Centerra Gold Q4 2023 Earnings Call Transcript

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February 23, 2024

There are 7 speakers on the call.

Operator

Thank you for standing by. This is the conference operator. Welcome to the Centerra Gold 4th Quarter 2023 Conference Call. As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation, I would now like to turn the conference over to Lisa Wilkinson, Vice President, Investor Relations and Corporate Communications with Centerra Gold.

Operator

Please go ahead.

Speaker 1

Thank you, operator, and good morning, everyone. Welcome to Centerra Gold's 4th quarter 2023 results conference call. Joining me on the call today are Paul Tomory, President and Chief Executive Officer Paul Charron, Chief Operating Officer and Darren Millman, Chief Financial Officer. Our release yesterday details our Q4 2023 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. To start, I'd like to express my sympathy and support to everyone Turkiye. We have sent a mine rescue team to assist in the recovery efforts and our thoughts and prayers are with the affected individuals. Moving on to Centerra's performance, we delivered a strong finish to 2023, achieving both production and cost guidance for the year. 4th quarter was our 2nd consecutive quarter of significant free cash flow.

Speaker 2

We ended the year with over $600,000,000 in cash and cash equivalents. I'd also like to highlight annual record performance at Mount Milligan in both the mine and the plant. Our recently announced additional agreement with Royal Gold allows us to look at the Mount Milligan copper gold porphyry deposit much more broadly and to assess its potential to be a multi decade operation. This is a key first step in our strategy to realize the full potential of this cornerstone asset in a top tier mining jurisdiction. Looking ahead at Mount Milligan, we've initiated a preliminary economic assessment to evaluate the potential of a mine life extension beyond 2,035.

Speaker 2

The PA is expected to be completed in the first half of twenty twenty five. We will also continue to invest in exploration drilling to unlock the large mineral endowment at Mount Milligan, setting the stage for potential future resource additions. And finally, we're continuing to advance the site wide optimization program assessing all aspects of the operation to maximize the potential of the ore body to set Mount Milligan up for long term success to 2,035 and beyond. In addition to our strategic approach at Mount Milligan, we're also focused on several key areas in 2024. We expect to complete the feasibility study for the Thompson Creek restart in the middle of 2024, as well as an initial resource estimate of the Goldfield project by the end of 2024.

Speaker 2

In the year ahead, we expect to continue to deliver on our strategic plan to maximize the value of the assets in our portfolio. Finally, I'd like to touch on a recent ESG achievement. In 2020, Oksut joined the International Cyanide Management Institute as a signatory. Over a span of 3 years, the site underwent a certification program to align with the Institute's principles and standards practice. In early January, OXXO successfully attained certification from the Institute, confirming complete adherence to the International Cyanide Management Code.

Speaker 2

This was a collaborative effort with team members from ESG Occupational Health and Safety, process, maintenance and construction departments working together to achieve this significant milestone. And with that, I'll pass the call over to Paul Charron to walk through our operational performance for the quarter.

Speaker 3

Thank you, Paul. On Slide 5, we show operating highlights at Mount Milligan for the quarter. The Mount Milligan mine produced over 40,000 ounces of gold and almost £20,000,000 of copper in the 4th quarter, achieving 2023 guidance ranges for both gold and copper. For 2023, Mount Milligan achieved annual records for total tons mined and plant throughput at over 50,000,000 tons mined and 21,700,000 tons processed respectively. Looking ahead, in 2024, we expect Mount Milligan to produce 180,000 to 200,000 ounces of payable gold, which is 23% higher than last year, mainly due to mine sequencing and higher gold grade.

Speaker 3

2024 payable copper production is expected to be between 55,000,000 to £65,000,000 Both gold and copper production are expected to be evenly weighted throughout the year, but sales in the second half of twenty twenty four are expected to contribute approximately 55% of the annual sales. In the Q4, gold production costs were $9.46 per ounce and all in sustaining costs on a byproduct basis were $9.46 per ounce. Full year 2023 gold production costs at Mount Milligan were $10.88 per ounce, which was in line with the guidance range. Full year all in sustaining costs were $11.56 per ounce, beating the guidance range. Looking ahead, Mount Milligan's 2024 all in sustaining costs are expected to be $10.75 to $11.75 per ounce.

