Centerra Gold Q1 2023 Earnings Call Transcript

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May 15, 2023

There are 8 speakers on the call.

Operator

Welcome to the Q1 2023 Results Conference Call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session. As a reminder, today's call is being recorded Monday, May 15, 2023. I would now like to turn the conference over now to Toby Caron, Treasurer and Director of Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you, operator. Welcome to Centerra Gold's Q1 2023 results conference call. Please note that presentation slides are available on Centerra Gold's website to Today's call is open to all members of the investment community and media in listen only mode. Following the formal remarks, the operator will give the instructions for asking a question and then we will open the phone line to questions. Please note that all figures are in U.

Speaker 1

S. Dollars, unless otherwise noted. Joining me on the call today are Michael Parrott, Chair of the Board of Directors Paul Tomory, President and Chief Executive Officer Paul Wright, Director and Former Interim President and Chief Executive Officer and Dara Millman, Chief Financial Officer. Our Chief Operating Officer, Paul Charan is traveling and unable to attend. I would like to caution everyone that certain statements made today may be forward looking statements and as such Also certain of the measures we will discuss today are non GAAP measures.

Speaker 1

Please refer to the description of non GAAP measures in our news release and MD and A issued this morning. For a more detailed discussion of the material assumptions, risks and uncertainties, please refer to our news release and MD and A along with the unaudited financial statements and notes in All of our other filings, which can be found on SEDAR, EDGAR and on the company's website at centeragold.com. And now, I'll turn the call over to Mike.

Speaker 2

Thank you, Toby, and good morning, everyone, and thanks for joining our call this morning. My purpose here today is twofold. First, on behalf of the Board and all shareholders, I'd like to express our appreciation to Paul Wright for his leadership of Centerra as the Interim President and CEO over the past 8 months. As you know, Paul was appointed to the position in September of last year and since then, he's been extremely busy. Under Paul's leadership at the Oksut mine, we completed the construction of the retrofit of the ADR plant.

Speaker 2

We've obtained several important outstanding permits. We filed a new environmental impact assessment and we've advanced materially towards its restart of operations. At the Mount Milligan mine, during his tenure, we completed a new life of mine plan, which extended the life of Mount Milligan by 4 years until 2,030 The approach to our near term challenges and outlining the strategy of growth as we move forward. During this time, we also new President and CEO. Paul started with Centerra on May 1 this year.

Speaker 2

Many of you already know him, But for those who do not, he brings over 25 years of experience in mining, engineering, construction and corporate development. With his extensive technical background and proficiency, we are confident that Paul Tomory is the right leader for the company. This is an important stage for Centerra and its journey as a company, and we are delighted to have Paul join us at this time. Welcome, Paul. And with that, I'll turn the call over to you.

Speaker 3

Thanks very much, Mike, and good morning, everyone. It's only been a couple of weeks, but having spent time with our corporate And having had a chance to visit Mount Milligan, I'm excited for the future of the company. Over the weeks months ahead, I look forward to visiting York City and our U. S. Assets as well as engaging with our many shareholders and other stakeholders.

Speaker 3

I know a lot of our investors and analysts are eager to hear what the strategy is going forward. And given my brief time in the seat, I can offer a roadmap of what the company's short term focus will look like over the next 100 days or so. Here are some of those highlights. 1st and foremost, our top priority will remain a focus on safe and environmentally responsible operations. Next, we will continue to drive operational and technical improvements in Mount Milligan with a focus on delivering the newly optimized life of mine plan.

Speaker 3

Finally, pending regulatory approval, we expect to ramp up safe and environmentally compliant operations at Oksut and a realized near term cash flow through the drawdown of accumulated inventories. Shifting to our development assets in light of strong molybdenum prices an assessment of profitability and cash flow potential at Anglo. Our objective is to advance and articulate a strategy for the entire Melipizum business. At Goldfield in Nevada, we will continue to advance technical studies and exploration work with the objective of delivering an initial resource by the middle of 2023. And finally, we will advance study work at CheMS with the objective of determining the asset's position in the overall portfolio.

