Centerra Gold Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 1, 2023

There are 8 speakers on the call.

Operator

Thank you for standing by. This is the conference operator. Welcome to the Centerra Gold Third Quarter 2023 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 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 3rd 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 Q3 2023 results. This 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 are available on Centerra Gold's website to accompany this webcast. 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. Also, certain of the measures we will discuss are non GAAP measures. Please refer to the description of the 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

Thank you, Lisa, and good morning, everyone. Centerra had a very strong Q3 with significant free cash flow generation, Driving a substantial increase to our cash balance. Uxut outperformed our expectations, producing almost 87,000 ounces in the quarter. Our 2023 consolidated gold production guidance remains on track between 340,000,360,000 ounces And we expect to continue to generate significant free cash flow in the 4th quarter, further increasing our cash balance by the end of the year. Paul Charan will speak to our operations in more detail a little later and he will speak to the adjustments to the site level production guidance at both Oksutta and Mount Milligan.

Speaker 2

In September, we rolled out our value maximizing strategic plan for our portfolio of assets. As part of this plan, we announced At Mount Milligan, we continue to drive operational and technical improvements to unlock the full potential of this cornerstone asset. In 2024, we expect higher levels of gold production and similar levels of copper production when compared to 2023 guidance. We continue to believe that we will be able to fund capital returns to our shareholders, Invest in internal growth projects and exploration and evaluate external opportunities for growth, all while maintaining a significant cash balance through the end of 2024 and beyond. Finally, I'd like to touch on some ESG achievements in the quarter.

Speaker 2

In line with our commitment to sustainable and responsible mining practices, Centerra published its 2022 annual ESG report in the 3rd quarter, which includes the responsible gold mining principles conformance report along with an independent assurance letter. As we continue to progress our climate and nature strategy, Our next objective is to identify feasible emission reduction pathways and initiatives. We continue to reinforce our ESG performance is the release of our sustainable development policy, which focuses on ensuring a safe and respectful workplace for our employees and contractors, Protecting the natural environment and creating a positive impact in the communities where we operate. I'll now pass the call over to Paul to walk through our operational

Speaker 3

Thank you, Paul. On Slide 5, we show operating highlights at Mount Milligan for the quarter. The Mount Milligan mine produced over 39,000 ounces of gold in the 3rd quarter, in line with last quarter and produced £15,000,000 of copper, Almost 10% higher than the last quarter. There was some residual ore waste transition zone material mined in the 3rd quarter And recoveries were impacted by the elevated ratio of pyrite to calcopyrite. We expect medium term recoveries For gold and copper to be similar to those achieved in 2023 and have been undertaking additional metallurgical reviews with a goal of increasing recoveries from current levels to better manage this part of the ore body.

Speaker 3

Our Mount Milligan production guidance for 2023 has been adjusted due to lower than planned gold recovery from the elevated pyrite to calcopyrite ratios And lower production experienced in the first half of the year due to mine sequencing. We are now expecting gold production at Mount Milligan Of the 160,000 to 170,000 ounces announced previously, our copper production guidance remains at £60,000,000 to £70,000,000 and is expected to be near the low end of this range. In the Q3, gold production costs were $10.50 per ounce And all in sustaining costs on a byproduct basis were $11.50 per ounce, 16% 28% lower than last quarter, respectively. All in sustaining costs were lower quarter over quarter due to higher gold ounces sold, lower gold production cost per ounce and higher byproduct credits as a result of high copper sales. As a result of the revised gold production outlook for Mount Milligan, We have increased its full year 2023 gold production costs and all in sustaining cost guidance.

Speaker 3

Gold production costs for the full year are now expected to be between $10.50 $1100 per ounce And all in sustaining cost guidance is now expected to be $11.75 to $12.25 per ounce. A comprehensive asset optimization review has been launched, which includes safety, productivity and cost efficiencies in concert with mine plan optimization. This review is expected to be completed in 2024 and drive incremental improvements in operations. Finally, we congratulate our Mount Milligan team and partners at Chucho Environmental for receiving the BC Mine Reclamation Award for Outstanding Reclamation Achievement in 2023. This award recognizes the ongoing research into innovative techniques to help achieve eventual reclamation and land use objectives 3rd quarter production was over 86,000 ounces, which exceeded our expectations during the ramp up of operations.

Speaker 3

As of late September, all of the stored gold and carbon inventory had been processed. The mine continues to have elevated levels of recoverable ounces of gold in ore stockpiles and on the heap leach pad, which are expected to be processed in the coming months. Due to the operating team's successful ramp up execution in the 3rd quarter, Full year 2023 production guidance at Irksut has been increased to 190,000 to 200,000 ounces of gold. Gold production costs and all in sustaining costs on a byproduct basis in the Q3 2023 were $4.45 per ounce $5.82 per ounce, respectively, due to accruals from inventory buildup. And all in sustaining cost guidance for 2023.

