Centerra Gold Inc. Common Shares

Greetings and welcome to the Q1 2023 results conference call. During the presentation, our participants will be in a listen-only mode. Afterwards, we'll conduct a question and answer session. At that time, if you have a question, please press the 1 by the 4 on your telephone. If at any time the conference needs to reach an operator, you may press the start, followed by the 0. As a reminder, today's call is being recorded Monday, May 15, 2023. I would now like to turn the conference over now to Toby Caron, Treasurer and Director of Investor Relations. Please go right ahead.

Thank you, Operator. Welcome to Sentara Gold's first quarter 2023 results conference call. Please note that presentation slides are available on Sentara Gold's website to accompany each speaker's remarks. Today's call is open to all members of the investment community in media and listen-only mode. 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. Joining me on the call today are Michael Parrott, Chair of the Board of Directors, Paul Tamori, President and Chief Executive Officer, Paul Wright, Director and former Interim President and Chief Executive Officer, and Darren Millman, Chief Financial Officer. Our Chief Operating Officer, Paul Charron, is traveling and unable to attend. I would like to caution everyone that certain statements made today may be forward-looking statements, and as such, are subject to known and unknown risks, which may cause our actual results to differ from those expressed or implied. Also, certain of the measures we will discuss today are non-GAAP measures. Please refer to the description of non-GAAP measures in our news release and MD&A issued this morning. For a more detailed discussion of the material assumptions, risks, and uncertainties, please refer to our news release and MD&A along with the unaudited financial statements and notes, and all of our other filings, which can be found on Cedar, Edgar, and on the company's website at SinterraGold.com. And now I'll turn the call over to Mike.

Thank you, Toby, and good morning, everyone, and thanks for joining our call this morning. My purpose here today is twofold. First, on behalf of the board and all shareholders, I'd like to express our appreciation to Paul Wright for his leadership of Sinterra, as the interim president and CEO over the past eight months. As you know, Paul was appointed to the position in September of last year, and since then, he's been extremely busy. Under Paul's leadership at the Oxit mine, we completed the construction of the retrofit of the ADR plant. We've obtained several important outstanding permits. We filed a new environmental impact assessment, and we've advanced materially towards its restart of operations. At the Mount Milligan mine during his tenure, we completed a new life of mine plan, which extended the life of Mount Milligan by four years until 2033. From a business perspective, Paul streamlined the corporate organization. He's actively been engaged communicating with our shareholders, the approach to our near-term challenges, and outlining the strategy of growth as we move forward. During this time, we also implemented a normal course issuer bid, which has provided us with a second option for returning cash to shareholders. And Paul also has provided great insight and assistance to our new CEO while he goes through his onboarding process. Paul has now returned to his role as independent director of Sentera, and shareholders will continue to benefit from his experience, insight, and input at the board. My second important duty this morning is to welcome Paul Tamore as Sentera's new president and CEO. Paul started with Sentera on May 1st of this year. Many of you already know him, but for those who do not, he brings over 25 years of experience in mining, engineering, construction, and corporate development. With his extensive technical background and proficiency, we are confident that Paul Tamore is the right leader for the company. This is an important stage for Sentera and its journey as a company, and we are delighted to have Paul join us at this time. Welcome, Paul, and with that, I'll turn the call over to you.

Thanks very much, Mike, and good morning, everyone. It's only been a couple weeks, but having spent time with our corporate and site teams and having had a chance to visit Mount Milligan, I'm excited for the future of the company. Over the weeks and months ahead, I look forward to visiting Uxsut and our U.S. assets, as well as engaging with our many shareholders and other stakeholders. I know a lot of our investors and analysts are eager to hear what the strategy is going forward, And given my brief time in the seat, I can offer a roadmap of what the company's short-term focus will look like over the next 100 days or so. Here are some of those highlights. First and foremost, our top priority will remain a focus on safe and environmentally responsible operations. Next, we will continue to drive operational and technical improvements in Mount Milligan with a focus on delivering the newly optimized life of mine plan. Finally, pending regulatory approval, We expect to ramp up safe and environmentally compliant operations at Uxsut and to realize near-term cash flow through the drawdown of accumulated inventories. Shifting to our development assets, in light of strong molybdenum prices and an assessment of profitability and cash flow potential in Angola, our objective is to advance an articulated strategy for the entire molybdenum business. At Goldfield in Nevada, we will continue to advance technical studies and exploration work with the objective of delivering an initial resource by the middle of 2023. And finally, we will advance study work at ChemEth with the objective of determining the asset's position in the overall portfolio. Moving on to the quarter, the company reported a first quarter production of 33,000 ounces of gold and copper production of 13 million pounds. The production results were impacted by several factors, mainly driven by lower grade due to plant sequencing and mine lower plant throughput due to a plant maintenance shutdown, and issues surrounding the handling of material throughout the winter months. Darren will speak in more detail as to the Mount Milligan results and provide an update on the Oaks Creek mine later in the call. The company continues to evaluate strategic options for the molybdenum business, including a potential restart of the Thompson Creek mine based on the long-term outlook for strengthening molybdenum prices. As mentioned, I intend to visit the Mali assets in the coming weeks and look forward to learning more about the operations. Meanwhile, the work being done on PFS for a potential restart of the Thompson Creek mine is on track. At the Goldfield project, drilling was significantly advanced in the first quarter, and the company expected to deliver an initial resource by mid-year. There are a number of ESG initiatives that Sentara is working on. As I continue to grow my knowledge and understanding of all the good work underway, I'll certainly be able to provide more detail. That said, today I'll touch on a few highlights. First, as mentioned, is safety. A number of sites achieved safety milestones this quarter. Milligan achieved 1 million hours without an LTI, and Thompson Creek achieved one year without a reportable. Second, after having completed the full rollout of the responsible gold mining principles last year, Sentara is on track to receive its full conformance report, which will be integrated into this year's annual ESG reports. And finally, Sentera continues to make progress on the development of its climate strategy, aligned with recommendations from the Task Force on Climate-Related Financial Disclosures. And with that, I'll pass the call over to Darren to walk through our operational and financial highlights.

