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Centerra Gold Reports 2017 First Quarter Net Earnings of $57 Million

Centerra Gold Reports 2017 First Quarter Net Earnings of $57 Million

TORONTO, ON--(Marketwired - May 01, 2017) -

This news release contains forward-looking information that is subject to the risk factors and assumptions set out under "Caution Regarding Forward-looking Information". It should be read in conjunction with the Company's unaudited interim condensed consolidated financial statements and the notes thereto for the three-month period ended March 31, 2017. The consolidated financial statements of Centerra are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. All figures are in United States dollars unless otherwise stated.

All references in this document denoted with NG, indicate a non-GAAP term which is discussed under "Non-GAAP Measures".

Centerra Gold Inc. (CG.TO) today reported net earnings of $57.0 million or $0.20 per common share (basic) on revenues of $285.3 million in the first quarter of 2017, compared to net earnings of $18.1 million or $0.08 per common share (basic) on revenues of $73.2 million for the same period in 2016.

2017 First Quarter Highlights

  • Produced a total of 172,644 ounces of gold, including 127,400 ounces at Kumtor (an increase of 47% from the same period of 2016) and 45,244 ounces at Mount Milligan.
  • Sold a total of 187,914 ounces of gold in the quarter, including 134,682 ounces at Kumtor and 53,232 ounces at Mount Milligan.
  • Mount Milligan produced 12.6 million pounds of copper during the period and sold 13.6 million pounds of copper.
  • Company-wide all-in sustaining costs on a by-product basis per ounce soldNG for the first quarter were $756, excluding revenue-based tax in the Kyrgyz Republic and income tax.
  • Cash provided by operating activities before changes in working capitalNG of $118 million.
  • Cash generated from operations totaled $72.4 million.
  • Cash, cash equivalents and short-term investments at March 31, 2017 was $357.8 million (including $273.9 million of restricted cash and investments at Kumtor).
  • On track to achieve 2017 production and cost guidance.

Commentary

Scott Perry CEO of Centerra Gold stated, "While the Company had a good quarter operationally and financially, it was over shadowed by a tragic event which occurred in April at Kumtor when an employee was fatally injured while inspecting a light vehicle in the field. This tragedy reinforces our commitment to our Company-wide safety leadership program 'Work Safe, Home Safe' which we continue to roll out to all our sites.

"On the operational front, the Company produced 172,644 ounces of gold and 12.6 million pounds of copper in the quarter at a strong all-in sustaining cost on a by-product basis of $756 per ounce soldNG, reflecting Mount Milligan achieving all-in sustaining costs on a by-product basis of $530 per ounce soldNG which are in the lower quartile of costs in the industry. Financially, both operations generated a significant amount of cash from operations before working capital changesNG during the quarter, Mount Milligan generated $32 million and Kumtor generated $102.4 million.

"Over the quarter we continued to see incremental improvements on a monthly basis at Mount Milligan in both increased mill throughput and recoveries. During this period, the Company also formed an Operational Review Team to identify business process improvements opportunities at all our sites. An initial review at Kumtor and Mount Milligan identified several meaningful projects with short-to-medium term financial and operational benefits. Subsequently we mobilized subject matter experts to further evaluate and commence executing on some of these projects.

"The Company continues to advance its discussions with the Government of the Kyrgyz Republic to resolve all outstanding issues affecting the Kumtor Project in a manner that will be fair to all of its stakeholders."

Exploration Update

Exploration expenditures in the first quarter of 2017 totaled $1.7 million compared to $2.0 million in the same quarter of 2016. Exploration activities during the quarter included trenching, geological mapping, soil/chip and channel sampling, and geophysics at the Company's various projects.

Mexico

Glor Project

A deep trenching program was completed at the Glor Project in Sonora, Mexico, a joint venture with Riverside Resources Inc. with just over 3,000 metres excavated and sampled. Trenching results are encouraging and indicate that the Pitaya prospect, of the Glor Project, may represent a potential bulk minable target.

As a result of the positive trenching results, 2,000 metres of diamond drilling is planned for the second quarter of 2017 with seven or eight drill holes.

Other Projects

Centerra continues to advance other exploration projects in Turkey, Armenia, Canada, Mexico, Nicaragua and Sweden. During the period, exploration drill permits were received for the Öksüt and Yamaç projects in Turkey.

This Management Discussion and Analysis ("MD&A") has been prepared as of May 1, 2017, and is intended to provide a review of the financial position and results of operations of Centerra Gold Inc. ("Centerra" or the "Company") for the three months ended March 31, 2017 in comparison with the corresponding period ended March 31, 2016. This discussion should be read in conjunction with the Company's unaudited condensed consolidated interim financial statements and the notes thereto for the three months ended March 31, 2017. This MD&A should also be read in conjunction with the Company's audited annual consolidated financial statements for the years ended December 31, 2016 and 2015, the related MD&A and the Annual Information Form for the year ended December 31, 2016 (the "2016 Annual Information Form"). The Company's unaudited condensed consolidated interim financial statements and the notes thereto for the three months ended March 31, 2017, 2016 Annual Report and 2016 Annual Information Form are available at www.centerragold.com and on the System for Electronic Document Analysis and Retrieval ("SEDAR") at www.sedar.com.

  1. Overview

Centerra is a gold mining company focused on operating, developing, exploring and acquiring gold properties in North America, Asia, and other markets worldwide. Centerra is a leading Canadian-based gold producer and is one of the largest Western-based gold producers in Central Asia. Centerra's principal operations are the Kumtor Project located in the Kyrgyz Republic and the Mount Milligan Mine located in British Columbia, Canada.

The Company's significant wholly-owned subsidiaries include Kumtor Gold Company ("KGC" or "Kumtor") in the Kyrgyz Republic, Thompson Creek Metals Company Inc. ("Thompson Creek") in Canada, Langeloth Metallurgical Company LLC ("Langeloth") and Thompson Creek Mining Co. in the United States of America (USA), Öksüt Madencilik Sanayi vi TicaretA.S. ("OMAS") in Turkey and Boroo Gold LLC and Centerra Gold Mongolia LLC ("CGM") in Mongolia. Additionally, the Company holds, through Thompson Creek, a 75% joint venture interest in the Endako Mine in British Columbia, Canada. It also owns a 50% partnership interest in Greenstone Gold Mines LP (the "Greenstone Partnership") which owns the Greenstone Gold development property including the Hardrock deposit, located in Ontario, Canada. See "Operating Mines and Projects", "Development Projects" and "Other Corporate Developments" for further details.

The Company has also entered into agreements to earn an interest in joint venture exploration properties located in Portugal, Canada, Mexico, Sweden and Nicaragua.

Centerra's shares trade on the Toronto Stock Exchange (TSX) under the symbol CG. The Company is headquartered in Toronto, Ontario, Canada.

  1. Market Conditions

Gold Price

During the first quarter of 2017, the gold price fluctuated between a low of $1,151 per ounce and a high of $1,257 per ounce. The average gold price for the quarter was $1,219 per ounce, a $36 per ounce increase compared to the first quarter of 2016 average of $1,183 per ounce, and a $1 per ounce decrease compared to the fourth quarter of 2016 average.

Over the course of 2016, gold prices increased with improved investor demand off the back of political uncertainty and continued expectations that U.S. benchmark interest rates would remain at relatively low levels. However, following the U.S. election in the fourth quarter of 2016, gold prices came under pressure as market participants quickly discounted the uncertainty that was previously assumed with a Trump Administration. Subsequently, the first quarter of 2017 saw a reversal of this latter trend as the new U.S. Administration ran into early challenges.

Copper Price

During the first quarter of 2017, the copper price fluctuated between a low of $2.49 per pound and a high of $2.76 per pound. The average copper price for the quarter was $2.65 per pound, a $0.53 per pound increase compared to the first quarter of 2016 average of $2.12 per pound, and a $0.28 per pound increase compared to the fourth quarter of 2016.

After reaching a six year low of $1.94 per pound in the first quarter of 2016, copper prices stabilized and witnessed a significant increase in the fourth quarter of 2016 as a result of mine labour disruptions along with improved investor sentiment as a result of expectations on infrastructure spending with the new U.S. Administration.

Foreign Exchange Rates

USD to CAD

The average U.S. dollar exchange rate weakened by 3.5% at the end of the first quarter of 2017 compared to the first quarter of 2016, ranging from 1.25 to 1.46 with an average of 1.33. The relative weakness of the U.S. dollar over the course of 2016 was largely due to a recovery in oil prices from the first quarter of 2016 price of approximately $30 per barrel. While the U.S. dollar was relatively stable versus the Canadian dollar over the first quarter of 2017, late in the period, the U.S dollar began to show signs of more consistent appreciation as a result of a March 2017 U.S. rate hike, cautious rhetoric from the Bank of Canada, and rising trade concerns resulting from a looming North American Free Trade Agreement (NAFTA) renegotiation and domestic fears regarding the possible introduction of a border adjustment tax from the new U.S. Administration.

