Centerra Gold Inc. (TSX:CG) -
This news release contains forward-looking information that is subject to the
risk factors and assumptions set out on page 18 and in our Cautionary Note
Regarding Forward-looking Information on page 26. The financial figures in this
news release are presented under International Financial Reporting Standards
("IFRS") see "Conversion to IFRS" on page 20. All figures are in United States
dollars.
To view the Management's Discussion and Analysis and the Financial Statements
and Notes for the three and nine month periods ended September 30, 2011, please
visit the following link: http://media3.marketwire.com/docs/2011CG+MDA+FS.pdf
Centerra Gold Inc. (TSX:CG) today reported 2011 third quarter net earnings of
$83.8 million or $0.35 per common share, which includes a $10.0 million ($0.04
per share) contribution by Kumtor for the construction and repair of twenty
seven schools throughout the Kyrgyz Republic and a $8.3 million ($0.04 per
share) increase in the settlement regarding the Kyrgyz Social Fund. This
compares to net earnings of $16.9 million or $0.07 per common share, which
included a $34.9 million net gain on the sale of the Company's REN project in
the same quarter of 2010.
Revenue in the third quarter of 2011 increased to $278.4 million from $119.9
million in the same period last year reflecting higher realized gold prices and
more ounces sold. Centerra realized an average gold price of $1,705 per ounce
for the third quarter of 2011, an increase from the $1,237 per ounce realized in
the same quarter of 2010.
Consolidated gold production for the third quarter of 2011 was in line with the
Company's guidance and totaled 154,936 ounces at a total cash cost of $556 per
ounce produced compared to 96,308 ounces at a total cash cost of $798 per ounce
produced in the corresponding quarter of 2010. (Total cash cost per ounce
produced is a non-GAAP measure and is discussed under "Non-GAAP Measures" in
this news release.) During the third quarter of 2011, cash provided by
operations, net of working capital changes, was $106.1 million compared to cash
used by operations of $19.2 million in the third quarter of 2010.
Third Quarter Highlights
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- Consolidated gold production of 154,936 ounces
- Cash flow generated by operations $106 million or $0.45 per share
- Kumtor has achieved a continuous mining rate of 500,000 tonnes per day as
planned
- Gold production guidance increased at Kumtor to a range of 580,000 to
600,000 ounces from 550,000 to 600,000 ounces
- Consolidated gold production guidance increased to a range of 640,000 to
660,000 ounces from 600,000 to 650,000 ounces
- Centerra becomes a supporting company of the Extractive Industries
Transparency Initiative ("EITI")
- ATO project in Eastern Mongolia, additional 26 holes completed
- Strong cash balances and no debt while continuing to fund capital
programs
Commentary
Steve Lang, President and CEO of Centerra stated, "After another solid quarter
of operating performance at our mines, we are increasing our gold production
guidance for 2011 to 640,000 to 660,000 ounces. At the Kumtor mine, we are
increasing our gold production guidance to 580,000 to 600,000 ounces and at the
Boroo mine, we are forecasting approximately 60,000 ounces of production for the
year. As well, I am pleased to announce that Centerra's first corporate
responsibility report is now available. The report follows the Global Reporting
Initiative's guidelines for a Level "C" report and is available on our website."
"As part of our evolving corporate responsibility efforts, Kumtor contributed
$10 million during the quarter for the construction and repair of twenty-seven
schools throughout the Kyrgyz Republic. In addition, we have reached a
settlement with the Kyrgyz Social Fund to voluntarily pay $14.1 million covering
the 2010 year and the first nine months of 2011. Going forward, Kumtor has
agreed to make contributions to the Social Fund in respect of the high-altitude
premium, a portion of which will be paid by the employer and a portion of which
will be paid by the employees," he concluded.
Financial and Operating Summary
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Three Months Ended Sept 30 Nine Months Ended Sept 30
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Financial and Operating
Summary 2011 2010 % Change 2011 2010 % Change
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Revenue - $ millions 278.4 119.9 132% 772.4 527.5 46%
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Cost of sales - $
millions(1) 110.5 94.4 17% 278.2 252.6 10%
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Net earnings - $
millions 83.8 16.9 396% 291.5 171.5 70%
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Earnings per common
share - $ basic and
diluted 0.35 0.07 400% 1.23 0.73 68%
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Cash provided by
operations - $
millions 106.1 (19.2) 653% 367.2 139.6 163%
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Capital expenditures -
$ millions 37.2 72.8 (49%) 158.0 156.6 1%
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Weighted average common
shares outstanding -
basic(thousands) 236,126 235,406 0% 236,009 235,088 0%
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Weighted average common
shares outstanding -
diluted (thousands) 236,413 235,793 0% 236,263 235,431 0%
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Average gold spot price
- $/oz 1,702 1,227 39% 1,535 1,178 30%
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Average realized gold
price - $/oz 1,705 1,237 38% 1,534 1,163 32%
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Gold sold - ounces 163,283 96,922 68% 503,554 453,558 11%
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Cost of sales - $/oz
sold(1) 677 974 (31%) 552 557 (1%)
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Gold produced - ounces 154,936 96,308 61% 490,818 429,075 14%
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Total cash cost - $/oz
produced(2)(3) 556 798 (30%) 474 521 (9%)
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Total production cost -
$/oz produced(2)(3) 857 964 (11%) 649 648 0%
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(1) As a result of the IFRS conversion, cost of sales for 2011 and its
comparative year now include depreciation, depletion and amortization
related to operations.
(2) Total cash cost and total production cost are non-GAAP measures and are
discussed under "Non-GAAP Measures".
(3) As a result of Kumtor's Restated Investment Agreement signed in 2009,
total cash cost and total production cost per ounce measures for both
years exclude production-based and revenue-based taxes.
Revenues for the third quarter of 2011 increased to $278.4 million compared to
$119.9 million during the same period one year ago. Third quarter 2011 revenue
reflects a 68% increase in ounces sold (163,283 ounces versus 96,922 ounces) and
a 38% increase in realized gold price ($1,705 per ounce in the third quarter of
2011 versus $1,234 per ounce in the third quarter of 2010) in the period.
Gold production for the third quarter of 2011 was 154,936 ounces compared to
96,308 ounces in the third quarter of 2010. The increase in gold production
reflects 105% higher gold production at the Kumtor mine. At Kumtor, the increase
in production was the result of higher throughput, lower waste movement and the
processing of higher grade material with the associated higher recoveries. Gold
production at Boroo was lower in the third quarter 2011 due to processing
low-grade stockpiled ore with lower recoveries as mining operations ceased at
the end of November 2010. The heap leach operation at Boroo remained idle during
the quarter.
Centerra's total cash cost per ounce of gold produced was $556 in the third
quarter of 2011 compared to $798 in the third quarter of 2010. The
year-over-year decrease in unit cash costs was primarily due to 105% higher gold
production at Kumtor, partially offset by higher operating costs at Kumtor and
reduced operating levels at Boroo (see "Operations Update"). The settlement with
the Kyrgyz Social Fund is not included in the cash cost per ounce calculation
for the current quarter of 2011, however the revised basis for the social fund
calculation will increase the regular payments going forward which are part of
operating costs and the cash cost per ounce calculation. Total cash cost is a
non-GAAP measure and is discussed under "Non-GAAP Measures" in this news
release.
Cash provided by operations was $106.1 million or $0.45 per share for the third
quarter of 2011 compared to a use of cash from operations of $19.2 million for
the prior year third quarter. The increase reflects increased earnings as a
result of higher gold sales volumes and higher average realized gold prices.
Capital expenditures spent and accrued of $37.2 million in the third quarter of
2011 included $9.9 million of sustaining capital and $27.3 million invested in
growth capital. Growth capital at Kumtor totaled $25.1 million including
spending on the SB Zone underground development ($11.4 million), the
capitalization of pre-stripping activities ($9.0 million), the commissioning of
haul trucks ($1.5 million) and the purchase of drilling equipment and light
vehicles ($1.3 million), while at Boroo $2.1 million was spent on raising the
tailings dam. Capital expenditures in the comparative quarter of 2010 totaled
$34.3 million, consisting of $9.3 million of sustaining capital and $25.0
million of growth capital.
Exploration costs in the third quarter of 2011 increased to $9.1 million from
$8.0 million in the same quarter of 2010 mainly reflecting increased drilling
activity in Mongolia at the Altan Tsagaan Ovoo (ATO) property and at the
Company's other advanced projects. Refer to the Company's July 11, 2011 and July
28, 2011 news releases for further details on the Company's drilling activity
and results at the ATO property.
Net earnings for the third quarter of 2011 was $83.8 million, or $0.35 per
share, reflects higher realized gold prices and higher ounces sold and produced
at Kumtor, partially offset by lower volumes at Boroo. The 2011 third quarter
results includes a $10.0 million contribution by Kumtor for the construction and
repair of twenty seven schools throughout the Kyrgyz Republic and a $8.3 million
increase in the settlement between Kumtor and the Kyrgyz Social Fund, as well as
the impact of currency movements in the quarter (expense of $2.4 million in the
third quarter of 2011 compared to income of $1.7 million in the same quarter of
2010). This compares to $16.9 million or $0.07 per share for the same period in
2010, which includes a net gain of $34.9 million recorded in the third quarter
of 2010 as a result of the Company completing the sale of the REN project.
