Centerra Gold Inc. Common Shares

Greetings and welcome to the first quarter results conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star 0. As a reminder, this conference is being recorded Friday, May 1, 2020. I would now like to turn the conference over to Mr. John Pearson, Vice President, Investor Relations. Please go ahead.

Thank you, operator. I would like to welcome everyone to Sentara Gold's 2020 first quarter conference call. We have summary slides available on our website to accompany each speaker's remarks. Today's call is open to all members of the investment community and media. Following the formal remarks, the operator will give the instructions for asking a question, and then we'll open the phone line to questions. Please note that all figures are in U.S. dollars unless otherwise noted. Today, joining me remotely on the call is Scott Perry, President and Chief Executive Officer, Darren Millman, Chief Financial Officer, Dan Desjardins, Chief Operating Officer, and Yusuf Raymond, General Counsel. I would like to caution everyone that certain statements made on this call today may be forward-looking statements, and as such, are subject to known and unknown risks which may cause actual results to differ from those expressed or implied. Also, certain of the measures we will discuss today are non-GAAP measures, and I refer you to our description of non-GAAP measures in the news release in MDNA. For a more detailed discussion of the material assumptions, risks, and uncertainties, please refer to our news release and MD&A issued this morning, along with the unaudited financial statements and notes, and to our other filings, which can all be found on CDAR and the company's website. And now I'll turn the call over to Scott.

Thanks, John, and good morning, everyone. Thanks for dialing into our call. I'm just on slide five of our accompanying earnings call presentation deck. Just firstly, in terms of safety, you would have noted that one of the key highlights this year, sorry, recent key highlights this quarter was our Oxford mine, which just recently transitioned operations. We actually just recently celebrated one year of operations without a single lost time incident. This is fantastic. It's commendable. I just want to recognize that in terms of our management team at Oxford. We believe, from a safety perspective, our continued commitment to work safe, home safe is a driving force behind achieving such milestones. Our focus moving forward has to be absolutely relentless in terms of us achieving our goals of zero harm and eliminating fatalities from within the business. The second bullet point, just on COVID-19, in terms of the coronavirus, Sentera continues to prioritize the health, safety, and well-being of our employees, contractors, communities, and other stakeholders during the current outbreak of COVID-19. We're taking steps to minimize the effect of the pandemic on our business. To date, the COVID-19 pandemic has not resulted in any material impact on Sentera's operations, and the company currently does not expect it will impact 2020 production. However, the potential effects of COVID-19 are unpredictable, and the company continues to monitor the situation at each of its sites, and we continue to take the steps, necessary steps, to prevent or minimize any effects the pandemic may have. As you would have noted, there's no change to our 2020 guidance. Just on the third bullet point here, just in terms of OPSA, this is quickly transitioning to operations, and this is going to be our third operating goldmine within our portfolio. On January 31st, we achieved first gold pour at Offsert, and at the end of the quarter, in terms of the construction of this project, we are now approximately 95% complete. During the quarter, Offsert contributed 4,486,000 ounces of gold production. It's going to be an important third asset within our portfolio and it's going to make for increased diversity moving forward. As we move forward here over the course of the calendar year in terms of 2020, we're We're expecting progressive increases in terms of Oxsert's gold output profile. Just in terms of some of the key quarterly highlights, you've seen a six bullet point there. Another robust quarter in terms of our production levels, particularly good operating momentum at Kumtor, facilitated a company-wide gold production result of 190,000 ounces of gold. This high level of gold output in terms of the corresponding oil and sustaining costs, you can see we achieved a very low, very competitive $712 per ounce sold. Given the prevailing gold price environment and that strong level of gold output and obviously the competitive sort of oil and sustaining cost, you can see that really, you can see that generated meaningful free cash flow on a company-wide basis. Sinterra during the quarter generated free cash flow company-wide of $77 million, which includes $96 million of positive free cash flow from Comtor and $22 million of positive free cash flow from Mount Milligan. The strong level of free cash flow saw the balance sheet transition into a positive net cash position at the end of the quarter. As we move forward here over the course of 2020, we are no longer... Oxford is no longer in construction mode, so I would expect if we continue to deliver, if we continue to execute, we should see the balance sheet continuing to grow over the course of this year. As I mentioned earlier, under COVID-19, with today's release, we are maintaining our guidance for 2020. The second last bullet point here, just based on the company's financial position, our recent strong operating results and cash flows, The board yesterday approved a dividend of Canadian $0.04 per share. Just lastly, I just want to note in terms of the prevailing macro environment or in terms of the current economic conditions, gold prices are strong right now. But also what we're noting is in terms of our exchange rate environment, in terms of the jurisdictions where we operate, in terms of the oil environment and its impact on diesel fuel pricing, We're seeing particularly robust margins across all of our operating assets. So if this is to sustain, it does bode well for Sentera's profitability and cash flow generation moving forward. Just on slide six of the presentation, the chart here in the top left, we're just looking to graphically illustrate the quarterly cash flow during the quarter. You can see the green column here. The first green column is just the aggregate of the positive free cash flow that was generated by Comtor and Mount Milligan during the quarter, so $118 million. There was a drawdown on our revolving line of credit facility of $82 million US. And then the red columns just illustrate how and where the cash was deployed during the quarter. As you can see, as the chart illustrates, it was a meaningful quarter in terms of positive free cash flow generation. Just reference the chart in the bottom right-hand corner on slide six. What we're illustrating here is our consolidated adjusted free cash flow. And so what we've removed from these columns back in 2019 was the settlement expense associated with the strategic agreement that we entered into with the government of Kyrgyzstan. But I think what the chart illustrates is if you look at Q1, our realized gold price was $1,487. But also now that Oxford is transitioning into operations, Now that we're not funding significant construction expenditures, you can see just the level of free cash flow that the business is generating within the quarter. As I mentioned, gold prices here today are stronger than what we're realizing in Q1. We're seeing a very favorable diesel fuel price environment, a very favorable exchange rate environment. So again, I think that just bodes well when you think about our future profitability and free cash flow generation potential. Just lastly on this slide, the chart on the bottom left is just a continuum of our net debt to net cash profile, and you can see the columns on the right of that chart. Just given the strong profitability, the strong cash flow generation during the quarter, you can see the balance sheet has now transitioned into a positive net cash position. Just on slide seven, just in terms of our environmental social governance profile, Just in terms of these bullet points, obviously our continued focus on safety is absolutely paramount, and I spoke to that earlier. The second bullet point here, just in terms of our license to operate, we've now achieved 81 consecutive months of no business interruptions, so a fantastic achievement. Third bullet point, as it should be, there's been no reportable environmental incidents during the quarter. In terms of The fourth bullet point here, we're continuing to work and focus on our commitment for Sentera to be a diverse and inclusive organization. We have a number of initiatives here that are underway. Second last bullet point, we are now working on a corporate-wide climate change strategy, hoping to have that finalized by the end of this year. And then just the last bullet point here, We are in the process of implementing the World Gold Council's Responsible Gold Mining Principles. Sinterra is a member of the World Gold Council and we are signatory to these principles. We're now looking to establish conformity and compliance with all these principles and that's another key initiative that's being rolled out across our operations this year. With that, I'm now going to turn the presentation over to our Chief Operating Officer, Mr. Dan Desjardins. So, Dan, please.

