Centerra Gold's bottom line suffers but pressure eases on big Kumtor gold mine
While political and financial stability has been restored to Centerra Gold's Kumtor gold mine in the Kyrgyz Republic, the ultimate fate of its Mongolian gold mining operations remains in the hands of the Mongolian Government.
Posted: Friday , 31 Jul 2009
RENO, NV -
The pressure is apparently off Centerra Gold's Kumtor gold mine in the Kyrgyz Republic while things have improved at the Boroo gold mine in Mongolia.
But the fate of Centerra's Gatsuurt gold deposit also in Mongolia, may have to await the outcome of the Oyu Tolgoi copper-gold mine agreement.
In a conference call Thursday to discuss Centerra's financial results, President and CEO Steve Lang told analysts that the Kumtor Agreement on New Terms resolves all existing disputes between Centerra and the Kyrgyz Government. As far as Lang is concerned, Kumtor is now operating in a "stable and economically attractive environment" and remains on target to produce 560,000 to 600,000 ounces of gold this year.
However, for the full year, Centerra has lowered its previous guidance of company-wide gold production of 720,000 to 770,000 ounces to a range of 680,000 to 730,000 ounces. The reduction is due to lower than expected production at Boroo due to an operational shutdown from a strike and a suspension of its main operating licenses.
Nevertheless, Centerra is so confident of the stability of the new agreement, exploration programs at Kumtor have been moved up.
However, settlement of that Kumtor agreement proved costly to Centerra's bottom line as the company reported a net loss of $79.6 million or negative 36-cents per share for the second quarter, down 242% compared to a net income of US$56 million or 26-cents/sh for the second-quarter 2008. For the first six months of this year, Centerra reported a loss of $99.9m or negative 46-cents/sh, a 233% decline from the first-half 2008 net profit of $75.2m (35-cents/sh.
As part of the settlement, Centerra paid a US$22.4 million cash settlement resulting from taxes due on completion of the new agreement. It also issued 18,232,615 Centerra shares to Kyrgyzaltyn a state-owned company. Centerra parent Cameco will transfer between 14.1 million and 25.3 million shares of Centerra to the Kyrgyz Government.
In the meantime, Centerra hopes to have Boroo in full mining and milling operations mode by the end of this month. Total Boroo gold output is forecast to be 120,000 to 130,000 ounces this year.
Centerra is still negotiating the permitting of its Boroo heap leach operating which will add 3,000 ounces of gold monthly to mine production.
In response to questions by analysts, Lang said one of the major issues of contention at Boroo involved the fate of alluvial licenses, which in some cases, preceded Centerra's mine operations. A survey of past alluvial mining efforts was conducted, which Lang said, gave the Mongolian Government confidence that the Boroo mine operations did not impact those licenses.
Lang said the Mongolian Government also wants Centerra to put in more monitoring wells immediately adjacent to the PLS pond.
Despite Centerra's recent Boroo troubles, Lang told analysts, "We have been operating in Mongolia for five years. I think that has been a very successful mine for Centerra." The company has been operating in the Kyrgyz Republic for 12 years.
Centerra intends to develop an underground operation at Kumtor and develop the Gatsuurt deposit near its Boroo mine. However, Lang told analysts the fate of the Gatsuurt agreement may depend on the outcome of the agreement governing the massive Oyu Tolgoi copper-gold project in Mongolia.
In an e-mail to Mineweb, Lang said, "We don't necessarily need OT to finish its investment agreement, but that is a likely outcome."
Lang told Mineweb Centerra plans on continuing to invest in the Kyrgyz Republic and Mongolia, "but are not limiting ourselves there. We think there is a value to a third platform outside, and we think we have the cash to do it."
The company's total cash cost per ounce soared to $667 in the second quarter, compared to $489/oz a year ago. The year-over year increase in unit cash costs was primarily impacted by lower gold production due to the temporary Boroo closure, which increased cash costs by a hefty $212/oz.
Even so, the previous 2009 outlook for consolidated cash costs of between $465 to $505 per ounce has been revised to $410 to $450/oz.
Capex has been increased by $7 million to $170 million this year due to an increase in growth capital expenditures at Kumtor.