Title

Presentation

Centerra Gold Inc. misses on earnings expectations. Reported EPS is $-0.24 EPS, expectations were $-0.04.

Operator: Greetings and welcome to the Q1 2023 Results Conference Call. [Operator Instructions] As a reminder today’s call is being recorded on Monday, May 15, 2023. I would now like to turn the conference over now to Toby Caron, Treasurer and Director of Investor Relations. Please go ahead.

Toby Caron: Thank you, operator. Welcome to Centerra Gold’s first quarter 2023 results conference call. Please note that presentation slides are available on Centerra Gold’s website to accompany each speaker’s remarks. Today’s call is open to all members of the investment community and media in listen-only mode. Following the formal remarks, the operator will give the instructions for asking a question, and then we’ll open the phone line to questions. Please note that all figures are in U.S. dollars unless otherwise noted. Joining me on the call today are Michael Parrett, Chair of the Board of Directors; Paul Tomory, President and Chief Executive Officer; Paul Wright, Director and former Interim President and Chief Executive Officer; and Darren Millman, Chief Financial Officer.

Our Chief Operating Officer, Paul Chawrun, is traveling and unable to attend. I would like to caution everyone that certain statements made today may be forward-looking statements and as such, are subject to known and unknown risks, which may cause our actual results to differ from those expressed or implied. Also, certain of the measures we will discuss today are non-GAAP measures. Please refer to the description of non-GAAP measures in our news release and MD&A issued this morning. For a more detailed discussion of the material assumptions, risks and uncertainties please refer to our news release and MD&A along with the unaudited financial statements and notes and all of our other filings, which can be found on SEDAR, EDGAR and on the company’s website at centerragold.com.

And now I’ll turn the call over to Mike.

Michael Parrett: Thank you, Toby, and good morning, everyone, and thanks for joining our call this morning. My purpose here today is twofold. First, on behalf of the Board and all shareholders, I’d like to express our appreciation to Paul Wright for his leadership of Centerra as the Interim President and CEO over the past 8 months. As you know, Paul was appointed to the position in September of last year. And since then, he’s been extremely busy. Under Paul’s leadership at the Öksüt Mine, we completed the construction of the retrofit of the ADR plant. We’ve obtained several important outstanding permits. We filed a new environmental impact assessment and we’ve advanced materially towards its restart of operations. At the Mount Milligan mine, during his tenure, we completed a new length [ph] of line plant, which extended the life of Mount Milligan by 4 years until 2033.

From a business perspective, Paul streamlined the corporate organization. He’s actively been engaged communicating with our shareholders, the approach to our near-term challenges and outlining the strategy of growth as we move forward. During this time, we also implemented a normal course issuer bid, which has provided us with a second option for returning cash to shareholders. And Paul also has provided great insight and assistance to our new CEO, while he goes through his onboarding process. Paul has now returned to his role as independent director of Centerra and shareholders will continue to benefit from his experience, insight and input at the Board. My second important duty this morning is to welcome Paul Tomory, as Centerra’s new President and CEO.

Paul started with Centerra on May 1 of this year. Many of you already know them. But for those who do not, he brings over 25 years of experience in mining, engineering, construction and corporate development. With his extensive technical background of proficiency, we are confident that Paul Tomory is the right leader for the company. This is an important stage for Centerra and its journey as a company, and we are delighted to have Paul join us at this time. Welcome, Paul. And with that, I’ll turn the call over to you.

Paul Tomory: Thanks very much, Mike, and good everyone. It’s only been a couple of weeks, but having spent time with our corporate and site teams and having had a chance to visit Mount Milligan, I’m excited for the future of the company. Over the weeks and months ahead, I look forward to visiting Öksüt in our U.S. assets as well as engaging with our many shareholders and other stakeholders. I know a lot of our investors and analysts are eager to hear what the strategy is going forward. And given my brief time in the seat, I can offer a road map of what the company’s short-term focus will look like over the next 100 days or so, here’s some of those highlights. First and foremost, our top priority will remain a focus on safe and environmentally responsible operations.

Next, we will continue to drive operational and technical improvements in Mount Milligan with a focus on delivering the newly optimized life of mine plan. Finally, pending regulatory approval, we expect to ramp up safe and environmentally compliant operations at Öksüt and realize near-term cash flow through the drawdown of accumulated inventories. Shifting to our development assets in light of strong molybdenum prices and an assessment of profitability and cash flow potential Langeloth [ph] our objective is to advance an articulate a strategy for the entire molybdenum business. At Goldfield in Nevada, we will continue to advance technical studies and exploration work, with the objective of delivering an initial resource by the middle of 2023.

