Centerra Gold Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 1, 2024

There are 9 speakers on the call.

Operator

Thank you for standing by. This is the conference operator. Welcome to the Centerra Gold Third Quarter 2024 Conference Call. As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions.

Operator

I would now like to turn the conference over to Lisa Wilkinson, Vice President, Investor Relations and Corporate Communications with Centerra Gold. Please go ahead.

Speaker 1

Thank you, operator, and good morning. Welcome to Centerra Gold's Q3 2024 results conference call. Joining me on the call today are Paul Tomory, President and Chief Executive Officer Paul Charan, Chief Operating Officer and Ryan Snyder, Chief Financial Officer. Our release yesterday details our Q3 2024 results. It should be read in conjunction with our MD and A and financial statements, both of which can be found on SEDAR, EDGAR and our website.

Speaker 1

All figures are in U. S. Dollars unless otherwise noted. Presentation slides accompanying this webcast are available on Centerra's website. Following the prepared remarks, we will open the call for questions.

Speaker 1

Before we begin, I would like to caution everyone that certain statements made today may be forward looking and are subject to risks, which may cause our actual results to differ from those expressed or implied. Please refer to the cautionary statements included in the presentation as well as the risk factors set out in our annual information form. Certain measures we will discuss are non GAAP measures. Please refer to the description of non GAAP measures in our news release and MD and A issued yesterday. I will now turn the call over to Paul Tomory.

Speaker 2

Thanks, Lisa, and good morning, everyone. We continue to deliver consistent operating performance, producing over 93,000 ounces of gold and £13,700,000 of copper in the 3rd quarter. We're on track to meet our consolidated production and cost guidance for the year. We benefited from margin expansion driven by stable cost performance in an elevated metal price environment. As planned, we've returned to strong free cash flow generation this quarter and even after spending approximately $32,000,000 on the restart of operations at Thompson Creek, we grew our cash and cash equivalents to $604,000,000 at the end of the 3rd quarter.

Speaker 2

Over the last year, we have made significant progress delivering on our strategic plan aimed at maximizing the value of each asset in our portfolio. Earlier this year, we secured an additional agreement with Royal Gold, providing us the opportunity to evaluate Mount Milligan's potential for long term multi decade operations. This marked an important initial step in our strategy to unlock full value of this key asset in a top tier mining jurisdiction. Work on the preliminary economic assessment continues and is expected to update the large resource to include all the drilling completed space, identify value added initiatives for the plant and optimize the mine plan. We expect to complete the technical site towards the end of the first half of twenty twenty five.

Speaker 2

In September, we announced the decision to unlock significant value in our U. S. Molybdenum operations through the restart of operations at Thompson Creek and progressive ramp up of production at Langloft. We published the Thompson Creek feasibility study and Langloft commercial optimization plan, which combined have robust project economics at a conservative 8% discount rate. Combined, the U.

Speaker 2

S. Millivarian operations expect to produce an after tax NPV of $472,000,000 and a 22% IRR. Key contributor to this value is Langloat, which at full capacity and with the benefit of high quality feed from Thompson Creek has the potential to generate approximately $50,000,000 of annual EBITDA. There are 2 key value drivers that allow Langloat to potentially generate these robust cash flows. First is increased capacity utilization.

Speaker 2

At full capacity, the moly concentrated process in Langalot is expected to consist of approximately 1 third supplied by Thompson Creek and approximately 2 thirds purchased from third party providers. With increased capacity utilization, Langoloft will leverage its fixed costs, which should increase profitability and cash flow. 2nd value driver is vertical integration of Langoloft with the Thompson Creek mine, which will produce one of the highest quality concentrates in the world. Langelof can blend this concentrator with lower quality third party concentrates, which is expected to lead to margin improvements. Also, the high quality of Thompson Creek concentrate enables Langelof to produce an increased volume of higher margin final molybdenum products.

Speaker 2

Capital investment required to restart operations at Thompson Creek $397,000,000 which is expected to be spent over the next 3 years with first production in the second half of twenty twenty seven. With infrastructure already in place, CapEx is largely derisked and is primarily related to stripping. We believe that the Thompson Creek capital investment can be funded mostly from cash flow from operations. As a result, we expect to maintain a strong cash balance, which can be deployed in line with our capital allocation strategy to shareholder returns, internal projects and external growth opportunities. Our decision to restart operations at Thompson Creek and to progressively ramp up production at Langloat is a key milestone on path to unlocking significant value in our aluminum assets.

