(All figures are in United States dollars)
Centerra Gold Reports Second Quarter Earnings of US$0.09 per Share
Toronto, Canada, July 27, 2007: Centerra Gold Inc. (TSX: CG) today reported second quarter net earnings of $18.6 million ($0.09 per common share) on revenues of $103.7 million, compared to net earnings of $29.0 million ($0.13 per common share) on revenues of $106.8 million in the same quarter of last year, reflecting lower gold production and sales and higher income taxes as a result of the Boroo mine commencing to pay corporate income tax. Cash provided by operations, net of working capital changes and other operating items, was $7.4 million compared to $23.9 million in the second quarter of 2006.
Consolidated gold production, on a 100% basis, totaled 153,414 ounces at a total cash cost of $349 per ounce in the second quarter compared to 164,252 ounces at a total cash cost of $325 per ounce in the corresponding quarter of 2006.
For the first half of 2006, net earnings were $24.6 million ($0.11 per common share) and cash provi
ded by operations amounted to $15.2 million. Consolidated gold production totalled 286,419 ounces at a total cash cost of $377 per ounce. In the comparable period of 2006, Centerra reported net earnings of $47.2 million ($0.22 per common share) and cash provided by operations of $56.0 million. Consolidated gold production was 318,063 ounces at a total cash cost of $331 per ounce.
Lower year-over-year net earnings for the quarter and the first half resulted from lower gold production and sales volumes, which were partially offset by a higher realized gold price. Gold production was lower reflecting lower throughput and grades at Kumtor due to the alteration of the mine plan as a result of the pitwall movement in July 2006.
Second Quarter Highlights
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Boroo exceeded plan on production and cash costs.
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Discussions continued with the governments in the Kyrgyz Republic and Mongolia.
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Subsequent to the quarter end:
In a news release, dated July 19, 2007, the Company announced that independent geotechnical experts completed a preliminary analysis of the previously reported (April 27, 2007) Kumtor SB Zone highwall waste dump movement. They have recommended stabilizing the pitwall by designing to flatter angles through the underlying till layer and overlying waste dump. The lower slope angles require the removal of more waste than previously planned and delays the access to the high-grade SB Zone ore until the second quarter 2008. Consequently, 2007 gold production at the Kumtor mine is now forecast to be approximately 300,000 ounces compared to Centerra's previous projection of approximately 450,000 to 460,000 ounces. Total cash cost for 2007 is expected to be $580 per ounce, compared to previous guidance of $440 to $450 per ounce.
In July, Centerra, Cameco Corporation and the Government of the Kyrgyz Republic held further negotiations regarding settlement of outs
tanding issues relating to the Kumtor Project. The Company expects negotiations to resume in the near future.
The Company continues to hold negotiations regarding its Boroo Stability Agreement with the Mongolian Government. No agreement has been reached.
Commentary
"The Boroo operation performed well, again exceeding expectations," said Len Homeniuk, President and CEO. "We are disappointed with the delay in accessing the high-grade SB Zone ore , however, we are pleased that there are technical solutions to the problem. Further technical assessment and additional geotechnical drilling is underway and we expect by year end to have a revised outlook for life-of-mine production including an assessment on any impact on reserves and resources. Safety is paramount at our operations and to be able to engineer into our mine design an acceptable safety factor has made it necessary to reduce our production outlook at Kumtor for the year."
Financial Summary - Second Quarter
Revenue in the second quarter of 2007 decreased to $103.7 million from $106.8 million in the same quarter last year reflecting lower sales and lower production volume partially offset by higher realized gold price. Centerra realized an average gold price of $667 per ounce for the third quarter, an increase over the $632 per ounce realized in the same quarter of 2006.
Total consolidated production on a 100% basis for the three months ended June 30, 2007 at Kumtor and Boroo mines was 153,000 ounces of gold an increase from the 133,000 ounces produced in the first quarter of 2007. This compares to production of 164,000 ounces of gold in the second quarter of 2006 and was due primarily to lower production at Kumtor as a result of the lower grades and recoveries due to the revised mine plan as a result of the pit wall movement in July 2006.
