Centerra Gold Inc. Common Shares

Thank you for standing by. This is the conference operator. Welcome to the Sentara 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 questions. To join the question queue, you may press star then 1 on your telephone keypad. Should you need assistance during the conference call, You may signal an operator by pressing star, then zero. I would now like to turn the conference over to Lisa Wilkinson, Vice President, Investor Relations and Corporate Communications with Sentara Gold. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to Sentara Gold's third quarter 2023 results conference call. Joining me on the call today are Paul Tamori, President and Chief Executive Officer, Paul Charan, Chief Operating Officer, and Darren Millman, Chief Financial Officer. Our release yesterday details our third quarter 2023 results. This should be read in conjunction with our MD&A and financial statements, both of which can be found on CDAR, EDGAR, and our website. All figures are in U.S. dollars unless otherwise noted. Presentation slides are available on Sentara Gold's website to accompany this webcast. Following the prepared remarks, we will open the call for questions. 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&A issued yesterday. I will now turn the call over to Paul Timore.

Thank you, Lisa, and good morning, everyone. Sentara had a very strong third quarter with significant free cash flow generation, driving a substantial increase to our cash balance. Upsuit outperformed our expectations, producing almost 87,000 ounces in the quarter. Our 2023 Consolidated Gold Production Guidance remains on track between 340,000 and 360,000 ounces, and we expect to continue to generate significant free cash flow in the fourth quarter, further increasing our cash balance by the end of the year. Paul Chowron will speak to our operations in more detail a little later, and he will speak to the adjustments to the site-level production guidance of both Oak Street and Mount Milligan. In September, we rolled out our Value Maximizing Strategic Plan for our portfolio of assets. As part of this plan, we announced positive economics for the Thompson Creek mine restart, while simultaneously initiating a process to evaluate all strategic options for the Molybdenum business unit. At Mt. 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. In line with our commitment to sustainable and responsible mining practices, Sentara published its 2022 Annual ESG Report in the third 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 through 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 performance in the quarter.

Thank you, Paul. On slide five, we show operating highlights at Mount Milligan for the quarter. The Mount Milligan mine produced over 39,000 ounces of gold in the third quarter, in line with last quarter, and produced 15 million pounds of copper, almost 10% higher than the last quarter. There was some residual or waste transition zone material mined in the third quarter, and recoveries were impacted by the elevated ratio of pyrite to chalcopyrite. 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. Our Mount Milligan production guidance for 2023 has been adjusted due to lower than planned gold recovery from the elevated pyrite to chalcopyrite ratios and lower production experience in the first half of the year due to mine sequencing. We are now expecting gold production at Mount Milligan to be between 150 and 160,000 ounces, down slightly from the low end of the 160 to 170,000 ounces announced previously. Our copper production guidance remains at 60 to 70 million pounds and is expected to be near the low end of this range. In the third quarter, gold production costs were $1,050 per ounce, and all in sustaining costs on a byproduct basis were $1,150 per ounce, 16% and 28% lower than last quarter, respectively. All in sustaining costs were lower quarter over quarter due to higher gold ounces sold, lower gold production costs 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. Gold production costs for the full year are now expected to be between $1,050 and $1,100 per ounce, and all in sustaining cost guidance is now expected to be $1,175 to $1,225 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 at the Mount Milligan Mine in collaboration with local communities. On slide six are the operating highlights that are to. Third quarter production was over 86,000 ounces which exceeded our expectations during the ramp up of operations. 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 third quarter, full-year 2023 production guidance at Ergsut has been increased to 190 to 200,000 ounces of gold. Gold production costs and all-in sustaining costs on a byproduct basis in the third quarter 2023 were $445 per ounce, and $582 per ounce, respectively, due to accruals from inventory buildup. As a result of the increased gold production outlook at Ergsuit, we are lowering our gold production cost and all in sustaining cost guidance for 2023. We now expect full-year gold production costs to be in the range of $425 to $475 per ounce, and all in sustaining costs to be in the range of $625 to $675 per ounce. To wrap up, I'd like to commend the ArcSoup team for achieving 2 million 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.