And finally, we will advance study work at Kemess with the objective of determining the asset’s position in the overall portfolio. Moving on to the quarter. The company reported a first quarter production of 33,000 ounces of gold and copper production of 13 million pounds. The production results were impacted by several factors, mainly driven by lower grade due to plant sequencing and mine, lower plant throughput due to a planned maintenance shutdown and issues surrounding the handling of material throughout the winter months. Darren will speak in more detail as the Mount Milligan results and provide an update on the Öksüt Mine later in the call. The company continues to evaluate strategic options for the molybdenum business, including a potential restart of the Thompson Creek mine based on the long-term outlook for strengthening molybdenum prices.

As mentioned, I intend to visit the moly assets in the coming weeks and look forward to learning more about the operations. Meanwhile, the work being done on PFS for a potential restart of the Thompson Creek mine is on track. At the Gold Field project, drilling was significantly advanced in the first quarter and the company expected to deliver an initial resource by midyear. There are a number of ESG initiatives that Centerra is working on as I continue to grow my knowledge and understanding of all the good work underway, I’ll certainly be able to provide more detail. That said, today, I will touch on a few highlights. First, as mentioned, is safety. A number of sites achieved safety milestones this quarter. Mount Milligan achieved 1 million hours without an LTI and Thompson Creek achieved 1 year without a reportable.

Second, after having completed the full rollout of the responsible gold mining principles last year, Centerra is on track to receive its full conformance report, which will be integrated into this year’s annual ESG report. And finally, Centerra continues to make progress on the development of its climate strategy, aligned with the recommendations from the task force on climate-related financial disclosures. And with that, I’ll pass the call over to Darren to walk through our operational and financial highlights.

Darren Millman: Thanks, Paul, and good morning, all. For those following on from the WebEx, we initially speaking to Slide 8. The Mount Milligan mine produced 33,215 gold ounces and 13.4 million pounds of copper. Due to mine sequencing, the first half of the year was expected to be lower grade ore with Q1 being the lowest and higher grades are expected in the second half of the year. There were, however, several additional factors that impacted Mount Milligan’s production in the first quarter. Phases 7 and 9 are on the outer edges of the ore body with the transitional zone between oxide and sulfide ore was larger than expected, resulting in lower grades and lower grade stockpile required in its place. The lower grade ore caused lower metal recoveries, and we encountered some material handling challenges in the plant through – plant of throughput in the winter months.

We are currently transitioning deeper in the transitional zone in these areas, we do not expect this to continue. There was also a planned mill shutdown in February, and our next major shut will occur in August. You will note in the bottom table, far right column, the column head grades was 0.17% in the quarter, a 10% decrease from the fourth quarter of 2022. The gold – the gold head grades process was 0.34 grams per tonne, a 28% decrease in grade compared to the third quarter of 2022. On a positive note, the mine material movement was on plan, and as a result, we remain on track to access the higher-grade copper and gold ore in the second half of the year. In Q1, the Mount Milligan team mined 11.3 million tonnes of material, at 11% increase compared to Q4 2022.

Due to lower than planned metal production during the first quarter, we now expect the 2023 gold production to be near the low end of guidance, while 2023 copper production is tracking towards the midpoint of guidance. As mentioned earlier, Mount Milligan mine’s 2023 gold production and copper production is expected to be back-end weighted, driving a higher proportion of concentrate sales in the fourth quarter of 2023. The company anticipates that approximately 30% to 35% of concentrate sales will occur in the fourth quarter of 2023. In Q1, cash provided by and free cash flow from mine operations was $28 million and $25 million, respectively. Gold production cost was $1,124 per ounce and all-in sustaining costs on a byproduct basis was $914 per ounce.

On the exploration front, we continued drilling and anticipate updated resource this year that will include assay results from nearly 50,000 meters completed in 2022. I’ll now be speaking to Slide 9. On Slide 9, we provide an operational update for the Öksüt Mine. The regulatory review of the Öksüt Mine’s EIA remains on track. The company completed its technical review meeting with local authorities at the end of March and posted its EIA for public comment in late April with no significant comments received. With all the reps now complete, the EIA has been submitted for final ministry approval. The mercury abatement retrofit at the ADR plant was completed in January. This system was tested in March under the supervision of Turkish authorities.

2023 mining activities at Öksüt will be focused on Phase 5 wall pushback to expand the certificate and continuation of mining in the Keltepe [ph] pit. Waste stripping was also restarted in the quarter, which is to be capitalized. As at March 2023, all processed into stored golden carbon inventory is approximately 100,000 recoverable ounces with an estimate an additional 200,000 recoverable ounces on the heap leach pad and in stockpile. I’ll be now speaking to Slide 11. Centerra recorded $226 million in net revenue during the quarter, consisting of the Mount Milligan Mine and Molybdenum Business Unit. No revenue was recorded at the Öksüt Mine. At the Mount Milligan mine, gross gold sales and copper sales were $56 million and $52 million, respectively.

