Centerra Gold Inc. Common Shares

Thank you for standing by. This is the conference operator. Welcome to the Centara Gold third 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 one 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 Centara Gold. Please go ahead.

Thank you, operator and good morning. Welcome to Centara Gold third 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 yesterday details our third 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 our website. All figures are in US dollars unless otherwise noted. Presentation slides accompanying this webcast are available on Centara'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 yesterday. I will now turn the call over to Paul Tamori.

Thanks Lisa and good morning everyone. We continue to deliver consistent operating performance, producing over 93,000 ounces of gold and 13.7 million pounds of copper in the third quarter. We're on track to meet our consolidated production and cost guidance for the year. We benefited from margin expansion driven by stable cost performance in an elevated, mellow price environment. As planned, we've returned to strong free cash regeneration this quarter and even after spending approximately 32 million on the restart of operations at Thompson Creek, we grew our cash and cash equivalents to $604 million at the end of the third quarter. Over the last year, we have made significant progress delivering in our strategic plan aimed at maximizing the value of each asset in our portfolio. Earlier this year, we secured an additional agreement with Royal Gold, providing us the opportunity to evaluate Matt Milligan's potential for long-term, multi-decade operations. This marked an important initial step in our strategy to unlock the full value of this key asset in a top-tier mining jurisdiction. Work on the preliminary economic assessment continues and is expected to update the larger resource to include all the drilling completed to date, identify value-added initiatives to the plant, and optimize the mining plan. We expect to complete the technical study towards the end of the first half of 2025. In September, we announced the decision to unlock significant value in our U.S. and aluminum operations through the restart of operations at Thompson Creek, a progressive ramp-up of production at Langloch. We published the Thompson Creek feasibility study and Langloch commercial optimization plan, which combined have robust project economics at a conservative 8% discount rate. Combined, the U.S. aluminum operations expect to produce an after-tax NPV of $472 million and a 22% IRRR. Key contributors to this value is Langloch, which at full capacity and with the benefit of high-quality feed from Thompson Creek, has the potential to generate approximately $50 million of annual heavage up. There are two key value drivers that allow Langloch to potentially generate these robust cash flows. First is increased capacity utilization. At full capacity, the molyconcentrate process in Langloch is expected to consist of approximately one-third supplied by Thompson Creek and approximately two-thirds to purchase from third-party providers. With increased capacity utilization, Langloch will leverage its fixed costs, which should increase profitability and cash flow. The second value driver is vertical integration of Langloch with the Thompson Creek mine, which will produce one of the highest quality concentrates in the world. Langloch can blend this concentrate with lower-quality third-party concentrates, which is expected to lead to margin improvements. Also, the high quality of Thompson Creek concentrate enables Langloch to produce an increased volume of higher margin to final millimetre products. Capital investment required to restart operations at Thompson Creek is $397 million, which is expected to be spent over the next three years, with first production in the second half of 2027. With infrastructure already in place, capex is largely de-risked and is primarily related to stripping. We believe that the Thompson Creek capital investment could be funded mostly from cash flow from operations. As a result, we expect to maintain a strong cash balance, which can be deployed in line with our capital allocation strategy, shareholder returns, internal projects, and external growth opportunities. Our decision to restart operations at Thompson Creek and to progressively ramp up production on Langloch is a key milestone on the path to unlocking significant value in our mining assets. As we advance our U.S. mining operations, we are also focused on growing our gold exposure in the portfolio. In addition to the Man-Miligan PEA, which should showcase a significant mine life extension, we also have organic growth projects, Goldfield and Chem-S, in our pipeline. We continue to progress our work at the Goldfield project in Nevada and expect to release an initial resource, their year-end reserve and resource update in early 2025. At Chem-S, as previously mentioned, we will not be proceeding with the underground blockade project. Instead, we are evaluating alternative technical concepts for the resource. We remain optimistic that Chem-S could be a future source of gold and copper production. Finally, I'd like to touch on some ESG achievements in the quarter. As we continue to progress our climate and nature strategy, we are conducting cost-benefit analyses of decarbonization issues that have been identified at our sites. These efforts will guide our decision-making and help us to identify practical pathways for reducing GHG emissions. Our social preferableness team at Man-Miligan have been working hard alongside our First Nations partners and the local school district to develop equal opportunity employment and enhancement programs. These programs provide hands-on experience at our site, the ultimate goal of attracting future talent to the mining industry. We are also proud to announce a collaboration with our First Nations partners to revamp our pre-employment and training education readiness program, designed to remove barriers for Indigenous applicants in mining occupations by equipping them with relevant skills and facilitating apprenticeship placements. Lastly, I'm proud to announce that OXSOUTE has won 11 awards across three distinguished organizations for our efforts in social responsibility. These awards recognize our commitment to empower women entrepreneurs in our local communities by supporting the First Women's Cooperative established in the Devilly District. Through initiatives like this, we continue to strive to create a lasting positive impact. I'll now pass the call over to Paul Sharman to walk through our operational performance for the quarter.