Thanks, Scott. Good morning, everyone. I'll start on slide nine. Our quarter one safety and operational performance was terribly overshadowed by the activities following our tragic event in Kumtor in December and then a terrible accident that took place at Kumtor and took the life of one of our operators. in February. We've done a lot of investigations and analysis to understand what we are doing wrong and we've taken and will take even further action to greatly improve our safety throughout the company. We did have a number of positive milestones that Scott referred to at Thompson Creek. We did achieve five years without an LTI and just recently at Oxsuit, very commendable to go through construction and commissioning On April 19, they achieved one year without a lost time injury. On the production front, we had a strong quarter, producing 190, 474 ounces of gold, and we produced 20.1 million pounds of copper. Our all-in sustaining cost was $712 per ounce sold. For Q1 2020, at Qumtor, Qumtor continues to produce at a steady rate. We are feeding ore from our stockpile. The performance remains similar to Q4 of last year, with Q1 producing 152,307 ounces of poured gold at an all-in sustaining cost of $644 an ounce. We restarted mining operations in the last week of January. after getting all the necessary permits and approvals and continued to strip cut back 20 in the central pit. We are working with experts and the government to return to the waste dump development of the Lisi Valley, which will help us increase our tons per day mined going forward in the second half of the year. Coompto worked closely with the government officials and to date has been successful in managing the negative effects of COVID-19. Specifically, we reduced turnover at our camp, at our mine site, and postponed any non-essential work. But it did not overly affect our activities. Coomptor did generate $96 million of free cash flow in Q1. At Mount Milligan, we achieved a solid mill throughput average of...

