Centerra Gold Inc. Common Shares

Thank you for standing by. This is the conference operator. Welcome to the Centera Gold first quarter 2024 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 0. 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 first quarter 2024 results conference call. Joining me on the call today are Paul Tamori, President and Chief Executive Officer, Paul Charan, Chief Operating Officer, and Ryan Snyder, Chief Financial Officer. Our release this morning details our first quarter 2024 results. It should be read in conjunction with our MD&A and financial statements, both of which can be found on CDAR, EDGAR, and on our website. All figures are in U.S. dollars unless otherwise noted. Presentation slides accompanying this webcast are available on Sentara's website. 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. Certain measures we will discuss are non-GAAP measures. Please refer to the description of non-GAAP measures in our news release and MD&A issued this morning. I will now turn the call over to Paul Tamori.

Thank you, Lisa, and good morning, everyone. We delivered another strong quarter of operating performance, and we're on track to deliver our full-year guidance. We continue to generate significant free cash flow, and our cash balance increased by $35 million to end the quarter at $648 million. We remain on track to meet our guidance in 2024, and at Milligan, we continue to advance the site-wide optimization program, implementing tangible improvements in all areas of our operations. At Exit, as previously disclosed, we expect to have elevated production in the first half of the year. Paul Schauer will speak to our operations in more detail later in the call. Last year, we published our strategic plan that was focused on maximizing the value for each asset in our portfolio. Since then, we have worked diligently to execute on that plan. Specifically, in the first quarter, we announced an additional agreement with Royal Gold, which allows us to assess Mount Milligan's potential to be a multi-decade operation. This was a key first step in our strategy to realize the full potential of this cornerstone asset in the top-tier mining jurisdiction. At Exit, since the mine restarted full operation in June of 2023, we have generated three quarters of very strong free cash flow as we work through the elevated levels of inventory. The mine remains a strategic asset in our portfolio, and we believe that it will continue to generate positive free cash flow through its remaining mine life. We are focused on maximizing the value of our Malibu and business unit assets, comprised of the Thompson Creek and Indaco mines and the Langoloth metallurgical facility. Concurrent with assessing all strategic options for these assets, we recently completed a commercial optimization plan at Langoloth geared at increasing profitability and evaluating its future potential. We are encouraged by the value opportunity at Langelot, and we intend to provide additional details in conjunction with the Thompson Creek Mine Feasibility Study, which we intend to release later this summer. Finally, I'd like to provide an update on our ESG initiatives. As we advance our climate and nature strategy, our focus has now shifted to conducting site level investigations to understand, at a high level, or material exposures to climate and nature risks and opportunities. We will use this information to support strategic decision-making to identify feasible emission reduction pathways and initiatives. Meanwhile, we continue to maintain our commitment to our local communities by actively engaging in various partnerships, collaborations, and community-driven projects. This dedication is reflected in the positive impact observed in particular at the Ericsson where approximately 5,000 students and young athletes benefited from the diverse sporting collaborations facilitated by our site team. These notable initiatives were implemented in cooperation with the local government and to support youth in sports. With that, I'll pass the call over to Paul Charron to discuss our operational performance.