USD to Kyrgyz Som

The average U.S. dollar exchange rate weakened by 6.5% at the end of the first quarter of 2017 compared to the first quarter of 2016, ranging from 67.02 to 75.90 with an average of 70.50. The Kyrgyz som is being pulled up by strengthening currencies with the country's main trading partners -- mainly Russia. The strengthening in the Russian ruble reflects higher oil prices and an improving economic situation.

Foreign Exchange Transactions

The Company receives its revenues through the sale of gold, copper and molybdenum in U.S. dollars. The Company has operations in the Kyrgyz Republic, Turkey, Mongolia, and Canada (where the Mount Milligan Mine and its corporate head office are also located). During the first three months of 2017, the Company incurred combined expenditures (including capital) totalling approximately $262 million. Approximately $147 million of this (56%) was in currencies other than the U.S. dollar. The percentage of Centerra's non-U.S. dollar costs, by currency was, on average, as follows: 53% in Canadian dollars, 39% in Kyrgyz soms, 5% in Euros, and 3% in Turkish lira, Mongolian tugriks and British pounds. The average value of the Turkish lira depreciated against the U.S. dollar by approximately 5% from its value at December 31, 2016. The Australian dollar, Russian ruble, Canadian dollar and Euro appreciated against the U.S. dollar by approximately 5%, 5%, 2% and 1% respectively from their value at December 31, 2016. The net impact of these movements in the first quarter of 2017, after taking into account currencies held at the beginning of the year, was to increase annual costs by $1.2 million (increase of $1.3 million in the first three months of 2016).

  1. Consolidated Highlights Summary
       
($ millions, except as noted)   Three months ended March 31,
Financial Highlights   2017   2016 (6)   % Change
Revenue   $ 285.3   $ 73.2   290 %
Cost of sales     171.9     31.5   447 %
Earnings from mine operations     107.9     38.5   180 %
Earnings from operations     65.5     18.5   254 %
Net earnings   $ 57.0   $ 18.1   215 %
                   
Cash provided by operations     72.5     9.4   671 %
Cash provided by operations before changes in working capital (3)     118.1     27.2   334 %
Capital expenditures (sustaining) (3)     19.8     23.2   (15 %)
Capital expenditures (growth) (3)     1.4     5.1   (73 %)
Capital expenditures (stripping)     62.5     14.1   344 %
                   
Total assets   $ 2,685.2   $ 1,674.2   60 %
Long-term debt and long-term lease obligation     380.0     -   100 %
Cash, short-term investments and restricted cash     357.8     515.0   (31 %)
                   
Share Data                  
Earnings per common share - $ basic (2)   $ 0.20   $ 0.08   150 %
Earnings per common share - $ diluted (2)   $ 0.20   $ 0.07   186 %
                   
Per Ounce Data (except as noted)                  
Average gold spot price - $/oz(3)     1,219     1,183   3 %
Average copper spot price - $/lbs(3)     2.65     2.12   25 %
Average realized gold price - Kumtor (third party) - $/oz(3)     1,219     1,186   3 %
Average realized gold price (combined) - $/oz(3)     1,172     1,186   (1 %)
                   
Operating Highlights                  
Gold produced - ounces poured     172,644     86,444   100 %
Gold sold - ounces sold     187,914     61,744   204 %
Payable Copper Produced (000's lbs)     12,595     -   100 %
Copper Sales (000's payable lbs)     13,612     -   100 %
                   
Operating costs (on a sales basis)     151.7     19.1   696 %
                   
Unit Costs                  
Adjusted operating costs - $/oz sold(3)(4)   $ 340   $ 372.31   (9 %)
Gold - All-in sustaining costs on a by-product basis - $/oz sold(3)(4)   $ 756   $ 1,015   (25 %)
Gold - All-in sustaining costs on a by-product basis (including taxes) - $/oz sold(3)   $ 885   $ 1,187   (25 %)
                   
Gold - All-in sustaining costs on a co-product basis (including taxes) - $/oz sold(3)(4)   $ 795   $ -   -  
Copper - All-in sustaining costs on a co-product basis (including taxes) - $/pound sold(3)(4)   $ 1.86   $ -   -  
(1)   As at March 31, 2017, the Company had 291,278,437 common shares issued and outstanding (291,280,283 common shares as of May 1, 2017). As of May 1, 2017, Centerra had 5,280,976 share options outstanding under its share option plan with exercise prices ranging from Cdn$3.82 per share to US$59.51 per share, with expiry dates between 2017 and 2024.
(2)   Average for the period as reported by the London Bullion Market Association (US dollar Gold P.M. Fix Rate) and London Metal Exchange (LME).
(3)   Adjusted operating costs, all-in sustaining costs on a by-product basis (excluding and including taxes) per ounce sold, cash provided by operation before changes in working capital, as well as average realized gold price per ounce and average realized copper price per pound are non-GAAP measures and are discussed under "Non-GAAP Measures".
(4)   Excludes Molybdenum business.
(5)   No comparative results for Thompson Creek operations have been presented.

4. Overview of Consolidated Results

First Quarter 2017 compared to First Quarter 2016

The Company recorded net earnings of $57.0 million in the first quarter of 2017, compared to net earnings of $18.1 million in the comparative quarter of 2016, reflecting higher gold ounces sold at Kumtor, the addition of the Mount Milligan operations, higher average realized gold pricesNG and lower operating costs, partially offset by higher share-based compensation charges.

Production:

Gold production for the first quarter of 2017 totalled 172,644 ounces. Gold production at Kumtor was 127,400 ounces in the first quarter of 2017, 47% higher than the 86,444 ounces produced in the comparative quarter of 2016. The increase in ounces poured at Kumtor is a result of milling higher grade ore from stockpiles, compared to the lower grade ore mined and processed from the initial benches in cut-back 17 during the comparative period. During the quarter, Mount Milligan produced 45,244 ounces of gold and 12.6 million pounds of copper

Safety and Environment:

Centerra had one reportable injury in the first quarter of 2017, consisting of a lost time injury to a contractor employee at Kumtor. Subsequent to the quarter-end, on April 11, 2017, an employee suffered fatal injuries at the Kumtor mine. The Company is cooperating with relevant Kyrgyz Republic officials who are investigating this incident.

There were no reportable releases to the environment during the first quarter of 2017.

Financial Performance:

The increase in revenue for the first quarter of 2017 resulted from more gold ounces sold (187,914 ounces compared to 61,744 ounces in the first quarter of 2016), partially offset by a 1% lower combined average realized gold price NG during the quarter ($1,172 per ounce compared to $1,186 per ounce in the same quarter of 2016). The increase in gold ounces sold at Kumtor (134,681 ounces compared to 61,744 ounces in the same quarter of 2016) is partly due to delays experienced in shipments to Kyrgyzaltyn JSC ("Kyrgyzaltyn") in the first quarter of 2016 while Kyrgyzaltyn held contractual discussions with its off-take bank: Kumtor ended the first quarter of 2016 with approximately 33,165 ounces of gold doré on hand, which was subsequently sold in the second quarter of 2016. Mount Milligan sold 53,232 ounces of gold and 13.6 million pounds of copper during the first quarter of 2017 which contributed $84.7 million in revenues. The molybdenum business contributed $36.5 million in revenues during the first quarter of 2017.

The increase in cost of sales in the first quarter of 2017 ($171.9 million compared to $31.5 million in the first quarter of 2016) resulted mainly from the significant increase in ounces sold from the Kumtor mine and also reflects the addition of Mount Milligan (gold and copper sales) and the molybdenum business . Depreciation, depletion and amortization ("DD&A") associated with production was $54.3 million in the first quarter of 2017 as compared to $12.4 million in the same period of 2016, mainly as a result of higher sales.

Operating Costs:

Operating costs (on a sales basis) increased to $151.7 million in the first quarter of 2017 compared to $19.1 million in the same period of 2016, reflecting greater ounces sold at Kumtor and lower operating costs for diesel and consumables at Kumtor, partially offset by labour cost increases plus the addition of Mount Milligan and molybdenum business costs. Operating costs in the first quarter of 2016 were also reduced by the partial reversal of an inventory impairment recorded at the end of 2015.