Centerra's cash and cash equivalents and short-term investments were $537.4
million at September 30, 2011, compared to cash and cash equivalents and
short-term investments of $413.0 million at December 31, 2010. As at September
30, 2011, the Company had an undrawn revolving credit facility of $150.0
million.
Operations Update
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Three Months Ended Sept Nine Months Ended Sept
30 30
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Kumtor Operating Results 2011 2010 % Change 2011 2010 % Change
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Gold sold - ounces 146,765 66,490 121% 457,597 358,461 28%
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Revenue - $ millions 250.3 82.2 205% 701.4 415.3 69%
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Average realized gold
price - $/oz 1,705 1,237 38% 1,533 1,159 32%
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Cost of sales - $
millions(1) 94.6 76.5 24% 235.8 200.3 18%
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Cost of sales - $/oz
sold(1) 645 1,151 (44%) 515 559 (8%)
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Tonnes mined - 000s 38,702 30,714 26% 113,480 86,905 31%
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Tonnes ore mined - 000s 2,889 774 273% 4,925 2,953 67%
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Average mining grade -
g/t(2) 3.05 1.89 61% 3.43 3.51 (2%)
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Tonnes milled - 000s 1,429 1,390 3% 4,365 4,290 2%
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Average mill head grade
- g/t(2) 4.01 1.57 155% 3.79 3.10 22%
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Recovery - % 80.2 73.4 9% 81.8 76.4 7%
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Gold produced - ounces 141,217 68,757 105% 444,460 339,369 31%
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Total cash cost - $/oz
produced(3)(4) 533 887 (40%) 454 512 (11%)
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Total production cost -
$/oz produced(3)(4) 850 1,065 (20%) 632 626 1%
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Capital expenditures - $
millions 34.4 70.3 (51%) 152.3 133.2 14%
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Boroo Operating Results
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Gold sold - ounces 16,518 30,432 (46%) 45,957 95,097 (52%)
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Revenue - $ millions 28.1 37.7 (25%) 71.0 112.2 (37%)
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Average realized gold
price - $/oz 1,702 1,237 38% 1,545 1,180 31%
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Cost of sales - $
millions(1) 15.9 17.9 (11%) 42.5 52.2 (19%)
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Cost of sales - $/oz
sold(1) 963 588 64% 925 549 68%
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Total Tonnes mined -
000s - 2,578 (100%) - 9,641 (100%)
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Average mining grade
(non heap leach
material) g/t(2) - 1.47 (100%) - 1.32 (100%)
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Tonnes mined heap leach
- 000s - 143 (100%) - 1,498 (100%)
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Tonnes ore mined direct
mill feed -000's - 201 (100%) - 2,074 (100%)
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Tonnes ore milled - 000s 605 594 2% 1,711 1,832 (7%)
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Average mill head grade
- g/t(2) 0.95 1.97 (52%) 1.20 1.98 (39%)
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Recovery - % 72.8 69.8 4% 67.9 72.6 (6%)
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Gold produced - ounces 13,719 27,551 (50%) 46,358 89,706 (48%)
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Total cash cost - $/oz
produced(3) 798 575 39% 664 558 19%
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Total production cost -
$/oz produced(3) 927 715 30% 807 732 10%
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Capital expenditures - $
millions (Boroo) 2.7 3.5 (23%) 5.2 6.9 (25%)
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Capital expenditures - $
millions (Gatsuurt) 0.1 1.3 (92%) 0.3 16.3 (98%)
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(1) As a result of the IFRS conversion, cost of sales for 2011 and its
comparative year now include depreciation, depletion and amortization
related to operations.
(2) g/t means grams of gold per tonne.
(3) Total cash cost and total production cost are non-GAAP Measures and are
discussed under "Non-GAAP Measures".
(4) As a result of Kumtor's Restated Investment Agreement signed in 2009,
total cash cost and total production cost per ounce measures for both
years are shown excluding operating and revenue-based taxes.
Kumtor
At the Kumtor mine in the Kyrgyz Republic, gold production was 141,217 ounces in
the third quarter of 2011 representing a 105% increase from the same quarter in
2010. The increase in gold production was the result of higher grades (3.05 g/t
versus 1.89 g/t) and higher recoveries (80.2% versus 73.4%) in the third quarter
of 2011. During the quarter, the majority of the mill feed processed was ore
sourced from cut-back 12B which resulted in the higher head grade and recovery
for the quarter. As a result of the larger mining fleet (36 new CAT 789 trucks
as of the end of September, seven acquired this year plus four Liebherr
shovels), total tonnes mined increased in the third quarter of 2011 to 38.7
million tonnes compared to 30.7 million tonnes in the comparative quarter of
2010. The amount of waste material moved increased by 5.9 million tonnes (20%),
while ore mined increased by 2.1 million tonnes (273%). This represents an
additional 8.0 million tonnes (26%) of ore and waste moved compared to the same
quarter in 2010. Ore tonnage processed increased 2.8% to 1.4 million tonnes in
the quarter compared to the same period in 2010.
Total cash cost per ounce, a non-GAAP measure of production efficiency, was $533
in the third quarter of 2011 down from $887 in the third quarter of 2010. The
quarter-over-quarter decrease in unit cash costs reflects 105% higher gold
production, which decreased cash costs by $562 per ounce, partially offset by
the higher operating costs reflecting rising cost pressure for fuel and labour,
which increased cash costs by $208 per ounce. The Company's production in the
comparative period of 2010 was significantly lower due to processing low-grade
stockpiles as mining focused on concluding the waste stripping and exposing the
ore in cutback 12A. The settlement with the Kyrgyz Social Fund is not included
in the cash cost per ounce calculation for the current quarter of 2011, however
the revised basis for the social fund calculation will increase the regular
payments going forward which are part of operating costs and the cash cost per
ounce calculation.
The total cash costs were $75.2 million in the third quarter of 2011 compared to
$61.0 million in the same period of 2010. The cost increase reflects the higher
mining rate achieved during the third quarter of 2011 where 26% more tonnes of
waste and ore were moved with Kumtor's expanded mining fleet. This also reflects
higher operating costs due to an increase of $6.7 million in labour costs as a
result of the new collective agreement with the unionized workforce signed in
October 2010, an increase of $2.7 million in maintenance labour costs and higher
consumable costs, in particular, a $4.6 million increase in diesel costs and a
$2.3 million increase in reagent costs, partially offset by higher by-product
revenue from silver sales of $1.5 million. (Total cash cost per ounce produced
is a non-GAAP measure and is discussed under "Non-GAAP Measures".)
Exploration expenditures totaled $3.1 million for the third quarter of 2011,
comparable to the same quarter in 2010. Exploration activity in the quarter
focused on regional surface work and drilling within the Central Pit, Northeast,
Sarytor, Southwest and Akbel areas and regional exploration.
Capital expenditures spent and accrued in the third quarter of 2011 were $34.3
million compared to $70.3 million in the same quarter of 2010. The current
quarter 2011 expenditure consisted of $9.3 million of sustaining capital,
predominantly spent for the major overhaul program for heavy duty equipment
($4.7 million), the tailings dam lift ($2.7 million) and numerous other projects
($1.9 million). Growth capital investment totaled $25.0 million which was mainly
spent on underground development ($11.4 million), pre-stripping capitalization
($9.0 million), commissioning of new CAT 789 haul trucks ($1.5 million),
purchase of drilling equipment ($0.7 million), purchase of light vehicles ($0.6
million), dewatering pumps for the underground ($0.6 million), Stockwork
delineation drilling ($0.4 million) and numerous other projects ($0.8 million).
The underground development at Kumtor continued in the third quarter of 2011
with a total advance of 503 metres. Year-to-date total development advance is
1,394 metres. Decline #1 (SB Zone decline) advanced 260 metres in the third
quarter and is now approximately 1.7 kilometres in length out of a total planned
development of 2.6 kilometres. Decline #2 advanced 157 metres in the third
quarter towards the SB Zone and totals 964 metres in length out of a total
planned development of 1.8 kilometres. The Stockwork Drive advanced 86 metres in
the third quarter to a total length of 515 metres enabling further delineation
drilling.
Boroo/Gatsuurt
At the Boroo mine in Mongolia, gold production was 13,719 ounces in the third
quarter of 2011 compared to 27,551 ounces in the third quarter of 2010. The
lower gold production is the result of processing low-grade and low-recovery
stockpiled ore as mining operations ceased at the end of November 2010. The heap
leach operation remained idle during the third quarter 2011 awaiting issuance of
the final operating permit from the Mongolian Government. The milling ore grade
averaged 0.95 g/t with a recovery of 72.8% in the third quarter of 2011,
compared to 1.97 g/t with a recovery of 69.8% in the same quarter of 2010.
Total cash cost per ounce produced, a non-GAAP measure of production efficiency,
was $798 in the third quarter of 2011 compared to $575 in the third quarter of
2010 due to the lower gold production which was partially offset by lower
operating costs. Operating costs decreased in the quarter by $4.5 million
primarily due to a $3.4 million reduction in mining costs as mining operations
ceased at the end of November 2010.
