Mount Milligan weighs on Centerra results

Canadian mid-tier miner Centerra Gold’s Toronto-quoted equity dipped as much as 17% on Wednesday after the company reported a US$165.1 million or 56c-per-share net loss for the three months ended September.

Centerra Gold's Mount Milligan copper-gold mine in British Columbia, Canada, weighed on its Q3 financials

Centerra Gold's Mount Milligan copper-gold mine in British Columbia, Canada, weighed on its Q3 financials

Weighing on third-quarter financials were a $230.5 million impairment charge the Toronto-based company booked on the carrying value of its Mount Milligan copper-gold mine in British Columbia, and a $10 million payment to the Kyrgyzstan government as final settlement in relation to the strategic agreement completed during the period.

CEO Scott Perry said on a conference call the annual budgeting process identified that long-term recoveries at Mount Milligan were expected to decrease while recent cost escalation would continue at current levels in the short to medium term.

Centerra has reduced the carrying value of the asset to $522.6 million.

Perry said the company had started a comprehensive technical review of Mount Milligan with the aim of publishing an updated technical report in the coming months.

"The extent of any change in reserves and resources cannot be precisely determined until all of the relevant studies and modelling are completed, including studies to optimise the economics of the mine and further work to incorporate results of the company's exploration drilling in 2019. However, based upon the work performed in connection with the impairment test, the company's expectation is that Mount Milligan's mineral reserves and resources will be materially reduced," Perry said.

Perry said on the call enough rainfall combined with increased access to surface water during the year from Philip Lake 1 and Rainbow Creek had resulted in more than twice the amount of stored water volume than last year at this time. Centerra also reported success in its groundwater exploration programme, and subject to receiving permits, expects to bring new groundwater sources online in December.

With these improvements and prudent water management, Centerra currently expects that Mount Milligan should not need to slow production in the first calendar quarter of 2020 to conserve water, as was required in the two prior years.

During the quarter, Mount Milligan produced 55,355oz gold and 21.2Mlb copper, 6% lower and 67% higher, respectively, than the prior-year quarter. All-in sustaining costs on a by-product basis were $557/oz, which was 18% lower than a year ago. Mill throughput averaged 55,727 t/d over the quarter, which was 36.6% higher than the prior year due to increased mill and water availability.

Meanwhile, the company's cornerstone asset, Kumtor in the Kyrgyz Republic, had a strong quarter on the back of accessing higher-grade ore earlier than expected, producing 23% more gold year-on-year at 150,305oz. The mill processed higher grades at 3.8g/t, compared with 3g/t a year earlier, with positive grade reconciliations and higher gold recoveries.

Centerra's AISC on a by-product sold basis, which excludes revenue-based tax and income tax, decreased to $666/oz from $698/oz a year ago.

Centerra confirmed it expected to pour first gold at its $240 million Öksüt project in Turkey by January. Construction is now 79% complete. It needed to be about 85% complete for first gold pour, said Perry.

With the crushing circuit and absorption desorption regeneration plant commissioned, mining started in both the Keltepe and Güneytepe pits and the heap leach pad is being readied to stack the ore.

"Going forward Centerra is well positioned to generating significant free cash flow and I think we've demonstrated that today," said Perry.

Cash flow from operations was $31.9 million in the period. Adjusted cash flow from operations was $94.5 million after adjusting for the Kyrgyz settlement payments of $62.6 million.

Headline earnings for the period were $75.4 million, or 26c per share, compared with $14.5 million or 5c per share in the comparable period last year, mainly owing to higher gold production and improved realised prices.

Revenue was 50% higher at $388.3 million.

Perry said the company spent about $7.6 million on exploration activities during the period that delivered high-grade results at its brownfields assets including Kumtor, Mount Milligan, Öksüt and Kemess (in British Columbia).

Centerra's stock fell 17% to C$10.51 on Wednesday, at the higher end of its 12-month range of $4.83-$13.00, which capitalises the company at $3.12 billion.




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