Thanks Paul. I'd like to start with Mount Milligan's safety performance. The operating team continues to embrace the site-wide optimization program, which starts with continuous improvement to our safety performance. The site team has been fully engaged and -to-date, we have seen improved safety performance, particularly with the reduction in significant incident occurrences. On slide 8, we show operating highlights at Mount Milligan for the quarter. Mount Milligan produced almost 43,000 ounces of payable gold and 13.7 million pounds of payable copper in the third quarter. Gold and copper sales were up 46% and 21% respectively quarter over quarter, which was anticipated due to the timing of shipments. Metal production in the fourth quarter is expected to be slightly higher compared to the previous nine months due to expected higher mill throughput and gold grades. Our production guidance remains unchanged at Mount Milligan. With that said, our gold production is trending towards the lower end of the guidance range. In the third quarter, all in sustaining costs on a by-product basis were $1318 per ounce, higher quarter over quarter due to increased sustaining capex. We expect all in sustaining costs on a by-product basis to be lower in the fourth quarter compared to the second and third quarters, driven by higher expected sales and lower expected sustaining capex. Our Mount Milligan cost guidance ranges for 2024 are unchanged and we expect the all in sustaining costs at Mount Milligan to be at the low end of the guidance range. The site-wide optimization program at Mount Milligan continues to progress. We are seeing productivity improvements in the load haul cycle and equipment of availabilities at the mine, as well as in the plant throughput rates and unit processing costs. In the first nine months of 2024, milling costs at Mount Milligan were $5.56 per ton process, 12% lower than the same period last year. Now moving on to OXSOUP. On slide 9, we show operating highlights at OXSOUP for the quarter. Third quarter production was over 50,000 ounces, consistent with last quarter. In the first nine months of 2024, OXSOUP finished processing inventory that was accumulated during the operation shutdown in 2022 and 2023. In the fourth quarter, substantially all gold production is expected to come from lower grade areas of the mine. As a result, gold production in the fourth quarter is expected to contribute to approximately 15 to 20% of the annual gold production. Our 2024 production guidance at OXSOUP is unchanged. In the third quarter, all unsustaining costs on a by-product basis were $1,092 per ounce, which is higher compared to last quarter due to lower sales, higher sustaining capex, and higher royalty costs resulting from higher average realized gold prices. We expect all unsustaining costs on a by-product basis to be the highest in the fourth quarter compared to the first nine months of the year, driven by lower production due to lower expected grades. OXSOUP's cost guidance ranges for the full year of 2024 are unchanged. However, we could slightly exceed the cost guidance range due to higher royalties driven by the elevated gold prices. As Paul mentioned earlier, in September we announced the restart of operations at Thompson Creek. In the quarter, the site team transitioned from early works to a full startup. We now have 140 full-time operating personnel on site, two electric rope shovels, one drill, and nine trucks in operation with four crews. Detailed engineering for the plant refurbishments has been awarded, and the overall project plan is on track. In the fourth quarter, our work is focused on the capitalized stripping, continued refurbishment of the existing mobile equipment fleet, delivery of new mine mobile equipment, and initial engineering work on the plant refurbishment. I'll now pass it off to Ryan to walk through our financial highlights for the quarter.