During the third quarter of 2011, exploration expenditures in Mongolia increased
to $2.3 million from $2.2 million in the same period of 2010, reflecting
additional drilling on the ATO property in northeast Mongolia. Capital
expenditures spent and accrued at Boroo in the third quarter of 2011 were $2.7
million compared to $3.5 million the same quarter of 2010. This consisted of
$0.2 million of sustaining capital and $2.1 million of growth capital investment
spent on raising the tailings dam.
Exploration Update
To view the graphics, maps/drill sections and complete drill results discussed
in this news release, please visit the following link:
http://file.marketwire.com/release/CGQ3-2011Exploration1103.pdf or visit the
Company's web site at: www.centerragold.com.
KYRGYZ REPUBLIC
During the third quarter of 2011, exploration drilling programs continued in the
Kumtor Central Pit and on the Kumtor concession at the Northeast, Southwest,
Sarytor, Bordoo and Akbel areas. Surface exploration and road building continued
on the Karasay and Koendy projects.
Kumtor Pit
In the third quarter of 2011, twelve drill holes were completed and a further
three holes are in progress at the end of the quarter to test the extent and
grade of mineralization within and below the KS11 open pit design and also at
deeper elevations in the Saddle and SB Zones.
Two holes were drilled to test the SW Extension of the SB Zone below the KS 11
pit. Holes D1560A and D1568 were drilled on Section (-38) and both intersected
significant mineralization immediately below the KS 11 pit design. Hole D1560A
intersected 5.6 g/t Au over 29.8 metres (including 11.7 g/t Au over 9.0 metres)
and 1.5 g/t Au over 6.8 metres. Hole D1568 hole intersected 8.2 g/t Au over 20.9
metres (including 31.0 g/t Au over 3.7 metres) and 2.8 g/t Au over 11.4 metres.
Additional drilling to test the SW Extension of the SB Zone will be carried out
in the fourth quarter when access becomes available in this active mining area.
A deep hole D1411E hole was drilled on Section (-2) to test the down dip
extension of the SB Zone at the 3,000 metre elevation. The hole intersected the
Kumtor structure 500 metres down dip from the closest drill hole and returned
encouraging results with intercepts of 4.2 g/t Au over 2.1 metres and 4.1 g/t Au
over 24.0 metres (including 12.9 g/t Au over 3.0 metres). This is one of two
deep holes that have tested the down dip extension of the SB Zone at the 3,000
metre elevation.
Hole D1567B hole was drilled on Section 102 to test the down dip extension of
the Saddle Zone at the 3,300 metre elevation. The hole intersected significant
mineralization with intercepts of 5.8 g/t Au over 22.8 metres (including 11.9
g/t Au over 5.7 metres), 4.2 g/t Au over 5.9 metres and 1.9 g/t over 8.5 metres.
Drilling of the deeper down dip extensions of the Saddle and SB Zones will
continue in the fourth quarter of 2011.
Decline Exploration
In the third quarter of 2011 two exploration drill holes were completed from
Decline 1 to test the Kumtor structure below Davidov glacier. One hole
intersected the Kumtor structure with no significant assays and the second hole
was abandoned before reaching the target.
Exploration drilling from Decline 1 to test below the Davidov glacier will
continue in the fourth quarter of 2011 whenever drill access becomes available.
Resource Delineation Drilling
Two holes were completed as part of the Stockwork Zone resource delineation
program that commenced in the second quarter of 2011. Three holes were stopped
before reaching the target due to technical difficulties and one drill hole is
currently in progress. Hole UD1556A intersected the Stockwork mineralization
returning grades of 3.3 g/t Au over 17.8 metres and hole UD1571 intersected 1.7
g/t Au over 5.0 metres and 3.7 g/t Au over 9.1 metres. Drilling in the Stockwork
Zone will continue in the fourth quarter with the addition of a second drill.
Regional Exploration
Regional exploration drilling continued in the third quarter of 2011 with up to
four drills rigs active testing targets in the Northeast, Sarytor, Southwest,
Bordoo and Akbel areas.
Northeast Area
Five holes were completed in the third quarter and one drill hole is currently
in progress on the northeast end of the Northeast prospect. All drill holes were
designed to test for the extension of the high grade mineralization identified
150-200 metres below surface on the northeast end of the structure in this area.
Hole D1562 intersected 3.6 g/t Au over 18.8 metres and 8.1 g/t Au over 2.8
metres, hole D1566 returned the grades of 1.8 g/t Au over 10.2 metres and 23.4
g/t Au over 9.0 metres. The results indicate the potential for high-grade
mineralization to the northeast of the known mineralization. Further drilling is
planned in the fourth quarter of 2011.
Sarytor Area
Two holes were completed during the third quarter and two holes are in progress.
The drill holes were designed to test for down dip extensions of the Sarytor
mineralization. Hole SR-11-197 intersected a wide zone of weak mineralization
associated with assays of 1.0 g/t over 5.9 metres and 2.3 g/t over 26.6 metres.
Hole SR-11-198 intersected a thick zone of alteration which returned assays of
2.6 g/t Au over 2.0 metres and 1.0 g/t Au over 9.9 metres.
Southwest Area
Four drill holes were completed in the third quarter and one is in progress. The
holes were designed to follow up on encouraging sample results from trenching.
Three drill holes intersected oxidised mineralisation in a melange zone and
returned intercepts of: 3.5 g/t Au over 2.4 metres in hole SW-11-244, 4.7 g/t Au
over 10.2 metres and 10.3 g/t Au over 3.4 metres in hole SW-11-244A and 8.5 g/t
Au over 11.0 metres and 20.8 g/t Au over 4.0 metres in hole SW-11-246. Further
drilling is planned in the fourth quarter of 2011.
Bordoo Area
Two drill holes were completed during the third quarter to test geophysical
targets and no significant alteration or mineralization was intersected.
Akbel Area
Three holes were drilled in the third quarter to test geophysical targets and no
significant alteration or mineralization was intersected.
Karasay and Koendy Projects
During the third quarter of 2011 exploration continued with trenching,
prospecting, geological mapping and the collection of geochemical, grab, chip
and channel samples. Drill targets have been identified on both licences and
road construction is in progress.
A complete listing of the drill results and supporting maps for the Kumtor pit
and Northeast area have been filed on the System for Electronic Document
Analysis and Retrieval ('SEDAR') at www.sedar.com and are available at the
Company's web site at: www.centerragold.com.
MONGOLIA
Field activities in Mongolia in the third quarter were focused on the ATO
prospect and in the district and included resource delineation drilling as well
as trenching, mapping, geochemical and geophysical surveys.
At the ATO prospect an additional 26 holes were completed in the third quarter
and the initial delineation drilling has now been completed on the three
mineralized pipes that have been identified. Some of the better intercepts from
the drilling completed in the third quarter of 2011 are:
Centerra Gold Inc. - ATO 2011 Drilling Results
Results from July 1st, 2011 to September 30th, 2011
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Core
Drill Length Au Ag
Section Location Hole From (m) To (m) (m) (g/t) (g/t) Pb % Zn %
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11 SE PIPE 1 ATO-179 0.00 68.45 68.45 0.33 3.75 0.33 0.64
---------------------------------------------------
182.10 199.95 17.85 0.34 3.25 0.69 1.68
---------------------------------------------------
205.75 265.05 59.30 1.80 8.13 1.97 2.81
---------------------------------------------------
includes 207.75 239.75 32.00 2.87 10.73 2.53 3.26
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PIPE 4 ATO-170 6.00 29.10 23.10 3.88 79.18 0.18 0.19
---------------------------------------------------
includes 7.40 28.00 20.60 4.27 85.06 0.18 0.17
---------------------------------------------------
35.15 75.60 40.45 1.11 65.68 0.04 0.09
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13 SE PIPE 4 ATO-171 7.20 120.85 113.65 1.08 30.19 0.06 0.07
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15 SE PIPE 4 ATO-167 57.20 81.20 24.00 0.46 85.26 0.01 0.03
---------------------------------------------------
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73.10 123.00 49.90 0.57 7.05 0.08 0.15
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17 SE PIPE 4 ATO-169 98.10 113.70 15.60 0.86 17.16 0.01 0.03
---------------------------------------------------
118.85 124.80 5.95 0.54 44.31 0.05 0.11
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ATO-174 97.00 144.15 47.15 1.69 4.64 1.13 1.56
---------------------------------------------------
153.85 226.50 72.65 1.31 6.29 1.06 1.96
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Notes: Mineralized intervals are greater than 0.10 g/t Au.
Higher grade sub-intervals are greater than 1.00 g/t Au.
Individual assays are top cut to 30 g/t Au prior to composite
calculation.
True widths for mineralized zones are about 20% to 50% of stated
down hole interval.
This information should be read together with our news release of
November 3rd, 2011.
Ian Atkinson, a Certified Professional Geologist, is Centerra's
qualified person for the purpose of National Instrument 43-101.
Tables are current to September 30th, 2011.
Drilling on Pipe #1 has been completed on a 30 by 30 metre grid with a total of
97 drill holes totalling 17,060 metres. Pipe #1 has an oval shape surface
projection of approximately 200 by 300 metres oriented NE - SW. It has been
drilled to a depth of 200-250 metres below surface (elevation 850 metres) where
the pipe has a similar length and slightly less width. Vertically Pipe #1 has
slightly asymmetric mushroom shape, where the upper branch extends SE. Pipe #1
has primarily Pb mineralization in the upper portion and Pb+Zn mineralization at
depth. The gold distribution is consistent from surface down to the 850 metre
elevation.