The Kumtor operation continues to benefit from current favourable diesel prices and lower consumption during the quarter and the Kyrgyz som has also continued to trade at historical lows at 72 soms per 1 USD. The benefit of lower diesel prices, lower consumption and favourable rate of the Kyrgyz som to Kumtor is significant as diesel and the impact of costs paid in soms account for approximately 17% and 25% of total operating costs at Kumtor, respectively.

Centerra's all-in sustaining costs on a by-product basis per ounce of gold soldNG, which excludes revenue-based tax and income tax, for the first quarter of 2017 decreased to $756 from $1,015 in the comparative period mainly as a result of more ounces sold at Kumtor ($110 per ounce), lower sustaining capitalNG spending ($59 per ounce) and the positive impact from the addition of Mount Milligan ($89 per ounce). This was partially offset by higher spending on capitalized stripping and incremental administration costs, as a result of the Thompson Creek acquisition.

The increased sales volume at Kumtor in the first quarter of 2017 was due primarily to higher production resulting from higher grades of ore processed from the stockpiles as compared to the same period of 2016 (3.53 g/t compared to 2.27 g/t) and slightly better recoveries (76% compared to 75%).

  1. Liquidity and Capital Resources

The Company believes its cash on hand and working capital at March 31, 2017, together with future cash flows from operations and cash provided by the Company's existing credit facilities will be sufficient to fund its anticipated operating cash requirements, although there can be no assurance of this. See "Caution Regarding Forward-Looking Information".

Cashflow:
               
  Unaudited ($ millions, except as noted)   Three months ended March 31,
    2017   2016   % Change
  Cash provided by operations before changes in working capitalNG   118.0   27.2   334%
    - Changes in working capital   (45.6)   (17.8)   (161%)
  Cash provided by operating activities   72.4   9.4   666%
  Cash used in investing activities:            
    - Capital additions (cash)   (69.0)   (35.4)   (94%)
    - Short-term investment purchased, net   (25.0)   (19.6)   (28%)
    - other investing items   (10.9)   (3.7)   (195%)
  Cash used in investing activities   (104.9)   (19.6)   (434%)
  Cash used in financing activities:            
    - Debt repayment   (37.5)   -   (100%)
    - Dividends declared and paid   -   (7.2)   100%
    - Payment of interest and borrowing costs   (8.7)   (3.5)   (143%)
  Cash used in financing activities   (46.2)   (10.7)   (330%)
  Decrease in cash and cash equivalents   (78.7)   (20.8)   (278%)

In the first quarter of 2017, Centerra generated cash provided by operations before working capital changesNG of $118.0 million, compared to $27.2 million in the prior period. At March 31, 2017, the major working capital difference compared to the prior-period was an outstanding concentrate receivable of $30 million at Mount Milligan which was collected in April 2017.

The Company generated $72.4 million in cash from operations in the first quarter of 2017, an increase of $63 million compared to the first quarter of 2016, mainly as a result of higher ounces sold. The increased sales reflect increased production from Kumtor and the contribution of Mount Milligan in the first quarter of 2017 whereas the comparative quarter of 2016 was impacted by the delayed gold shipments to Kyrgyzaltyn in March of that quarter.

Cash used in investing activities increased to $104.9 million in the first quarter of 2017 as compared to $19.6 million the first quarter of 2016, reflecting an increase in capital spending (mainly additional stripping at Kumtor) and an increase in net purchases of short-term investments compared to the same quarter in 2016.

Cash used in financing of $46.2 million in the first quarter of 2017 was $35.5 million higher than the amount spent in the first quarter of 2016, and reflected debt repayments and higher borrowing charges related to the Company's new credit facilities (discussed below). In February 2017, Centerra repaid $25 million on its Corporate Facility (defined below) with EBRD (defined below) and in March 2017 made its first principal payment of $12.5 million on the Centerra B.C. Facility (defined below).

Cash, cash equivalents, restricted cash and short-term investments at March 31, 2017 decreased to $357.8 million (including $273.9 million of restricted cash and investments at Kumtor) from $408.8 million at December 31, 2016 (including $247.8 million of restricted cash at Kumtor).

The restricted amounts at March 31, 2017 includes $248.8 million of cash and $25.1 million of short-term investments at Centerra's Kyrgyz Republic operating subsidiary, KGC. KGC is subject to an interim order of the Bishkek Inter-District Court in the Kyrgyz Republic prohibiting KGC from taking any actions relating to certain financial transactions, including transferring property or assets, declaring or paying dividends or making loans to Centerra. The interim order purports to secure KGC's potential liability for a claim brought by SAEPF (defined below) and Centerra has included the dispute in the ongoing international arbitration proceeding against the Kyrgyz Republic (see Other Corporate Developments -- Kyrgyz Republic for further details). As at March 31, 2017, the cash and investments balance of KGC increased to $273.9 million (from $247.8 million at December 31, 2016) and is expected to continue to increase over time. As a result of the interim order, the Company continues to be dependent on its unrestricted cash balance and cash generated from the Mount Milligan Mine to meet its obligations when due.

The unrestricted cash and cash equivalents balance at March 31, 2017 of $81.3 million includes $25 million that can only be used for Mongolian purposes and $24.8 million held in Centerra B.C Holdings Inc. ("Centerra B.C Holdings"). The funds held in Centerra B.C. Holdings can only be used for expenditures on Centerra B.C. Holdings' subsidiaries and assets including the Mount Milligan Mine it indirectly holds through Thompson Creek as required by the Centerra B.C. Facility. The Centerra B.C. Facility also required that distributions, including cash dividends declared by Centerra B.C. Holdings to Centerra, be matched by an early repayment of an equal amount under the Centerra B.C. Facility. The Company plans to commence cash dividends distributions from Centerra B.C. Holdings to Centerra in the second quarter of 2017 as cash balances increase.

Credit Facilities:

Centerra B.C Holdings Credit Facility

As part of the acquisition of Thompson Creek which closed on October 20, 2016, Centerra B.C. Holdings, a wholly-owned subsidiary of the Company, secured financing from a lending syndicate in the aggregate amount of $325 million (the "Centerra B.C. Facility"), consisting of a $250 million non-revolving term facility and a $75 million senior secured revolving credit facility). The principal amount of the term portion of the Centerra B.C. Facility is to be repaid in $12.5 million quarterly increments which commenced with the first payment made on March 31, 2017. The revolving portion of the Centerra B.C. Facility is to be repaid at the end of the five-year term.

At March 31, 2017, the credit facilities were fully drawn with $312.5 million outstanding under the Centerra B.C. Facility.

Centerra Corporate Facility

On February 12, 2016, the Company entered into a five-year $150 million revolving credit facility (the "Corporate Facility") with the European Bank for Reconstruction and Development ("EBRD"), whereby $50 million of this facility is for the purpose of funding direct and indirect costs associated by the Gatsuurt Project. In February 2017, the Company repaid $25 million of the $50 million reserved for the Gatsuurt Project. The remaining $25 million must be repaid on February 3, 2018, if a definitive agreement for the Gatsuurt Project is not reached by that time.

At March 31, 2017, the Company had drawn $125 million under the Corporate Facility.

Except as noted above, funds drawn under the Corporate Facility are available to be re-drawn on a semi-annual basis and, at the Company's discretion, repayment of the loaned funds may be extended until 2021.

OMAS Facility

On April 5, 2016, OMAS, a wholly-owned subsidiary of the Company, entered into a 5.75-year $150 million credit facility agreement (the "OMAS Facility"). The purpose of the OMAS Facility is to assist in financing the construction of the Company's Öksüt Project. Availability of the OMAS Facility is subject to customary conditions precedent, including receipt of all necessary permits and approvals for the Öksüt Project. The Company is currently awaiting a pastureland permit at the Öksüt Project. If the conditions are not satisfied or waived by the deadline of June 30, 2017, or an additional extension is not granted by the lenders, the commitments under the OMAS Facility will be cancelled. As of March 31, 2017, the OMAS Facility remains undrawn.

Centerra was in compliance with the terms of all of its facilities in the first quarter of 2017.

Capital Expenditures (spent and accrued):  
                   
                   
    $ millions   Three months ended March 31,  
        2017   2016   % Change  
  Consolidated:              
    Sustaining capitalNG   19.8   23.2   (15%)  
    Capitalized stripping (1)   62.5   14.1   343%  
    Growth capitalNG   1.4   5.1   (73%)  
    Öksüt Project development (2)   2.1   6.7   (69%)  
    Greenstone Gold Property capital (3)   1.0   0.6   71%  
        86.8   49.7   75%  
                   
(1)   Includes cash component of $46.7 million and $10.4 million in the first quarter of 2017 and 2016, respectively.
(2)   Three months ended March 31, 2016 includes $3 million for the purchase of the net smelter royalty from Teck Resources Limited.
(3)   In accordance with the Company's accounting policy, the 50% share paid on behalf of Premier Gold Mines Limited in the project is capitalized as part of mineral properties in Property, Plant & Equipment.