Speaker 2

As we advance our U. S. Aluminum operations, we're also focused on growing our gold exposure in the portfolio. In addition to the Mount Vernon PEA, which should showcase a significant mine life extension, we also have organic growth projects, Goldfield and Kemas in our pipeline. We continue to progress our work at the Goldfield project in Nevada and expect to release an initial resource, their year end reserve and resource update in early 2025.

Speaker 2

At CAMMASS, as previously mentioned, we will not be proceeding with the underground blockade project. Instead, we are evaluating alternative technical concepts for the resource. We remain optimistic that Chemed's to be a future source of gold and copper production. Finally, I'd like to touch on some ESG achievements in the quarter. As we continue to progress our climate and nature strategy, we are conducting cost benefit analysis of decarbonization issues that have been identified at our sites.

Speaker 2

These efforts will guide our decision making and help us to identify price of pathways for reducing GHG emissions. Our social preferredments team at Mount Milligan have been working hard alongside our First Nation partners and the local school district to develop equal opportunity employment and enhancement programs. These programs provide hands on experience at our site, the ultimate goal of attracting future talent in the mining industry. We are also proud to announce collaboration with our First Nation partners to revamp our pre employment and training education readiness program, designed to remove barriers from indigenous applicants in mining occupations by equipping them with relevant skills, facilitating apprenticeship placements. Lastly, I'm proud to announce that Oksut has won 11 awards across 3 distinguished organizations for efforts in social responsibility.

Speaker 2

These awards recognize our commitment to empower women entrepreneurs in our local communities by supporting the 1st women's cooperative established in the Devoe District. Through initiatives like this, we continue to strive to create a lasting positive impact. I'll now pass the call over to Paul Sharman to walk through our operational performance for the quarter.

Speaker 3

Thanks, Paul. I'd like to start with Mount Milligan's safety performance. The operating team continues to embrace the site wide optimization program, which starts with continuous improvement to our safety performance. The site team has been fully engaged and year to date we have seen improved safety performance particularly with the reduction in significant incident occurrences. On Slide 8, we show operating highlights at Mount Milligan for the quarter.

Speaker 3

Mount Milligan produced almost 43,000 ounces of payable gold and £13,700,000 of payable copper in the 3rd quarter. Gold and copper sales were up 46% and 21% respectively quarter over quarter, which was anticipated due to the timing of shipments. Metal production in the 4th quarter is expected to be slightly higher compared to the previous 9 months due to expected higher mill throughput and gold grades. Our production guidance remains unchanged at Mount Milligan. With that said, our gold production is trending towards the lower end of the guidance range.

Speaker 3

In the Q3, all in sustaining costs on a byproduct basis were $13.18 per ounce, higher quarter over quarter due to increased sustaining CapEx. We expect all in sustaining costs on a byproduct basis to be lower in the Q4 compared to the 2nd and third quarters, driven by higher expected sales and lower expected sustaining CapEx. Our Mount Milligan cost guidance ranges for 2024 are unchanged, and we expect the all in sustaining costs at Mount Milligan to be at the low end of the guidance range. The site wide optimization program at Mount Milligan continues to progress. We are seeing productivity improvements in the load haul cycle and equipment availabilities at the mine as well as in the plant throughput rates and unit processing costs.

Speaker 3

In the 1st 9 months of 2024, milling costs at Mount Milligan were $5.56 per ton processed, 12% lower than the same period last year. Now moving on to Oksut. On Slide 9, we show operating highlights at Oksut for the quarter. 3rd quarter production was over 50,000 ounces consistent with last quarter. In the 1st 9 months of 2024, Oksut finished processing inventory that was accumulated during the operation shutdown in 20222023.