Thanks, Paul, and good morning all. For those following on from the WebEx, I'll be initially speaking to slide 8. The Mount Milligan mine produced 33,215 gold ounces and 13.4 million pounds of copper. Due to mine sequencing, the first half of the year was expected to be lower grade ore, with Q1 being the lowest and higher grades are expected in the second half of the year. There were, however, several additional factors that impacted Mount Milligan's production in the first quarter. Phases 7 and 9 are on the outer edges of the ore body where the transitional zone between oxide and sulphide ore was larger than expected, resulting in lower grades and low grade stockpile required in its place. The lower grade ore caused lower metal recoveries and we encountered some material handling challenges in the plant throughput in the winter months. We are currently transitioning deeper in the transitional zone and these areas we do not expect this to continue. There was also a planned mill shutdown in February and our next major shut will occur in August. You will note in the bottom table far right column, the column head grades was 0.17 in the quarter, a 10% decrease from the fourth quarter of 2022. The gold The gold head grade's process was 0.34 grams per tonne, a 28% decrease in grade compared to the first quarter of 2022. On a positive note, the mine material movement was on plan, and as a result, we remain on track to access the higher grade copper and gold ore in the second half of the year. In Q1, the Macmilligan team mined 11.3 million tonnes of material, an 11% increase compared to Q4 2022. Due to lower than planned metal production during the first quarter, we now expect the 2023 gold production to be near the low end of guidance, while 2023 copper production is tracking towards the midpoint of guidance. As mentioned earlier, Mt Milligan's mines' 2023 gold production and copper production is expected to be back-end weighted, driving a higher proportion of concentrate sales in the fourth quarter of 2023. The company anticipates that approximately 30% to 35% of concentrate sales will occur in the fourth quarter of 2023. In Q1, cash provided by and free cash flow from mine operations was $28 million and $25 million, respectively. Gold production cost was $1,124 per ounce, and oil and sustaining cost on a by-product basis was $914 per ounce. On the exploration front we continued drilling and anticipate an updated resource this year that will include assay results from nearly 50,000 metres completed in 2022. I'll now be speaking to slide 9. On slide 9 we provide an operational update for the Oxford mine. The regulatory review of the Oxford mine's EIA remains on track. The company completed its technical review meeting with local authorities at the end of March and posted its EIA for public comment in late April, with no significant comments received. With all review steps now complete, the EIA has been submitted for final ministry approval. The mercury abatement retrofit at the ADR plant was completed in January. This system was tested in March under the supervision of Turkish authorities. 2023 mining activities at Oxford will be focused on Phase 5 wall pushback to expand the Kiltepi Pit and continuation of mining in the Kintepi Pit. Waste stripping was also restarted in the quarter, which is to be capitalised. As of March 2023, all processed into stored Gold and Carbon inventory is approximately 100,000 recoverable ounces. with an estimated additional 200,000 recoverable ounces on the heat bleach pad and in stockpile. I'll be now speaking to slide 11. Sentera recorded $226 million in net revenue during the quarter, consisting of the Mount Milligan mine and the Malibu Business Unit. No revenue was recorded at the opposite mine. At the Mount Milligan mine, gross gold sales and copper sales were $56 million and $52 million respectively. In the quarter, Mount Milligan sold 38,990 ounces of gold and 15.3 million pounds of copper. The average realized price was 1,446 per ounce of gold and $3.42 per pound of copper. This incorporates the existing stream over the Mount Milligan mine. The cost associated with the Oxford stored gold and carbon inventory is approximately $450 per ounce, which has been capitalised to the current asset within inventory. At the molybdenum business unit, approximately 3.3 million pounds of molybdenum was sold, generating $116 million with an average market price of $32.95 per pound of molybdenum. I'll now be speaking to slide 12. The net loss from continued operations was $73 million in the quarter, with $53 million in adjusted net loss recorded. The earnings in the quarter attributable to operations were $9 million positive contribution from the Mount Milligan mine, as noted earlier, lower production in Q1 as expected compared to preceding quarters and minimal operating capital expenditure to the construction tailing storage facility, a $10.8 million loss from the Milligan mine was recorded, including $7.8 million in standby costs, $26.3 million loss from a limited business unit was recorded, and $11.7 million in evaluation costs of golfers was recorded, with the front-end expenditure as we planned to deliver a mineral resource update in mid-year. For the quarter, there were two adjusting items. Reclamation expense and care and maintenance cost of $15 million associated with underlying rehabilitation and discount rates applied. A $5 million tax expense resulting from the introduction of a one-time income tax levered by the Turkish government on taxpayers eligible to certain investment certificate benefits in 2022. Production costs capitalised to the storage facility step out in the first quarter was only $300,000. which is on the lower end than usual quarter through the timing of step-out activities. The company expects total production costs capitalized to the TSF for the full year to be in the range of 12 to 14 million as a step-out activity return to more normal levels in future quarters. Now we'll be speaking to slide 13. Cash used in operating activities by operations was approximately 100 million for the quarter and 105 million free cash flow deficit in the quarter. During the quarter, the molybdenum business unit used 76 million in cash. This was primarily a build-up of working capital of 66 million. The increase in working capital was driven by both an additional 0.8 million molybdenum pounds held in inventory at the end of March, together with an underlying average molybdenum price increase to $32.95 in Q1, compared to $21.49 in Q4 2022. representing a 53% increase in underlying price. As noted in the MD&A, the Mount Milligan mine recognised $28 million in positive operating cash flow and $25 million in free cash flow for the quarter. Given no sales occurring in the opposite mine in the quarter with operations using $24 million of Treasury, this was in line with guidance of $7 million to $10 million in cash expenditures per month until operations recommence. As you will see in the graph on the lower right table, total working capital balance at the end of the quarter was $255 million, a $60 million increase compared to the end of December 2022. As discussed earlier, this is materially driven by the increase in the Molybdenum business unit. We expect this to reduce to normalised levels if current Molybdenum prices stay stable in Q2 and Q3 of this year. The company has exited Q1 with a cash balance of $412 million and over $800 million in liquidity. Given our strong financial position, the Board declared a quarterly dividend of $0.07 per share. Finally, I would like to end by thanking Toby Curran, our Director of IR. At the start of 2022, Toby took on both Treasury and IR responsibilities. 2022 was an extremely busy year at Sentera as the company transitioned away from the KR. His commitment to both the company and responsiveness to analysts and shareholders was highly commendable while continuing to oversee Treasury. Toby continues to be a key member of the engagement team and now be focusing on Treasury and risk management strategies of the company. At this time, I would also like to welcome Lisa Wilkinson, our new VP of IR and Corporate Communications. That concludes our prepared remarks. Moderator, please open the call for questions.