Thank you, Paul. I'd like to start with Mount Milligan safety performance. The operating team has embraced a site-wide optimization program which starts with continuous improvement to our safety performance. They have been fully engaged, which is demonstrated through onsite and in the field interactions focused on safety leadership. We have started 2024 with improved safety performance and are committed to our journey towards zero harm. On slide five, we show operating highlights at Mount Milligan for the quarter. Mount Milligan started the year strong, producing over 48,000 ounces of gold and over 14 million pounds of copper in the first quarter. Mount Milligan is on track for its full year production guidance of 180,000 to 200,000 ounces of gold and 55 to 65 million pounds of copper. As we've previously disclosed, both gold and copper production are expected to be evenly weighted throughout the year, but sales in the second half of 2024 are expected to contribute approximately 55% of the annual sales. In the first quarter, all unsustaining costs on a byproduct basis were $688 per ounce, 27% lower than last quarter due to lower sustaining capital spending and higher byproduct credits. We are starting to see benefits from the implementation of cost savings initiatives and production and productivity gains from the site optimization program. Looking ahead, we expect costs in the second quarter to be higher than the first quarter due to the lower percentage of annual sales in the first half of 2024, along with expected higher sustaining capital expenditures. Mount Milligan is still on track for its full year 2024 cost guidance ranges. After the agreement with Royal Gold was announced in February, we initiated a preliminary economic assessment at Mount Milligan to update the large resource to include all of the drilling completed to date, identify value-added initiatives to the plant, such as throughput and flow sheet modifications, and optimize the mine plan. As a reminder, in addition to the 250 million tons of reserves at Mount Milligan, we also have identified 260 million tons of resources, most of which have been classified as indicated, as well as significant additional drilled inventory which has not been incorporated into resources yet. We intend to incorporate these additional resources into an optimized mine plan to support a PEA. Our work on the study is progressing and we expect to complete the PEA to demonstrate an operating concept in the first half of 2025. During the first quarter, we have continued with our progress on the site-wide optimization program at Mount Milligan that was initially launched last year. This program has been focused on a holistic assessment of occupational health and safety, as well as improvements in the mine and plant operations. Notable achievements in the first quarter were observed in key areas of the operation that provided tangible results. A few highlights include an improved safety record including an increase in proactive safety interactions, fewer incidents and a much lower severity rate when compared to the same period last year. An increase in the mining fleet mechanical availability, utilization and overall productivity of the load haul cycle. These strategies have contributed to higher tons mined compared to the same period last year, while simultaneously lowering the unit operating costs. increased mill throughput per operating day due to consistent ore supply, renewed operating strategy of the flotation circuit, and equipment modifications installed during the plant shutdown. And finally, the plant has implemented strategies focused on increasing copper and gold recoveries. This includes real-time adjustments to the flotation circuit for improved stabilization with optimal grind sizing and throughput, producing a higher volume of gold copper concentrate with lower copper grades, as well as ore blending initiatives to improve the processing of elevated pyrite-bearing, high-grade gold, low-grade copper ore. Now moving on to ERTSUT. I would like to commend the site team for achieving 3 million hours without a lost time injury in January. Our top priority is the health and safety of our workers, and we remain committed to our journey towards zero harm. On slide nine, you can see the first quarter operating highlight tethered suit, which had another quarter of strong operating performance. First quarter production was over 63,000 ounces, and we are on track to achieve our full year production guidance with approximately 60% of the annual production weighted towards the first half of the year. This quarter, All sustaining costs on a byproduct basis were $823 per ounce, which is higher compared to the last quarter due to increased mining and hauling costs and higher weighted average costs per ounce in the remaining inventory, as well as lower gold production and sales. Ericssuit is on track to achieve its cost guidance ranges for the full year 2024. I'll now pass it on to Ryan to walk through our financial highlights for the quarter. Thanks, Paul.