Drilling has been completed at Pipe #2 on a 30 by 60 metre grid with a total of
36 holes totalling 5,928 metres of drilling. Pipe #2 is also ovoid in shape but
is smaller than Pipe #1 and is approximately 120 by 270 metres on surface. It is
also oriented NE - SW and somewhat narrower at depth with base metal
mineralization forming a high grade +5% zone at depth.
Drilling in the third quarter of 2011 on Pipe #4 has extended the pipe a further
180 metres to the northeast. Pipe #4 has been drilled on a 30 by 60 metre grid
with a total of 47 holes and 8,091 metres of drilling completed to the end of
the third quarter. Pipe #4 has similar geometry of 150 to 300 metres on surface
oriented NE - SW and it narrows at depth.
Significant trenching, mapping, sampling, geochemical and geophysical surveys
were carried on targets being developed on the large ATO land package. Drilling
to test the targets being identified will start in the fourth quarter of 2011.
The most encouraging results to date are from trenches completed in the Apricot
prospect, an emerging target located approximately 2.5 kilometres to the SSW of
the ATO deposit. The Apricot prospect is comprised of andesite and mainly
rhyolite porphyry and underlined by volcanoclastic material. These rocks are cut
by narrow quartz - sulphide veinlets from few cm to 1.5 metres and veinlets
zones roughly oriented W-E and dipping steeply N. These zones commonly have Au;
base metals are up to 1%, As up to 1,000 ppm and Sb - up to 100 ppm. The Apricot
narrow veining could represent distal Au-Ag-Sb-As veins outside of the ATO
pipes.
The compilation of data for the Mongolian Reserve and Resource Report (RRR) has
been initiated. Completion and submission of the combined RRR to the Mongolian
Mineral Authorities is targeted for the end of 2011.
RUSSIA
Kara Beldyr JV
Drilling continued in the third quarter of 2011 with holes completed on the
Gord, Ezen and Camp Zones.
Gord Zone
Drilling was carried out on a 25 by 50 metre grid in the centre of the Gord Zone
to fulfill Russian Mineral Authorities Reserve and Resource report requirements.
Six holes were drilled to a depth of approx. 120 metres, for a total of 769
metres. Drill holes intersected quartz - sericite alteration at the expected
depth. Assay results are pending.
Ezen Zone
Third quarter drilling targeted previously identified mineralization at the Ezen
prospect, where five holes were completed. Following are some of the better
intersections from the Ezen Zone drilling:
- KB-084 - 15.5 g/t Au over 2.1 metres, including 25.5 g/t Au over 1.1
metres
- 5.3 g/t Au over 10.7 metres, including 21.2 g/t Au over 2.3
metres
- 1.8 g/t Au over 10.2 metres
- 1.6 g/t Au over 5.0 metres
- KB-085 - 7.7 g/t Au over 2.1 metres
- KB-088 - 2.3 g/t Au over 4.0 metres
- 9.6 g/t Au over 5.8 metres including 50.3 g/t Au over 1.0 metres
Drilling at the Ezen prospect will continue in the fourth quarter of 2011.
Camp Zone
Fifteen holes were completed to follow up on mineralization first identified in
drilling completed in 2010.
The drilling to date has returned results similar to the 2010 drilling and assay
results with high Au grades (up to 100 - 200 g/t Au) over narrow intervals (1-2
metres). The main fault zone was traced and intersected in all fences. The
alteration zones vary from 2 to 18 metres and are quartz - sericite -
carbonate-pyrite assemblages - typical of the Kara Beldyr prospect. Visible gold
was recorded in 50% holes on more than one horizon.
Following are some of the better intercepts from the Camp Zone:
- KB-090 - 157.4 g/t Au over 2.1 metre including 299.9 g/t Au over 1.1
metres
- 15.9 g/t Au over 10.7 metres including 36.0 g/t Au over 1.4
metres
- 31.5 g/t Au over 2.0 metres
- KB-091 - 4.4 g/t Au over 17.7 metres
- 8.9 g/t Au over 3.0 metres
- 23.7 g/t Au over 0.9 metres
- 5.4 g/t Au over 2.0 metres
- 1.7 g/t Au over 11.7 metres
- KB-092 - 3.3 g/t Au over 9.5 metres
The Camp Zone is open in both directions to the NE and SW; where there are Au
anomalies in both soil and grab samples. Additional drilling is planned to test
the potential extensions of the zone.
Dvoinoy JV
A joint venture agreement was signed with Evraz Investments and Sakhtakhan at
the end of the second quarter of 2011 covering the Dvoinoy project located in
the Amur region of eastern Russia.
Exploration was started in the third quarter with reconnaissance mapping, soil
sampling and prospecting and ground magnetic and D-D IP surveys. Most assay
results are pending.
The objectives of this initial exploration program are to refine the drill
targets for the initial round of drilling in the fourth quarter of 2011 and also
to evaluate entire license area (approx. 100 sq. km) for its potential to host
nested porphyries.
To view the graphics, maps/drill sections and complete drill results discussed
in this news release, please visit the following link:
http://file.marketwire.com/release/CGQ3-2011Exploration1103.pdf or visit the
Company's web site at: www.centerragold.com.
Other Corporate Developments
The following is a summary of current matters affecting the Company and its
subsidiaries in the Kyrgyz Republic, Mongolia and Canada. Except for the Kyrgyz
Republic Social Fund matter (as discussed below), no significant changes have
occurred on these matters since the Company's most recent interim disclosure
documents published on July 28, 2011.
Kyrgyz Republic
The Company's Kyrgyz Republic subsidiary pays Kyrgyz Republic Social Fund
("Social Fund") contributions in respect of the base wages of its national
employees. In late 2010, the Social Fund notified Kumtor of its position that
Kumtor should pay contributions to the Social Fund not only in respect of base
wages but also in respect of the premium compensation that it is required to pay
employees for work at high-altitude. The position of the Social Fund is
inconsistent with its past practices and with prior audits. Following the most
recent audit in respect of the 2010 operating year and completed at the end of
June 2011, the Social Fund issued an act (assessment) for approximately $6.7
million for the 2010 period. This amount includes a portion assessed on the
employer and an amount assessed on Kumtor's employees.
Kumtor filed a claim in September 2011 to invalidate the assessment, however,
withdrew this claim upon reaching an agreement with the Social Fund to
voluntarily pay the $6.7 million assessment without penalties, fines and
financial sanctions and to apply the social fund contribution to the high
altitude premium. The assessment for the 2010 year is to be paid in four equal
installments by December 31, 2011. Kumtor has paid $1.7 million during the third
quarter 2011 and accrued $12.4 million which covers the remaining balance owed
on the 2010 assessed year and the amount owed for the first nine months of 2011.
Going forward, Kumtor has agreed to pay contribution to the Social Fund in
respect of the high-altitude premium, a portion of which will be paid by the
employer and a portion of which will be paid by its employees.
Mongolia
Except as set out expressly below, matters referred to in the Company's most
recently interim disclosure documents published on July 28, 2011 regarding (i)
outstanding issues in Mongolia arising from the inspection by the Mongolian
General Department of Specialized Inspection (the "SSIA") at Boroo in mid-2009,
including the issuance of a final heap leach permit and the resolution of a
significant claim for compensation from the SSIA regarding state alluvial
reserves covered by the Boroo mining licenses; (ii) the Mongolian Water and
Forest Law and its impact on the Boroo project, Gatsuurt project and certain
non-material alluvial gold mining licenses, and the proposed amendments to such
law; (iii) the suspension of negotiations on a Gatsuurt investment agreement in
light of the Water and Forest Law, and (iv) the new graduated royalty fee and
its impact (if any) on the Company's Boroo operations, have not materially
changed since such date. Management continues to work with applicable Mongolian
regulatory authorities to resolve these matters.
Management understands that the proposed amendments to the Water and Forest Law
may be discussed in the fall session of Parliament. Centerra remains reasonably
confident that the economic and development benefits resulting from its
exploration and development activities will ultimately result in the Water and
Forest Law having a limited impact on the Company's Mongolian activities. There
can be no assurance, however, that this will be the case. Unless the Water and
Forest Law is repealed or amended such that the law no longer applies to the
project or Gatsuurt is designated as a "mineral deposit of strategic importance"
that is exempt from the Water and Forest Law, mineral reserves at Gatsuurt may
have to be reclassified as mineral resources or eliminated entirely and the
Company may be required to write-off the associated investment in Gatsuurt and
Boroo. As at September 30, 2011, the Company has net assets recorded amounting
to approximately $36 million related to the investment in Gatsuurt and
approximately $28 million remaining capitalized for the Boroo mill facility and
other surface structures which are expected to be utilized for the processing of
ore from Gatsuurt. Although the Company expects to exploit the Gatsuurt deposit,
should this not be the case the Company would be required to write-off these
amounts. A revocation of the Company's mineral licenses, including the Gatsuurt
mineral license, or the reclassification of mineral reserves or the write-off of
assets could have an adverse impact on Centerra's future cash flows, earnings,
results of operations and financial condition.
The heap leach operation at Boroo remained idle during the third quarter of 2011
awaiting issuance of the final operating permit from the Mongolian Government.