Thank you very much. And if you'd like to register a question, please press the 1 by the 4 on your telephone. You'll hear a three-tone prompt to acknowledge your request. If your question has been answered, I'd like to draw your illustration. It is the 1 by the 3. Once again, on the phones, any questions or comments you may have, you may do so now by pressing the 1-4 on your telephone keypad. One moment, please, for our first question. And our first question on the line is from Mike Parkin with National Bank. Go right ahead.

Hi, guys. Can you just speak to some of the moving parts that resulted in the off-ex reported at Langlois being up significantly, kind of 30-plus million quarter over quarter? Well, I'm noticing it was kind of like 88 in the fourth quarter. I've noticed it's been climbing, is it? Just, you know, any kind of color in terms of what's driving that and where you would expect it to kind of trend going forward.

Hey, Mike, it's Darren. Thanks for the question. When you look at Q4 2022, you know, the inventory levels remain, you know, relatively the same. We did have a $0.8 million increase in inventory. But the big driver is purely price. You know, for... Molybdenum topped in Q4 at approximately $38 a pound. It's come down to $22. We do a mark-to-market at the end of every quarter, so we see that being released in Q2 and in Q3, so we don't see it continuing on. We've given guidance in our disclosures for the malignant business unit or the total business unit range between 45 to 80 million. So that large range represents basically going from $20 to up to $35 a pound. It's important just to highlight that Langloft is really the business unit that has these swings and unfortunately we can't lock in hedging for that. As part of our, you know, it's great when multi-prices are up and obviously makes the economics more attractive, you know, looking at the underlying business unit of Thompson Creek, but it does impact our working capital at Langwell. So as part of the review that we're looking to present to the market in Q3, we'll be looking to see whether we need to make some changes also at Langwell.