Thanks Paul. Slide 11 details our third quarter financial results. Adjusted net earnings in the third quarter were 39 million or 19 cents per share. In the third quarter, sales were 96,736 ounces of gold and 14.2 million pounds of copper, up 16% and 21% respectively compared to last quarter. This was driven mainly by the timing of shipments at Mt. Milligan. The average realized price was 2,206 per ounce of gold and $3.37 per pound of copper, which incorporates the existing streaming arrangements at Mt. Milligan. At the molybdenum business unit, approximately 2.4 million pounds of molybdenum was sold in the third quarter at the Langloft facility at an average realized price of $23.27 per pound. Consolidated all-in sustaining costs on a by-product basis in the third quarter were 1,302 per ounce and our full-year consolidated cost guidance for unit cost metrics are unchanged. Slide 12 shows our financial highlights for the quarter. In the third quarter, as planned, we returned a strong free cash flow generation. Cash flow from operations on a consolidated basis for the quarter was 104 million and free cash flow was 37 million, which includes spending of 32 million on the restart of operations at the Thompson Creek mine. In the third quarter, Mt. Milligan generated 40 million in cash from operations and 16 million in free cash flow. As expected, in the third quarter, AUXSOUTH returned a positive free cash flow after making normal tax and annual royalty payments in the second quarter of 2024. AUXSOUTH generated 97 million of cash from operations and had free cash flow of 87 million in the third quarter. The Milligan business unit as a whole used 14 million of cash in operations and had a free cash flow deficit of 45 million this quarter, mainly related to spending on the Thompson Creek restart and an investment in working capital at Langloft. Interest income was 7.5 million in the third quarter, which primarily includes interest on bank term deposits. We continue to generate significant interest income on our cash balance. Returning capital to shareholders remains a key pillar in our disciplined approach to capital allocation. In the third quarter, we remained active on our share buybacks, repurchasing 1.7 million shares for total consideration of 12 million. The board also declared a quarterly dividend of $0.07 Canadian per share, consistent with previous quarters. In the first nine months of 2024, we have returned $65 million to shareholders, including $32 million in share buybacks and $33 million in dividends. A key focus for Centera is returning capital to shareholders, and we expect to remain active on the share buybacks dependent on market conditions. At the end of the third quarter, our cash balance was $604 million. This provides us with total liquidity of $1 billion and positions us well to execute on our strategic plan and deliver shareholder value. I'll now pass it back to Paul for some closing remarks.

Thanks, Ryan. We're committed to achieving strong performance each quarter and creating value for our shareholders. Looking ahead, we are systematically working through each asset in our portfolio to drive future value and growth for Centera. With that, operator, we'll open the call to questions.

Thank you. We'll now begin the question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You'll 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 2. Our first question is from Raj Ray with BMO. Please go ahead.

Thank you, operator. Good morning, Paul and team. I have three questions, if I may. The first one is on your recovery at Mount Milligan. I did note that Q3, there was some oxidized material that impacted recovery of gold. Going into Q4, do you expect that to continue? Secondly, with respect to the cost, you mentioned that the processing cost has decreased 12% in the first three quarters of this year versus last year. If I look at your mining cost for Mount Milligan, at least if I compare Q3 over Q1, it's up almost 14%. Lastly, I had a question on the inventory levels for gold and copper at Mount Milligan. It seems to be an increasing trend. It did come down a bit in Q3, but if I look at Q3-23, and if my numbers are correct, it was 16,000 ounces. Currently, it's sitting at 30,000 ounces of gold in the inventory. What's driving that increase and how much of that is going to be coming out of the process? What's the normal inventory level you're looking at?

Thank you. We'll take those in reverse order, so Ryan will take the inventory question.

Thanks, Rog. I don't think it's quite 30,000 ounces, but there has been a little bit of a build. It's nothing structural, it's just timing of shipment related. I would expect that to come down in Q4 based on when the boats are planned. You should see that normalized back to previous levels by the end of the year. It's simply related to when concentrate makes it through the logistics chain and gets on a boat.

To answer your recovery question, and that's why we put a bit of a description in the NDNA. Right now, we're on the periphery parts of the deposit in Phase 6 and a little bit in Phase 9. We are seeing several percent impact, and it's primarily due to the oxides. A little bit of the grade hasn't been there as well, so that's why we outlined to the low end of guidance and the low end of the range for the rest of the year. That's that question.

With respect to Phase 6, that's what you said. If I look at the 2022 technical report, is the mine plan tracking as per that, or there's been a change in the mine plan since then?

From the 2022 technical report, the mine plan has changed, and we've opened up and increased the size of the overall pit as well. Phase 6 is, if you take a look looking north, it's kind of at the north end of the deposit. It's

pretty much the most north part.

Okay,

sounds

good.