Speaker 3

In the Q4, we embarked on a site wide optimization program at Mount Milligan focused on an integrated holistic assessment of occupational health and safety, mine and plant operations. We are encouraged by the preliminary cash flow improvement estimates from the first phase of work on this program and we expect to start realizing the benefits of the program later this year. As a result, the potential cost savings are not included in the Mount Milligan's 2024 cost guidance ranges. On Slide 6, as Paul mentioned earlier, we are assessing Mount Milligan's potential to be a multi decade operation. We now have 250,000,000 tons of reserves at Mount Milligan, extending our mine life out to 2,035.

Speaker 3

In addition, we have substantially increased our resource to 260,000,000 tonnes, most of which is classified as measured or indicated. And lastly, we have additional drilled inventory, which has not been incorporated into the resources where we intend to continue drilling with the objective of further increases to the resources. We intend to incorporate these additional resources into an optimized mine plan in support of a preliminary economic assessment. On Slide 7, to provide more detail, we are targeting deposits to the west and southwest of the main pit within the current mining lease. At Goldmark and South Boundary, there are possibilities for near surface additions.

Speaker 3

At North Slope, DWBX and Saddle West, we continue to test for depth extension. And finally, I commend the Mount Milligan site team for embracing the site optimization program. The team has been fully engaged and is dedicated to enhancing the culture for continuous improvement through this important initiative. To date, we started to see evidence of this continually improved safety performance in the Q4 year to date. On Slide 8 are the operating highlights at Ertsu.

Speaker 3

Ertsu closed out the year with a 2nd consecutive quarter of strong performance. 4th quarter production was over 88,000 ounces and full year production was almost 196,000 ounces, achieving the midpoint of the guidance range. Production guidance for 2024 at Erksut is estimated to be 190,000 to 210,000 ounces of gold, which is aligned with our previously disclosed life of mine plan published last September. As we are still going through the buildup of inventory, approximately 60% of the annual production is expected to be weighted to the first half of this year. Gold production costs and all in sustaining costs on a byproduct basis in the Q4 2023 were $4.74 per ounce $6.71 per ounce respectively.

Speaker 3

Full year 2023 gold production costs and all in sustaining costs were $4.57 per ounce $6.75 per ounce, respectively, in line with the guidance ranges. Looking ahead, 2024 gold production cost guidance is expected to be $6.50 to $7.50 per ounce and all in sustaining cost guidance is expected to be $900 to $1,000 per ounce. Costs in 2024 at Irksut are expected to be higher than previously disclosed in the life of mine plan due to a new multiyear contract with the existing mining and hauling service provider as well as higher weighted average cost per ounce in the remaining inventory. To wrap up, I'd like to commend the Yorkshire suit team for outperforming their 2023 safety targets and achieving 1 year without a lost time injury in early December. This milestone demonstrates our priority to the safety of our workforce and our commitment to the journey towards achieving zero harm.

Speaker 3

I'll now pass on to Darren to walk through our financial highlights for the quarter.

Speaker 4

Thanks, Paul. Slide 9 details our 4th quarter financial results. In the quarter, we incurred a net loss of $28,800,000 or a loss of $0.13 per share. There were several adjusting items in the quarter including $50,000,000 of reclamation provision reevaluation expense and $34,100,000 of non cash impairment loss relating to the resource change at the Kemess project and the sale of the Berg project among other things. As a result of the one time items adjusting net earnings in the 4th quarter was $61,200,000 or $0.28 per share.

Speaker 4

In the Q4 sales were 130,281 ounces of gold and £16,600,000 of copper. The average realized price was $18.46 per ounce of gold and $3 per pound of copper which incorporates the existing stream arrangements at the Mount Milligan mine. At the molybdenum business unit in the 4th quarter approximately £2,100,000 of molybdenum was sold at an average molybdenum price of $20.35 per pound generating 47,000,000 in revenue. In the Q4 2023, additions to property plant and equipment and total capital expenditure was $68,000,000 $36,000,000 respectively. Consolidated all in sustaining costs on a byproduct basis for the quarter were $8.31 per ounce which achieved our 2023 guidance target.

Speaker 4

Slide 10 shows our financial highlights for the quarter. The Q4 was our 2nd consecutive quarter of significant free cash flow. Cash generated by operating activities was $146,000,000 in the quarter and free cash flow was $111,000,000 For the full year 2023, cash provided for operating activities was $246,000,000 and free cash flow was 160,000,000 dollars At the Mount Milligan mine, cash provided by the mine operations and free cash flow were $29,000,000 $14,000,000 respectively in the 4th quarter. For the full year, cash provided by operating activities was $114,000,000 and free cash flow was $73,000,000 dollars At Oksut in the 4th quarter, the mine generated $144,000,000 in cash from operations and $128,000,000 in free cash flow. For the full year, cash provided by operating activity was $275,000,000 and free cash flow was 238,000,000 dollars At the Langloft metallurgic facility approximately $6,000,000 of investment in working capital from the Q1 was released during the Q4.

