Centerra CEO on ‘comprehensive settlement’ at Kumtor

VANCOUVER — After 18 months of negotiations, Centerra Gold (TSX: CS; US-OTC: CAGDF) has apparently resolved outstanding political disputes with the Kyrgyzstan government over the company’s cornerstone Kumtor gold mine in the country’s eastern region.

On Sept. 11, Centerra announced a “comprehensive settlement” that CEO Scott Perry said is a “clean slate” in the central Asian nation.

Centerra has agreed to a one-time, US$57-million payment that is earmarked for two government-administered initiatives: a Nature Development Fund (US$50 million) and a Cancer Care Support Fund (US$7 million). The company will also accelerate Kumtor’s reclamation payments to US$6 million per year, at a minimum total cost of US$69 million.

The Kyrgyzstan authorities subsequently ended a court order restricting Centerra’s cash transfers and the “free movement” of company employees. The deal also reiterates all Kumtor terms negotiated in 2009, including tax and fiscal regimes.

The Kyrgyzstan environmental agencies were seeking awards and fees in excess of US$300 million.

“Any prior legal or environmental claims, and restrictions on movement of our cash and employees, have all been resolved. I feel it’s truly the company turning a new page on its relationship with the country. As a result, we’re in the strongest position we’ve ever been,” Perry said during a presentation at the Denver Gold Forum in late September.

Excavation on glaciers at the Kumtor mine site. Credit: Centerra Gold.

“The resolution of our issues in Kyrgyzstan really provides us with two, unencumbered flagship assets that will produce very meaningful earnings and cash flow. The key element for us is that we’re now looking at a business plan that we can fully fund via internal means,” he added.

Kumtor could produce between 525,000 and 555,000 oz. gold this year at all-in sustaining costs (AISCs) ranging from US$751 to US$795 per oz. gold.

Centerra diversified its production base late last year via the US$1.1-billion purchase of debt-heavy Thompson Creek Metals, which included the Mount Milligan gold-copper mine, 144 km northwest of Prince George in central British Columbia.

Perry said that before the Mt. Milligan transaction “an inordinate amount of our asset value was domiciled in Kyrgyzstan,” which the investment community views, he said, as a “risky jurisdiction.”

He noted that 50% of Centerra’s net asset value now resides in North America. The company’s production base could shift further from Kyrgyzstan in the years ahead given that Kumtor’s current mine plan would see the operation close in nine years.

Meanwhile, Mt. Milligan has an estimated 22-year mine life based on proven and probable reserves of 496 million tonnes grading 0.4 gram gold per tonne and 0.187% copper, for 5.8 million contained oz. gold and 2.1 billion contained lb. copper.

The Mount Milligan copper-gold mine 90 miles northwest of Prince George in central British Columbia. Credit: Centerra Gold.

The operation is scheduled to produce between 260,000 and 290,000 oz. gold in 2017 at US$475 per oz. AISCs. Mt. Milligan’s expected copper output is pegged at 60 million pounds.

“We feel like we’ve successfully adjusted our risk profile,” Perry commented. “[The situation] has clearly been impacting our stock multiples because, unfortunately, in the eyes of the capital markets and investment community, Kyrgyzstan is not viewed as a top-tier mining jurisdiction.”

Centerra expects the Oksut gold project in Turkey will be its next mine. The company hopes to pour first gold at the US$221-million heap leach operation in late 2018. Oksut could produce 110,000 oz. gold per year over an eight-year mine life at US$490 per oz. AISCs.

Centerra is increasing its Canadian exposure, however, via its fifty-fifty development partnership on the Greenstone gold project in Ontario with Premier Gold Mines (TSX: PG; US-OTC: PIRGF). The operation could produce 288,000 oz. gold annually over 14.5 years at US$600 per oz. AISCs, but it carries a $962-million development price tag.

“Greenstone is a really strategic asset for us in terms of favourably recalibrating our geopolitical risk profile. It’s a significant land package in a very prospective geological setting,” Perry said.

“But we’ve decided we won’t be making that type of capital commitment in the current gold price environment. We’ll be focusing on de-risking, including finalizing all the agreements with First Nations and permitting. We think that capital investment might be more appropriate in two years when we’ve built stronger cash reserves.”

Centerra boosted its annual production guidance by 7% to 815,000 oz. gold after the Kumtor political resolution. The company’s shares  have traded in a 52-week range of $5.56 to $9.35 per share, and last closed at $8.79. There are 291 million shares outstanding for a $2.6-billion market capitalization.

The company reported a cash position of US$400 million at the end of June.