Unless the Company is successful in obtaining the final heap leach operating
permit, it will be required to write-off the associated investment which totals
$15.9 million at September 30, 2011.
See "Risk Factors" in the Company's 2010 Annual Information Form ("AIF").
Corporate
In March 2011, Centerra was served by a Turkish company, Sistem Muhenkislik
Insaat Sanayi Ticaret SA ("Sistem"), with a notice of enforcement to seize any
shares and dividends in Centerra held in the name of the Kyrgyz Republic,
followed by a notice of garnishment in April 2011 for any debts owed by Centerra
to the Kyrgyz Republic (the "Republic"). These notices were served by Sistem
through the Sheriff in Toronto as part of the enforcement proceedings brought by
Sistem in the Ontario Superior Court to collect approximately $11 million with
additional interest, owed to Sistem by the Republic in accordance with a
judgment of the Ontario Superior Court enforcing an international arbitration
award against the Republic. In these Ontario proceedings, Sistem alleges that
the shares in Centerra owned by Kyrgyzaltyn JSC, and any dividends paid in
respect of those shares, are in fact legally and beneficially owned by the
Republic and are therefore subject to execution to pay the judgment. Based on
legal advice received, Centerra disputes those allegations and maintains that
Kyrgyzaltyn JSC alone is the legal and beneficial owner of the shares and any
dividends in respect of those shares, based on the applicable legal principles
and the binding agreements with Kyrgyzaltyn JSC. As a result, and
notwithstanding such notices of enforcement and garnishment, Centerra paid its
May 18, 2011 dividend in the total amount of approximately Cdn$31 million to
Kyrgyzaltyn JSC. Sistem is continuing with its claim regarding the Centerra
shares owned by Kyrgyzaltyn JSC. If this claim is successful in the Ontario
court proceedings, Sistem may have a right to execute its judgment against those
shares and may assert a claim against Centerra in respect of the payment of the
dividends to Kyrgyzaltyn JSC. However, Centerra believes it has a strong defence
to that claim based on the facts and the law. At a motion in September 2011,
Kyrgyzaltyn JSC was formally added as a party to the proceeding.
Outlook for 2011
Production
Centerra's 2011 consolidated gold production is forecast to be 640,000 to
660,000 ounces, which is slightly increased from the prior guidance disclosed in
the Company's news release of July 28, 2011.
The Kumtor mine is expected to produce 580,000 to 600,000 ounces in 2011 revised
from the prior guidance of 550,000 to 600,000 ounces reported in the July 28,
2011 news release.
At the Boroo mine, gold production is forecast to be approximately 60,000
ounces, which is higher than the previous guidance of approximately 50,000
ounces. The increased guidance reflects higher than expected gold production at
Boroo as the higher grade heap leach ore processed through the mill continues to
show better grades than expected. The 2011 forecast assumes no mining or heap
leach activities for the remainder of 2011. The forecast also assumes no
production from the Gatsuurt project due to uncertainties with permitting final
approvals and regulatory commissioning. The Company has determined that at the
current gold prices it is economical to process higher grade ore originally
intended for the heap leach facility through the mill. In the third quarter, the
Boroo mill processed stockpiled material originally intended for the heap leach
facility with an average grade of 0.95 g/t. The Boroo mill is expected to
process similar material with grades between 0.79 - 0.83 g/t for the balance of
the year. If the Company were to receive the heap leach operating permit, it
would place lower grade ore on the heap leach pad while continuing to process
the higher grade material through the mill. As a result, the Company estimates
that the receipt of the heap leach operating permit would add approximately
2,000 to 2,500 ounces per month.
At Gatsuurt, the project is ready to begin production of oxide ore on receipt of
the final approvals and regulatory commissioning. See also "Other Corporate
Developments - Mongolia" and other material assumptions set out below.
Total cash cost per ounce produced
The Company is revising its outlook for cash cost per ounce produced to $480 to
$500 from its prior outlook of $460 to $495 to reflect rising cost pressures at
the Kumtor mine.
Total cash cost for 2011 for Kumtor is expected to be between $460 to $480 per
ounce produced compared to prior guidance of $430 to $460 per ounce produced
disclosed in the second quarter of 2011 reflecting increasing operating costs.
The increase in the operating costs is mainly due to higher costs for labour,
reagents and power that were impacted by a weaker US dollar against major
currencies in which the Company operates. Other factors include higher diesel
costs due to increased fuel consumption and higher costs for blasting materials
and lubricants due to higher purchase prices.
The local labour costs have also been affected by the introduction of social
fund contributions on the high altitude premium as disclosed in the "Operations
Update" section. As disclosed in "Other Corporate Developments - the Kyrgyz
Republic", during the third quarter of 2011 the Company's Kyrgyz Republic
subsidiary agreed to pay the revised contributions. The settlement with the
Kyrgyz Social Fund is not included in the total cash cost per ounce calculation
for the first nine months of 2011. Going forward, the incremental costs of the
social fund contributions will be incurred and expensed as operating costs. The
expected additional cost for Kumtor is approximately $2.6 million or $17 per
ounce for the fourth quarter of 2011.
Boroo's total cash cost is expected to be approximately $750 per ounce produced,
which is lower than the previous guidance of approximately $865 per ounce
produced disclosed in the second quarter of 2011 reflecting the higher gold
production.
Total cash cost is a non-GAAP measure and is discussed under "Non-GAAP Measures".
Centerra's Production and Unit Cost - 2011 Forecast as follows:
----------------------------------------------------------------------------
Production Total Cash Cost(1)
Ounces of gold $ per ounce produced
----------------------------------------------------------------------------
Kumtor 580,000 - 600,000 460 - 480
----------------------------------------------------------------------------
Boroo 60,000 750
----------------------------------------------------------------------------
Total Consolidated 640,000 - 660,000 480 - 500
----------------------------------------------------------------------------
(1) Total cash cost is a non-GAAP measure. See "Non-GAAP Measures".
2011 Exploration Expenditures
As disclosed previously, the Company has increased the exploration budget for
the current year from $34 million to $40 million. $4 million of this additional
funding has been allocated for further work on the ATO property in northeast
Mongolia, which is 100% owned by the Company. This additional funding for the
ATO property brings the total planned exploration expenditures in Mongolia to
$11.3 million for target definition and drill programs on the Company's land
holdings along the Yeroogol trend and in eastern Mongolia.
The 2011 program will also continue the aggressive exploration work at the
Kumtor mine together with an increase in the exploration in the Kumtor district
with target definition and drilling programs on properties acquired in 2010.
Planned exploration expenditures in the Kyrgyz Republic are approximately $14
million, which is higher than the prior guidance of $13 million due to increased
drilling activity.
In 2011, drilling programs will continue on the Kara Beldyr project in Russia to
determine the resource potential of the property. The Kara Beldyr project is a
joint venture in which Centerra currently holds an indirect 50% interest.
Drilling programs will also continue in Turkey and Nevada. Generative programs
will continue in the Kyrgyz Republic, Mongolia, Russia, China, Turkey and the
U.S. to increase the pipeline of projects that the Company is developing to meet
its longer term growth targets.
2011 Capital Expenditures
The capital expenditures for 2011 are estimated to be $193 million, including
$36 million of sustaining capital and $157 million of growth capital, which is
lower than the prior guidance of $203 million.
Capital expenditures include:
----------------------------------------------------------------------------
2011 Growth Capital 2011 Sustaining Capital
Projects ($ millions) ($ millions)
----------------------------------------------------------------------------
Kumtor mine 152 34
----------------------------------------------------------------------------
Mongolia 5 2
----------------------------------------------------------------------------
Consolidated Total 157 36
----------------------------------------------------------------------------
Kumtor
At Kumtor, 2011 total capital expenditures are forecasted to be $186 million
which includes $34 million of sustaining capital. The largest sustaining capital
spending will be on the major overhaul maintenance of the heavy duty mine
equipment ($20 million), expenditures for the shear key, buttress and tailings
dam construction works ($5 million) and for equipment replacement and other
items ($9 million).
Growth capital investment at Kumtor for 2011 is forecast to be $152 million
primarily for the purchase of seven CAT 789 haul trucks ($21 million), purchase
of equipment for the North Wall expansion project ($25 million) and
pre-stripping costs related to the development of the open pit ($54 million).
Also, $50 million is included in growth capital investment for the development
of the underground, of which $43 million has been allocated to advance the two
underground declines to continue to develop the SB Zone and Stockwork Zone, as
well as, $2 million for delineation drilling and $5 million for capital
purchases and other costs.
Boroo & Gatsuurt (Mongolia)
At Boroo, 2011 sustaining capital expenditures are expected to be $1 million and
growth capital is forecast at $5 million primarily for the tailings dam
construction to expand the capacity of the Boroo tailings facility to allow
treatment of waste.
At Gatsuurt, $1 million is forecast for environmental studies, site maintenance
and security of the project site. No other capital for the development of the
deeper sulphide ores at Gatsuurt has been forecast and will only be invested
following successful regulatory commissioning of the Gatsuurt project. The
engineering and construction of a bio-oxidation facility to be located at the
Boroo mill, which is needed to treat Gatsuurt sulphide ores, will be restarted
only after the approval to begin mining at Gatsuurt has been received from the
Government of Mongolia.