Thanks, Paul. Slide 7 details our third quarter financial results. Centera had a strong financial performance in the third quarter, with net earnings of $61 million, or $0.28 per share. There were several adjusting items in the quarter, including $23 million of reclamation provision re-evaluation recovery. $2 million unrealised foreign exchange gains relating to the reclamation provisions at the NDACA mine and the KEMES project, and $9 million of deferred income tax expense resulting from the effect of foreign exchange rate changes on monetary assets and liabilities in the determination of taxable income related to OPSUT and Matt Milligan. As a result of these one-time items, adjusted net earnings in the third quarter were $44 million or $0.20 per share. In the third quarter, sales were 130,973 ounces of gold and 15.4 million pounds of copper. Gold and copper sales were higher than production in the quarter, mainly due to timing of shipments. The average realized price was $1,741 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 third quarter, approximately 2.7 million pounds of moly was sold at an average realized price of $24.08 per pound, generating revenue of 68 million. In the third quarter of 2023, additions to property, plant and equipment and total capital expenditure were 25 million and 24.6 million respectively. At Mount Milligan, we expect elevated capital expenditure in the fourth quarter. Consolidated all-in sustaining costs on a by-product basis for the quarter were $827 per ounce. At Oxy, we processed all of the stored golden carbon inventory, which had a minimal cash processing cost to convert to DORE bars. As mentioned earlier in the call, we have adjusted our 2023 production guidance at mine site level to reflect year-to-date performance and expectations for the fourth quarter, but with no overall financial impact As a result, our consolidated oil and sustaining costs for the full year is unchanged and expected to be in the range of $1,000 to $1,050 per ounce. Moving to the next slide. Slide 8 shows our financial highlights for the quarter. In the third quarter, we generated significant free cash flow driven by strong performance at Oxud. Cash provided by operating activities was $167 million in the quarter. and free cash flow was $144 million. At the Molybdenum business unit, approximately $16 million of investment in working capital for the first quarter was released during the third quarter. The Molybdenum business unit generated $9 million in free cash flow in the third quarter. At the Mount Milligan mine, cash provided by mine operations and free cash flow were $36 million and $25 million respectively in the third quarter. At OXU in the third quarter, the mine generated $144 million in cash from operations and $134 million in free cash flow. In the fourth quarter, in addition to the continued free cash flow generation we expect from our operations, a payment of $25 million 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. Sentera ended the third quarter by growing the cash balance by $90 million to $492 million. In September, we extended our $400 million revolving credit facility with a renewed four-year term maturing on September 8, 2027, which is currently undrawn. This provides us with total liquidity of $890 million. 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.

Thanks very much, Darren. The third 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 fourth quarter and further increase our cash balances. We're optimistic about the future of Sentera 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.

Thank you. We will now begin the question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then 2. We will pause for a moment as callers join the queue. Our first question comes from Anita Soni of CIBC World Markets. Please go ahead.

Hi, good morning. Thanks for taking my call. So my first question would be with respect to the Malibu and business unit guidance that you've put out. So I can see that, you know, you're talking about low angle off facility, working capital, incremental investment is 15 to 45 million. And year to date, you've spent about $15 million. So am I correct in thinking that that's going to consume about $30 million in the fourth quarter? Or like, what does that, the fact that you've maintained that broadband of the top end at 45 mean?

Yeah, Anita Hart's Darren here. It's just purely the Melisandre price, as you know, can move significantly, and we saw that in particular in Q1. So we're not expecting any cash outlay in Q4. Actually, we're hopeful even a return of that working capital, given the price has come off a little bit compared to Q3. So I wouldn't be expecting significant outliers. Just simply the range we provide within guidance is quite large.

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

That's right.

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 for the MDNA, but you basically said that recoveries are going to be the same as 2023, which is lower on copper, as I can see, than your prior forecast. You know, 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 that means that the grades are higher in gold, and copper grades are lower. And then also, what does that mean to the the strip ratio with the sequencing of the phases that you have there.

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. And the real challenge there is the amount of gold that we can feed in, which a lot of it, not all of it, but a lot of it is associated with pyrite. and the circuit is built to recover chalcopyrite. 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 2023.

And so that's related to the grades and what you were... I guess my question was... 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 above what we say. And we are looking at incremental improvements as well in 2023.

Okay, and then the final on that was what kind of strip ratios relative to what you delivered this year?

Approximately the same as what we're seeing this year. Basically, we have a fleet, and we optimize material movement of the fleet. We'll be somewhere in the range of 50 million tons for this year. We can expect about the same. And we take advantage of the sequencing. We take advantage of the waste material movement to be able to build the dike our annual tailings live. So approximately the same. And we don't minimize the strip ratio. We utilize the fleet.

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

Once again, if you have a question, please press star, then one. Our next question comes from Mike Parkin of National Bank. Please go ahead.

Hi, guys. Congrats on the good quarter. This question is more geared towards probably Darren or maybe Paul, but Just looking at slide six on AUX, the ASIC guidance of 625 to 675, that would include, well, I guess the same for the gold production cost, that would include a fairly significant non-cash inventory expense, would it not?

Yeah, so for Q3, Mike, all the inventory that was previous cost built up and cash incurred in previous quarters, that was largely released in Q3. As we get into Q4, we will see some higher processing costs, like true cash costs, but it's still minimal in the context of the significant inventory build-up. So, yeah, higher cash costs to convert the inventory compared to the gold and carbon, still relatively low, and we do expect a reduced overall oil and sustaining cost at OXUT for the final quarter, given where we're at year-to-date.

Do you have an idea of, in millions of dollars, what the working capital adjustment for OXUT would be, roughly, for fourth quarter?

Yeah, if you refer to the financials, it's pretty much all that large increase from inventory level is coming from that movement in oxidimetry.

Okay. Thanks very much, Guy.

Once again, if you have a question, please press star, then 1. Our next question comes from Brian McArthur of Raymond James. Please go ahead.

Good morning. So I'd just like to follow up on the last question. Is there anything in OXUS, 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 cost, 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 got for 2024 as far as cash liberation from OXUS?

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 with Paul. You can perhaps elaborate on that.

Yeah, 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. But we are – it was an excellent startup, and we're very pleased with the operations to date.

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

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

Perfect.

Thank you very much.

The leach solution grades remain high, and they're going to be coming down as for the plan.

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

Once again, if you have a question, please press star then 1. 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.