Speaker 3

Moving on to the quarter, the company reported 1st quarter production of 33,000 ounces A gold and copper production of £13,000,000 production results were impacted by several factors, Mainly driven by lower grade due to plant sequencing of mine, lower plant throughput due to a plant maintenance shutdown and issues surrounding the handling of material throughout the winter months. Darren will speak in more detail as the Mount Milligan results and provide an update on the The company continues to evaluate strategic options for the molybdenum business, including a potential restart of the Thompson As mentioned, I intend to visit the Moly assets in the coming weeks and look forward to learning more about the operations. Meanwhile, the work being done on PFS for a potential restart at the Thompson Creek mine is on track. At the Goldfield project, drilling was significantly advanced in the Q1 and the company expects to deliver an initial resource by mid year. There are a number of ESG initiatives that Centerra is working on.

Speaker 3

As I continue to grow my knowledge and understanding of all the good work underway, I'll certainly be able to provide more detail. That said, today I'll touch on a few highlights. First, as mentioned is safety. A number of sites achieved safety milestones this quarter. Milligan achieved 1,000,000 hours without an LTI and Thompson Creek 2nd, after having completed the full rollout of the responsible gold mining principles last year, Centerra is on track to receive its full conformance report, which will be integrated into this year's annual ESG report.

Speaker 3

And finally, Centerra continues to make progress on the development of its climate strategy aligned with the recommendations from the task force on climate related financial And with that, I'll pass the call over to Darren to walk through our operational and financial highlights.

Speaker 4

Thanks, Paul, and good morning all. For those following on from the WebEx, I'll be initially speaking to Slide 8. The Mount Milligan Mine produced 33,215 gold ounces and 13,400,000 pounds of copper. Due to mine sequencing, The first half of the year was expected to be lower grade ore with Q1 being the lowest and higher grades are expected in the second half of the year. There were, however, several additional factors that impacted Mount Milligan's production in the Q1.

Speaker 4

Phases 79 are on the outer edges of the ore body where the transitional zone between oxide and sulfide ore was larger than expected, resulting in lower grades and lower grade stockpile required in its place. The lower grade ore caused lower metal recoveries, In these areas, we do not expect this to continue. There was also a planned mill shutdown in February and our next major shut will occur in August. You will note in the bottom table far right column, the column head grades was 0.17 in the quarter, a 10% decrease from the Q4 of 2022. The gold head grades processed was 0.34 grams per tonne, a 28% decrease in grade compared to the Q4 of 2022.

Speaker 4

On a positive note, the mine material movement was on plan. As a result, we remain on track to access the high grade copper and gold ore in the second half of the year. In Q1, the Matt Milligan team mined 11,300,000 tons of material, an 11% increase compared to Q4 2022. Due to lower than planned metal production during the Q1, we now expect the 2023 gold production to be near the low end of guidance, Our 2023 copper production is tracking towards the midpoint of guidance. As mentioned earlier, Mount Milligan's mine's 2023 gold production and copper production is expected to be back end weighted, driving a higher proportion of concentrate sales in the Q4 of 2023.

Speaker 4

The company anticipates that approximately 30% to 35% of concentrate sales will occur in the Q4 of 2023. In Q1, cash provided by free cash flow from mine operations was $28,000,000 $25,000,000 respectively. Gold production cost was $11.24 per ounce and all in sustaining cost on a byproduct basis was $9.14 per ounce. On the exploration front, we continued drilling and anticipate an updated resource this year that will include assay results from nearly 50,000 meters completed in 20 22. I'll now be speaking to Slide 9.

Speaker 4

On Slide 9, we provide an operational update for the Oksut mine. The regulatory review of the Oksut mine's EIA remains on track. The company completed its Technical review meeting with local authorities at the end of March and posted its EIA for public comment in late April with no significant comments received. With all review steps now complete, the EIA has been submitted for final ministry approval. Continuation of mining in the Gilepecanotepepit.

Speaker 4

Waste stripping was also restarted in the quarter, which is to be capitalized. As of March 2023, all processed into stored gold and carbon inventory is approximately 100,000 recoverable ounces an estimated additional 200,000 recoverable ounces on the heap leach pad and in Stockholm. I'll be now speaking to Slide 11. Centerra recorded $226,000,000 in net revenue during the quarter, Consisting of the Mount Milligan Mine and the Molybden Business Unit, no revenue was recorded at the Oksut mine. At Mount Milligan mine, gross gold sales and copper sales were $56,000,000 $52,000,000 respectively.