Corporate Administration
Corporate and administration expenses for 2011 are forecast at $47 million,
which is higher than the prior guidance of $45 million reflecting a stronger
Canadian dollar against the U.S. dollar and higher stock-based compensation.
Taxes
Pursuant to the Restated Investment Agreement, Kumtor's operations are not
subject to corporate income taxes. The Agreement replaced the prior tax regime
applicable to the Kumtor project with a simplified regime effective January 1,
2008. This simplified regime, which assesses tax at 13% on gross revenue (plus
1% for the Issyk-Kul Oblast Development Fund effective January 2009), was
approved and enacted by the Parliament of the Kyrgyz Republic on April 30, 2009.
The corporate income tax rate for Centerra's Mongolian subsidiary, Boroo Gold
Company is 25% for taxable income over 3 billion Mongolian tugriks
(approximately $2.4 million at the 2010 year-end foreign exchange rate) with a
tax rate of 10% for taxable income up to that amount.
Production cost and capital forecasts for 2011 are forward-looking information
and are based on key assumptions and subject to material risk factors that could
cause actual results to differ materially and which are discussed herein under
the headings "Material Assumptions" and "Caution Regarding Forward-Looking
Information" and under the heading "Risk Factors" in the Company's most recently
filed AIF.
Sensitivities
Centerra's revenues, earnings and cash flows for the fourth quarter of 2011 are
sensitive to changes in certain variables and the Company has estimated their
impact on revenues, net earnings and cash from operations.
----------------------------------------------------------------------------
Impact on
($ millions)
------------------------------------------
Earnings before
Change Costs Revenues Cash flow Income tax
----------------------------------------------------------------------------
Gold Price $50/oz 1.2 7.9 6.7 6.7
----------------------------------------------------------------------------
Diesel Fuel(1) 10% 2.8 - 2.8 2.8
----------------------------------------------------------------------------
Kyrgyz som 1 som per USD 0.7 - 0.7 0.7
----------------------------------------------------------------------------
Mongolian tugrik 25 tugrik per USD 0.1 - 0.1 0.1
----------------------------------------------------------------------------
Canadian dollar 10 cents per USD 1.1 - 1.1 1.1
----------------------------------------------------------------------------
(1) a 10% change in diesel fuel price equals $14/oz produced
Material Assumptions & Risks
Material assumptions or factors used to forecast production and costs for the
fourth quarter of 2011 include the following:
-- a gold price of $1,650 per ounce,
-- exchange rates:
-- $1USD:$0.98 CAD
-- $1USD:45 Kyrgyz som
-- $1USD:1,200 Mongolian tugriks
-- $1USD:0.74 Euro
-- diesel fuel price assumption:
-- $0.78/litre at Kumtor
-- $1.16/litre at Boroo
The assumed average diesel price of $0.78/litre at Kumtor does not include a
customs export duty imposed by the Russian authorities on the diesel fuel
exported to the Kyrgyz Republic in 2010. Russia imposed a customs duty of
approximately $194 per tonne on gasoline and diesel fuel exports to the Kyrgyz
Republic that went into effect on April 1, 2010. The customs export duty
amounted to approximately $0.18/litre or $212.77 per tonne of diesel fuel. While
there were public statements that the export duty had been revoked retroactive
to January 1, 2011, Kumtor had to pay the customs export duty on some of its
purchases of diesel fuel from Russia during the first quarter of 2011. However,
towards the end of the first quarter and throughout the second quarter, the cost
of purchases of diesel fuel did not include the export duty. Based on that,
Kumtor's forecast for cash costs has been adjusted to exclude the export duty.
Nevertheless, any potential savings from the removal of the customs duty are
expected to be fully offset by the increased cost of the diesel fuel as a result
of the increase in the price of oil. Should the Russian authorities re-introduce
the customs export duty (discussed above) on the diesel fuel exported to the
Kyrgyz Republic, the cash costs at Kumtor would be expected to increase by
approximately $4.5 million on forecasted diesel purchases until the end of 2011.
Diesel fuel is sourced from separate Russian suppliers for both sites and only
loosely correlates with world oil prices. The diesel fuel price assumptions were
made when the price of oil was approximately $85 per barrel.
Other important assumptions include the following:
-- any recurrence of political and civil unrest in the Kyrgyz Republic will
not impact operations, including movement of people, supplies and gold
shipments to and from the Kumtor mine,
-- grades and recoveries at Kumtor will remain consistent with the life-of-
mine plan to achieve the forecast gold production,
-- the dewatering program at Kumtor continues to produce the expected
results and the water management system works as planned,
-- the remedial plan to deal with the Kumtor waste and ice movement
continues to be successful (see "Kumtor Mine - Geotechnical Issues
Affecting the Kumtor Open Pit" in the Company's AIF for the year ended
December 31, 2010),
-- no unplanned delays in or interruption of scheduled production from our
mines, including due to civil unrest, natural phenomena, labour,
regulatory or political disputes, equipment breakdown or other
developmental and operational risks,
-- certain issues at Boroo raised by the General Department of Specialized
Inspection ("SSIA") concerning state alluvial reserves, the production
and sale of gold from the Boroo heap leach facility and other matters
will be resolved through negotiation without material adverse impact on
the Company, see "Other Corporate Developments - Mongolia",
-- no further suspension of Boroo's operating licenses, and
-- all necessary permits, licences and approvals are received in a timely
manner.
Production and cost forecasts and capital estimates are forward-looking
information and are based on key assumptions and subject to material risk
factors. If any event arising from these risks occurs, the Company's business,
prospects, financial condition, results of operations or cash flows could be
adversely affected. Additional risks and uncertainties not currently known to
the Company, or that are currently deemed immaterial, may also materially and
adversely affect the Company's business operations, prospects, financial
condition, and results of operations or cash flows. See the sections entitled
"Risk Factors" in the Company's most recently filed AIF, available on SEDAR at
www.sedar.com and see also the discussion below under the heading "Cautionary
Note Regarding Forward-looking Information".
Conversion to IFRS
As prescribed by the CICA Accounting Standards Board, the Company adopted the
requirements of the International Financial Reporting Standards ("IFRS") in its
statements of account as of January 1, 2011, including the restatement of its
opening balance sheet of January 1, 2010 and its third quarter 2010
comparatives. The restatement of the Company's comparative balances from those
previously reported under Canadian GAAP standards to those converted IFRS
standards is fully explained and reconciled in note 18 of the Company's
September 30, 2011 condensed consolidated interim financial statements as filed
on SEDAR. To view the Management's Discussion and Analysis and the Financial
Statements and Notes for the three and nine month periods ended September 30,
2011, please visit the following link:
http://media3.marketwire.com/docs/2011CG+MDA+FS.pdf.
Non-GAAP Measures
This news release presents information about total cash cost of production of an
ounce of gold and total production cost per ounce of gold for the operating
properties of Centerra. Except as otherwise noted, total cash cost per ounce
produced is calculated by dividing total cash costs by gold ounces produced for
the relevant period. Total production cost per ounce produced includes total
cash cost plus depreciation, depletion and amortization divided by gold ounces
produced for the relevant period. Cost of sales per ounce sold is calculated by
dividing cost of sales by gold ounces sold for the relevant period. Total cash
cost and total production cost per ounce produced, as well as cost of sales per
ounce sold, are non-GAAP measures.
Total cash costs include mine operating costs such as mining, processing,
administration, royalties and production taxes (except at Kumtor where
revenue-based taxes and production taxes are excluded), but exclude
amortization, reclamation costs, financing costs, capital development and
exploration. Certain amounts of stock-based compensation have been excluded as
well. Total production costs includes total cash cost plus depreciation,
depletion and amortization. Total cash cost per ounce produced, total production
cost per ounce produced and cost of sales per ounce sold have been included
because certain investors use this information to assess performance and also to
determine the ability of Centerra to generate cash flow for use in investing and
other activities. The inclusion of total cash cost per ounce produced and total
production cost per ounce produced may enable investors to better understand
year-over-year changes in production costs, which in turn affect profitability
and cash flow.