To answer your question on the operating costs, I think you're mostly focused on mining. We just had some timing on equipment refurbishment, primarily some major components. There's nothing really changed on the mine plan itself. In fact, on our load haul cycle, our productivity, when you take a look at all those key performance indicators, those are on track. We do have a little bit of increase on consumables, but not a lot. That's to answer that question.

What's the timing for the equipment refurbishment to be done and the potential decreasing costs?

That was mostly a Q3 item. Sometimes we had extra costs on the loader, we had a couple of engines that needed to be replaced a little bit higher, and that isn't fluid throughout the year. Sometimes you have some quarters higher than others. That's the main reason why the operating costs

are a little bit higher.

Okay, sounds good. Thank you very much. That's it from me.

The next question is from Lawson Winder with Bank of America Securities. Please go ahead.

Thank you, operator, and good morning, Paul and team. Thank you for the update. If I could, could I ask about the optimization at Mount Milligan? What is your latest thinking on the ability to potentially improve the gold recoveries on a -on-mine basis?

Yeah, so the main things we're looking at for the gold is without getting into too much detail because it is a fairly complex issue. So at the end of the day, there are several different ways that you can recover the gold. The main way that we're going to be doing this is being able to adjust the flotation circuit, all the variables, all the parameters in real time, and we're setting this up, we're actually calling it float IQ. That's going to give us several percent. The other one is we're going to be looking at optimizing the blend of the concentrate. In terms of the actual amount of copper in the concentrate, we can optimize that. That will actually allow us to be able to recover a little bit more of the pyreg, which is where some of the gold is. That's a different part of the deposit. And then overall, just being able to not have the oxide, so that's why you see the numbers lower as we get a little bit deeper in the deposit. So it's the timing thing. We're never going to be up to 80, 90 percent though on gold.

What

is really about getting several percent? Yeah, I think we can get to

the mid

60s and maybe to the high mid 60s by working on all these different optimization parameters. And it also does have a little bit of an influence on where we are in the deposit and how we blend some of the higher grade gold and time that and blend it with the other parts of the ore body.

Now Lawson, one thing I'll add to that is there's the near term optimization, which is the operations optimization work that we've been doing real time. But there's also the PEA study. We are looking at what capital improvements could be made to the process plan to increase throughput and or recovery. So there's the near term type initiatives on plant optimization that Paul's talked about, but there are also long term flow sheet modifications that we're looking at.

Okay, so even without those longer term flow sheet modifications, I mean, you're still thinking up to upper 60 percent. So I mean, that's actually quite good. Do you have a sense of where you might want to push it with some capital investment or is it just too early to tell at this point?

The capital investment will come from throughput primarily. The flow sheet optimization is really going to come from just small incremental percents on improving the overall management of the floatation circuit, having steady state feed. There's not really a capital investment that's going to improve overall recovery by a significant margin. It's going to come from throughput. And we do have some initiatives that are relatively low capital to improve the throughput that we're looking at.

Okay, that's great. Very intriguing. And then on the Gemfields, sorry, the Goldfields resource update that you're anticipating for early next year with the reserve and resource update. Can we anticipate also getting some color or some idea around how you're thinking about a potential development for those resources at the same time or is that something that we might be looking at a little bit later?

We intend to do both. So we intend to put out a resource that will be likely both the oxide and the sulfide. As we've mentioned before, we're principally looking at an oxide development plan. And at the time when we put out that resource, we will also outline a path forward, whether it's further study and drilling or some sort of plan on development. So, yes, we intend to outline a path forward. It won't just be a resource in exclusion of accompanying narrative.

Okay, that's helpful. And then just finally on capital return, if I might. You guys have been remarkably consistent now for many quarters in delivering both share buybacks and then maintaining that dividend. When you initiated the share buyback process, I mean, the gold price was nearly $1,000 per ounce lower and actually your free cash flow has really improved quite remarkably. What is the likelihood that the buyback could be augmented going forward, particularly in light of some of the competing capital allocation that you're now embarking on? Thanks.