Capital expenditures in the first quarter of 2017 totalled $86.8 million compared to $49.7 million in the same period of 2016, resulting mainly from increased spending on capitalized stripping at Kumtor to develop cut-back 18 and the Sarytor pit, partially offset by lower sustaining and growth capitalNG for equipment rebuilds and overhauls, as well as lower infrastructure spending at Kumtor.

  1. Financial Instruments

The Company seeks to manage its exposure to fluctuations in commodity prices and foreign exchange rates by entering into derivative financial instruments from time to time.

Fuel Hedges:

In 2016, the Company established a diesel fuel price hedging strategy using derivative instruments to manage the risk associated with changes in diesel fuel prices on the cost of operations at the Kumtor Mine. The Company targets to hedge up to 70% of monthly diesel purchases at Kumtor for the first 12 months and 50% of the 13 through 24 month exposure. The Company hedges its exposure with crude oil futures contracts, as the price of diesel fuel closely correlates to the price of crude oil.

Gold and Copper Derivative Contracts:

The Company must satisfy its obligation under the gold and copper stream arrangement with RGLD Gold AG and Royal Gold Inc. (collectively "Royal Gold") by delivering refined physical gold or LME copper warrants to Royal Gold after receiving payment from third-party purchasers which purchase concentrate from the Mount Milligan Mine. In order to hedge the metal price risk that arises when physical purchase and concentrate sales pricing periods do not match, the Company has entered into certain forward gold and copper purchases and sales swap contracts pursuant to which it purchases gold or copper at an average price during a quotational period and sells gold or copper at a spot price. These derivative contracts are not designated as hedging instruments.

Copper Hedges:

On January 24, 2017, the Company initiated a hedging program for a portion of its expected 2017 and first quarter 2018 copper production from Mount Milligan. Centerra expects to hedge no more than 75% of its anticipated copper production, net of copper payable under its streaming arrangement.

The positions taken by the Company for each of these programs at as March 31, 2017 are summarized as follows:

                                     
                    Settlement   As at March 31, 2017
Program   Instrument   Unit   Strike price   Type   2017   2018   2019   Total position   Fair value Gain ('000')
Fuel Hedges   Crude oil options   Barrels   $62.56 - $65.31   Fixed   283,000   283,000   51,000   617,000   $ 900
Copper Hedges (1)   Forward contracts   Pounds   $2.68 - $2.70   Fixed   21 million   1 million   -   22 million   $ 1,041
Copper Hedges (1)   Zero-cost collars   Pounds   $2.25 - $3.21   Fixed   8 million   2 million   -   10 million  
Gold Derivative Contracts   Forward contracts   Ounces   ND   Floating   18,240   -   -   18,240   $ 859
Copper Derivative Contracts   Forward contracts   Pounds   ND   Floating   2 million   -   -   2 million   $ -
(1)   Represents approximately 62% of Mount Milligan's expected 2017 copper production, net of copper streaming arrangement with Royal Gold.
ND =   strategic hedging program with floating terms, for which settlement prices are not defined as at March 31, 2017

Subsequent to the end of first quarter 2017:

In April 2017, the Company entered into a series of zero-cost collars covering approximately 19,000 ounces of Mount Milligan gold production with settlements occurring monthly from May through to December 2017. The minimum price is set at $1,225 per ounce and an average maximum price is $1,371 per ounce. Under the zero-cost collar, the Company can put the number of ounces to the counterparty at the minimum price, if the price were to fall below the minimum, and the counterparty has the option to require the Company to sell to it the number of ounces at the maximum price, if the price were to rise above the maximum.

Centerra does not enter into off-balance sheet arrangements with special purpose entities in the normal course of its business, nor does it have any unconsolidated affiliates.

  1. Operating Mines and Facilities

Kumtor Mine

The Kumtor open pit mine, located in the Kyrgyz Republic, is one of the largest gold mines in Central Asia operated by a Western-based gold producer. It has been in production since 1997 and has produced over 11.1 million ounces of gold to March 31, 2017.

Recent Developments:

  • On April 19, 2017, the Company reported that the Kumtor operation received its 2017 maximum allowable discharge (MAD) permit which allows for discharge of treated effluent from its tailings management facility starting in the spring. Kumtor now has all the necessary permits and approvals in place for continuous operations throughout 2017.
  • On April 11, 2017, an accident at the Kumtor mine resulted in an employee fatality. Investigations both internally and by the relevant Kyrgyz authorities have commenced.
  • On March 6, 2017, the Kumtor operation received the necessary permits to raise the tailings dam for its tailings management facility, which will provide adequate tailings storage capacity for Kumtor's mill tailings deposition from 2021 through the end of 2024.
  • On December 28, 2016, the Company received its 2017 maximum allowable emissions permit and its waste disposal permit, and the Kyrgyz authorities approved the 2017 mine plan for its Kumtor Project which includes the Sarytor area.
  • The Kumtor Project continues to be subject to a number of claims made by, among others, Kyrgyz Republic state environmental agencies which the Company continues to dispute. The Company continues its discussions with the Government of the Kyrgyz Republic to resolve all outstanding issues affecting the Kumtor Project in a manner that will be fair to all of its stakeholders. See "Other Corporate Developments -- Kyrgyz Republic" for further details.
Kumtor Operating Results
             

Unaudited ($ millions, except as noted)
  Three months ended March 31,
  2017   2016   % Change
Financial Highlights:            
Revenue - $ millions     164.1       73.2     124 %
                       
Cost of sales (cash)     35.0       19.0     84 %
Cost of sales (non-cash)     37.2       12.2     205 %
Cost of sales (total)     72.2       31.2     132 %
                       
Cost of sales - $/oz sold (1)     536       505     6 %
                       
                       
Cash provided by operations     91.6       7.2     1181 %
Cash provided by operations before changes in working capital (1)     102.4       37.1     176 %
                       
Operating Highlights:                      
Tonnes mined - 000s     39,003       39,275     (1 %)
Tonnes ore mined - 000s     -       1,826     0 %
Average mining grade - g/t     -       1.32     0 %
Tonnes milled - 000s     1,536       1,543     (0 %)
Average mill head grade - g/t     3.53       2.27     55 %
Mill Recovery - %     76.0 %     75.0 %   1 %
Mining costs - total ($/t mined material)     1.22       1.22     0 %
Milling costs ($/t milled material)     10.05       10.07     (0 %)
                       
  Gold produced - ounces     127,400       86,444     47 %
  Gold sold - ounces     134,682       61,744     118 %
Average realized gold price (1) - $/oz sold   $ 1,219     $ 1,186     3 %
                       
Capital Expenditures (sustaining) (1) - cash     15.2       23.0     (34 %)
Capital Expenditures (growth) (1) - cash     0.9       4.7     (81 %)
Capital Expenditures (stripping) - cash     46.7       10.4     348 %
Capital expenditures (total)     62.8       38.2     64 %
                       
Operating Costs (on a sales basis)     36.3       19.1     90 %
                       
Adjusted operating costs (1)- $/oz sold   $ 299     $ 371     (20 %)
Gold - All-in sustaining costs on a by-product basis - $/oz sold (1)   $ 762     $ 916     (17 %)
Gold - All-in sustaining costs on a by-product basis (including taxes)- $/oz sold (1)   $ 933     $ 1,084     (14 %)
(1)   Adjusted operating costs, all-in sustaining costs on a by-product basis (including and excluding taxes), cash provided by operations before changes in working capital, as well as average realized gold price per ounce sold and capital expenditures (sustaining and growth) are non-GAAP measures and are discussed under "Non-GAAP Measures".

First Quarter 2017 compared to First Quarter 2016

Production:

During the first quarter of 2017, Kumtor focused on simultaneously developing both the Central pit through mining cut-back 18 and the commencement of mining at the Sarytor pit. The Sarytor pit is approximately three kilometres south of the Central pit. The Company expects to obtain access to the Sarytor ore in the second half of 2017.

Total waste and ore mined in the first quarter of 2017 was 39.0 million tonnes, which is comparable to the 39.3 million tonnes in the comparative period of 2016.

