Centerra Gold Inc. (NYSE:CGAU) Q3 2023 Earnings Call Transcript
Centerra Gold Inc. (NYSE:CGAU) Q3 2023 Earnings Call Transcript November 1, 2023
Operator: Thank you for standing by. This is the conference operator. Welcome to the Centerra 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. [Operator Instructions] I would now like to turn the conference over to Lisa Wilkinson, Vice President, Investor Relations and Corporate Communications with Centerra Gold. Please go ahead.
Lisa Wilkinson: Thank you, operator and good morning, everyone. Welcome to Centerra Gold's third quarter 2023 results conference call. Joining me on the call today are Paul Tomory, President and Chief Executive Officer; Paul Chawrun, 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 SEDAR, EDGAR and our website. All figures are in US dollars unless otherwise noted. Presentation slides are available on Centerra 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 non-GAAP measures in our news release and MD&A issued yesterday. I will now turn the call over to Paul Tomory.
Paul Tomory: Thank you, Lisa, and good morning, everyone. Centerra had a very strong third quarter with significant free cash flow generation, driving a substantial increase to our cash balance 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 Chawrun will speak to our operations in more detail a little later, and he'll speak to the adjustments to the site level production guides of both Oksut 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 Mount 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 expiration, 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, Centerra 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.
Paul Chawrun: 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 mine 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 150,000 and 160,000 ounces down slightly from the low end of the 160,000 to 170,000 ounces announced previously. Our copper production guidance remains at 60 million 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 by-product 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 cost per ounce and higher by-product 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 Chu Cho 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 at Oksut. 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 Oksut has been increased to 190,000 to 200,000 ounces of gold. Gold production costs and all-in sustaining costs on a by-product 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 Oksut, 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 cost to be in the range of $625 to $675 per ounce. To wrap up, I'd like to command the Oksut 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.
Darren Millman: Thanks Paul. Slide seven details our third quarter financial results. Centerra 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 reevaluation recovery, $2 million unrealized foreign exchange gains relating to the reclamation provisions at the Endako Mine and the Kemess 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 Oksut and Mt. 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 a 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 Molybdenum Business Unit in the third quarter, approximately 2.7 million pounds of molly 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 Oksut, we processed all of the stored gold and carbon inventory, which had a minimal cash processing cost to convert to dore bars. As mentioned early in the call, we have adjusted our 2023 production guidance at mine site level to reflect year-to-date performance and our expectations for the fourth quarter, but with no overall financial impact. As a result, our consolidated all-in 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 eight shows our financial highlights for the quarter. In the third quarter, we generated significant free cash flow driven by strong performance at Oksut.
Cash provided by operating activities was $167 million in the quarter, and free cash flow was $144 million. At Molybdenum Business Unit, approximately $16 million of the investment in working capital for the first quarter was released during the third quarter. The Molybdenum Business Unit generated $9 million 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 Oksut 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. Centerra 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 8th, 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.
Paul Tomory: 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 Centerra 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.
Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Anita Soni of CIBC World Markets. Please go ahead.
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