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Slide 10, go over our operational key focus. So for 2020, we'll continue to work on improving our safety performance with a special focus on reducing fatality risks at QMTOR and throughout our operations. We will also further develop our critical controls improvement plan and controls over critical risk. At OXUT, we are ramping up the commercial production in mine tons crushed or placed on the heap and our ADR plant running at design. We are now near 100% of the planned construction. By the end of Q1, we did have 386,000 tons under irrigation and a very large stockpile of ore waiting for crushing and placement. But due to COVID-19, we did voluntarily stop mining activities on March 31 up until April 15. But we kept progress of putting ore on the heap and the ADR running during that downtime. At Milt Milligan, the spring melt commenced. We're getting robust water flow and it's all being collected into the TSF. For 2020, the Milligan team is focused on achieving consistent and improved mill throughput and recovery and getting a stronger handle on our mechanical availability of the plant. The operating team is also taking steps to improve our cost performance throughout the company. We are taking advantage of some of the lower commodity prices to build our inventories. At Milligan, we are flattening the organizational structure, scrutinizing rentals and all contracts, as well as improving mine productivity. KUMTOR is on track to deliver an updated 43-101 in the second half of 2020, converting measured and indicated resources into reserves and showcasing an extended mine life. Finally, we continue brownfield exploration plan to $32 million company-wide and at KUMTOR specifically $20 million for 2020. If you go to the next slide, slide 11, these are photos again of Aksut last fall. of the heap, leach pad, and facilities. Due to COVID-19, we voluntarily took a two-week shutdown at Auxoud, as indicated. We'll continue to stack ore and irrigate it and running the ADR plant. But on April 15, we did ramp back up to full mining production to normal activities. Now I'll turn the call over to Darren.

Thanks, Dan, and good morning, everyone. For those following on the slide deck, I'll be speaking initially to slide 13. During the quarter, Sentera recorded 374 million in revenue. This consisted of 299 million in gold sales, 33 million in copper sales, and 42 million from a molybdenum business unit. In the quarter, we sold 203 ounces of gold. 160,000 ounces are tripled to the Coomphill mine and approximately 40,000 ounces from the Matt Milligan mine, an overall 3% increase in gold sales compared to the prior year quarter. It should be highlighted that whilst gold production was slightly up at Matt Milligan compared to the prior year quarter, we were processing material with a 40% lower gold head grade at 0.37 grams per tonne. We also sell 20.4 million pounds of copper, the increase in copper production compared to the prior year quarter driven by mill availability. And net earnings of 20 million was recorded in the quarter. This included a 26.4 million non-cash adjustment to our closed site asset retirement obligation. The expenses associated with the movement in the underlying discount rate with reference to US Treasury bonds, there was no change to the underlying activity required to remediate the properties. The adjusted earnings after factoring in the non-cash asset retirement obligation expense was 46.4 million. The adjusted earnings per share for the quarter was 16 cents. Just move to slide 14. From a consolidated cost perspective, Sentera in the quarter recorded an all-in sustaining cost of $712 per ounce. At an asset level, Coomptor recorded an all-in sustaining cost of $644 per ounce, whilst McMilligan recorded an all-in sustaining cost of $901 per ounce for the quarter. Once Oxsut achieves commercial production, targeted in late Q2 2020, the company will commence reporting its all-in sustaining cost metric. For the quarter, Sentera generated $121 million in cash from operations and $77 million in free cash flow. As noted in the bottom left-hand table, Sentera transitioned during the quarter to a cash net of debt position of $58 million, with $558 million in liquidity. In the quarter, the company paid off its higher cost project financing facility associated with the Oxford mine. Cetera, at the end of Q1, elected to utilise the corporate facility as a precautionary measure to COVID-19, ending the quarter with total cash of 194 million. We expect to repay a significant amount, if not all, of the outstanding corporate facility in Q2. On slide 14, I would also refer you to the bottom right-hand chart. Some key cash flow commodity drivers of our business, gold obviously, and with copper down but only representing 10% of our consolidated revenue. Diesel and ULSD and Brent Index are a good proxy for our diesel price movement. The other important cash flow drivers not noted here are the Canadian Dollar and the Kyrgyz Som. They are favorably lower by 9% and 16% respectively. These overall key positive commodity and FX movements to our business are expected to be realised in subsequent quarters. Finally, we remain well positioned as we enter Q2 with a significant value on surface, notably at Comptor where we finished the quarter with 932,000 contained ounces of gold on surface in stockpiles, whilst at Mount Milligan ending the quarter with just under two concentrate shipments in inventory the concentrate on hand containing approximately 85,000 ounces of gold and 18.6 million pounds of copper. Given the financial strength of the company and current and projected performance from our three mines, the Sentera Board elected to declare a four cent Canadian dividend for the quarter. With that, I'll pass it back to Scott to close out.