Kumtor produced 127,400 ounces of gold in the first quarter of 2017 compared to 86,444 ounces of gold in the comparative period of 2016. The increase in ounces poured is a result of milling higher grade ore from stockpiles mined from cut-back 17 of the Central pit at the beginning of the fourth quarter in 2016, compared to the lower grade ore mined and processed from the initial benches in cut-back 17 during the comparative period. During the first quarter of 2017, Kumtor's head grade was 3.53 g/t with a recovery of 76.0%, compared to 2.27 g/t and a recovery of 75.0% for the same period of 2016.

Operating costs and All-in Measures:

Operating costs (on a sales basis), including capitalized stripping, decreased in the first quarter of 2017 by $0.4 million to $73.8 million compared to $74.2 million in the comparative quarter of 2016.

The movements in the major components of operating costs (mining and milling) in the first quarter of 2017 compared to the same period of 2016 are explained as follows:

Mining Costs, including capitalized stripping (First Quarter 2017 compared to First Quarter 2016):

Mining costs, including capitalized stripping, totaled $47.7 million in the first quarter of 2017, which was similar to the comparative quarter in 2016. Decreased costs for the first quarter of 2017 includes lower diesel costs ($1.4 million) due to lower consumption resulted from an advantageous hauling profile and lower fuel prices, lower blasting costs ($1.0 million) due to lower ammonium nitrate prices and lower blasted tonnages (35.1 Mt vs 38.9 Mt). Lower costs were partially offset by higher maintenance cost ($1.2 million) resulting from concentrated works on the shovels and dozers and higher labour cost ($1.1 million) due to a new collective agreement and strengthening of the Kyrgyz som in comparison to the same period of 2016.

Milling Costs (First Quarter 2017 compared to First Quarter 2016):

Milling costs of $15.4 million in the first quarter of 2017 were similar to the comparative quarter of 2016. Lower cyanide costs ($0.6 million) resulting from lower consumption (0.61 kg/t vs 0.66 kg/t) and a lower price, were offset by other costs ($0.5 million), including higher labour costs and exchange rate differences.

Other Cost movements:

Site support costs in the first quarter of 2017 totaled $10.7 million which is comparable to the same quarter in 2016.

DD&A associated with sales, increased to $36.9 million in the first quarter of 2017, from $12.2 million in the comparative quarter of 2016, reflecting a $24.7 million increase due to increased ounces sold, and the reversal of the $9.9 million non-cash inventory impairment recorded in the first quarter of 2016.

All-in sustaining costs on a by-product basis per ounce sold NG, which excludes revenue-based tax, was $762 for the first quarter of 2017 compared to $916 in the first quarter of 2016, representing a decrease of 17%. The unit cost decrease results from the increase in ounces sold (134,681 ounces vs 61,744 ounces, as explained above), partially offset by the additional operating costs associated with the increased sale volume.

Including revenue-based taxes, all-in sustaining costs on a by-product basis per ounce sold NG was $933 for the first quarter of 2017 compared to $1,084 in the first quarter of 2016.

Mount Milligan Mine

The Mount Milligan Mine is an open pit mine located in north central British Columbia producing a gold and copper concentrate. Production at Mount Milligan is subject to a streaming arrangement with Royal Gold pursuant to which Royal Gold is entitled to receive 35% of the gold produced and 18.75% of the copper production at our Mount Milligan project. Royal Gold will pay Centerra $435 per ounce of gold delivered and will pay 15% of the spot price per metric tonne of copper delivered (the "Royal Gold Stream Arrangement").

On March 22, 2017, a technical report prepared in accordance with NI 43-101 for the Mount Milligan Mine was filed on SEDAR.

     
Mount Milligan Mine Operating Results   Three months ended
Unaudited ($ millions, except as noted)   March 31, 2017 (1)
Financial Highlights:    
Gold sales     56.1  
Copper sales     28.6  
Total Revenues     84.7  
         
Cost of sales - cash     50.7  
Cost of sales - non-cash     15.9  
Cost of sales - total     66.6  
Cash provided by operations     (2.8 )
Cash provided by operations before changes in working capital (2)     32.0  
Operating Highlights:        
Ore Mined (000's t)     5,865  
Total Mined (000's t)     11,181  
         
Tonnes Milled (000's t)     4,744  
Mill Head Grade Copper (%)     0.17 %
Mill Head Grade Gold (g/t)     0.52  
Copper Recovery - %     76.2 %
Gold Recovery - %     58.5 %
Mining costs - total ($/t mined material)   $ 1.38  
Milling costs - total ($/t milled material)   $ 4.35  
Concentrate Produced (dmt)     27,751  
Payable Copper Produced (000's lbs) (5)     12,595  
Payable Gold Produced (oz) (5)     45,244  
         
Gold Sales (payable oz)     53,232  
Copper Sales (000's payable lbs)     13,612  
Average Realized Price - Gold (combined) - $/oz (2) (4)   $ 1,054  
Average Realized Price - Copper (combined) - $/lb (2) (4)   $ 2.10  
         
Capital expenditures - sustaining (2)     4.5  
Capital expenditures - growth (2)     -  
Capital expenditures - total     4.5  
         
Operating Costs (on a sales basis) (3)     51,928  
         
         
Operating Costs- $/oz sold     976  
Adjusted Operating costs- $/oz sold (2)   $ 443  
Gold - All in Sustaining costs on a by-product basis - $/oz sold (2)   $ 530  
Gold - All in Sustaining costs on a by-product basis (including taxes) - $/oz sold (2)   $ 549  
         
Gold - All in Sustaining costs on a co-product basis - $/oz sold (2)   $ 667  
Copper - All in Sustaining costs on a co-product basis - $/pound sold (2)   $ 1.86  
(1)   No comparative results for Mount Milligan have been presented. Reporting of comparative information will start in the first quarter of 2018.
(2)   Adjusted operating costs, all-in sustaining costs on a by-product basis (excluding and including tax) per ounce sold, cash provided by operations before changes in working capital, as well as average realized gold price per ounce sold (gold and copper), and capital expenditures (sustaining and growth) are non-GAAP measures and are discussed under "Non-GAAP Measures"
(3)   Operating costs (on a sales basis) is comprised of mine operating costs such as mining, processing, site and regional office administration, royalties and production taxes, but excludes reclamation costs and depreciation, depletion and amortization.
(4)   The average realized price of gold is a combination of market price paid by third parties and $435 per ounce paid by Royal Gold, while the average realized price of copper is a combination of market price paid by third parties and 15% of the spot price per metric tonne of copper delivered paid by Royal Gold, in each case under the Royal Gold Stream Arrangement.
(5)   Mount Milligan payable production and ounces sold are presented on a 100% basis (the Royal Gold Stream Agreement entitles it to 35% and 18.75% of gold and copper sales, respectively). Under the Royal Gold Stream Arrangement, Royal Gold will pay $435 per ounce of gold delivered and 15% of the spot price per metric tonne of copper delivered. Payable production for copper and gold reflects estimated metallurgical losses resulting from handling of the concentrate and payable metal deductions, subject to metal content, levied by smelters. The current payable percentage applied is approximately 95.0% for copper and 96.5% for gold, which may be revised on a prospective basis after sufficient history of payable amounts is determined.

First Quarter 2017

For the quarter, mill throughput averaged 53,000 tonnes per day (tpd) while mine production averaged 131,000 tpd. Total mill throughput was 4.7 million tonnes and total mine tonnes moved was 11.8 million tonnes. Total payable copper production for the period was 12.6 million pounds while total payable gold production was 45,244 ounces. This is consistent with the production plan which has 64% of payable copper production and 60% of payable gold production in the second half of 2017.

During the quarter, total gross gold sales, representing three concentrate shipments, were $56.1 million with a total of 53,232 ounces of gold sold for an average realized price of $1,059 per ounce. Net revenue adjustments from prior period gold sales, that either remained open and were marked-to-market or were closed and final priced during the first quarter, resulted in a net decrease in revenue of $1.2 million. Total gross copper sales for the quarter were $32.2 million with a total of 13.6 million pounds sold for an average realized price of $2.36/lb. Copper revenue for the quarter were increased by net adjustments of $2.1 million from the mark-to-market and finalization of prior open shipments.

Molybdenum Business

The molybdenum business includes two North American mines that are currently on care maintenance, the Thompson Creek Mine ("TC Mine") (mine and mill) in Idaho USA operated by Thompson Creek Mining Co. and the 75%-owned Endako Mine joint venture (mine, mill and roaster) in British Columbia, Canada. The US operations also include the metallurgical roasting facility operated by Langeloth (the "Langeloth Facility") in Pennsylvania USA. TC Mine operates a commercial molybdenum beneficiation circuit to treat molybdenum concentrates to supplement the concentrate feed sourced directly for the Langeloth Facility. This beneficiation process at the TC Mine has allowed the Company to process high copper molybdenum concentrate, which is then transported to the Langeloth Facility for processing.