Using the Gold Institute standard, Centerra's total cash cost per
ounce of gold was $349 for the second quarter, compared to $325 recorded in the same period of 2006. The increase mainly reflects lower production at the Kumtor mine as a result of lower head grades and recovery due to the revised mine plan at Kumtor as a result of the pit wall movement in July 2006. (Total cash cost is a non-GAAP measure and is discussed under "Non-GAAP Measure - Total Cash Cost" in the Management's Discussion and Analysis for the three months ended June 30, 2007, issued in conjunction with this press release.)
Net earnings totalled $18.6 million or $0.09 per share in the second quarter of 2007, compared to net earnings of $29.0 million or $0.13 per share in the second quarter of 2006, reflecting lower gold production and sales, and higher income taxes due to the Boroo mine becoming taxable.
For the three months ended June 30, 2007, cash provided by operations was $7.4 million compared to $23.9 million for the prior year second quarter refl
ecting lower net earnings and increased working capital levels due to the timing of gold shipments which increased inventory, the new gold payment agreement at Kumtor which increased receivables, and due to reduced payables in 2007.
Capital expenditures in the second quarter of 2007 amounted to $30.8 million of which $7.4 million was spent on sustaining capital projects and the balance on growth projects. Centerra's cash position at the end of June, 2007 was $138.2 million, compared to $186.2 million at December 31, 2006. The Company has no gold hedge positions and has sufficient cash to carry out its operational business plan in 2007.
Operations Update - Second Quarter
At the Kumtor mine, gold production was 83,000 ounces in the second quarter of 2007, compared to 100,000 ounces in the second quarter of 2006. During the quarter, a total of 1.3 million tonnes was milled with a mill head grade of 2.60 g/t and a recovery rate of 71.3%, comp
ared to 1.4 million tonnes with a mill head grade of 2.87 g/t and a recovery rate of 75.8% in the second quarter of 2006. The lower gold production is due to lower ore grades and recoveries reflecting the fact that the mill feed is still being sourced from the low-grade stock piles as the pre-stripping continues to gain access the high-grade SB Zone as result of the change in the Mine Development Plan following the pit wall movement in July 2006.
Total cash costs per ounce, a non-GAAP measure of production efficiency, at Kumtor improved to $491 in the second quarter of 2007 from $639 in the first quarter of 2007, but was higher than the $402 per ounce in the same period in 2006. The lower gold production combined with increased tonnages mined and higher operating costs during the quarter have contributed to the higher total unit cash costs in 2007.
During the second quarter of 2007 capital expenditures at Kumtor were $20.5 million, of which $4.5 million was f
or sustaining capital and the balance on growth projects.
At the Boroo mine, gold production was 70,000 ounces in the second quarter of 2007, compared to 65,000 ounces in the second quarter of 2006. During the quarter, a total of 651,000 tonnes were milled with a mill head grade of 3.76 g/t and a recovery rate of 85.5%, compared to 570,000 tonnes with a mill head grade of 4.13 g/t and a recovery rate of 87.6% in the second quarter of 2006. Higher gold production is due to the increase in tonnes milled for the period and reduced mill circuit gold inventory.
Total cash costs per ounce, a non-GAAP measure of production efficiency, at Boroo decreased to $180 for the second quarter of 2007 from $207 per ounce in the same period in 2006. The decrease is a result mainly from the capitalization of Pit 6 pre-stripping. Capitalization of prestripping for Pit 6 amounted to $3.5 million in the quarter and $5.7 million in the first six months of 2007.
The Bor
oo Heap Leach Project was initiated in the spring of 2007 with the stripping of top soils and preparation of the area for the placement of the pad liner.
During the second quarter of 2007 capital expenditures at Boroo were $9.6 million, of which $2.9 million was for sustaining capital.
Exploration Update
Kyrgyz Republic
During the second quarter of 2007, exploration drilling programs were ongoing in the main Kumtor pit area and at the Sarytor deposit.