Slide 10 details our first quarter financial results. First quarter net earnings were 66 million or 31 cents per share. There were several adjusting items in the quarter, including 25 million of reclamation provision revaluation recovery and 9 million of unrealized foreign currency exchange gains, among other things. As a result of these one-time items, Adjusted net earnings in the first quarter were 31 million or 15 cents per share. In the first quarter, sales were 104,313 ounces of gold and 15.6 million pounds of copper. The average realized price was 1841 per ounce of gold and $3.12 per pound of copper. Both of these incorporate the existing streaming arrangements at Mount Milligan. At the Molybdenum business unit, Approximately 2.9 million pounds of molybdenum was sold in the first quarter at the Langlois facility. This annualized throughput rate of approximately 12 million pounds represents utilization of approximately 30% of the facility's capacity. Consolidated all-in sustaining costs on a byproduct basis for the first quarter were $859 per ounce, and we remain on track to meet our full-year guidance for all production and unit cost metrics. In the first quarter of 2024, additions to property, plant, and equipment were $15 million, and total capital expenditures were $17 million. Sustaining capital spending at Mount Milligan was relatively low in the first quarter, but we maintain our four-year guidance and expect sustaining capital expenditures at Mount Milligan to increase throughout the year. Slide 11 shows our financial highlights for the quarter. In the first quarter, we continue to generate strong free cash flows. Cash provided by operating activities was $99 million in the quarter, and free cash flow was $81 million. In the first quarter, Oxsuit generated $101 million in cash from operations and $90 million in free cash flow. Mount Milligan generated $30 million of cash from operations and $24 million of free cash flow. The Molybdenum Business Unit as a whole used $7 million of cash from operations and had a free cash flow deficit of $7 million this quarter. This related primarily to activities at the Thompson Creek mine, as land loss operating cash flows were slightly positive for the Corps. Interest income was $8 million in the first quarter, which primarily includes interest on bank term deposits. We continue to generate significant interest income on our cash balance. In the first quarter, our cash balance grew by $35 million to $648 million, despite making the $24.5 million payment related to the additional agreement with Royal Blue. This provides us with total liquidity of over $1 billion and positions us 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. We were active on share buybacks in late February and through March, repurchasing 1.8 million shares for total consideration of $10 million in the first quarter. Returning capital to shareholders remains a key pillar in our capital allocation strategy, and we expect to remain active on the share buybacks dependent on market conditions. Looking ahead, the annual Turkish royalty payment relating to 2023 performance and the income tax payments related to the fourth quarter of 2023 and the first quarter of 2024 will be made in the second quarter of this year. We expect these payments to be approximately $105 million. As a result, our cash flow in the second quarter of 2024 will be impacted by these routine statutory payments. As discussed by Paul Charon earlier, Oxsuit continues to deliver strong operational results and we are on track to achieve our full year production guidance. Ignoring the timing impacts related to working capital movements, we expect strong cash flow from operations before working capital at Oxsuit in all quarters this year. I'll pass it back to Paul for some closing remarks.

Thanks, Ryan. Our site teams have worked diligently to deliver strong performance to start the year. Our focus remains on delivering safe and consistent operating results each quarter and to maximize the value of each asset in the portfolio. We expect it to continue to deliver our strategic plan that will drive future value and growth for Sentera over the remainder of 2024 and beyond. With that operator, I'll open the call to questions.

Thank you. To join the question queue, you may press star, then one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then two. The first question comes from Raj Ray with BMO. Please go ahead.

Thank you, operator. Good morning, Paul and team. My first question is on Mount Milligan, the optimization initiative that you've been working on. It seems like compared to last year, it's almost a 10% to 15% cost decrease in terms of part-time costs from both mining and processing. Can you comment on how sustainable this level of costs are? And do you expect to see further potential reduction in your unit costs and non-money? And then secondly, with respect to the Mali business unit, Can you comment on, I know you're working on a feasibility study, but are you also running a strategic process at this point, or will you wait for the feasibility study results to be out before you run a strategic process?

That's your point. Hi, Raj. I'll address the molybdenum question first, and I'll pass it to Paul for the amount-million-cost point. So with the molybdenum business unit, we have a three-fold program right now. Number one is advancing the feasibility study, and we're on track to deliver that. towards the end of the year. The second, and this was in the prepared remarks, is we've completed the commercial optimization program at Langelot that helped us establish a framework for contracts this year that improves the potential profitability of the roaster. And that's in preparation for the ramp-up associated with a potential notice to proceed on the mine. And third, as you pointed out, we continue to run a strategic process And that is advancing well, but as you could appreciate, a lot of that is tied to the results of the feasibility study and more detail being provided on both the mine itself and the operating model for Langloff, which we intend to do later this summer. So just to recap, threefold initiatives. One is completing the technical studies on the mine reopening plan. Continue to work on commercial optimization and contracting strategy at Langelot. And third is continue to advance the strategic process. So unless you have a follow-up on that, I'll hand it over to Paul on the Milligan cost question.

Okay. Thanks, Raj. Yeah, just in summary, we're very, very pleased with the progress of the, what we're calling the M plus program, uh, to put Mount Milligan, uh, into the upper quartile of, uh, of, uh, world-class assets. And that starts with the operations and, uh, we're seeing gains across the board, particularly in safety. Uh, the team is fully engaged, uh, and nothing really happens unless we work with that in terms of a hardcore cost savings. Yes. Um, Probably a reasonable number is around 10%. I'm cautious with actually saying a number just because it's an ongoing continuous improvement process. We've more or less completed wave one. We're in wave two now. There's a litany of continuous improvement initiatives that are working on the mine and the plant and all facets of the load haul productivity cycle, the operating costs, looking at some of our supply chain. recovery, reagent consumption, overall consumables with the steel, just on and on. So this is an ongoing process. If you take a snapshot, that's a reasonable estimate on where we're at, but we're continuing to focus long-term.