Speaker 3

We now expect full year gold production costs to be in the range of $4.25 to $4.75 per ounce and all in sustaining cost to be in the range of 6.25 to $6.75 per ounce. To wrap up, I'd like to commend the ArcSoup team For achieving 2,000,000 work hours without a lost time injury in September. The safety of our employees and contractors is our top priority And this milestone demonstrates our commitment to a zero harm culture. I'll now pass it to Darren to walk through our financial highlights for the quarter.

Speaker 4

Thanks, Paul. Slide 7 details our 3rd quarter financial results. Centerra had a strong financial performance in the 3rd quarter Change gains relating to the reclamation provisions at the Indarko mine and the Kemess project and $9,000,000 of deferred income tax expense Resulting from the effect of foreign exchange rate changes on monetary assets and liabilities and the determination of taxable income related to Oksut and Mt. Milligan. As a result of these one time items, adjusted net earnings in the 3rd quarter were $44,000,000 or $0.20 per share.

Speaker 4

In the Q3, sales were 130,973 ounces of gold and £15,400,000 of copper. Gold and copper sales were higher than production in the quarter, mainly due to timing of shipments. The average realized price was $17.41 per ounce of gold and $2.99 per pound of copper, which incorporates the existing stream arrangements for the Mount Milligan Mine. At the molybdenum business unit in the 3rd quarter, Approximately £2,700,000 of moly was sold at an average realized price of $24.08 per pound, generating revenue of $68,000,000 In the Q3 of 2023, additions to property, plant and equipment And total capital expenditure were $25,000,000 $24,600,000 respectively. At Mount Milligan, we expect elevated capital expenditure in the 4th quarter.

Speaker 4

Consolidated all in sustaining costs on a byproduct basis for the quarter were $8.27 per ounce. At Oxy, we processed all of the stored gold and carbon inventory, which had a minimal cash processing cost to convert to dore bars. As mentioned early in the call, we have adjusted our 2023 production guidance at mine site level to reflect year to date performance and our expectations for the 4th quarter, But with no overall financial impact. As a result, our consolidated all in sustaining cost for the full year is unchanged and to be in the range of $1,000 to $10.50 per ounce. Moving to the next slide.

Speaker 4

Slide 8 shows our financial highlights for the quarter. In the Q3, we generated significant free cash flow driven by strong performance at Oksut. Cash provided by operating activities was $167,000,000 in the quarter and free cash flow was $144,000,000 At the Molybdenum business unit, approximately $16,000,000 The investment in working capital for the Q1 was released during the Q3. The Melissanen business unit generated $9,000,000 in free cash flow in the 3rd quarter. At the Mount Milligan mine, cash provided by mine operations and free cash flow were $36,000,000 $25,000,000 respectively in the 3rd quarter.

Speaker 4

At Oksut in the 3rd quarter, the mine generated $144,000,000 in cash from operations and $134,000,000 in free cash flow. In the Q4, in addition to the continued free cash flow generation, we expect from our operations, a payment of $25,000,000 is due from Orion Mine Finance Group in relation to the December 2021 sale of our interest in the Greenstone project, we expect to receive additional future payments once Certain production milestones have been achieved. Centerra ended the 3rd quarter by growing the cash balance by $90,000,000 to $492,000,000 In September, we extended our $400,000,000 revolving credit facility with a renewed 4 year term maturing on September 8, 2027, which is currently undrawn. This provides us with total liquidity of $890,000,000 given our strong financial position, The Board declared a quarterly dividend of $0.07 per share. I'll pass it back to Paul for closing remarks.

Speaker 2

Thanks very much, Darren. The 3rd quarter demonstrated our ability to generate significant free cash flow from our operations. And as I said earlier, we expect to continue to generate robust free cash flow in the Q4 and further increased our cash balances. We're optimistic about the future of Centerra and our ability to internally fund our strategic initiatives with our cash flow from operations. And with that, I'll open the call to questions.

Operator

Thank Our first question comes from Anita Soni of CIBC World Markets. Please go ahead.

Speaker 5

Hi, good morning. Thanks for taking my call. So my first question would be with respect to the molybdenum business unit Guidance that you've put out. So I can see that you're talking about the Anglo Agilof facility working capital incremental investments, dollars 15,000,000 to And year to date, you've spent about $15,000,000 So am I correct in thinking that that's going to consume about $30,000,000 in the 4th quarter? Or What does that the fact that you've maintained that broadband of the top end of 45 mean?

Speaker 4

Yes. It's Anirha. It's Darren here. It's just purely the molybdenum process, as you know, can move significantly and we saw that in particular in Q1. We're not expecting any cash outlay in Q4.

Speaker 4

Actually, we're hopeful even a return All that working capital given the aluminum price has come up a little bit compared to Q3. So I wouldn't be expecting significant outlays. It's just simply The range we provide within guidance is quite large.

Speaker 5

Okay. So that's just conservatism in terms of where the prices could go if they go?

Speaker 4

Correct. That's right.

