Centerra swings back into profit

A shovel loads a haul truck in the pit at Centerra Gold's Kumtor gold mine in the Kyrgyz Republic.   Source: Centerra Gold A shovel loads a haul truck in the pit at Centerra Gold's Kumtor gold mine in the Kyrgyz Republic. Source: Centerra Gold

Centerra Gold (TSX: CG; US-OTC: CAGDF) posted a profit in the second quarter, amid a sea of red for gold miners hurt by lower commodity prices.

Quarterly earnings were US$21.9 million, or US9¢ per share, compared to last year’s net loss of US$31.7 million, or US13¢ per share. Analysts on average estimated a US3¢-per-share net loss. 

Revenue grew 23% to US$146.8 million. 

The better-than-expected performance resulted from Centerra selling 32% more gold ounces than a year ago, and lower operating costs. This helped offset the 7% year-over-year drop in average realized gold prices of US$1,192 per oz. 

Quarterly production from Centerra’s two gold mines — Kumtor in the Kyrgyz Republic and Boroo in Mongolia — grew 36% to 125,088 oz. gold. 

Kumtor delivered 122,111 oz., compared to 77,860 oz. in the earlier year. The increase came on the back of higher gold grades and recoveries. All-in sustaining costs at the mine dropped 45% to US$835 per oz., as the company sold more ounces and lowered its operating costs.

The Boroo mine churned out less than 3,000 oz. gold, compared to more than 14,000 oz. in the second quarter of 2014. The lower production came from fewer ounces poured from the heap-leach operation via secondary leaching. Centerra notes it milled Boroo’s stockpiled ore last December and anticipates completing all leaching activities in early 2016. All-in sustaining costs, excluding income tax, were US$1,214 per oz., up from US$915 per oz. Despite the higher costs, Centerra says Boroo was cash positive. 

Gold sales from both operations totalled 123,079 oz. in the second quarter.  

Adjusted operating costs came in at US$347 per oz. sold, down from US$608. All-in sustaining costs fell by US$600 per oz. sold to US$937, while all-in costs, including taxes, improved by 36% to US$1,191 per oz. 

Cash provided by operations totalled US$114.6 million. This helped bolster the miner’s cash, equivalents and short-term investments to US$581.7 million. 

On the same day as its financial results, Centerra released a positive feasibility study for its Oksut heap-leap project in Turkey. 

The study estimates the project will produce 895,000 oz. gold in total over an eight-year mine life. Anticipated all-in sustaining costs are US$490 per oz., with all-in costs, including taxes, of US$777 per oz. 

The initial cost to build the project is US$221 million. Given the low start-up capital, Oksut has a US$242-million after-tax net present value and a 42.5% internal rate of return, using US$1,250 per oz. gold at an 8% discount rate. 

The company’s CEO Ian Atkinson says developing Oksut “is another step in Centerra’s strategy of diversifying its portfolio.” 

Pending approval of its environmental impact assessment, construction should start in early 2016, with first production targeted for 2017. 

Given the positive quarterly financials and Oksut’s robust feasibility study, BMO analyst Andrew Breichmanas has increased his $6 target to $6.25. He has a “market perform-speculative” rating, noting Centerra still faces uncertainty at its operations. 

“Oksut reinforces Centerra’s strategy of using its strong balance sheet to diversify its portfolio, but in the near-term, issues in Mongolia and the Kyrgyz Republic appear likely to overshadow the company’s ongoing transformation,” Breichmanas says. 

Earlier this year, Centerra took the first step in reducing its geopolitical risk by agreeing to invest up to $300 million in Premier Gold Mines’ (TSX: PG; US-OTC: PIRGF) Trans-Canada property in Ontario, in exchange for a 50% joint-venture interest. The property, now renamed Greenstone Gold, includes the development-stage Hardrock gold project, which the firms are jointly drilling.  

Meanwhile, Centerra notes discussions are ongoing with the Kyrgyz government regarding the possible restructuring of the Kumtor project. The company says it is still working with the State Agency for Environmental Protection and Forestry to obtain approvals for Kumtor’s 2015 annual mine plan, explaining that without them, mining could be suspended. 

In Mongolia, the Gatsuurt gold project remains on care and maintenance, despite the Mongolian parliament acknowledging the  deposit’s “strategic importance.” In early June, the Mongolian government proposed that either its interest in Gatsuurt should be 34%, or that there should be a special royalty on the project. On June 18, the Mongolian parliament rejected that proposal, Centerra says. It expects the government will submit a revised proposal later this year.

Centerra ended July 28 up nearly 7% at $6.17 per share. It has kept its quarterly dividend at 4¢ per share. 

In early August, Centerra’s former president and CEO Leonard Homeniuk was arrested on corruption allegations. Homeniuk, who retired from Centerra in June 2008, was detained while on holidays in Bulgaria at the request of the Kyrgyz government. The company notes it has “reviewed these allegations previously, and has found no basis for them.”


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