Paul, just to follow up on the process optimization, is there a target that you have with respect to where you... expectancy recovery gold and copper recovery go to based on the optimization initiatives you guys are working on?

There is, Raj, but it needs to be integrated with throughput gains to optimize that trade-off, the grind size, the overall recovery, some of the changes with the ore body itself. We have a geomant model we're working through, and so it is targets, but it's on a curve, so it's not just one hard number. And we are seeing significant gains. The other major aspect is we can improve our overall recovery by optimizing our sales. If we have lower copper concentrate, we actually can then improve our overall recovery. So there are definite targets, but it's not just one number.

Raj, I'll add a point here. The overall program is advancing significantly. We're very encouraged by the results, and I'd say that they're probably ahead of where we were expecting, and a lot of the gain is related to recovery, particularly understanding the ore body better and adjusting performance in the process plant on dosing and various times and set points to ensure that we maximize throughput and recovery. We're very happy with the results to date, and we expect to continue to deliver a gain there, but as Paul said, it's a very dynamic system. And so there aren't individual pinpoint answers on these questions.

Okay, that's good. Thanks, Paul.

The next question comes from Mike Parkin with National Bank. Please go ahead.

Hi, guys. Congrats on the solid Q1. Just following up on the laying loss, commercial optimization plan, what were some of the key kind of wins there that you're focusing on? Is that something that's, you know, it's booked in place or these are some improvements that we can expect to see going forward?

So the commercial model at Langoloff, just to remind, is we purchase third-party concentrates and then we sell final molybdenum product principally to steel producers. did a comprehensive review of how we enter into those contracts and establish minimum criteria for a contract to be acceptable so all new contracts that we awarded this year conform to that minimum acceptable framework that we have and the contracts we have now in 2024 set the basis for the profitability model we have at Langelot. So in other words, the contracts we've awarded this year are commercially more attractive than they had been in the past because we adhere to this minimum criteria. And given those contracts we now have in place with the roaster running at approximately one-third of ultimate capacity, by grossing that number up to include the feed that will come from Thomson Creek as well as further third-party material, we are very confident in the profitability of the roaster. I should add that the profitability of the roaster is not so dependent on the limited price. We basically clip a dollar per pound that is largely insulated from the prevailing spot price. So just to recap, we have a new framework for minimum acceptable contracts. We have implemented those. We are live on those contracts this year. And when grossed up to full capacity, yield a very profitable model at the roaster.

So if I go back to 2023, there was a big working capital hit. That's less likely to be an event going forward. That was all kind of dependent on just how metal prices shifted. You've recouped that working capital through the latter part of 2023. Will this new contract minimize that kind of risk of happening again?

We can't insulate fully against working capital movements because the working capital injection or release is driven by the molybdenum price associated with both the purchase of the concentrate contract and the sale of the final molybdenum product. We don't take very much price risk because the quotation periods are pretty closely aligned, but we do take working capital risk. So if we're buying a concentrate which has a high molybdenum price associated with it and then selling lower price, then we have that working capital movement. The reason there hasn't been a working capital movement over the last several months, and in any case not a substantial one, is that molybdenum has been roughly flat at $20 a pound. We will have working capital movements when there's a mismatch between the price established with the concentrate purchase and that associated with the sale of the final product. But those are transitory events. And as we saw last year, we had a big working capital movement into the roaster, and then it was in large part released through the rest of the year. Now, as we ramp up capacity utilization in the roaster, and if we do greenlight the Thompson Creek plan, a large portion of feed going to Langlois will be our own concentrate from Thompson Creek, with which there will be no working capital associated. So as we As we ramp up utilization on the roadster on a pound-for-pound basis, the working capital requirements will be lessened, though in aggregate terms, they will still be increasing. Okay.