Speaker 3

In the 4th quarter, substantially all gold production is expected to come from lower grade areas of the mine. As a result, gold production in the 4th quarter is expected to contribute to approximately 15% to 20% of the annual gold production. Our 2024 production guidance at Oksut is unchanged. In the Q3, all in sustaining costs on a byproduct basis were $10.92 per ounce, which is higher compared to last quarter due to lower sales, higher sustaining CapEx, and higher royalty costs resulting from higher average realized gold prices. We expect all in sustaining costs on a byproduct basis to be the highest in the 4th quarter compared to the 1st 9 months of the year, driven by lower production due to lower expected grades.

Speaker 3

Offsuit's cost guidance ranges for the full year of 2024 are unchanged. However, we could slightly exceed the cost guidance range due to higher royalties driven by the elevated gold prices. As Paul mentioned earlier, in September, we announced the restart of operations at Thompson Creek. In the quarter, the site team transitioned from early works to a full start up. We now have 140 full time operating personnel on-site, 2 electric rope shovels, 1 drill and 9 trucks in operation with 4 crews.

Speaker 3

Detailed engineering for the plant refurbishments has been awarded and the overall project plan is on track. In the Q4, our work is focused on the capitalized stripping, continued refurbishment of the existing mobile equipment fleet, delivery of new mine mobile equipment and initial engineering work on the plant refurbishment. I'll now pass it off to Ryan to walk through our financial highlights for the quarter.

Speaker 4

Thanks, Paul. Slide 11 details our Q3 financial results. Adjusted net earnings in the Q3 were $39,000,000 or $0.19 per share. In the Q3, sales were 96,736 ounces of gold and £14,200,000 of copper, up 16% and 21%, respectively, compared to last quarter. This was driven mainly by the timing of shipments at Mount Milligan.

Speaker 4

The average realized price was $2,206 per ounce of gold $3.37 per pound of copper, which incorporates the existing streaming arrangements at Mount Milligan. At the molybdenum business unit, approximately £2,400,000 of molybdenum was sold in the Q3 at the Langmont facility at an average realized price of $23.27 per pound. Consolidated all in sustaining costs on a byproduct basis in the Q3 were $1302 per ounce and our full year consolidated cost guidance for unit cost metrics are unchanged. Slide 12 shows our financial highlights for the quarter. In the Q3, as planned, we returned to strong free cash flow generation.

Speaker 4

Cash flow from operations on a consolidated basis for the quarter was $104,000,000 and free cash flow was $37,000,000 which includes spending of $32,000,000 on the restart of operations at the Thompson Creek mine. In the Q3, Mount Milligan generated $40,000,000 in cash from operations and $16,000,000 in free cash flow. As expected, in the Q3, Oksut returned a positive free cash flow after making normal tax and annual royalty payments in the Q2 of 2024. OXYCU generated $97,000,000 of cash from operations and had free cash flow of $87,000,000 in the Q3. The molybdenum business unit as a whole used $14,000,000 of cash in operations and had a free cash flow deficit of $45,000,000 this quarter, mainly related to spending on the Thompson Creek restart and an investment in working capital at Langloaf.

Speaker 4

Interest income was $7,500,000 in the 3rd quarter, which primarily includes interest on bank term deposits. We continue to generate significant interest income on our cash balance. Returning capital to shareholders remains a key pillar in our disciplined approach to capital allocation. In the Q3, we remained active on our share buybacks, repurchasing 1,700,000 shares for a total consideration of $12,000,000 The Board also declared a quarterly dividend of CAD0.07 per share, consistent with previous quarters. In the 1st 9 months of 2024, we have returned CAD65 1,000,000 to shareholders, including CAD32 1,000,000 in share buybacks and CAD33 1,000,000 in dividends.

Speaker 4

A key focus for Centerra is returning capital to shareholders and we expect to remain active on the share buybacks dependent on market conditions. At the end of the Q3, our cash balance was 604,000,000 dollars This provides us with total liquidity of $1,000,000,000 and positions us well to execute on our strategic plan and deliver shareholder value. I'll now pass it back to Paul for some closing remarks.

Speaker 2

Thanks, Ryan. We're committed to achieving strong performance each quarter and creating value for our shareholders. Looking ahead, we're systematically working through each asset in our portfolio to drive future value and growth for Centerra. With that, operator, we'll open the call to questions.