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

I think the team, from an exploration perspective, I'd speak to that first. So we had 50,000 metres of drilling in 2022 that hasn't even been incorporated into the technical route we reported last fall. So whether we can, what we've seen potentially can potentially increase the mine plan. Does it? Does it allow us to bring forward some further high-grade zones? So that's something we're looking at in 2024 and 2025. At the moment, we're not looking at any significant capital expenditure for adjustments into the mill. As you know, we completed the SFR last year. We're seeing the benefit of that and obviously looking to capture a full year of those potential increase in recoveries. But the team also is focusing on blend and ensuring we're getting that right blend of the high gold, low copper and the low copper, high gold. So we're just really focusing on those pieces at the moment. There's nothing over and above. those items at the moment. But obviously with Paul T and Paul C working together, you know, I'm sure there's some low-hanging fruit that we're getting after next year.

Okay. And what's the word on Ox that in terms of like, is it the elections in country that are kind of taking up ministry time and you'd expect a response with the resolution of the elections or just any kind of additional color you can kind of provide on the process of getting that EIA approved.

We'll pass that one on to Paul Wright, please. Yeah, certainly, Paul. Yeah, Michael, just, I mean, very quickly, I mean, we've been making good progress as it relates to bringing oxygen back online in terms of advancing the the process completing construction of the mercury abatement system, having that tested and approved on inspections by Minister of Environment. The EIA document, which is obviously an important document, precursor to being able to obtain ministerial approval, was advanced. The posting period, the public posting period, concluded April 30th, and it was a bit of a non-event early last week. we received acceptance of the EIA report by the ministerial environment. And we're now into the point of basically attaining ministerial, uh, approval, which will conclude with the granting of a certificate. And, you know, as I described, uh, the precursor to that was obviously the acceptance of the EIA, uh, allowing us to move forward with the, with the request for ministerial approval. But at, um, came up against the early elections, the elections which were held yesterday. And as you can appreciate, the week before elections, it's difficult to get ministerial attention to these matters. You know, we're optimistic with the first round of election behind us and with the government still in place pending second round that we will be able in the coming weeks to be able to complete the task and obtain the certificate and move forward with the local authorities to bring them by and Again, it's been a successful process as it relates to the EIA, and we can continue to have very strong local support for the restart.

Yeah, it definitely looks like you guys are making great progress, and there doesn't seem to be a lot of opposition at all, voice. In terms of just how the ministry works with respect to elections, is the ministry in place yet? expected to stay in place or would there be a new ministry appointed regardless of the outcome of the presidential elections?

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

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

Thank you very much. And once again, on the phones, if you'd like to ask a question, it is the 1-4 on your telephone keypad. And our next question on the line is from Anita Soni with IBC World Markets. Go right ahead.

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

Hi there, it's Darren. No, we just purely front-end loaded the expenditure on Goldfield, and we're not expecting those expenditures to continue at that level.

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

Yeah, so we've got the benefit of, you know, copper hedging we've got in place. So we've obviously copper, you know, trading below the three or below the four. So we've got some offset there. We do the capitalization of costs associated with the TSF. So in Q1, we had basically zero costs capitalized. When you look purely at production costs, it's kind of a you know, doesn't represent the right picture. We haven't had any increases in cost on a normalised basis. It's, you know, 10 to 12 or 12 to 14 million will be a credit to cost as we go through to Q2 through to Q4. So they're the bigger ones. You know, obviously we've got some, you know, we may sort of shift around some, you know, non-essential capital, but, you know, at this stage, you know, we feel we'll be within the guidance provided by...

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

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

So what is that exactly?

So it will be towards the shutdown. We've also got all the maintenance, you know, plans of the main shutdown. There's also some replacement parts, as you'd expect, on all the fleets and, you know, just up to their timeline of refit. So, you know, nothing major. It's happening just normal course.

Okay.

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

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

Well, I think the first step for us is going to be to update the market with the new resource statement. So as I said earlier, we've got 50,000 meters worth of drilling to be incorporated. So once that has occurred, I think then the team will then you know, re-look at the mine plans and sequencing. I don't see what I know, but obviously Paul T and Paul C will need to dig in further, but I don't see any large capital expenditure even at these current prices. But I think it's just going to be tweaking the mine plan and obviously in an ideal world, convert some of these potential resource updates into reserves. So no, nothing material coming at this stage.

Okay, thank you. That's it for my questions.

Thank you very much. We have no further questions on the line. Please continue with the presentation or any closing remarks.

Well, we'll conclude the conversation there and thank everybody for joining in and we look forward to meeting you in person in the coming weeks and months and we'll see you soon. Thank you.

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