The molybdenum business provides tolling services for customers by converting molybdenum concentrates to molybdenum oxide powder and briquettes and ferromolybdenum products. Additionally, molybdenum concentrates are also purchased to convert to upgraded products which are then sold in the metallurgical and chemical markets.

     
Molybdenum Business Operating Results   Three months ended
Unaudited ($ millions, except as noted)   March 31, 2017 (1)
     
Financial Highlights:    
Molybdenum (Mo) Sales   34.3
Tolling, Calcining and Other   2.2
Total Revenues and Other Income   36.5
     
Cost of sales - cash   31.6
Cost of sales - non-cash   2.0
Cost of Sales - Total   33.7
     
Care & Maintenance costs - Molybdenum mines   2.3
     
Total capital expenditures   0.1
     
Cash used in operations   (2.3)
Cash provided by operations before changes in working capitalNG   1.7
     
Production Highlights:    
Mo purchased (000's lbs)   2,826
Mo oxide roasted (000's lbs)   4,734
Mo sold (000's lbs)   4,022
Toll roasted and upgraded Mo (000's lbs)   1,689
(1)   No comparative results for the molybdenum business have been presented. Reporting of comparative information will start in the first quarter of 2018.

First Quarter 2017

A total of 4.0 million pounds of molybdenum were sold and 1.7 million pounds tolled during the first quarter resulting in sales revenue of $36.5 million. Net of $2.3 million in care and maintenance expenses at the two closed molybdenum mines, the molybdenum business generated $1.7 million of cash from the operations (before changes in working capital) in the first quarter of 2017. In addition, a total of $0.1 million was spent on capital during the quarter. After considering changes in working capital, the molybdenum business used cash of $2.4 million in the first quarter.

  1. Development Projects

Öksüt Project:

At the Öksüt Project in Turkey, the Company spent $2.1 million during the first quarter of 2017 ($3.6 million in the first quarter of 2016) on development activities to progress the Environmental and Social Impact Assessment ("ESIA"), access and site preparation and detailed engineering plans.

On July 14, 2016, OMAS received a forestry land usage permit for the project and the operation permit for forestry area was obtained on August 26, 2016. The pastureland permit is currently outstanding and the Company is working with the relevant agencies to obtain the permit. There is no assurance that the approval of the key pastureland or other permits will be obtained by the Company in a timely manner or at all. If the pastureland permit is received in the second quarter of 2017, construction activities at the Öksüt Project are expected to commence in July 2017. If construction commences in July 2017, first gold production would be expected to occur in the fourth quarter of 2018.

During the first quarter of 2017, the Turkish Electricity Transmission Company (TEİAŞ) continued construction of the 26 kilometres power line which will provide dedicated power to the Öksüt Project. Construction of the towers, sub-stations and installation of high-tension power lines is 65% complete. Once completed, the power line will be connected to the Turkish national electrical power grid.

On September 3, 2015 a technical report prepared in accordance with NI 43-101 for the Öksüt Project was filed on SEDAR.

Gatsuurt Project:

During the quarter, the Company continued discussions with the Mongolian Government regarding the Gatsuurt Project. See "Other Corporate Developments -- Mongolia".

The Company expects to complete an updated feasibility study on the Gatsuurt Project by the end of the second quarter 2017 with updated economics and additional technical data generated in 2016.

Greenstone Gold Property:

As previously disclosed, the Greenstone Partnership has not made a development or construction decision on the Hardrock Project. The Greenstone Partnership is evaluating programs to minimize the risk profile of the project including the advancement of permitting and discussions with Aboriginal communities.

The Company is nearing the completion of the Environmental Impact Study/Environmental Assessment ("EIS/EA") for the Hardrock Project, and is expected to submit a final version to the Government of Ontario during the second half of 2017. The comments received on the draft EIS/EA related primarily to the location and management of the tailings storage facility, the management and location of the waste dumps, and water quality.

In the first quarter of 2017, the Company spent $2.3 million on project development activities ($3.6 million in the first quarter of 2016 and $39 million, cumulative to date) on advancing the EIS/EA, commencing negotiations with impacted Aboriginal communities, optimizing the feasibility study and completing exploration programs.

On November 16, 2016, the Company, along with its joint venture partner Premier Gold Mines Limited, announced the feasibility study results on the Hardrock Project. A NI 43-101 technical report was filed on SEDAR on December 22, 2016.

  1. Quarterly Results -- Previous Eight Quarters

Over the last eight quarters, Centerra's results reflect the impact of decreasing input costs, such as diesel, labour and consumables, which have seen a continued decrease through 2015, 2016 and into 2017. Over the same periods, gold prices declined through 2015 and progressively increased over the first three quarters of 2016, until dropping in the fourth quarter as a result of the U.S. election. The weakening of currencies as compared to the U.S. dollar has also had a positive impact on foreign-denominated costs. The quarterly production profile for 2017 is expected to be more consistent across each quarter (similar to 2015), while the production profile in 2016 was more concentrated in the last half of the year. Non-cash costs have progressively increased at Kumtor due to its expanded mining fleet and the increased amortization of capitalized stripping resulting from increased stripping as the pit gets larger. The addition of Mount Milligan's results started with the acquisition of Thompson Creek on October 20, 2016. The quarterly financial results for the last eight quarters are shown below:

$ million, except per share data or as specified   2017   2016   2015
Quarterly data unaudited                                
    Q1   Q4   Q3   Q2   Q1   Q4   Q3   Q2
Revenue   285   306   220   162   73   148     116     147
Net earnings (loss)   57   64   67   3   18   (3 )   (18 )   22
Basic earnings (loss) per share   0.20   0.23   0.28   0.01   0.08   (0.01 )   (0.08 )   0.09
Diluted earnings (loss) per share   0.20   0.23   0.28   -   0.07   (0.01 )   (0.08 )   0.09
  1. Other Corporate Developments

The following is a summary of corporate developments with respect to matters affecting the Company and its subsidiaries. Readers are cautioned that there are a number of legal and regulatory matters that are currently affecting the Company and that the following is only a brief summary of such matters. For a more complete discussion of these matters, see the Company's 2016 Annual Information Form and specifically the section entitled "Risks that can affect our business" therein available on SEDAR at www.sedar.com. The following summary also contains forward-looking statements and readers are referred to "Caution Regarding Forward-looking Information".

Kyrgyz Republic

Arbitration

As previously disclosed, Centerra commenced an arbitration proceeding against the Kyrgyz Republic and Kyrgyzaltyn in 2016 in relation to certain ongoing disputes relating to the Kumtor Project and, on February 23, 2017, filed with the Permanent Court of Arbitration ("PCA") a full statement of claim seeking, among other things: (i) declarations that the arbitrator has jurisdiction to hear Centerra's claims; (ii) declarations that the actions of the Kyrgyz Republic and Kyrgyzaltyn have breached the Kumtor Project Agreements (defined below); (iii) ordering the Kyrgyz Republic to withdraw its environmental, dividend and land use claims (further discussed below), terminate related judgments and orders, declare those judgments and orders null and void and issued without jurisdiction; and (iv) ordering the Kyrgyz Republic and Kyrgyzaltyn to pay monetary damages, costs and interest.

In addition, on January 12, 2017, Centerra filed with the PCA a request for partial award, or in the alternative, interim measures, against the Kyrgyz Republic. The Company is seeking an award ordering that the Kyrgyz Republic withdraw or stay (suspend) its claims relating to previously disclosed environmental, dividend and land use claims, and related decisions and court orders. The Company expects that the arbitrator will render a decision on this matter in mid-2017.

Under Centerra's Restated Investment Agreement with the Kyrgyz Republic dated as of June 6, 2009, the arbitration will be determined by a single arbitrator and conducted under UNCITRAL Arbitration Rules in Stockholm, Sweden, Disputes arising out of the 2009 Restated Investment Agreement will be governed by the law of the State of New York, USA and the conduct and operations of the parties will be governed by the 2009 Restated Investment Agreement, the 2009 Restated Concession Agreement (together with the 2009 Restated Investment Agreement, the "Kumtor Project Agreements") and the laws of the Kyrgyz Republic.

Kyrgyz Permitting and Regulatory Matters

After receipt of its maximum allowable discharge (MAD) permit in April 2017, KGC has all key permits and approvals in place for mining operations at the Kumtor Project in 2017.

The withdrawal of any required permit could lead to a suspension of Kumtor operations.