Operator

Thank you. We'll now begin the question and answer session. Our first question is from Raj Ray with BMO. Please go ahead.

Speaker 5

Thank you, operator. Good morning, Paul and team. I have three questions, if I may. The first one is on your recovery at Mount Milligan. I did note that Q3 Q3, there was some oxidized material that impacted recovery of gold.

Speaker 5

Going into Q4, we expect that to continue. Secondly, with respect to the cost, you mentioned that processing cost has decreased 12% in the 1st 3 quarters of this year versus last year. If I look at your mining costs for Mount Milligan, since at least if I compare Q3 over Q1, it's up almost 14%. So you can comment on what's driving that cost increase on the mining front, whether it's area you're mining or something else? And lastly, I had a question on the inventory levels for gold and copper at Mount Milligan.

Speaker 5

It seems to be increasing trend. I mean, it did come down a bit in Q3. But if I look at from Q3, 'twenty three, and if my numbers are correct, we're 16,000 ounces and we're currently sitting at 30,000 ounces of gold in the inventory in Mount Milligan. What's driving that increase and how much of that is going to be coming out of the process? What's the normal inventory level you're looking at?

Speaker 5

Thank you.

Speaker 2

Yes, Raj. Yes, we'll take those in reverse order. So Ryan will take the inventory question.

Speaker 4

Sure. Thanks, Raj. I don't think it's quite 30,000 ounces, but there has been a little bit of a build. It's nothing kind of structural. It's just timing of shipment related.

Speaker 4

I would expect that to come down in Q4 based on when the boats are planned. So you should see that normalized back to previous levels by the end of the year. But it's simply related to when concentrate makes it through the logistics chain and gets on a boat, nothing more than that.

Speaker 3

Hi, Raj. Yes. Okay. So to answer your recovery question, and that's why we put a bit of a description in the MD and A. So right now, we're on the periphery parts of the deposit in Phase 6 and a little bit in Phase 9.

Speaker 3

And so we are seeing several percent impact and it's primarily due to the oxides. And a little bit of the grade quite hasn't been there as well. And so that's why we adjusted we outlined to the low end of guidance on the low end of the range for the rest of the year. So that's that question. And then the other one, you asked sorry, go ahead.

Speaker 5

No, I just wanted to follow-up on that. So with respect to your the Phase 6 that you've opened up, that's what you said. So if I look at the, let's call it, the 2022 technical report, is the mine plan tracking as per that or there has been a change in the mine plan since then?

Speaker 3

Okay. Yes. From the 2022 technical report, the mine plan has changed. And we've opened up and increased the size of the overall pit as well.

Speaker 5

Okay.

Speaker 3

Okay. Yes. The Phase 6 is, if you take a look looking north, it's kind of at the north end of the deposit, like straight, just pretty much the most north part.

Speaker 5

Okay. Sounds good. Yes.

Speaker 3

Okay. And then to answer your question on the operating costs, so I think you're mostly focused on mining. We just had some timing on equipment refurbishment, primarily some major components. There's nothing really changed on the mine plan itself. And in fact, on our load haul cycle, our productivity, when you take a look at all those key performance indicators, those are on track.

Speaker 3

So and we do have a little bit of increase on the consumables, but not a lot. So that's to answer that question.

Speaker 5

And what's the timing for the equipment refurbishment to be done and the potential decrease in costs?

Speaker 3

Yes, that was mostly a Q3 item.

Speaker 2

Okay.

Speaker 3

Sometimes like we had extra cost on the lower, we had a couple of engines that needed to be replaced a little bit higher and that isn't fluid throughout the year. Sometimes you have some quarters higher than others. That's the main reason why the operating costs are a little bit higher.

Speaker 5

Okay, sounds good. Thank you very much. That's it for me.

Operator

The next question is from Lawson Winder with Bank of America Securities. Please go ahead.

Speaker 6

Thank you, operator, and good morning, Paul and team. Thank you for the update. If I could, could I ask about the optimization at Mount Milligan? What is your latest thinking on the ability to potentially improve the gold recoveries on a life of mine basis?