Yeah, that's a good point. As I said in my prepared remarks, when we look at the big picture on capital allocation and with the Thompson Creek development, given the current metal price environment, we think largely speaking, we can fund Thompson Creek out of ongoing free cash flow. In other words, not really dipping into the cash balance. And that is while maintaining the dividend and the buyback. You'll have noticed that we upped the buyback somewhat in Q3. That is a signal we intend to continue buying back at levels higher than Q1 and Q2, more in line with Q3. And certainly, depending on how we choose to allocate our capital. And here what I'm talking about is internal development projects, whether at Milligan, Chem-S, Goldfield, will take some capital. M&A opportunities may take capital if, depending on the extent to which those either organic or M&A opportunities manifest themselves or not, depending on which direction those take, there would be room to further augment the buyback. The converse, of course, is if we have solid targets for investment, whether organic or M&A, we might dial the buyback back. But in the absence of a clear place to invest the capital, the buyback will continue and be augmented as it has in Q3.

Okay, that's great. Thank you very much.

The next question is from Jeremy Hoy with Kenakor Genuity. Please go ahead.

Hi, Pauline. Thanks for taking my questions. Most of them have been answered. But I just wanted to see if you have any additional color on the inflation that you're seeing in Turkey. You mentioned that in past quarters it was mostly offset by the devaluation of the lira, but you didn't see that this quarter. And expect that to have an impact going forward. So, yeah, just appreciate any additional color you might have on that.

Jeremy, thanks for the question. Yeah, what we're seeing in Turkey, it's a pretty highly inflationary country. And for the last couple of years, usually the devaluation of the lira is offset that. The lira is kind of stabilized over the last six months or so with fiscal policy in the country. But inflation is still pretty elevated. And what happens in Turkey is a lot of the labor rates and contract rates get reset at the start of the year and take into account inflation in country. So we're seeing that inflation number outpace the devaluation of the lira. I would expect that cost will step up a little bit in auxu going forward, but we'll wait to see how that shakes out at the start of next year. I think for this year, we've kind of reiterated our cost guidance should be fine. Maybe at the top end or slightly above it, if gold stays very high, but just driven by royalties, not by in country inflation. So it's something we're monitoring that may have an effect next year. I don't think it's going to be something crazy, but it is something that we're looking at as we plan for 2025.

Okay, thank you. We'll look to the guidance then and thanks for taking the question.

Jeremy.

The next question is from Anita Sony with CIBC World Markets. Please go ahead. Good

morning, Paul and team. I just had a question on auxu. I was just trying to dig up the last life of mine plan that you guys put out. I'm not sure if it was a year ago or two years ago, but I'm trying to understand what the grades are next year and whether or not the step in grades in Q4 would translate into 2025. That's my first question.

Yeah, thanks Anita. So that's correct. The grades that we're going to have in Q4, more or less, that's about what we'll have for the remainder of the deposit. And you can see the annual grades in that

press release that we put out. And I believe it was September of 23 that we put that press release and we show the annual production profile with grades.

Right. And then Paul's already answered my question on capital allocation and M&A. I was just also wondering when it comes to the, I think there was a bit of a revision in guidance on the project, project capex expenditures. Could you outline what happened there with the Thompson Creek cap expense?

I don't think there was really a revision. I think through Q2, we had only guided the first half of the year while we waited on a decision. And so what was released with Q3 was simply the full year view on Thompson Creek. It was consistent with what was put out when we announced the restart decision in early September. So I don't think there was any true revision. There may be something around the bucketing and what got expensed versus capitalized, but on a cash out the door basis, that number is the same as we flagged before, 75 to 85 million during 2024.

Okay. All right. Then thank you very much on that.

Once again, if you have a question, please press star then one. The next question is from Mike Parkin with National Bank. Please go ahead.

Hi, guys. Just on Turkey, thanks for that color on the lira. Also, has there been any thoughts or approaches from the government with respect to the royalty? I feel like the I believe the cap is $2,100. Obviously, we're way above that. Do you feel like there's any pressure to have that those royalty ranges revisited?

Thanks, Mike. Not that we're seeing. We have, obviously, we're very connected with what's happening in the country. We haven't heard any buzz around that. Obviously, with the higher metal prices, it's a percentage royalty rate. So at 2,700 gold, the government is getting more. It's just that the actual percentage doesn't ratchet up. So you've hit that top tier percentage when you get to 2,100 gold, but for every extra dollar it goes up, the government does make more. And we haven't heard any kind of groundswell or news about changing the royalty scale or structure in Turkey at this point.

Okay. All my other questions have been answered. Thanks very much. Thanks Mike.

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