Speaker 4

In the quarter, Mount Milligan sold 38,990 ounces of gold and 15,300,000 pounds of copper. The average realized price was $14.46 per ounce of gold and $3.42 per pound of copper. This incorporates the existing stream of the Mount Milligan Mine. The cost associated with the Oksut storage gold and carbon inventory is $4.50 per ounce, which has been capitalized to current asset within inventory. At the molybdenum business unit approximately 3.3 £3,300,000 of molybdenum was sold, generating $116,000,000 with an average market price of $32.95 per pound of molybdenum.

Speaker 4

I'll now be speaking to slide 12. The net loss from continued operations was $73,000,000 in the quarter, $53,000,000 adjusted net loss recorded. The earnings in the quarter attributable to operations were 9,000,000 Positive contribution from the Mount Milligan Mine. As noted earlier, lower production in Q1 as expected compared to preceding quarters And minimal operating capital expenditure to the construction tailings storage facility. A $10,800,000 loss From the Mount Milligan mine was recorded, including $7,800,000 in standby costs, dollars 26,300,000 loss from the aluminum business unit recorded and $11,700,000 in evaluation cost of goldfish was recorded with the front end expenditure as we Plan to deliver a mineral resource update mid tier.

Speaker 4

For the quarter, there were 2 adjusting items. Reclamation expense and care and maintenance cost of $15,000,000 associated with the underlying rehabilitation and discount rates applied A $5,000,000 tax expense resulting from the introduction of a one time income tax levied by the Turkish government on taxpayers eligible Certain investment is significant benefits in 2022. Production costs capitalized for the storage facility step out in the first quarter was only 300,000 which is on the lower end of the usual quarter due to timing of step out activities. The company expects total production cost capitalized The TSF for the full year to be in the range of $12,000,000 to $14,000,000 as a step out activities return to more normal levels in future quarters. Now I'll be speaking to slide 13.

Speaker 4

Cash used in operating activities by operations was approximately $100,000,000 for the quarter $105,000,000 free cash flow deficit in the quarter. During the quarter, the molybdenum business unit used $76,000,000 in cash. This was primarily a buildup of working capital of $66,000,000 The increase in working capital was driven by both an Additional 800,000 molybdenum pounds held in inventory at the end of March, together with an underlying average molybdenum price representing a 53% increase in underlying price. As noted in the MD and A, the Mount Milligan Mine recognized $28,000,000 in free And positive operating cash flow and $25,000,000 in free cash flow for the quarter. Given no sales occurring in the Oxy mine in the quarter with operations using $24,000,000 of treasury.

Speaker 4

This was in line with guidance of $7,000,000 to $10,000,000 in cash expenditures per month until operations recommence. As you will see in the graph on the lower right table, total working capital balance at the end of the quarter was 255,000,000 A $60,000,000 increase compared to the end of December 2022. As discussed earlier, this is Molybdenum business unit. We expect this to reduce to normalized levels if current molybdenum price Stay stable in Q2 and Q3 of this year. The company has exited Q1 with a cash balance of $412,000,000 and over $800,000,000 in liquidity.

Speaker 4

Given our strong financial position, the Board declared a quarterly dividend of $0.07 per share. Finally, I would like to end by thanking Toby Curran, our Director of IR. At the start of 2022, Toby took on both treasury and IR responsibilities. 2022 was extremely busy year at Centerra the company transitioned away from the KR, his commitment to both the company and responsiveness to analysts and shareholders was highly commendable while continuing to oversee treasury. Shelby continues to be a key member of the engagement team and now be focusing on treasury and risk management strategies of the company.

Speaker 4

At this I would also like to welcome Lisa Wilkinson, our new VP of IR and Corporate Communications. That can conclude our prepared remarks. Moderator, please open the call for

Operator

And our first question on the line is from Mike Parkin with National Bank. Go ahead.

Speaker 5

Hi, guys. Can you just speak to Some of the moving parts that resulted in the OpEx reported at Langloft being up significantly kind of 30 1,000,000 quarter over quarter. Well, noticing it was kind of like $88,000,000 in the 4th quarter. So we noticed it's been climbing. Is it Just any kind of color in terms of what's driving that and where you would expect it to kind of trend going forward?