TOTAL CASH COST & TOTAL PRODUCTION
COST Three months ended Nine months ended
RECONCILIATION (unaudited) September 30, September 30,
($ millions, unless otherwise
specified) 2011 2010 2011 2010
-------------------- --------------------
Centerra:
Cost of sales, as reported $ 110.5 $ 94.4 $ 278.2 $ 252.6
Less: Non-cash component 28.0 17.7 68.1 55.8
-------------------- --------------------
Cost of sales - Cash component $ 82.5 $ 76.7 $ 210.1 $ 196.8
Adjust for:
Refining fees & by-product credits (0.8) (0.1) (3.0) 0.1
Regional Office administration 5.9 6.0 16.9 16.0
Mine standby costs - - 0.2 -
Non-operating costs (8.4) (0.9) (14.2) (0.8)
Inventory movement 6.9 (4.9) 22.6 11.5
-------------------- --------------------
Total cash cost - 100% $ 86.1 $ 76.8 $ 232.6 $ 223.6
Depreciation, Depletion,
Amortization and Accretion 24.0 14.9 68.8 56.1
Inventory movement - non-cash 22.6 1.2 17.0 (1.5)
-------------------- --------------------
Total production cost - 100% $ 132.7 $ 92.9 $ 318.4 $ 278.2
Ounces poured - 100% (000) 154.9 96.3 490.9 429.1
Total cash cost per ounce $ 556 $ 798 $ 474 $ 521
Total production cost per ounce $ 857 $ 964 $ 649 $ 648
Kumtor:
Cost of sales, as reported $ 94.6 $ 76.5 $ 235.8 $ 200.3
Less: Non-cash component 25.1 13.4 59.2 41.5
-------------------- --------------------
Cost of sales - Cash component $ 69.5 $ 63.1 $ 176.6 $ 158.8
Adjust for:
Refining fees & by-product credits (0.8) (0.1) (3.0) -
Regional Office administration 4.2 4.0 12.2 10.7
Mine standby costs - - - -
Non-operating costs (8.4) (0.9) (14.2) (0.8)
Inventory movement 10.7 (5.1) 30.2 4.9
-------------------- --------------------
Total cash cost - 100% $ 75.2 $ 61.0 $ 201.8 $ 173.6
Depreciation, Depletion,
Amortization and Accretion $ 21.0 $ 10.9 $ 59.7 $ 41.9
Inventory movement - non-cash $ 23.8 $ 1.3 $ 19.5 $ (2.9)
-------------------- --------------------
Total production cost - 100% $ 120.0 $ 73.2 $ 281.0 $ 212.6
Ounces poured - 100% (000) 141.2 68.8 444.5 339.4
Total cash cost per ounce $ 533 $ 887 $ 454 $ 512
Total production cost per ounce $ 850 $ 1,064 $ 632 $ 626
Boroo:
Cost of sales (cash), as reported $ 15.9 $ 17.9 $ 42.4 $ 52.3
Less: Non-cash component 2.9 4.3 8.9 14.3
-------------------- --------------------
Cost of sales - Cash component $ 13.0 $ 13.6 $ 33.5 $ 38.0
Adjust for:
Refining fees & by-product credits - - - 0.1
Regional Office administration 1.7 2.0 4.7 5.3
Mine standby costs - - 0.2
Non-operating costs
Inventory movement (3.8) 0.2 (7.6) 6.6
-------------------- --------------------
Total cash cost - 100% $ 10.9 $ 15.8 $ 30.8 $ 50.0
Depreciation, Depletion,
Amortization and Accretion $ 3.0 4.0 9.1 14.2
Inventory movement - non-cash $ (1.2) (0.1) $ (2.5) 1.4
-------------------- --------------------
Total production cost - 100% $ 12.7 $ 19.7 $ 37.4 $ 65.6
Ounces poured - 100% (000) 13.7 27.5 46.4 89.7
Total cash cost per ounce $ 798 $ 575 $ 664 $ 558
Total production cost per ounce $ 927 $ 715 $ 807 $ 732
Centerra Gold Inc.
Condensed Consolidated Statement of Financial Position
(Unaudited)
September 30 December 31
2011 2010
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(Expressed in Thousands of United States Dollars)
Assets
Current assets
Cash and cash equivalents $ 271,696 $ 330,737
Short-term investments 265,696 82,278
Restricted cash 198 795
Amounts receivable 53,756 100,562
Inventories 243,426 181,633
Prepaid expenses 22,166 22,221
----------------- -----------------
856,938 718,226
Property, plant and equipment 582,782 519,019
Goodwill 129,705 129,705
Long-term receivables and other 27,332 17,299
Long-term inventories 12,174 12,877
Deferred income tax asset - 3,367
----------------- -----------------
751,993 682,267
----------------- -----------------
----------------- -----------------
Total assets $ 1,608,931 $ 1,400,493
----------------- -----------------
----------------- -----------------
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 73,428 $ 70,909
Taxes payable 19,643 27,354
Current portion of provisions 21,073 9,553
----------------- -----------------
114,144 107,816
Provisions 34,773 30,880
Deferred income tax liability 1,770 -
----------------- -----------------
36,543 30,880
Shareholders' equity
Share capital 659,656 655,178
Contributed surplus 33,652 33,827
Retained earnings 764,936 572,792
----------------- -----------------
1,458,244 1,261,797
----------------- -----------------
Total liabilities and shareholders'
equity $ 1,608,931 $ 1,400,493
----------------- -----------------
----------------- -----------------
Centerra Gold Inc.
Condensed Consolidated Statements of Earnings and Comprehensive Income
(Unaudited) Three months ended Nine months ended
September September September September
30 30 30 30
2011 2010 2011 2010
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(Expressed in Thousands of United States Dollars, except per share amounts)
Revenue from Gold
Sales $ 278,395 $ 119,870 $ 772,382 $ 527,528
Cost of sales 110,506 94,448 278,212 252,579
Mine standby costs 48 - 212 -
Regional office
administration 5,925 6,108 16,969 16,025
----------------------------------------------------------------------------
Earnings from mine
operations 161,916 19,314 476,989 258,924
Revenue-based taxes 35,039 11,510 98,193 58,145
Other operating
expenses 10,000 - 10,000 -
Exploration and
business
development 11,862 8,045 31,825 20,701
Corporate
administration 14,388 16,407 34,623 33,616
----------------------------------------------------------------------------
Earnings from
operations 90,627 (16,648) 302,348 146,462
Other (income) and
expenses 2,942 (1,746) 622 380
Finance costs 1,414 393 3,024 1,027
Gain on sale of REN
property - (34,866) - (34,866)
----------------------------------------------------------------------------
Earnings before
income taxes 86,271 19,571 298,702 179,921
Income tax expense 2,545 2,635 7,236 8,389
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings and
comprehensive income $ 83,726 $ 16,936 $ 291,466 $ 171,532
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Basic and diluted
earnings per common
share $ 0.35 $ 0.07 $ 1.23 $ 0.73
--------------------------- ---------------------------
--------------------------- ---------------------------
Centerra Gold Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three months ended Nine months ended
September September September September
30 30 30 30
2011 2010 2011 2010
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(Expressed in Thousands of United States Dollars)
Operating activities
Net earnings $ 83,726 16,936 $ 291,466 171,532
Items not requiring
(providing) cash:
Depreciation,
depletion and
amortization 28,095 17,845 68,474 56,294
Finance costs 1,414 393 3,024 1,027
Loss on disposal of
plant and equipment 813 376 922 1,366
Gain on disposal of
REN property - (34,866) - (34,866)
Stock - based
compensation expense 475 196 1,276 825
Change in long-term
inventory (248) (4,741) 703 (7,188)
Long-term other
assets (2,099) (10,989) (7,452) (11,981)
Change in provisions 6,697 - 12,481 -
Income tax expense 2,545 2,635 7,236 8,389
Other operating items (2,433) (498) (2,182) (1,027)
------------------------------------------------------
118,985 (12,713) 375,948 184,371
Change in operating
working capital (6,776) (3,246) (3,590) (27,847)
Income tax recovery
(paid) (6,094) (3,277) (5,202) (16,933)
-------------------------- ---------------------------
Cash provided by
operations 106,115 (19,236) 367,156 139,591
-------------------------- ---------------------------
Investing activities
Net movement in
restricted cash - - (597) -
Additions to
property, plant and
equipment (35,180) (70,894) (145,322) (149,101)
Net purchase of
short-term
investments (57,364) 108,412 (183,418) 93,716
Advance for long-term
assets - - - (5,152)
Proceeds from
disposition of REN
property - 34,866 - 34,866
Proceeds from
disposition of fixed
assets 8 - 8 44
-------------------------- ---------------------------
Cash used in investing (92,536) 72,384 (329,329) (25,627)
-------------------------- ---------------------------
Financing activities
Dividends paid - (13,620) (99,322) (13,620)
Revolver credit
facility fees 63 (85) (573) (102)
Proceeds from common
shares issued for
cash 1,679 3,780 3,027 5,257
-------------------------- ---------------------------
Cash (used in)
provided by financing 1,742 (9,925) (96,868) (8,465)
-------------------------- ---------------------------
(Decrease) Increase in
cash during the
period 15,321 43,223 (59,041) 105,499
Cash and cash
equivalents at
beginning of the
period 256,375 239,180 330,737 176,904
-------------------------- ---------------------------
Cash and cash
equivalents at end of
the Period $ 271,696 $ 282,403 $ 271,696 $ 282,403
-------------------------- ---------------------------
Cash and cash
equivalents consist
of:
Cash $ 86,748 $ 36,144 $ 86,748 $ 36,144
Cash equivalents 184,948 246,259 184,948 246,259
-------------------------- ---------------------------
$ 271,696 $ 282,403 $ 271,696 $ 282,403
-------------------------- ---------------------------
Centerra Gold Inc.