Speaker 3

Yes. So the main things we're looking at for the gold is it's without getting into too much detail because it is a fairly complex issue. At the end of the day, there are several different ways that you can recover the gold. The main way that we're going to be doing this is being able to adjust the flotation circuit, all the variables, all the parameters in real time and we're setting this up, we're actually calling it FloatIQ. That's going to give us several percent.

Speaker 3

The other one is we're going to be looking optimizing the blend of the concentrate. In terms of the actual amount of copper in the concentrate, we can optimize that. That will actually allow us to be able to recover a little bit more of the Pyreg, which is where some of the gold is. That's a different part of the deposit. And then overall, just being able to not have the oxide, that's why you see the numbers lower as we get a little bit deeper in the deposit.

Speaker 3

So it's a little bit the timing thing. We're never going to be up to 80%, 90% though on gold. What is really about getting several percent? Yes, I think we can get to the mid-60s and maybe to the high mid-60s by working on all these different optimization parameters. And it also does have a little bit of an influence on where we are in the deposit and how we blend some of the higher grade gold and time that and blend it with the other parts of the ore body.

Speaker 2

Now Lawson, one thing I'll add to that is there's the near term optimization, which is the operations optimization work that we've been doing real time, but there's also the PEA study. We are looking at what capital improvements could be made to the process plant to increase throughput and or recovery. So there's the near term type initiatives on plant optimization that Paul has talked about, but there are also long term flow sheet modifications that we're looking at.

Speaker 6

Okay. So even without those longer term flow sheet modifications, I sheet modifications, I mean, you're still thinking upper 60%.

Speaker 3

So I mean, that's actually quite good. Do you

Speaker 6

have a sense of where you might want to push it with some capital investment? Or is it just too early to tell at this point?

Speaker 3

The capital investment will come from throughput primarily. The flow sheet optimization is really going to be coming from just small incremental percents on improving the overall management of the flotation circuit having steady state fee. We're not there's not really a capital investment that's going to improve overall recovery by a significant margin. It's going to come from throughput. And we do have some initiatives that are relatively low capital to improve the throughput that we're looking at.

Speaker 6

Okay. That's great. Very intriguing. And then on the Gemfields sorry, the Goldfields resource update that you're anticipating for early next year with the reserve and resource update. Can we anticipate also getting some color or some idea around how you are thinking about a potential development for those resources at the same time or is that something that we might be looking at a little bit later?

Speaker 2

We intend to do both. So we intend to put out a resource that will be likely both the oxide and the sulfide. As we've mentioned before, we're principally looking at an oxide development plan. And at the time when we put out that resource, we will also outline a path forward, whether it's further study and drilling or some sort of plan on development. So yes, we intend to outline a path forward.

Speaker 2

It won't just be a resource and exclusion of accompanying narrative.

Speaker 6

Okay. That's helpful. And then just finally on capital return, if I may. You guys have been remarkably consistent now for many quarters in delivering both share buybacks and maintaining that dividend. When you initiated the share buyback process, I mean, the gold price was nearly $1,000 per ounce lower and actually your free cash flow has really improved quite remarkably.

Speaker 6

What is the likelihood that the buyback could be augmented going forward, particularly in light of some of the competing capital allocation that you're now embarking on? Thanks. That would be it for me.

Speaker 2

Yes, that's a good point. We As I said in my prepared remarks, when we look at the big picture on capital allocation and with the Thompson Creek development, given the current metal price environment, we think largely speaking, we can fund Thompson Creek out of ongoing free cash flow. In other words, not really dipping into the cash balance. And that is while maintaining the dividend and the buyback. You'll have noticed that we upped the buyback somewhat in Q3.

Speaker 2

That is a signal. We intend to continue buying back at levels higher than Q1 and Q2, more in line with Q3. And certainly, depending on how we choose to allocate our capital, and here what I'm talking about is internal development projects, whether at Milligan, Kemest, Goldfield, we'll take some capital. M and A opportunities may take capital. If depending on the extent to which those either organic or M and A opportunities manifest themselves or not depending on which direction those take, there would be room to further augment the buyback.

Speaker 2

The converse of course is if we have solid targets for investment whether organic or M and A, we might dial a buyback back. But in the absence of a clear place to invest the capital, the buyback will continue and be augmented as it has in Q3.

Speaker 3

Okay. That's great. Thank you very much.

