VANCOUVER — Producer Centerra Gold (TSX: CG; US-OTC: CAGDF) has been making headlines due to its negotiation with the Kyrgyzstan government over the ownership structure at its flagship Kumtor gold mine, 350 km southeast of the capital Bishkek, but even the socio-political turbulence can’t overshadow the company’s strong operational performances and emerging development opportunities in alternate jurisdictions.
On Feb. 19 Centerra released its full-year results for 2013, with both Kumtor and its Boroo heap-leach gold mine in Mongolia exceeding production guidance. Similar to 2012, Centerra registered most of its production during the fourth quarter, when it produced 362,200 oz. gold at all-in sustaining costs per oz. sold pegged at US$433 per oz. Full-year output was 690,720 oz. at all-in sustaining costs per oz. sold of US$818 per oz.
“Both operations performed well during the quarter, and we did better than guidance for the year for both production and costs. At Kumtor the operation had an excellent quarter, as we mined and processed the high-grade SB zone,” commented chief operating officer Gordon Reid during a conference call, noting that Kumtor chipped in 600,400 oz. gold during 2013 at all-in costs of US$775 per oz., with the mine cranking out 348,000 oz. during the fourth quarter.
The company’s operations resulted in net earnings of US$158 million, or 67¢ per share, which compares favourably to 2012, when it generated US$143 million, or 61¢ per share. Centerra reported a 78% increase in ounces sold year-on-year, though the production boost was offset by a 20% fall in realized gold prices.
Kumtor recorded a 90% increase in ounces poured in 2013, while Boroo poured 26% more ounces. Kumtor processed higher grades at better recoveries, while Boroo benefitted from a full year of heap-leach production. The company’s guidance for 2014 is expected to fall between 595,000 and 645,000 oz., at all-in sustaining costs per ounce sold ranging from US$875 to US$950.
On the growth side Centerra announced a preliminary economic assessment (PEA) on its Oskut gold project in Turkey, which lies 295 km southeast of the capital Ankara. The study builds on a resource update in December that outlined 29 million indicated tonnes at the Keltepe deposit grading 1.2 grams gold per tonne for 1.1 million contained oz., and 4.7 million inferred tonnes at the Guneytepe deposit averaging 0.9 gram gold for 134,000 contained oz. All resource figures assume a 0.2-gram gold cut-off grade.
Centerra’s PEA models an open-pit, heap-leach facility that would operate at 11,000 tonnes per day. Mining costs are expected to average US$2.77 per tonne, while processing costs are estimated at US$4 per tonne. Oksut would produce an average of 81,200 oz. gold annually over an 11-year mine life, with the operation peaking during years four to six, when gold output would average 125,000 oz. per year. All-in costs at Oskut are estimated at US$849 per oz. over the mine’s life.
Oksut would carry construction and pre-production costs of US$166 million, and generate a US$117-million after-tax net present value (NPV) at an 8% discount rate, along with a 19% internal rate of return (IRR). Payback on development capital is expected to be four and a half years. Centerra’s economics assume a US$1,300 per oz. gold price.
“We’re also excited about the upside on the project. [Keltepe] is still open to the south towards our Guneytepe deposit, which is 300 metres away. We also have a number of other exploration targets on the top of that,” president and CEO Ian Atkinson noted. “[Oksut] has robust economics, and we can now move it forward quickly, with production potentially starting in late 2016.”
Centerra has traded within a 52-week window of $2.82 and $7.67, and closed at $5 per share at press time. The company reported US$425 million in net cash to end 2013. It has 235.4 million shares outstanding for a $1.2-billion market capitalization.
BMO Capital Markets analyst Andrew Breichmanas — who has an $8.50 price target on Centerra, along with a “stock outperform” rating — noted in a Feb. 20 research comment that “the strong balance sheet appears to support management’s more aggressive commentary on advancing Oksut. BMO Research expects share price performance to be driven by progress finalizing the Kumtor restructuring transaction, but the emerging opportunities show that there is more to the story than Kyrgyzstan politics, and that current operations are capable of funding growth in new jurisdictions.”
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