Speaker 5

All right. And then the second question, if you could provide some color on Mount Milligan for 2024. I noticed in the release Or I think it was in the release or the MD and A, but you basically said that recoveries are going to be the same as 2023, which is lower on copper as I can see then your prior forecast, what you would originally have put out at the beginning of the year, but probably in line with what we saw on the tour. And then gold production is higher next year and copper is lower next year. So does that mean that the grades are higher in gold and copper grades are lower?

Speaker 5

And then also what does that mean to the strip ratio with the sequencing of the phases that you have there?

Speaker 3

Okay. Well, thanks, Anita. So it's Paul here. I'll start with the recoveries. Yes, we can expect them to be about what we've seen in 2023, Perhaps a little bit better, but we're being conservative by saying that.

Speaker 3

And the real challenge there is the amount of gold that we can feed in, which a lot of it, Not

Speaker 2

all of it, but a

Speaker 3

lot of it is associated with pyrite and the circuit is built to recover calcopyrite. So One of the reasons why we've had to downgrade the production of gold for 2023 is because we basically have to defer some of this higher grade gold. And in terms of 2024 expected production, about the same on copper as what we're forward projecting and higher on gold as to what we're forward projecting for

Speaker 5

And so that's related to the grades and what you were I guess my question was

Speaker 3

The grade and the recovery, when you have higher copper grade, you actually get better gold Recovery, we can expect the copper grades to be around the same, but we are looking at feeding higher grade Gold and then the recovery would be about what we say. And we are looking at incremental improvements as well in 2023.

Speaker 5

Okay. And then the final on that was So what kind of strip ratios relative to what you've delivered this year?

Speaker 3

Approximately the same as what we're seeing this year. Basically, we have a fleet and we optimize movement material movement of the fleet. We'll be somewhere in the range of 50,000,000 tonnes for this year. We can expect about the same. And we take advantage of the sequencing.

Speaker 3

We take advantage of the waste material movement to be able to build the dike, our annual tailings lift. So approximately the same. And we don't minimize the strip ratio. We utilize the fleet.

Speaker 5

All right. Okay. That's it for my question. Thank you.

Operator

Our next question comes from Mike Parkin of National Bank. Please go ahead.

Speaker 6

Hi, guys. Congrats on the good quarter. This question is more geared towards probably Darren or maybe Paul. But Just looking at Slide 6 on Oksut, the AISC guidance of $625,000,000 to $675,000,000 That would include well, I guess, the same for the gold production cost. That would include a fairly significant non cash inventory expense,

Speaker 4

Yes. So for Q3, Mike, we all the inventory that was previous cost built up Cash incurred in previous quarters that was largely released in Q3. As we get into Q4, we will see some higher cost Processing costs like true cash costs, but it's still minimal in the context of The significant inventory build up. So yes, less high cash cost to convert the inventory compared to the Gold and carbon, but still relatively low. And we do expect a reduced overall all in sustaining cost at Oksut for the final quarter Given

Speaker 2

the where we're at year to date.

Speaker 6

Do you have an idea of like in 1,000,000 of dollars What the working capital adjustment for Oxit would be roughly for Q4?

Speaker 4

Yes. If you refer the financials, it's Pretty much all the large increase from inventory level is coming from that movement in oxide inventory.

Operator

Our next question comes from Brian MacArthur of Raymond James. Please go ahead.

Speaker 7

Good morning. So I'd just like to follow-up on the last question. Is there anything in Oksut, obviously you had a good quarter, but it looks to me you just Got your 80,000 ounces out with the less than $50 cash remaining costs, started to work through the 200,000 that's low cost. But is there anything you've seen as you operationally start up and work things through that would cause you to Be more positive or negative about what you've guided for 2024 as far as cash liberation from OXXO?

Speaker 2

Well, I'll make a general comment and I'll ask Paul to jump in on some of the more technical details. We remain very bullish on the cash generation potential in Q4 and Q1, Q2 as we draw down those inventories thus far, as we noted in our release, It is outperforming our expectations and we don't have any major reasons to believe that there will be any hiccups. So Paul, you can Perhaps elaborate on that.

Speaker 3

Yes, I just think for your model, Brian, we've increased the guidance, so you can take that for what it is. And then we put out the life of mine plan for 2024. And for now, I think you can just use those numbers to run out your model. We are it was an excellent start up and we're very pleased with the operations to date. Great.

Speaker 3

Thanks.

Speaker 7

I mean, I was just going I mean, if I remember, like the ADR has a capacity, what, 30,000 ounces a month or something. I mean, obviously, you just liberated all that, but I just want to make sure everything behind that's ramping up okay too.

Speaker 3

October was a very good month. We're on track.

Speaker 2

The leaf solution grades remain And they're going to be coming down as per the plan.

Speaker 7

Right, right. Okay, great. Thank you very much.

Operator

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

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Earnings Conference Call
Centerra Gold Q3 2023
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