In the quarter, Mount Milligan sold 38,990 ounces of gold and 15.3 pounds of copper. The average realized price was $1,446 per ounce of gold and $3.42 per pound of copper. This incorporates the existing stream over the Mount Milligan mine. The cost associated with the Öksüt store golden carbon inventory is approximately $450 per ounce, which has been capitalized to the current asset within inventory. At the Molydenum Business Unit, approximately 3.3 million pounds of molybdenum was sold, generating $116 million with an average market price of $32.95 per pound of molybdenum. I’ll now speak to Slide 12. The net loss from continued operations was $73 million in the quarter with $53 million in adjusted net loss recorded. The earnings in the quarter attributable operations were $9 million positive contribution from the Mount Milligan mine.

As noted earlier, lower production in Q1 as expected compared to preceding quarters and minimal operating capital expenditure to the construction tailing storage facility. A $10.8 million loss from the Mount Milligan mine was recorded, including $7.8 million in standby costs, $26.3 million loss from Molybdenum Business Unit was recorded and $11.7 million in evaluation costs of gold was recorded with the front-end expenditure as we plan to deliver a mineral resource update midyear. For the quarter, there were two adjusting items, reclamation expense and care and maintenance costs of $15 million associated with underlying rehabilitation and discount rates applied, a $5 million tax expense resulting from the introduction of a onetime tax levered by the Turkish government on tax payers eligible to certain investments – certificate benefits in 2022.

Production costs capitalized to the storage facility step out in the first quarter was only $300,000, which is on the lower end than usual quarter due to timing of step-out activities. The company expects total production costs capitalized to the TSF for the full year to be in the range of $12 million to $14 million as a step-out activity return to more normal levels in future quarters. Now be speaking to Slide 13. Cash used in operating activities by operations was approximately $100 million for the quarter and $105 million free cash flow deficit in the quarter. During the quarter, the Molybdenum Business Unit used $76 million in cash. This was primarily a buildup of working capital of $66 million. The increase in working capital was driven by both an additional 0.8 million molybdenum price [ph] held in inventory at the end of March together with an underlying average molybdenum price increasing to $32.95 in Q1 compared to $21.49 in Q4 2022, representing a 53% increase in underlying price.

As noted in the MD&A, the Mount Milligan Mine recognized $28 million in free – in positive operating cash flow and $25 million in free cash flow for the quarter. Given those sales occurring in the Öksüt Mine in the quarter with operations using $24 million of treasury. This was in line with guidance of $7 million to $10 million in cash expenditures per month until operations recommenced. As you will see in the graph on the lower right table, total working capital balance at the end of the quarter was $255 million, a $60 million increase compared to the end of December 2022. As discussed earlier, this is a material – this is materially driven by the increase in the Molybdenum Business Unit. We expect this to reduce to normalized levels if current molybdenum prices stay stable in Q2 and Q3 of this year.

The company has exited Q1 with a cash balance of $412 million and over $800 million of liquidity given our strong financial position, the Board declared a quarterly dividend of $0.07 per share. Finally, I would like to end by thanking Toby Caron, our Director of IR. At the start of 2022, Toby took on both Treasury and IR responsibilities. 2022 was extremely busy year at Centerra as the company transitioned away from the KR [ph] His commitment to both the company and responsiveness to analysts and shareholders was highly commendable while continue to oversee treasury. Toby continues to be a key member of engagement team and now be focusing on treasury and risk management strategies of the company. At this time, I’d also like to welcome Lisa Wilkinson, our new VP of IR and Corporate Communications.

That concludes our prepared remarks. Moderator, please open the call for questions.

Operator: Thank you very much. [Operator Instructions] And our first question on the line is from Mike Parkin with National Bank. Go ahead.

Operator: Thank you very much. [Operator Instructions] And our next question on the line is from Anita Soni with CIBC Markets. Go ahead.

Operator: Thank you very much. We have no further questions on the line. Please continue with the presentation or any closing remarks.

Paul Tomory: Well, we’ll conclude the conversation there, and thank you, everybody, for joining in, and we look forward to meeting you in person in the coming weeks and months, and we’ll see you soon. Thank you.

Operator: Thank you very much, and thank you, everyone. That does conclude the conference call for today. We thank you for your participation and ask that you disconnect your lines. Have a good day, everyone.