Speaker 4

Hey, Mike, it's Darren. Thanks for the question. When you look at Q4 2022, The inventory levels remain relatively the same. We did have a $800,000 increase in inventory, But the big driver is purely price. For molybdenum Topped in Q4, approximately $38 a pound.

Speaker 4

It's come down 22. We do a mark to market at the end of every quarter. So we see that being released in Q2 and in Q3. So we don't see it continuing on. We've given guidance in our disclosures for For the Malignant business unit or the total business unit range between $45,000,000 to $80,000,000 So That large range represents basically going from $20 to up to $35 a pound.

Speaker 4

So It's important just to highlight that Langloft is really the business unit that has these swings. And unfortunately, we can't lock in hedging for that. So as part of our it's When Moly prices are up and obviously makes the economics more attractive looking at the underlying business unit of Thompson Creek, But it does impact our working capital at Langmuir. So as part of the review that we're looking to present to the market in Q3, We'll be looking to see whether we need to make some changes also at Langwell.

Speaker 5

Okay. And Just in terms of some of the optimizations that you're discussing at Mount Milligan, is it kind of early days Or is there any kind of color in terms of where you see some low hanging fruit to nibble away at?

Speaker 4

I think the team from an exploration perspective, I'd speak to that first. So we had 50,000 meters of drilling in 2022 That hasn't even been incorporated into the technical group we reported last fall. So whether we can what we've Seeing potentially can potentially increase the mine plans. Does it allow us to bring forward some further high grade zones? So that's something we're looking at in 2024 and 2025.

Speaker 4

At the moment, we're not looking at any significant capital expenditure For adjustments into the mill, as you know, we completed the SFR last year. We're seeing the benefit of that and obviously looking to Capture a full year of those potential increasing recoveries. But the team also is focusing on blend and ensuring we're getting that right The high grade copper high grade high gold, low copper and the low copper, Hi, Gold. So we're just really focusing on those pieces at the moment. There's nothing over and above Those items at the moment, but obviously with Paul T.

Speaker 4

And Paul C. Working together, I'm sure there's some low hanging fruit that we're getting after next year.

Speaker 5

Okay. And what's the word on Okta in terms of like is it The elections in countries that are kind of taking up ministry time and You'd expect a response with the resolution of the elections or just any kind of I

Speaker 3

will pass that one on to Paul Wright, please.

Speaker 6

Yes. Certainly, Paul. Yes, Michael, just I mean very quickly, I mean we've been making good progress as it relates to bringing Oksut back online In terms of advancing the process, completing construction of the mercury abatement system, having that tested and Approved on inspections by Minister of Environment. The EIA document, which is obviously an important document, precursor to being able to Obtained ministerial approval was advanced. The posting period, the public posting period concluded April 30, And it was a bit of a nonevent.

Speaker 6

Early last week, we received acceptance of the EIA report By the ministerial environment and we're now into the point of basically attaining ministerial approval, which will conclude with the granting of a certificate. And as I described, the precursor to that was obviously the acceptance of the EIA, allowing us to move forward with the request for ministerial approval. But that came up against the early elections, The elections were held yesterday. And as you can appreciate, the week before elections is difficult to get ministerial Attention to these matters, we're optimistic with the 1st round of election behind us and with the government still in place Pending the 2nd round that we will be able in the coming weeks to be able to complete the task and obtain the certificate And move forward with the local authorities to bring the mine online. Again, it's been a successful Process as it relates to the EIA and we continue to have very strong local support for the restart.

Speaker 5

Yes. It definitely looks like you guys are making great progress and there doesn't seem to be a lot of opposition at all, Voiz. Is there any in terms of just how the ministry works with respect to elections, is The ministry in place expected to stay in place or would there be a new ministry Appointed regardless of the outcome of the presidential elections?

Speaker 6

Look, I mean, I don't want to speculate on the results of the election. If the ruling party, ACT party The civil service will probably largely remain intact. You will See changes at ministerial level inevitably as it's fairly typical and then we've seen it occur in this instance where the minister Looking to take up a seat in parliament, so you would see some changes in terms of leadership of the ministry. But In the event of a change in government, which looks unlikely given the results of yesterday, then you would have seen More changes, but I have to emphasize that what you have here is very good progress resulting in sort of acceptance Of the EEI report, you have strong local support for the project. What we really have to deal with is just we just run out of runway Given the call for early elections.