Speaker 4

However, the molybdenum business unit as a whole had a free cash flow deficit of $9,000,000 in the 4th quarter. In the Q4, we received a $25,000,000 payment from Orion Mine Finance Group in relation to the December 2021 sale of our interest in the Greenstone project. In the Q4, our cash balance grew by $121,000,000 to 613,000,000 dollars This provides us with total liquidity over $1,000,000,000 and positions the company well to execute on our strategic plan and deliver shareholder value. Given our strong financial position the Board declared a quarterly dividend of $0.07 per share. Slide 11 shows our 2024 outlook.

Speaker 4

In 2024, we expect to produce between 370,000 ounces 410 1,000 ounces of gold, which is 11% higher than last year and copper production is expected to be between £55,000,000 65,000,000 of copper. 2024 consolidated gold production cost and all in sustaining costs are expected to be $800 to $900 per ounce and $10.75 and $11.75 per ounce respectively. 2024 sustaining capital expenditure are expected to be $100,000,000 to $125,000,000 and non sustaining capital guidance is $8,000,000 to $15,000,000 We continue to invest in exploration. In 2024, we expect to spend $35,000,000 to $45,000,000 Approximately 48% of exploration spending is related to brownfield targets and 52% is related to greenfield and generative exploration programs. In 2024, Oxford's current income tax paid is expected to be between $85,000,000 $95,000,000 Given the timing of the statutory payments made in Turkey, the annual royalty payment and income tax payments relating to Q4 2023 and Q1 2024 will be made in the Q2 of 2024.

Speaker 4

As a result, our cash flow in the Q2 of 2024 will be impacted by these cash payments. We're expecting a solid 2024 with a high gold production compared to last year and we expect to continue to generate strong cash flow from our operations. I'll pass it back to Paul for some closing remarks.

Speaker 2

Thanks very much, Darren. Before I wrap up

Speaker 4

the call and on behalf of

Speaker 2

the Board of Directors, I'd like to take this opportunity to thank Darren for his hard work and dedication for the past 11 years at Centerra. And personally, it's been a pleasure for me to have worked with Darren over the past 10 months as I myself have done my own onboarding here. He's built a strong financial position for the company with over $1,000,000,000 of liquidity, no debt and has set us up for a successful CFO transition. Ryan Snyder will be taking over from Darren as CFO in April. Ryan has been with us for almost 2 years as VP of Finance and is very well positioned for this new opportunity.

Speaker 2

We wish Darren and his family all the best as they relocate back home to Australia. And with that, I'll conclude and open the call to questions.

Operator

The first question comes from Brian MacArthur with Raymond James. Please go ahead.

Speaker 5

Good morning. I just wanted to follow-up on the Q2 payment for Oksu. Is that just the $40,000,000 you show in taxes payable for the taxes and then there will be the royalty payment on top of that? So I should be looking at it. I don't know if you can give me a number for that quarter.

Speaker 5

And then the $85,000,000 to $90,000,000 that you're forecasting for this year, I assume that gets paid then in the Q2 of next year. Is

Speaker 2

that correct? Yes. Darren, go ahead on that.

Speaker 4

Yes. So the numbers referenced earlier, so that references the 2024 sorry, the 2023 income tax payable and also the Q1 2024 royalty. So that number references that total number referenced earlier is combined of both those 2, Brian.

Speaker 5

Right. But the taxes you have a taxes payable on your current liabilities of $40,900,000 Is that is that that is the Oksu OXO payment, right? So I should be thinking $40,000,000 for that plus whatever the royalty is on top of it.

Speaker 4

Correct.

Speaker 5

And my second question is, I don't know if you can give guidance on this and obviously congratulations on the very good free cash flow. We're still working through inventory at Aux Su. But we know all the ADR stuff, which is very cheap on a cash basis is gone. Is there a lot of what I would call historical, I mean, you used to give a number, there's a fair number of ounces that still had to come out with very low cash costs as opposed to what you label as ongoing costs out of the mine. Is there still a bunch of cash to be liberated from that in the first half of the year?

Speaker 3

Yes, Brian. So I guess fundamentally, we're working through the inventory and there was some built up at the end of 2023. So I guess the best way to explain it is our all in sustaining costs that we've guided to that will have that baked in for the remainder of the year. And the bulk of that inventory is completed in Q1 and Q2 because it gets integrated with what we're stacking now.