Kumtor Pit
The drilling program focused on wide-spaced drill testing for strike and dip extensions to the main mineralized horizons in a relatively un-drilled area to the northeast of the pit highwall. Four diamond drill holes were completed to their target depths ranging from 562 metres to 819 metres. An additional five drill holes did not reach their planned target depths and were terminated early due to technical drilling problems. Most of these termin
ated holes only tested the shallower portions of the structural system.
The drill holes penetrating the shallower portions of the structural system have returned several narrow intercepts consisting of 60.0 g/t Au over 1.0 metre in D 1148 and 11.3 g/t Au over 0.7 metres in D 1146. The drill holes penetrating to the deeper structural target have intersected a continuous, relatively thin mineralized horizon returning 5.1 g/t Au over 2.0 metres in D1149, 2.1 g/t Au over 4.5 metres in D 1148, and 6.7 g/t over 0.8 metres and 1.4 g/t Au over 6.6 metres in D 1146 A. The best mineralized hole, D 1148, returned multiple narrow mineralized intercepts from 553.6 metres to 734.5 metres and indicates that the mineralization becomes stronger at depth in this area.
Drilling is continuing in the third quarter of 2007 to further test the northerly strike extension of the Kumtor mineralized structure with widely spaced drill holes at different elevations.
Saryt
or
Two drills were active on exploration targets in the Sarytor area during the second quarter 2007. The drilling activities focused on in-filling the drilling pattern to a 40 metre by 40 metre nominal spacing and testing the up-dip northerly flanks of the deposit.
The northerly limits of the mineralization were better defined by the current drilling program. Mineralized intercepts in drill holes extended the mineralized horizon with a best intercept of 4.5 g/t Au over 3.2 metres in SR-166. Two drill holes were designed to test for down dip extensions to the mineralized zones. Drill hole SR-168 returned an intercept averaging 5.6 g/t Au over a 15.8 metres down hole interval and the mineralization remains open in the down dip direction. True widths for the mineralized zones are typically from 70% to 95% of the stated intercept. Drill hole SR-170 was terminated prior to the target horizon being reached due to drilling difficulties.
One hole, SR-161
A, was designed to follow up on the steeply dipping mineralized structure identified on the northwest corner of the Sarytor deposit outside of the planned open pit. The hole was abandoned due to technical problems prior to reaching the target horizon. This zone was first intersected in hole SR 06-151, completed in the fourth quarter of 2006, which returned an intercept of 3.36 g/t Au over 79.8 metres. Two of the three follow up holes completed in the first quarter of 2007 intersected the steeply dipping mineralised structure that returned assays of 4.34 g/t Au over 68.8 metres and 1.99 g/t over 14.2 metres. Further drilling in this area will be conducted in the third quarter to determine the extent and controls on the mineralization and to determine the true widths for the mineralized zones.
A complete listing of the drill results and supporting maps for the Kumtor pit and Sarytor have been filed on the System for Electronic Document Analysis and Retrieval ('SEDAR')
and are available at the company's web site at: www.centerragold.com
REN - Nevada
The Company is continuing to review its options for the REN property in Nevada which include selling or joint venturing its interest in the property
Political Environment
Kyrgyz Republic
The political situation in the Kyrgyz Republic continues to evolve and there continues to be a risk of future political instability.
During the first quarter of 2007 the Parliament accepted in the first reading and returned to committee for further deliberation draft legislation that, among other things, challenges the legal validity of Kumtor agreements with the Kyrgyz Republic, proposes recovery of additional taxes on amounts relating to past activities, and provides for the transfer of gold deposits (including Kumtor) to a state-owned entity. If enacted, there would
be a substantial risk of harm to the Company's rights. The Company expects the draft bill to be the subject of extensive discussion and parliamentary procedure before being considered for further approval, if at all. The bill was on the Parliamentary agenda for its May session, which began May 21, 2007, but was not brought forward for discussion. Currently this bill has no legislative effect and does not interfere with the Company's operations in the country.