Amendments to the Kyrgyz Republic Constitution

In December 2016, the Kyrgyz Republic constitution was amended. The Company understands that the amendments remove the limitation period that would otherwise apply to officials and non-officials charged with abuse of office or abuse of duty in connection with Kumtor development or operations. As previously noted, the Company is not aware of any basis for allegations of criminal misconduct in connection with the development of the Kumtor Project. Centerra has previously asked the Kyrgyz Republic government for evidence of any such wrongdoing but has never received any such evidence. Centerra is not aware of any criminal proceedings or investigations being undertaken against the Company, its subsidiaries or its or their personnel as result of the constitutional amendment.

SIETS and SAEPF Claims

As previously disclosed, the Kumtor Project is subject to a number of claims made by, among others, Kyrgyz Republic state environmental agencies. The Company believes that such claims are, in substance, an attempt by the Kyrgyz Republic to impose additional taxes and payments on the Kumtor Project which are prohibited by the terms of the 2009 Restated Investment Agreement. Such claims are not based on allegations of improper environmental practices or damage to the environment.

The latest such claims was filed on August 23, 2016 by the Chui-Bishkek-Talas Local Fund of Nature Protection and Forestry Development of the Kyrgyz Republic State Agency for Environmental Protection and Forestry ("SAEPF"), seeks compensation for alleged environmental pollution in the amount of 40,340,819 Kyrgyz soms (approximately $600,000).

As previously disclosed, on May 25, 2016, the Bishkek Inter-District Court in the Kyrgyz Republic ruled against Kumtor Operating Company ("KOC"), Centerra's wholly-owned subsidiary, on two claims made by the State Inspectorate Office for Environmental and Technical Safety of the Kyrgyz Republic ("SIETS") in relation to the placement of waste rock at the Kumtor waste dumps and unrecorded wastes from Kumtor's effluent and sewage treatment plants. The Inter-District Court awarded damages of 6,698,878,290 Kyrgyz soms (approximately $96.5 million, based on an exchange rate of 69.43 Kyrgyz soms per US$1.00) and 663,839 Kyrgyz soms (approximately $9,500), respectively. On June 1, 2016, the Inter-District Court ruled against KOC on two other claims made by SIETS in relation to alleged land damage and failure to pay for water use. The Inter-District Court awarded damages of 161,840,109 Kyrgyz soms (approximately $2.3 million) and 188,533,730 Kyrgyz soms (approximately $2.7 million), respectively. Centerra, KOC and KGC (added by the Kyrgyz courts) strongly dispute the SIETS claims and have appealed the decisions to the Bishkek City Court and will, if necessary, appeal to the Kyrgyz Republic Supreme Court.

On June 3, 2016, the Inter-District Court held a hearing in respect of the claim made by SAEPF alleging that Kumtor owes additional environmental pollution fees in the amount of approximately $220 million. The court did not issue a decision on the merits of the claim itself. However, at the request of SAEPF, the court granted the KR Interim Court Order which prohibits KGC from taking any actions relating to certain financial transactions including, transferring property or assets, declaring or paying dividends, pledging assets or making loans. As at March 31, 2017, KGC's cash and investments balance was $273.9 million. The cash generated from the Kumtor Project which is held in KGC is however available to fund Kumtor's operation. The injunction was effective immediately. KGC's appeal of the Inter-District Court's order to Bishkek City Court was dismissed on July 19, 2016, and its subsequent appeal to the Kyrgyz Republic Supreme Court was dismissed on October 19, 2016. As a result of the appeal by KGC, the proceedings on the merits of the SAEPF claim were suspended, however, the Company now expects such hearings on the merits to resume.

Kyrgyz Republic General Prosecutor's Office Proceedings

Criminal Proceedings Against Unnamed KGC Managers

On May 30, 2016, a criminal case was opened by the Kyrgyz Republic General Prosecutor's Office ("GPO") against unnamed KGC managers alleging that such managers engaged in transactions that deprived KGC of its assets or otherwise abused their authority, causing damage to the Kyrgyz Republic. Specifically, the case appears to be focused on the reasonableness of certain of KGC's commercial transactions and in particular, the purchase of goods and supplies in the normal course of its business operations and the expenses relating to the relocation of the Kumtor Project's camp in 2014 and 2015. Further to such investigation, the GPO has carried out searches of KGC's offices and seized documents and records.

2013 KGC Dividend Civil and Criminal Proceeding

On June 3, 2016, the Inter-District Court renewed a claim previously commenced by the GPO seeking to unwind the $200 million dividend paid by KGC to Centerra in December 2013 (the "2013 Dividend"). The Company understands that the GPO has also initiated a criminal investigation of executives of the Company and KGC in respect of the 2013 Dividend but that investigation is currently suspended.

KGC Employee Movement Restrictions

In connection with certain of the foregoing criminal investigations, restrictions have been imposed by the Kyrgyz Republic on certain KGC managers and employees, which prohibit them from leaving the Kyrgyz Republic.

GPO Review of Kumtor Project Agreements

On June 14, 2016, according to reports in the Kyrgyz Republic, the Kyrgyz Republic President instructed the GPO to investigate the legality of the agreements relating to the Kumtor Project which were entered into in 2003, 2004 and 2009. The 2009 Restated Investment Agreement governing the Kumtor Project which was entered into in 2009 superceded entirely the 2003 and 2004 agreements. The 2009 Restated Investment Agreement was negotiated with the Kyrgyz Republic government, Kyrgyzaltyn and their international advisers, and approved by all relevant Kyrgyz Republic state authorities, including the Kyrgyz Republic Parliament and any disputes under the 2009 Restated Investment Agreement are subject to resolution by international arbitration.

Criminal Charges Regarding 2016 Casualty at Kumtor Mill

On June 16, 2016, the Investigator of the Jety-Oguz District Department of Interior Affairs initiated criminal proceedings against two KGC managers in relation to the previously disclosed death of a KGC employee due to an industrial accident which occurred in January 2016.

Land Use Claim

As previously noted, KGC continues to challenge the purported 2012 cancellation of its land use (surface) rights over the Kumtor concession areas in the Kyrgyz Republic courts as well as in its arbitration claim (described above).

Management Assessment of Claims

The Company and KGC strongly dispute the allegations noted above and will continue to challenge the actions of the Government and its instrumentalities, including SIETS, SAEPF, and the GPO, in the courts of the Kyrgyz Republic as well as in international arbitration.

The Company remains committed to working with Kyrgyz Republic authorities to resolve these issues in accordance with the 2009 Restated Investment Agreement, which provide for all disputes to be resolved by international arbitration, if necessary. Although the Company has reviewed the various claims discussed above and believes that all disputes related to the 2009 Restated Investment Agreement should be determined in arbitration, there are risks that the arbitrator may (i) reject the Company's claims; (ii) determine it does not have jurisdiction; and/or (iii) stay the arbitration pending determination of certain issues by the Kyrgyz Republic courts. Even if the Company receives an arbitral award in its favour against the Kyrgyz Republic and/or Kyrgyzaltyn, there are no assurances that it will be recognized or enforced in the Kyrgyz Republic. Accordingly, the Company may be obligated to pay part of or the full amounts of, among others, the SIETS and SAEPF claims (discussed below) regardless of the action taken by the arbitrator. The Company does not have insurance or litigation reserves to cover these costs. If the Company were obligated to pay these amounts, it would have a material adverse impact on the Company's future cash flows, earnings, results of operations and financial condition.

While the Company has commenced arbitration proceedings, it also continues to be in discussions with the Kyrgyz Republic Government with a view to resolving all outstanding matters impacting the Kumtor Project. However, there are no assurances that: (i) the Company will be able to successfully resolve any or all of the outstanding matters affecting the Kumtor Project; (ii) any discussions between the Kyrgyz Republic government and Centerra will result in a mutually acceptable resolution; (iii) Centerra will receive the necessary legal and regulatory approvals under Kyrgyz law and/or Canadian law for any such resolution; or (iv) the Kyrgyz Republic Government and/or Parliament will not take actions that are inconsistent with the Government's obligations under the Kumtor Project Agreements, including adopting a law "denouncing" or purporting to cancel or invalidate the Kumtor Project Agreements or laws enacted in relation thereto which have the effect of nationalization of the Kumtor Project. The inability to successfully resolve all such matters could lead to suspension of operations of the Kumtor Project and would have a material adverse impact on the Company's future cash flows, earnings, results of operations and financial condition.

Mongolia

Gatsuurt -- Development

Since 2016, the Company has been in discussions with the Mongolian Government to implement a 3% special royalty in lieu of the Government's 34% direct interest in the Gatsuurt Project. Various working groups have been established by the Mongolian Government to negotiate with Centerra the definitive agreements relating to the Gatsuurt Project. The Company expects to continue such negotiations in 2017.