Operator

The next question is from Jeremy Hoi with Canaccord Genuity. Please go ahead.

Speaker 7

Hi, quality and thanks for taking my questions. Most of them have been answered, but just wanted to see if you have any additional color on the inflation that you're seeing in Turkey. You mentioned that in past quarters, it was mostly offset by the devaluation of the lira, but you didn't see that this quarter and expect that to have an impact going forward. So I just appreciate any additional color you might have on that.

Speaker 4

Jeremy, thanks for the question. Yes, what we're seeing in Turkey, it's a pretty highly inflationary country. And for the last couple of years, usually the devaluation of the lira has offset that. The lira has kind of stabilized over the last 6 months or so with fiscal policy in the country, but inflation is still pretty elevated. And what happens in Turkey is a lot of the labor rates and contract rates get reset at the start of the year and take into account inflation in country.

Speaker 4

So we're seeing that inflation number outpace the devaluation of the lira. I would expect that costs will step up a little bit in Oksut going forward, but we'll wait to see how that shakes out at the start of next year. I think for this year, we've kind of reiterated our cost guidance should be fine, maybe at the top end or slightly above it if gold stays very high, but just driven by royalties, not buying country inflation. So it's something we're monitoring that may have an effect next year. I don't think it's going to be something crazy, but it is something that we're looking at as we plan for 2025.

Speaker 7

Okay. Thank you. We'll look to the guidance then and thanks for taking the question.

Speaker 2

Thanks, Jeremy.

Operator

The next question is from Anita Soni with CIBC World Markets. Please go ahead.

Speaker 8

Good morning, Paul and team. I just had a question on Oxford. I was just trying to dig up the last life of mine plan that you guys put out. I'm not sure if it was a year ago or 2 years ago, but I'm trying to understand what the grades are next year and whether or not the dip in grades in Q4 would translate into 2025? That's my first question.

Speaker 3

Yes. Thanks, Anita. So that's correct. The grades that we're going to have in Q4, more or less, that's about what we'll have for the remainder of the deposit. And you can see the annual grades in that press release that we put out.

Speaker 3

And I believe it was September of 'twenty three that we put that press release. And we show the annual production profile with the rates, yes.

Speaker 8

All right. And then Paul has already answered my question on capital allocation and M and A. I was just also wondering when it comes to the I think there was a bit of a revision in guidance on the project CapEx expenditures. Could you outline what happened there with the Thompson Creek CapEx spend?

Speaker 4

I don't think there was really a revision. I think through Q2 we had only guided the first half of the year while we waited on a decision. And so what was released with Q3 was simply the full year view on Thompson Creek. It was consistent

Speaker 3

with what was put out when we announced the restart decision in early September.

Speaker 4

So I don't think there was any true revision. There may be something around the bucketing and what got expensed versus capitalized, but on a cash out the door basis, that number is the same as we've flagged before of $75,000,000 to $85,000,000 during 2024.

Speaker 1

Okay. All right then.

Speaker 8

Thank you very much on

Speaker 7

that. Thanks.

Operator

The next question is from Mike Parkin with National Bank. Please go ahead.

Speaker 7

Hi, guys. Thanks for taking my question.

Speaker 2

Just on Turkey, thanks for that color on the lira. Also, has there been any thoughts or approaches from the government with respect to the royalty like the I believe the cap is $2,100 Obviously, we're way above that. Do you feel like there's any pressure to have that those royalty ranges revisited?

Speaker 4

Thanks, Mike. Not that we're seeing. We have here. I mean, obviously, we're very connected what's happening in the country. We haven't heard any buzz around that.

Speaker 4

Obviously, with the higher metal prices, it's a percentage royalty rate. So at 2,700 gold, the government is getting more. It's just that the actual percentage doesn't ratchet up. So you've hit that top tier percentage when you get to 2,100 gold, but for every extra dollar it goes up, the government does make more. And we haven't heard any kind of groundswell or news about changing the royalty scale or structure in Turkey at this point.

Speaker 2

Okay. All my other questions have been answered. Thanks very much. Thanks, Vinay.

Operator

This concludes the question and answer session and today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

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Centerra Gold Q3 2024
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