Speaker 5

Right. Okay. That's clear. I just wanted to check that. But there so there is still some of that what I call older pre mine stuff still coming through in the first half of the year, but it's all weighted into your average cost of inventory, which will come out.

Speaker 5

Is that correct?

Speaker 3

That's right. So we've baked that into the all in sustaining for all of 2024. And in reality, it'll probably be slightly less in the front end and slightly higher on the back end as a result.

Speaker 2

And that's why we've guided to the higher proportion of production coming from the first half of the year because we're still benefiting from those inventory ounces.

Speaker 5

Great. Thanks very much. Very clear.

Operator

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

Speaker 6

Thank you very much, operator, and good morning, everyone. Thank you for the presentation. I wanted to ask about Milligan exploration upside and just looking at that chart you guys have showing the Goldmark deposit and then the other deposit underneath it. Do you have a sense of what the strip ratio might look like on that? I mean it looks like it would be relatively low given where Goldmark is then you have that deposit right beneath it.

Speaker 6

Thanks.

Speaker 3

Yes. I don't have a number on strip ratio because some of that hasn't really been that well defined in between on that exact section view that you're referring to. But what we'll be doing is we'll be drilling that through secondly over on that north slope and then just some of the other section view to the southwest. We have quite a bit of ways to go to extend the mineralization with what we've already drilled and then we'll be optimizing the mine plan so that we'll be taking care of the strip ratio, low strip ratio on the front end and then of course at depth in the past. So that'll be all part of the optimization of the PEA.

Speaker 3

But no, I don't have an exact strip ratio because we haven't defined all the mineralization in those areas.

Speaker 6

Okay. Fair enough. Yes, I just thought maybe you'd have some sense of it by now, but that's completely fair. The other thing I wanted to ask about is for ages, there's been discussion about potentially improving the recoveries of gold at Mount Milligan. And I assume with the updated agreement with Royal Gold, there's probably additional motivation to do so.

Speaker 6

What are kind of the items you're focusing on? And what's the timeline to providing some clarity to the market and what you could potentially do there?

Speaker 2

Yes, Lawson, I'll give a response here and Paul will give a little bit more detail. But you're quite correct. With the transaction announced with Royal Gold, what that gives us is the confidence to look at long term investments in the asset, which includes process plant improvements. So as part of PEA, we will be looking at longer term modifications to the plant that could improve recovery. Now that doesn't mean that there aren't near term continuous improvement type things we can do on recovery.

Speaker 2

But longer term, there may be capital improvements that could be made in the mill. But Paul, why don't you talk about both of those, the shorter term and the longer term ideas?

Speaker 3

Yes. So in the longer term, we'll be looking at adjustments to the flow sheet with some capital and that'll be a key part of the PEA. And we've already initiated the metallurgical test work for that. I won't get into specifics, but it may involve a different process that would need a separate stage of permitting. And then on the short term, it's really just about looking incrementally all the way through balancing throughput versus the reagent consumption versus the grind size to incrementally gain on the gold and the copper recovery, understanding the ore body, getting a geomet balance.

Speaker 3

And it's really just the hard yards lifting heavy lifting of getting the incremental gains all the way through. The other key element here is we having improved on the throughput on the front end on the secondary crush. And then of course there's a balance between throughput and overall recovery. And so we're working through all that optimization and there's a myriad of initiatives to go through each of those incremental gains.

Speaker 6

Okay, great. Thank you both very much.

Operator

There are no more questions, 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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Key Takeaways

  • Centerra met 2023 production and cost guidance, delivered a second consecutive quarter of significant free cash flow, and closed the year with over $600 million in cash and equivalents.
  • The company has initiated a preliminary economic assessment to explore a mine life extension at Mount Milligan beyond 2035, alongside a site-wide optimization program and ongoing exploration drilling to unlock additional resources.
  • For 2024, Centerra forecasts 11% higher gold output (370,000–410,000 oz) and 55–65 million lbs of copper, with all-in sustaining costs of $10.75–$11.75/oz and $100–$125 million in sustaining capital.
  • In Q4 the company recorded a net loss of $28.8 million due to one-time items (a $50 million reclamation provision revaluation and a $34.1 million impairment), but achieved adjusted net earnings of $61.2 million and $111 million in free cash flow.
  • Oksut achieved International Cyanide Management Code certification, confirming full adherence to global best practices in cyanide handling and reinforcing Centerra’s ESG credentials.
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Earnings Conference Call
Centerra Gold Q4 2023
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