However, there are no assurances that Centerra will be able to negotiate definitive agreements with the Mongolian Government (in a timely fashion or at all) or that such economic and technical studies will have positive results. The inability to successfully negotiate definitive agreements and/or the absence of positive results on additional financial and technical studies could have a material impact on the Company's future cash flows, earnings, results of operations and financial condition and the Company may be required to write-off approximately $48 million related to the investment in Gatsuurt and approximately $53 million of remaining capitalized costs for the Boroo mill facility, other surface structures and equipment parts.

Gatsuurt -- Illegal Mining

CGM and Centerra continue to work with appropriate Mongolian federal and aimag (local) governments, relevant state bodies and police to clear the Gatsuurt site from artisanal miners and to restrict their access to the site. Centerra does not condone any violence or use of force by Mongolian authorities and has communicated to Mongolian authorities that matters are to be resolved in a peaceful manner.

Claim Against the Mongolian Mineral Resources Authority to Revoke Gatsuurt Mining Licenses

In the first quarter of 2016, a non-governmental organization called "Movement to Save Mt. Noyon" filed a claim against the Mongolian Mineral Resources Authority (MRAM) requesting that MRAM revoke the two principle mining licenses underlying the Gatsuurt Project. CGM, the holder of these two mining licenses, is involved in the claim as a third party. Such proceedings are ongoing.

Sale of ATO

On January 31, 2017, Centerra Gold's Mongolian subsidiary, CGM entered into definitive agreements to sell the ATO project, located in Eastern Mongolia, to Steppe Gold LLC and Steppe Gold Limited for gross proceed of $19,800,000. CGM has received $800,000 upon signing of the definitive agreements and is to receive $9,000,000 at closing, scheduled for the second quarter of 2017, followed by two additional $5 million cash payments at the first anniversary and second anniversary date of the closing of the transaction. The closing of the transaction is conditional upon Steppe Gold Limited executing their financing plans which the Company understands is scheduled to be completed in mid-2017.

  1. Accounting Estimates, Policies and Changes

Accounting Estimates

The preparation of the Company's consolidated financial statements in accordance with IFRS required management to make estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. The critical estimates and judgments applied in the preparation of the Company's condensed consolidated interim financial statements for the three months ended March 31, 2017 are consistent with those used in the Company's consolidated financial statements for the year ended December 31, 2016.

Accounting policies and recent changes

The accounting policies applied in the condensed consolidated interim financial statements for the three months ended March 31, 2017 are consistent with those used in the Company's consolidated financial statements for the year ended December 31, 2016, with the exceptions listed in note 3 of the condensed consolidated interim financial statements.

Recently issued but not adopted accounting guidance

Note 3 in the condensed consolidated interim financial statements for the three months ended March 31, 2017 presents a list of recently issued accounting standards not yet adopted by the Company, provides a brief description on the nature of these changes and potential impact on the Company. The recently issued accounting standards and amendments are as follows: IFRS 15, Revenue from Contracts with Customers, IFRS 9, Financial Instruments, IFRS 16, Leases and amendments to IAS 7, Statements of Cash Flows and IAS 12, Income Taxes.

  1. Disclosure Controls and Procedures and Internal Control Over Financial Reporting ("ICFR")

Centerra adheres to the Committee of Sponsoring Organizations of the Treadway Commission's (COSO) revised 2013 Internal Control Framework for the design of its ICFR. In accordance with National Instrument 52-109, the design of the Company's DC&P and ICFR excludes the controls, policies and procedures related to Thompson Creek and its subsidiaries on the basis that Thompson Creek and its subsidiaries were acquired on October 20, 2016 and therefore have been an operating subsidiary less than one year.

The evaluation of disclosure controls and procedures and internal controls over financial reporting under COSO's 2013 Internal Control Framework was carried out under the supervision of and with the participation of management, including Centerra's CEO and CFO. Based on these evaluations, the CEO and the CFO concluded that the design and operation of these disclosure controls and procedures and internal control over financial reporting were effective.

  1. 2017 Outlook

Production, cost and capital forecasts for 2017 are forward-looking information and are based on key assumptions and subject to material risk factors that could cause actual results to differ materially and which are discussed herein under the headings "2017 Outlook - Material Assumptions & Risks" and "Caution Regarding Forward-Looking Information" in this MD&A. Also refer to the Company's 2016 Annual Information Form and specifically the section entitled "Risks that can affect our business" therein available on SEDAR.

2017 Gold Production

Centerra's 2017 gold production is expected to be between 715,000 to 795,000 ounces, which is unchanged from the previous guidance disclosed in the Company's news release of January 16, 2017. Kumtor's production forecast is expected to be in the range of 455,000 ounces to 505,000 ounces and Mount Milligan's payable gold production is expected to be in the range of 260,000 to 290,000 ounces, which is unchanged from the previous guidance. Kumtor and Mount Milligan are expected to generate 30% and 35% of their annual production, respectively, in the fourth quarter of 2017.

The Mongolian operations will continue with care and maintenance activities at the Boroo mine mainly focusing on reclamation work. Any revenue from Boroo gold production from the rinsing of the heap leach pad is offset against care and maintenance costs. The 2017 production forecast assumes no gold production from Boroo, Gatsuurt, Öksüt or Hardrock which is unchanged from the previous guidance.

Centerra's 2017 guidance for production, exploration, capital spending, corporate administration, and community costs and DD&A is unchanged from the previous guidance disclosed in the Company's news release of January 16, 2017.

2017 Copper Production

Centerra expects concentrate production from the Mount Milligan Mine to be in the range of 125,000 to 135,000 dry metric tonnes for 2017, which is unchanged from the previous guidance. Payable copper production is expected to be in the range of 55 million pounds to 65 million pounds, which is unchanged from the previous guidance.

Centerra's 2017 production is forecast as follows:

2017 Production Guidance   Units   Kumtor   Mount Milligan(1)   Centerra
Gold                
Unstreamed Gold Payable Production   (Koz )   455 - 505   169 - 189   624 - 694
Streamed Gold Payable Production(1)   (Koz )   -   91 - 101   91 - 101
Total Gold Payable Production(2)   (Koz )   455 - 505   260 - 290   715 - 795
                   
Copper                  
Unstreamed Copper Payable Production   (Mlb )   -   45 - 53   45 - 53
Streamed Copper Payable Production(1)   (Mlb )   -   10 - 12   10 - 12
Total Copper Payable Production(3)   (Mlb )   -   55 - 65   55 - 65
                   
Concentrate production in dry tonnes   (Kt )   -   125 - 135   125 - 135
(1)   The Royal Gold Stream Arrangement entitles Royal Gold to 35% and 18.75% of gold and copper sales, respectively, from the Mount Milligan Mine and Royal Gold will pay $435 per ounce of gold delivered and 15% of the spot price per metric tonne of copper delivered. The current payable percentage applied is approximately 95.0% for copper and 96.5% for gold, which may be revised on a prospective basis after sufficient history of payable amounts is determined.
(2)   Gold production assumes 78.8% recovery at Kumtor and 62.5% recovery at Mount Milligan.
(3)   Copper production assumes 75.5% recovery for copper at Mount Milligan.

2017 All-in Sustaining Unit Costs NG

Centerra's 2017 all-in sustaining costs per ounce sold NG on a by-product basis are unchanged from the previous guidance and are forecast as follows:

...
             
    Kumtor   Mount Milligan(2)   Centerra(2)
Ounces sold forecast     455,000 - 505,000       260,000 - 290,000       715,000-795,000  
US $ / gold ounce sold                        
Operating costs     288 - 319       748 - 834       456 - 507  
Changes in inventory     35 - 39       35 - 39       35 - 39  
Operating costs (on a sales basis)(3)   $ 323 - $358     $ 783 - $873     $ 491 - $546  
Selling & marketing     -       18 - 20       6 - 7  
Regional office administration     31 - 34       -       20 - 22  
Social development costs     5       -       3  
Treatment & refining charges     6 - 7       71 - 79       30 - 33  
Copper credits(2)     -       (484) - (540 )     (177) - (196 )
Silver credits     (6) - (7 )     (23) - (26 )     (12) - (14 )
Subtotal (Adjusted operating costs)(1), (2)   $ 359 - $397     $ 365 - $406     $ 361 - $401  
Accretion expense     2       1       2  
Capitalized stripping costs (cash)     340 - 377       -       216 - 240  
Sustaining capital expenditures(1)     135 - 149       91 - 101       120 - 133