Thanks, Darren. Just on slide 16. So just to wrap up, I think as we've reported, it was a notable quarter just in terms of the company-wide gold output profile and the low competitive oil and sustaining cost profile. In terms of the first bullet point here, you would note that we're maintaining our guidance for the year and guiding for gold production of up to 820,000 ounces of gold at oil and sustaining costs as low as $820 per ounce. I think the other key highlight this year is we're hoping to be increasingly showcasing our third operating gold mine, Oxert, in Turkey. And again, as we move forward over the course of this year, we'd be expecting to see progressive increases in terms of Oxert's gold output profile. I just want to highlight the second last bullet point. We're continuing to invest significantly in terms of our brownfield exploration programs. You would have seen earlier this year we've had a lot of success at Coomptor, specifically so where we reported that we've delineated an additional 3.2 million ounces of measured and indicated resources. One of the key objectives for this year that we're now working on is looking to prepare a new 43-101 technical life and mine plan for Coomptor, and with that initiative we'll be looking to bring a significant amount of this measured and indicated resource into reserve category. I'm hopeful that that's going to allow us to demonstrate and showcase an expanded open pit reserve mine life at Coomptor, which will be fantastic. The chart in the top right, I spoke to this earlier. We're in a good gold price environment. As Darren and I mentioned, we're seeing a very favorable economic environment just in terms of some of the devaluations that we're seeing in the exchange rates in terms of the jurisdictions where we operate. Likewise, in terms of the diesel fuel price environment, I think that positions us well in terms of our company-wide free cash flow profile as well as our profitability moving forward. With that, I'll look to wrap up the call there and move it into Q&A. So if I can pass the call over to Maria, our operator, please.

Thank you. If you would like to register a question, please press the 1 followed by the 4 on your telephone. You will hear a beep and plumb to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the 1 followed by the 3. Once again, to queue up for a question, it is 1 followed by the 4. We do have a question from the line of Daniel McConvey from Rossport Investments. Your line is open.

Good morning, everyone. Just so you know, I think a lot of people got booted off the webcast about 15 minutes into it. Two questions. I guess the first one is mainly for Dan. Dan, at Comtour, can you give us some more detail just what the situation is with COVID in the country and at the mine site? And for new people coming in, can you go with the quarantine system, et cetera, right now?

Certainly, Daniel. Actually, this country has done very well. They did go into a state of emergency in three of their cities where we have won our head office. But in the region where our mine is, there was no cases of COVID. And in the regional city there, it only hit a peak of about six cases. So we did lock down our employees for four weeks minimum. Some stayed a little longer. And then we've started doing shift changes by bringing people into quarantine and then bringing them up to the mine site after a period of time. But all of those were coming from areas where there was no virus. So we've been very fortunate at the Coombe Tour mine to operate substantially normally. We did reduce some activity just so we wouldn't have to bring in full complement of people. But we did stop all expats travel in and out. But that was back in early February. And we continue to monitor it very closely. We're just now starting to look at testing people that are from the city of Bishkek, because we have a number of technical experts, and we're looking at utilizing the government tests that take about three days to get the results back. And if people test negative, then we would put them into quarantine for one week and then let them go to the mine site.

Where do you quarantine them, Dan? Do you quarantine in the city or up at the mine site? Where do you do it?

Well, both. For the ones that we were quarantining early on in the first, say, six weeks of the epidemic, we were doing it down at the lake. It's about an hour and 20 minutes from the mine site and just at resorts and putting people in groups of about 20 to 30 in different resorts.

Okay, thanks.

Now that we're doing testing from the city.

Okay, that's great. Thank you. Second question, Scott, for the technical report coming out on Comptor. It should add reserves, et cetera, from the resources. Could it significantly change the mine plan over, say, the next five years, two and three years? Or is it mainly going to be beyond the current mine plan?

Yeah, thanks for that question, Daniel. Dan, do you want to take that question?

I certainly can. Daniel, the... The current 43-101 that we're running on sees us mining at full activity until 2023 and then feeding stockpile ore, dropping down until 2026. With the additional of ore, the goal is to run at the state we are now and add additional life to the mine. It would affect the next five years because of those latter years in 2023 onward.

Okay, but not necessarily the next three years much.

Our goal is to stay at our current level or thereabouts.

Okay, great. Thanks, and congratulations on a great quarter.

Thank you. There are no further questions at this time.

Okay, thank you, operator. Thank you, everyone, for joining the call. I know it's a busy day, lots of other results coming out, and we have our annual general meeting later this morning, so we wish to thank you for participating, and if you have further questions, we are all available by email to answer those questions. Thank you.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.