A new proposed resolution promoted by Deputy Maliev (author of the prior resolution) requesting the President to suspend all existing legislation related to the restructuring of Kumtor was delayed and was not put on the parliamentary agenda. There is a risk that this resolution will be tabled if the continuing negotiations are not successful.
Centerra, Cameco and the Government held discussions in Bishkek from July 16 to 20. The Government's Working Group, chaired by the Minister of Finance, and includin
g members of the Government, representatives of the Parliament and civil societies, presented their views of the Kumtor Project and their positions regarding material economic terms for settlement of all disputes. The parties agreed to report the results of this round of discussions to their respective Boards, Prime Minister and the President of the Republic and consider the proposals in greater detail. The Company expects that the parties will resume negotiations in the near future.
If the issues between the parties are not resolved to their mutual satisfaction, the risks to Centerra will increase.
An international arbitrator has been appointed in the dispute regarding the high altitude tax, land tax and nationalization bill. Centerra and the government have agreed to postpone the first procedural hearing as negotiations are ongoing.
Pursuant to an agreement dated December 7, 2006 between the Government, KGC, Centerra and Kyrgyzaltyn relating to paym
ents in connection with the 1998 Barskoon cyanide spill, KGC has advanced to the Government a total of $3.7 million with the final installment of $0.7 million due in 2007. This money has been distributed to members of the local communities by a committee created by the Government to administer the distribution of compensation. One half of the loan ($2.2 million) is repayable no later than 2010 and is secured by shares of Centerra owned by Kyrgyzaltyn and the other half of the loan ($2.2 million) is forgivable in 2012 if there is no event of default pursuant to the Investment Agreement between KGC, Centerra and the Government of the Kyrgyz Republic.
Mongolia
The Company continues to advance its negotiations regarding its Boroo Stability Agreement with the Mongolian Government amid strong nationalistic sentiment in the country. No agreement has yet been reached. If negotiations are not successful the Government may threaten to terminate the Stabili
ty Agreement. The Company does not believe that there is any valid basis for such a termination.
The Minister of Finance has asserted that Boroo is subject to tax at the rate of 20% effective January 1, 2007, rather than March 1, 2007, on the basis that commercial production, and therefore the three-year tax exemption applicable to Boroo under its Stability Agreement, began on January 1, 2004 rather than March 1, 2004. The Company disputes the Minister's claim. The amount in issue is approximately $4 million for the full year 2007, which the Company has paid under protest and expensed. The Company believes that this and other remaining matters will be resolved as part of continuing negotiations on the Boroo Stability Agreement.
The Mongolian Parliament continues to debate recent changes to mining legislation and the applicability of the windfall profit tax as well as State participation in various mining projects. The windfall tax applies at the rate of 68% o
n sales of gold above $500 per ounce. Under the new minerals law, Parliament may designate deposits as strategic and the State may take up to a 34% interest in those strategic deposits in respect of which exploration was funded privately or 50% interest in those strategic deposits in respect of which exploration was funded by the State. On February 6, 2007, Parliament designated the Boroo deposit as strategic but resolved that the State would take no interest as the deposit would continue to be subject to the terms of the existing amended Stability Agreement. While the Government has acknowledged that neither the windfall profit tax nor the strategic deposit provisions will apply to the Boroo project, it has not yet agreed to provide similar protection to the Company's Gatsuurt project and may yet determine Gatsuurt to be of strategic importance.