Condensed Consolidated Statements of Changes in Shareholders' Equity
(Unaudited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(Expressed in Thousands of United States Dollars, except share information)
Number of
Common Contributed Retained
Shares Amount Surplus Earnings Total
----------------------------------------------------------------------------
Balance at
January 1,
2010 234,857,228 $ 646,081 $ 35,376 $ 264,121 $ 945,578
----------------------------------------------------------------------------
Stock-based
compensation
expense - - 825 - 825
Shares issued
on exercised
of stock
options 898,260 7,460 (2,203) - 5,257
Dividend paid - - - (13,620) (13,620)
Net earnings
for the
period - - - 171,532 171,532
----------------------------------------------------------------------------
Balance at
September 30,
2010 235,755,488 $ 653,541 $ 33,998 $ 422,033 $ 1,109,572
----------------------------------------------------------------------------
Balance at
January 1,
2011 235,869,397 $ 655,178 $ 33,827 $ 572,792 $ 1,261,797
----------------------------------------------------------------------------
Stock-based
compensation
expense - - 1,276 - 1,276
Shares issued
on exercised
of stock
options 438,136 4,478 (1,451) - 3,027
Dividend paid - - - (99,322) (99,322)
Net earnings
for the
period - - - 291,466 291,466
----------------------------------------------------------------------------
Balance at
September 30,
2011 236,307,533 $ 659,656 $ 33,652 $ 764,936 $ 1,458,244
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Qualified Person
The new drilling results in this news release and on Centerra's website and the
other scientific and technical information in this news release were prepared 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 Senior Vice-President, Global
Exploration, who is the qualified person for the purpose of NI 43-101.
The Kumtor deposit is described in Centerra's most recently filed Annual
Information Form (the "AIF") and a technical report dated March 22, 2011
prepared in accordance with NI 43-101. The AIF and technical report have been
filed on SEDAR at www.sedar.com. The technical 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 described in the technical report.
Cautionary Note Regarding Forward-looking Information
This news release and the documents referred to herein contain statements which
are not statements of current or historical facts and are "forward-looking
information" within the meaning of applicable Canadian securities laws. Such
forward-looking information involves 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 information.
Wherever possible, words such as "believe", "expect", "anticipate",
"contemplate", "target", "plan", "intends", "continue", "budget", "forecast",
"projections", "estimate", "may", "will", "schedule", "potential", "strategy"
and other similar expressions have been used to identify forward-looking
information. These forward-looking statements relate to, among other things,
Centerra's expectations regarding the impact of the Water and Forest Law on the
Company's Mongolian operations and the potential need to write off the Company's
investments in Gatsuurt and Boroo or reclassify mineral reserves if the Water
and Forest Law is not repealed or amended, the timing of the discussion of the
Water and Forest Law amendment in the Mongolian Parliament, the application of
the Graduated Royalty Fee on the Company's Boroo operations, future growth,
results of operations (including, without limitation, future production and
sales, and operating and capital expenditures), performance (both operational
and financial), business and political environment and business prospects
(including the timing and development of new deposits (including the ATO (Altan
Tsagaan Ovoo) deposit) and the success of exploration activities), outcome of
litigation involving Centerra, the timing for completing an update of Boroo's
closure study, the payment schedule for the balance of funds owed to the Kyrgyz
Republic Social Fund and the discussion under the heading "Outlook for 2011",
including the forecasted gold production and cash costs, exploration
expenditures and exploration plans.
Although the forward-looking information in this news release reflects
Centerra's current beliefs as of the date of this news release based on
information currently available to management and based upon what management
believes to be reasonable assumptions, Centerra cannot be certain that actual
results, performance, achievements, prospects and opportunities, either
expressed or implied will be consistent with such forward-looking information.
Forward-looking information is necessarily based upon a number of estimates and
assumptions that, while considered reasonable by Centerra, are inherently
subject to significant political, business, economic and competitive
uncertainties and contingencies. Known and unknown factors could cause actual
results to differ materially from those projected in the forward-looking
information.
Material assumptions used to forecast production and costs include those
described under the heading "Outlook for 2011". Other factors that could cause
actual results or events to differ materially from current expectations include,
among other things: the sensitivity of the Company's business to the volatility
of gold prices; the political risks associated with the Company's operations in
the Kyrgyz Republic and Mongolia; the impact of changes in, or more oppressive
enforcement of, laws, regulations and government practices in the jurisdictions
in which the Company operates; the effect of the November 2010 amendments to the
2006 Mongolian Minerals Law on the royalty payments payable in connection with
the Company's Mongolian operations; the effect of the Water and Forest Law on
the Company's operations in Mongolia; the impact of continued scrutiny from
Mongolian regulatory authorities; in the Kyrgyz Republic, the impact of changes
to, or the increased enforcement of, environmental laws and regulations relating
to the Company's operations; the Company's ability to replace its reserves;
ground movements at the Kumtor Mine; waste and ice movement at the Kumtor Mine;
litigation; the accuracy of the Company's reserves and resources estimate; the
accuracy of the Company's production and cost estimates;
the success of the Company's future exploration and development activities;
competition for mineral acquisition opportunities; the adequacy of the Company's
insurance; environmental, health and safety risks; defects in title in
connection with the Company's properties; the impact of restrictive covenants in
the Company's revolving credit facility; the Company's ability to successfully
negotiate an investment agreement for the Gatsuurt development property to
complete the development of the mine and the Company's ability to obtain all
necessary permits and commissions needed to commence mining activity at the
Gatsuurt development property; seismic activity in the vicinity of the Company's
operations in the Kyrgyz Republic and Mongolia; long lead times required for
equipment and supplies given the remote location of the Company's properties;
illegal mining on the Company's Mongolian properties; the Company's ability to
enforce its legal rights; the Company's ability to accurately predict
decommissioning and reclamation costs; the Company's ability to obtain future
financing; the impact of current global financial conditions; the impact of
currency fluctuations; the effect of recent market conditions on the Company's
short-term investments; the Company's ability to attract and retain qualified
personnel; the Company's ability to make payments including payments of
principal and interest on the Company's debt facilities; risks associated with
the conduct of joint ventures; risks associated with the Company's largest
shareholder, Kyrgyzaltyn JSC; and possible director conflicts of interest. There
may be other factors that cause results, assumptions, performance, achievements,
prospects or opportunities in future periods not to be as anticipated, estimated
or intended. See "Risk Factors" in the Company's most recently filed Annual
Information Form available on SEDAR at www.sedar.com.
Furthermore, market price fluctuations in gold, as well as increased capital or
production costs or reduced recovery rates may render ore reserves containing
lower grades of mineralization uneconomic and may ultimately result in a
restatement of reserves. The extent to which resources may ultimately be
reclassified as proven or probable reserves is dependent upon the demonstration
of their profitable recovery. Economic and technological factors which may
change over time always influence the evaluation of reserves or resources.
Centerra has not adjusted mineral resource figures in consideration of these
risks and, therefore, Centerra can give no assurances that any mineral resource
estimate will ultimately be reclassified as proven and probable reserves.
Centerra's mineral reserve and mineral resource figures are estimates and
Centerra can provide no assurances that the indicated levels of gold will be
produced or that Centerra will receive the gold price assumed in determining its
mineral reserves. Such estimates are expressions of judgment based on knowledge,
mining experience, analysis of drilling results and industry practices. Valid
estimates made at a given time may significantly change when new information
becomes available. While Centerra believes that these mineral reserve and
mineral resource estimates are well established and the best estimates of
Centerra's management, by their nature mineral reserve and mineral resource
estimates are imprecise and depend, to a certain extent, upon analysis of
drilling results and statistical inferences which may ultimately prove
unreliable. If Centerra's reserve or reserve estimates for its properties are
inaccurate or are reduced in the future, this could have an adverse impact on
Centerra's future cash flows, earnings, results or operations and financial
condition.
Centerra estimates the future mine life of its operations. Centerra can give no
assurance that mine life estimates will be achieved. Failure to achieve these
estimates could have an adverse impact on Centerra's future cash flows,
earnings, results of operations and financial condition.
There can be no assurances that forward-looking information and statements will
prove to be accurate, as many factors and future events, both known and unknown
could cause actual results, performance or achievements to vary or differ
materially from the results, performance or achievements that are or may be
expressed or implied by such forward-looking statements contained in this news
release. Accordingly, all such factors should be considered carefully when
making decisions with respect to Centerra, and prospective investors should not
place undue reliance on forward-looking information. Forward-looking information
is as of November 3, 2011. Centerra assumes no obligation to update or revise
forward-looking information to reflect changes in assumptions, changes in
circumstances or any other events affecting such forward-looking information,
except as required by applicable law.
About Centerra
Centerra is a gold mining company focused on operating, developing, exploring
and acquiring gold properties primarily in Asia, the former Soviet Union and
other emerging markets worldwide. Centerra is a leading North American-based
gold producer and is the largest Western-based gold producer in Central Asia.
Centerra's shares trade on the Toronto Stock Exchange (TSX) under the symbol CG.
The Company is headquartered in Toronto, Canada.
Conference Call
Centerra invites you to join its 2011 third quarter conference call on Friday,
November 4, 2011 at 11:00am Eastern Time. The call is open to all investors and
the media. To join the call, please dial toll-free in North America (800)
268-2160 or International participants dial +1 (416) 981-9093. Alternatively, an
audio feed web cast will be available on www.centerragold.com. A recording of
the call will be available on www.centerragold.com shortly after the call and
via telephone until midnight on Friday November 11, 2011 by calling (416)
626-4100 or (800) 558-5253 and using passcode 21539367.
Additional information on Centerra is available on the Company's web site at
www.centerragold.com and at SEDAR at www.sedar.com.
To view the Management's Discussion and Analysis and the Financial Statements
and Notes for the three and nine month periods ended September 30, 2011, please
visit the following link: http://media3.marketwire.com/docs/2011CG+MDA+FS.pdf
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