Speaker 5

No, I totally understand. That's it for me guys. Thanks so much.

Operator

And our next question on the line is from Anita Soni with CIBC World Markets. Go right ahead.

Speaker 7

Hi, good morning, everyone, and thanks for taking my questions. And firstly, Paul Tomory, congratulations on your new role as CEO, and I look forward to working with you. I think Mike asked most of the questions and Paul Wright provided some good color on Turkey. So I guess my I'm just going to add more of a housekeeping item. I'm looking at the exploration cost for the Goldfield project and you spent a lot there To the $10,000,000 that you were forecasting, do you anticipate an increase or you just have finished your drilling campaign early?

Speaker 4

Hi, Neil. It's Darren. Now we just purely front end loaded the expenditure on Goldfields and we're not expecting those Expenses to continue at that level.

Speaker 7

Okay. And then in terms of the cost guidance for Mount Milligan, that was reiterated, but you did guide It seems like you're saying that you might be below the low end. I'm not sure exactly when you were saying on the production side, you were saying it was Near the low end, so I'm assuming that means below the low end of the guidance range. How is it that the costs are still okay going forward? Can you just give some color on that?

Speaker 4

Yes. So we've got the benefit of copper hedging we've got in place. So with obviously copper And they're trading below the 3 or below the 4, so we've got some offset there. We do the capitalization of costs associated with the TSF. So in Q1, we had 0 basically 0 cost Capitalized, when you look purely at production costs, it's kind of a it doesn't represent the right picture.

Speaker 4

We haven't had any increases in cost on a normalized basis. It's basis, it's $10,000,000 to $12,000,000 to $14,000,000 will be a credit to cost as we go through to Q2 through to Q4. So they're the bigger ones. Obviously, we've got some we might sort of shift around some nonessential Capital, but at this stage, we feel we're we'll be within the guidance provided.

Speaker 7

Okay. And then in terms of the capital expenditures, I'm looking at the costs sorry, the guidance that you provided and it says additions to PP and E, and that's about $4,000,000 out of the $65,000,000 to $70,000,000 that you're forecasting for the year. Could you just clarify what that is and how that may evolve over the course of the year? Would we expect Q2, Q3 to be the bulk of it or is it back end weighted as well? Yes.

Speaker 4

We had minimal expenditure in Q1. So we do expect that to be incurred. I think there's a major shot planned in August of this year. So you'll see a lot of that being incurred then And then remainder will be minimal in probably Q2 and Q4.

Speaker 7

So what is in that exactly?

Speaker 4

So, that will be towards the shutdown. We've also got some order maintenance and plans to maintain shutdown. There's also some replacement parts as you'd expect on all the fleet just up to their timeline of Refit, so nothing major. This is happening, just normal course.

Speaker 7

Okay. Thank you.

Speaker 4

Sorry, the other one to highlight, sorry, Anita, is the Rainbow Creek. We are putting in place that Now long term water solution, obviously, we've got all the permits in place. Now we're just building that as well. So that's the other one that will Kind of be happening more at the back end of the year.

Speaker 7

Okay. I asked that may actually have another question. Last year, I think in October, you put out the feasibility study for Mount Milligan, I guess, extending the reserves, but then also not Moving forward on an expansion there, could you just update me on where you think that stands now given the, I guess, the Current pricing environment and copper price and gold price environment?

Speaker 4

Well, I think the first step for us is going to be to update the market with the new resource statement. So as I said earlier, we've got 50,000 meters worth of Drilling to be incorporated. So once that has occurred, I think then the team will Now, if we look at the mine plans and sequencing, I don't see what I know, but obviously, Pul T and Pul C will need to dig in But I don't see any large capital expenditure even at these current prices. But I think it's just going to be tweaking the mine plan. And obviously, in an ideal world, convert some of these potential resource updates into reserves.

Speaker 4

So no nothing material coming at this stage.

Operator

Thank you very much. Thank you very much and thank you everyone. That does conclude the conference call for today. We thank you for your participation as you may disconnect your lines. Have a good day everyone.

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Centerra Gold Q1 2023
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