Pursuant to an agreement between Centerra Gold Mongolia Limited ("CGM") and Gatsuurt LLC, an arm's length Mongolian limite
d liability company, under which CGM acquired the Gatsuurt licenses, CGM agreed to transfer the license that covers the Central Zone of the Gatsuurt property to Gatsuurt LLC if CGM did not complete a feasibility study by December 31, 2005. CGM completed a feasibility study in December 2005. In early 2006 Gatsuurt LLC informed Centerra that it does not believe that CGM complied with its obligation. In December 2006, Gatsuurt LLC began proceedings in the Mongolian National Arbitration Court ("MNAC") alleging non-compliance by CGM and seeking the return of the license. CGM believes that the Gatsuurt LLC claim is without merit and on July 10, 2007 filed a petition with Mongolia's District Court contesting the jurisdiction of the MNAC. In its first hearing on procedural matters, held on July 20, 2007, the MNAC decided to suspend its proceedings, pending a decision by the Mongolian District Court as to MNAC's jurisdiction. On July 25, 2007, the Mongolian District Court returned CG
M's petition, without a decision on the jurisdictional issue, to permit CGM to supplement its submissions. CGM's challenge to the jurisdiction of the MNAC may be unsuccessful, resulting in the MNAC taking jurisdiction over
the dispute. Any decision of the MNAC may be final and binding on CGM. An appeal, if any, would likely be to the courts of Mongolia. Even if the jurisdiction of the MNAC is successfully challenged, Gatsuurt LLC may choose to continue pursue its claim through the courts of Mongolia.
While the Company had been in discussions with the Mongolian Government in 2006 and during the first half of 2007 regarding an investment agreement for Gatsuurt, those discussions have been temporarily deferred pending a resolution on the Company's Boroo Stability Agreement with the Government. The Company has received written confirmation, dated July 18, 2007, from the Minister of Finance that the Government has no objection to concluding an investment agreement reg
arding the Gatsuurt Project based on the current mineral laws of Mongolia, provided that all necessary documents required for registration of Gatsuurt's reserves have been received by the appropriate Mongolian agency and such registration has taken place. The Ministry of Finance has acknowledged receipt of documentation from the Company related to the registration of reserves and the Company expects such registration to be completed this fall. The Company is prepared to quickly advance discussions with the Government regarding an investment agreement for Gatsuurt following a resolution of outstanding issues concerning the Boroo Stability Agreement.
On March 13, 2007, the Company suspended its development operations at Gatsuurt, other than those necessary to maintain the property in good standing and comply with permits, pending finalization of the terms of an investment agreement with the Government and the claim by Gatsuurt LLC being resolved. As at June 30, 2007, t
he Company has made an aggregate of $19 million in expenditures on the exploration and development of Gatsuurt and the property has a recorded book value of $2.3 million. Upon a satisfactory investment agreement being reached and the claim by Gatsuurt LLC being resolved, the Company expects to begin the first stage of development of Gatsuurt, budgeted at $20 million, to construct a 54 kilometre access road and mine facilities at Gatsuurt, procure required mobile mining equipment and expand the camp at Boroo to allow for processing of Gatsuurt ore. The Company's reported mineral reserves and resources for the Gatsuurt property are not materially affected by any of the legal, title, taxation or socio-political issues discussed above.
Outlook for 2007
Gold production for the full year 2007 will be lower than previously forecast as a result of the recently announced stabilization plan for the SB Zone highwall at the Kumtor mine. Consequently, 2007 go
ld production at the Kumtor mine is now forecast to be approximately 300,000 ounces compared to Centerra's previous projection of 450,000 to 460,000 ounces. Total cash cost for 2007 is expected to be $580 per ounce, compared to previous guidance of $440 to $450 per ounce.
At Boroo, the Company expects, on a 100% basis, production of 250,000 to 260,000 ounces of gold in 2007 consistent with the previous forecast. Total cash cost is expected to be $250 to $260 per ounce in 2007.
Overall, Centerra now expects consolidated gold production in 2007 of 550,000 to 560,000 ounces. Total cash costs are now expected to be $430 to $440 per ounce in 2007. In terms of sensitivity of results for the last six months of 2007, a $25 per ounce change in the gold spot price is anticipated to affect revenues, net earnings and cash from operations by approximately $6.6 million, $5.4 million ($0.02 per share) and $5.5 million, respectively.
The outlook noted above for the C
ompany is based on the following key assumptions:
- no significant changes in our estimates of future production or costs,
- no delays in or interruption of production from our mines or in our development activities, and
- all necessary permits, licences and approvals are received in a timely manner.