That's great, Keller. Thanks, Paul. Just on the timing of sales versus production at Mount Millie, what is it that, you know, given that second half is out there, what is it that you know today that determines that your sales versus your production weighting is mismatched a bit? Is it just simply the no-win kind of shipment dates of the future freight?

Yeah, hi there. It is predominantly that. Our last shipment of the first quarter was right at the end of the quarter. And the way the boats are lining up, we'll likely have a shipment in early July instead of the end of June. And so when we look at our shipping schedule and everything tied to our concentrate and the number of boats you have, you have extra boats in Q3 and Q4, but not really in Q2. So you will see a bit of a step down in gold and copper sales. I think it's possible the shipment timing can move around a little bit, but what we're seeing right now is a slightly lower sales in Q2 and then stepping up in Q3 and Q4. But again, with pretty flat production quarter by quarter throughout the year. So it really is just a timing thing between June and July.

Okay. And then just sticking with Mount Milligan, your TCRCs and refining costs have generally shown to be pretty flat is that something you're expecting to continue going forward like on a us dollar per pound or per ton basis you're sitting in around 45 cents for the last few quarters fairly you know only a penny or two difference quarter to quarter is that something we could expect to go you know sustain going forward or some of this optimization might make um the concentrate

know tcrc's actually drop off a bit yeah i think you can you can view them as fairly flat we have a mix of contracts some are long-term trader uh smelter contracts some are trader contracts that are more based on spot tcrc's spot tcrc's for copper are very low these days and negative in some cases um but when you average that with with our benchmark prices on our longer term contracts it's averaging out to about that level i think when we look at concentrate in general And one of the points that Paul made, if we're able to sell a lower grade Coppercon, we may have more concentrate in total. And that may increase total TCRCs that we pay if we're shipping more concentrate. But it will be more than offset with increased recoveries and metal gains. And we've done that analysis. So I think through this year, looking at it as about flat quarter over quarter makes sense. But there may be some scenario where that moves up a bit in the future to get the full benefit of recoveries on board.

This is an important point, Mike, that the initiative that Paul referenced and Ryan elaborated on here is we have been trialing shipment of lower copper content in the concentrate, which drives better recovery. And there will be costs associated with that, higher TCRCs, logistics and warehousing. But the point is we've done these trials and we've seen improved recoveries in both copper and gold.

Okay, so it's a little bit of pain for a lot more gain. That's right, that's right. Okay, great. Thanks very much, guys.

Once again, if you have a question, please press star, then one. The next question comes from Anita Soni with CIBC. Please go ahead.

Good morning, Paul. A couple of questions. I think Mike has asked most of mine, but I just wanted to get an idea of how the CapEx plays out at both assets. There was a little bit of underspend this quarter, but I just wanted to understand, specifically at Mount Milligan, where is the capital spend? Would it be in the summertime in Q2 and Q3 and then tapers off in Q4, or how does it work?

Yeah, I'll speak first. Hi, Anita. And then Paul can chime in if he wants to elaborate. It's going to be quite heavy in Q2 and Q3. So a lot of the Milligan CAPEX is focused on the tailing storage facility, required lifts and activity there this year, as well as a pumping station for water. You couldn't really do some of those things in Q1. I would say the vast majority of the CAPEX at Mount Milligan is planned for spring and summer, with then Q4 trailing off a little bit. So modeling the majority of Milligan CapEx, say 75% of the year throughout the two middle quarters. OXFUD is a little more even. Q1 is pretty representative of what you'll see. There'll be little movements quarter over quarter, but that one's more even throughout the year.

And then the last one was all of the current Sorry, care and maintenance and religion and business unit capital. I can't remember exactly where it was, but there was some significant understand in some of that.

Yeah, so I think if we look at the Molybdenum business unit, the one capital item at Langloth is the acid plant shutdown, which is happening in Q2. It's happening right now. When we look at Thompson Creek, just a reminder, we've only guided the first half of the year. They did understand a little bit in Q1. We still expect their first half spending to be similar to what we have out there guidance-wise. And then we will re-guide the second half of the year when we put out the results of the feasibility study. So I don't think we're expecting big changes on Thompson Creek from what's out there through the first half.

Okay, that's it for my questions. Congrats on a good quarter.

Thank you.

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