Centerra Gold Inc. Q4 FY2021 Earnings Call

Greetings and welcome to the Centerra Gold Fourth Quarter and Full Year 2021 Results Conference Call. As a reminder, this conference is being recorded Friday, February 25, 2022. I would now like to turn the conference over to Toby Caron, Treasurer and Director of Investor Relations. Please go ahead.

Thank you, operator. Welcome to Centerra Gold's fourth quarter and full year 2021 results conference call. Summary 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 will open the phone line to questions. Please note that all figures are in US dollars unless otherwise noted. Joining me on the call today are Scott Perry, President and Chief Executive Officer; Darren Millman, Chief Financial Officer; Dan Desjardins, Chief Operating Officer; Dennis Kwong, Vice President, Business Development & Exploration; and Malcolm Stallman, Vice President, Exploration. 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 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 audited financial statements and notes and all of our other filings.

Thanks, Toby, and a very good day to everyone. Thanks for joining us for our year-end earnings results conference call. Today, I want to speak to some of the key bullet points regarding our performance in 2021. It was another strong year in terms of the company-wide gold production profile. We finished with some 308,000 ounces of gold output, which was at the very upper end of our guidance range. In terms of all-in sustaining cost per ounce, I believe it was a low competitive $649 per ounce, lower than our full year guidance range. We generated some $178 million of positive free cash flow, above the upper end of guidance. We replenished production depletion at our Oksut operational gold mine and reported an increase in our Mount Milligan operation's gold resources of 1.4 million ounces and an increase of 450 million pounds of copper. We are embarking on a new technical study at Mount Milligan, expecting results in the second quarter of this year, which aims to upgrade resources into the reserve category. We are excited about our recent acquisition of the Goldfield District Project in Nevada which supports our organic growth profile in the medium term.

Thanks, Scott. Good morning, everyone. I'd like to start our 2021 operating highlights with a focus on safety. Our total recordable injury frequency rate was 1.89, above our target, signaling a need for further focus on safety leadership in the field. Oksut achieved 2 million work hours without a lost-time incident, and we saw significant production during Q4, with 91,197 ounces of gold and 17 million pounds of copper produced at a competitive all-in sustaining cost of $591 per ounce sold. For 2021, the gold ounce production came in at 308,141 ounces, and our gold production costs were very competitive at $604 per ounce. Looking ahead, we are optimistic and expect to achieve a competitive all-in sustaining cost for Oksut for 2022.

Thanks, Dan. Good morning, everyone. Centerra recorded $251 million in revenue during the quarter, consisting of $136 million in gold sales and $62 million in copper sales. In the quarter, our continued operations sold 90,312 ounces of gold, which noted a 21% increase year-on-year. The average gold price realized was $1,504 per ounce for the quarter. Cash provided by operating activities was $61.8 million for the quarter and $271 million for the year. The adjusted net earnings per share was $0.12 for the quarter and $0.79 for the full year. The company exited 2021 with a cash balance of $947 million and declared a quarterly dividend of $0.07 per share. Our free cash flow stood at $178 million for the year with growth anticipated in 2022.

To recap, we announced the acquisition of the Goldfield District Project, which will be important for our organic growth. We're acquiring the project for $175 million in cash, and an additional milestone payment should enhance our shareholders' gold exposure. This acquisition adds a high-quality development project to our pipeline, and we expect to leverage our operational expertise from Oksut to this project.

Can you touch a little bit on how you're thinking about capital allocation? The balance sheet has $900 million of cash, and there seems to be opportunities for buybacks or increasing dividends. Just any thoughts on how you're thinking about the balance sheet and how to leverage some of that cash.

We recognize that the balance sheet is in a strong position, and that cash balance could be surplus to our medium-term requirements. We're aware of the discussions around potential shareholder-friendly capital return initiatives, including increasing dividends. However, we want to resolve the situation with the Government of Kyrgyzstan before making any significant decisions. Once we have made progress on that front, we will evaluate capital return initiatives.

Congratulations on the acquisition. Can you give us a rough idea of the timeline for the Goldfield project and the milestones we can expect in 2022?

Over the next 18 months, we’ll focus on infill drilling and exploration investment, which supports a resource update we're aiming to publish in the first half of 2023. Alongside this, work is being done on detailed engineering and a feasibility study which will position the project for a potential construction decision.

Could you speak to the Mount Milligan study coming out? Given the increases in resources and reserves, how does that affect your ongoing plans?

We are not currently looking at expanding Mount Milligan's processing capacity. Our gold and copper production profiles will remain uniform. The new 43-101 technical report will provide clarity on this as we finalize it.

I wanted to understand the ongoing negotiations regarding Kumtor, especially concerning tax obligations and environmental allegations.

Currently, negotiations with the Government of Kyrgyzstan focus on legal claims termination. We are prioritizing a clean exit to finalize the agreements that provide for the relinquishment of claims on both sides.