Qualified Person
The new drilling results for Kumtor in this news release and on Centerra's website and the scientific and technical information, in this news release were repared in accordance with the standards of the Canadian Institute of Mining, Metallurgy and Petroleum and National Instrument 43-101 - Standards of Disclosure for Mineral Projects ("NI 43-101") and were reviewed, verified and compiled by Centerra's geological and mining staff under the supervision of Ian Atkinson, Certified Professional Geologist, Centerra's Vice-President, Exploration, who is the qualified person for the purpose of NI 43-101.
The Kumtor deposit is described in Centerra's Annual Information Form (the "AIF") for the year ended December 31, 2006 and in a technical report dated March 9, 2006 prepared in accordance with NI 43-101. The AIF and technical report have been filed on SEDAR at www.sedar.com . The t
echnical report describes the exploration history, geology and style of gold mineralization at the Kumtor deposit. Sample preparation, analytical techniques, laboratories used and quality assurance-quality control protocols used during the drilling programs at the Kumtor site are the same as, or similar to, those described in the technical report.
THIS PRESS RELEASE CONTAINS FINANCIAL STATEMENTS. CLICK HERE TO VIEW ORIGINAL PDF VERSION OF THIS RELEASE .
Cautionary Note Regarding Forward-looking Statements
Statements contained in this news release including those under the heading "Outlook for 2007", which are not historical facts are forward-looking statements that involve risks, uncertainties and other factors that could cause actual results, performance, prospects and opportunities to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results or events to differ materially from current expectations include, among other things: volatility and sensitivity to market prices for gold; replacement of reserves; equipment failure; unexpected geological or hydrological conditions; political risks arising from operating in certain developing countries; inability to enforce legal rights, defects in title; litigation or arbitration proceedings in which third parties claim title to properties or assets of the Company im
precision in reserve estimates; success of future exploration and development initiatives; competition; operating performance of the facilities; environmental and safety risks including increased regulatory burdens; seismic activity, weather and other natural phenomena; failure to obtain necessary permits and approvals from government authorities; changes in government regulations and policies, including trade and tax laws and policies; ability to maintain and further improve positive labour relations; and other development and operating risks. For further discussion of the factors that could cause actual results to differ materially, please refer to Centerra's Annual Information Form and Annual Management's Discussion and Analysis for the year ended December 31, 2006, available on SEDAR at www.sedar.com .
About Centerra
Centerra is a growth-oriented, pure-play gol
d company focused on acquiring, exploring, developing and operating gold properties primarily in Central Asia, the former Soviet Union and other emerging markets. Centerra is a leading North American-based gold producer and the largest Western-based gold producer in Central Asia and the former Soviet Union. Centerra's shares trade on the Toronto Stock Exchange (TSX) under the symbol CG. The Company is based in Toronto, Canada.
Conference Call
Centerra invites you to join its second quarter conference call on Monday, July 30, 2007 at 11:00 am. Eastern Time. The call is open to all investors and the media. To join the call, North American participants should dial the toll-free number (800) 833-9611. International participants may access the call at (212) 346-6589. The call will also be web cast live on the internet at www.centerragold.com . An audio recording of the call will be available on www.centerragold.com approximately two hours after the call and via telephone until midnight on Monday, August 6, 2007 and can be accessed by calling (800) 558-5253 or (416) 626-4100 and using the passcode 2134 4211 .
For more information:
John W. Pearson
Director Investor Relations
(416) 204-1241
john.pearson@centerragold.com
Renmark Financial Communications Inc.
Henri Perron : hperron@renmarkfinancial.com
Jason Roy : jroy@renmarkfinancial.com
Tel. : (514) 939-3989
Fax : (514) 939-3717
www.renmarkfinancial.com
Additional information on Centerra is available on the Company's web site at: www.centerrag
OLD.COM AND AT SEDAR AT WWW.SEDAR.COM .
