar.com.
Conference Call
Centerra invites you to join its 2011 fourth quarter, year-end conference call
on Friday, February 24, 2012 at 10:30AM Eastern Time. The call is open to all
investors and the media. To join the call, please dial Toll-Free in North
America (800) 895-5087 or International callers dial +1 (212) 231-2903.
Alternatively, an audio feed web cast will be available on www.centerragold.com.
A recording of the call will be available on www.centerragold.com shortly after
the call, and via telephone until midnight on Friday, March 2, 2012 by calling
(416) 626-4100 or (800) 558-5253 and using passcode 21574348.