Centerra Gold Inc. Q4 FY2022 Earnings Call

Greetings and welcome to the Q4 and Full Year 2022 Results Conference Call. As a reminder, this conference is being recorded, Friday, February 24, 2023. 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 2022 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 will open the line to questions. Please note that all figures are in U.S. dollars, unless otherwise noted. Joining me on the call today are Paul Wright, Interim President and Chief Executive Officer; Paul Chawrun, Chief Operating Officer; and Darren Millman, Chief Financial Officer. I would like to caution everyone that certain statements made today may be forward-looking 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 yesterday evening for a more detailed discussion of 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 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 Paul.

Thanks, Toby and good morning, everyone, and thank you for joining our fourth quarter and full year 2022 conference call. I'd like to start the presentation by speaking to Centerra's short-term strategy as we continue to maintain our goal of establishing a stable and strong platform for future growth. This entails firstly obtaining all the regulatory approvals to restart operations at our Öksüt Mine. Continuing to optimize operations and exploration at the Mount Milligan Mine, advancing the Goldfield Project with initial resource estimate midyear 2023, followed by a feasibility study. Updating our view on the Molybdenum Business Unit which we will refer to as MBU, including the issuance of a pre-feasibility study detailing a potential restart of the Thompson Creek Mine, which is to be delivered in Q3 of 2023. Moving on to Slide 5. Firstly, an update on the Öksüt Mine. In January 2023, we received notices of approval for the operating license extension for a period of 10 years as well as an enlarged grazing land permit allowing for the expansion of the mine areas. These two important approvals demonstrate the continued support for both the company and the Öksüt Mine. Also in January 2023, the amended EIA was submitted for regulatory review. This remains in process with government authorities now reviewing our technical studies to support our EIA amendment. The mercury abatement retrofit to the ADR plant is now complete and following regulatory approvals which are underway, we will be positioned to process gold at the rate of 35,000 ounces per month. As of December 31, 2022, there were 100,000 ounces of gold stored in carbon and 200,000 ounces recoverable in the inventory on the heap leach pads and in stockpiles. Concerning the recent tragic earthquakes in Turkey, there were no injuries to our employees or contractors and fortunately, no damage to the infrastructure at the dip mine. I will speak more to this on the next slide. Moving on to Öksüt. The company reported Q4 2022 and full year 2022 gold production of 53,000 ounces and 244,000 ounces, respectively. There were 189,000 ounces of payable gold and 74 million pounds of copper produced by Mount Milligan in 2022 and 55,000 ounces of gold produced and sold by the Öksüt Mine in Q1 2022 prior to the shutdown of operations on March 18, 2022. In January, we announced Mount Milligan's guidance for the year which includes gold production of 160,000 to 170,000 ounces, copper production of 60 million to 70 million pounds, gold production costs of $900 to $950 an ounce and all-in sustaining costs on a byproduct basis of $1,075 to $1,125 an ounce. As mentioned earlier, the company continues to evaluate strategic options for the MBU, including a potential restart of the Thompson Creek Mine based on the continued strengthening of molybdenum prices and positive medium-term outlook. A prefeasibility detailing the restart of Thompson Creek is planned for Q3 2023. At Goldfield, we continue advancing the project and completed approximately 50,000 meters of drilling in 2022 which will be incorporated in our planned initial resource estimate midyear. Moving on to Slide 6. In 2022, we had a number of ESG highlights, and I won't touch on all of these. But first, I would like to extend our heartfelt condolences to the people of Turkey and particularly those who lost loved ones due to the natural disaster. In support of the Turkish government's efforts, Centerra has mobilized an emergency response team from the Öksüt Mine to assist Turkish state emergency preparedness authorities and regional disaster response organizations. The company continues to provide equipment and material support to the ongoing recovery activities where possible. We have coordinated with one of our mining contractors to support the recovery effort with equipment and supplies as well as trucks and crews, and continue to assist local authorities in providing temporary housing. Moving forward in Q4 2022, Centerra successfully completed the full rollout of the responsible gold mining principles. This has been a consistent and committed effort from many Centerra employees, especially at our Mount Milligan and Öksüt operations. We recognize and appreciate all this hard work. Additionally, the company continued to demonstrate that safety remains Centerra's top priority, having achieved 1 million hours milestone without a lost time injury at the Mount Milligan Mine. I'll now pass the baton over to Paul Chawrun who will walk through Centerra's operational highlights for the third quarter.

Thank you, Paul. On Slide 8, we highlight the operating performance at Mount Milligan for both the quarter and the full year. 2022 was a strong year for Mount Milligan. We set a record annual throughput for the plant at 21.3 million tonnes. The mine also performed well with a total material mined of 44.3 million tonnes and ore mined of about 19.4 million tonnes. Cash flow from mine operations for 2022 amounted to $162 million, with free cash flow at $100 million. Gold production costs were low at $790 per ounce in Q4 and $767 per ounce for the entire year. On a byproduct basis, all-in sustaining costs were $629 per ounce in Q4 and $630 per ounce for the financial year. We remain focused on optimizing our life-of-mine plan. As stated in our January 2023 release, we expect to see higher gold and copper production in 2024 and 2025 than indicated in the latest 43-101 technical report from last October. In exploration, we have completed around 55,000 meters of drilling since the last resource update. The copper head grade for the year was 0.2% with a metal recovery of 81.9%. The gold head grade was 0.42 grams per tonne with a recovery of 66.9%. The copper grades were lower than previous years, mainly because we began processing a higher ratio of high-grade gold, low-grade copper ore, a trend that will continue into 2023. The staged flotation reactors have been operating since early May, and circuit optimization and full commissioning were completed in Q4, with initial results showing improved recoveries as expected. Moving to Slide 9, we present the operational results for Öksüt. As Paul mentioned, we received approval for our operating license extension in January 2023, which is valid for ten years, as well as an expanded grazing land permit for mining area expansion. The amended EIA submitted this January is currently undergoing regulatory review. The mercury abatement retrofit for the ADR plant has been completed under the original budget of $5 million. After gaining regulatory approvals and restarting the ADR plant, we aim to process gold at a rate of up to 35,000 ounces per month. In 2023, mining efforts at Öksüt will focus on the Phase 5 wall pushback to enlarge the Keltepe Pit. As of December 31, 2022, ore processed into stored gold and carbon inventory is approximately 100,000 recoverable ounces, with an additional roughly 200,000 recoverable ounces on the heap leach pad and in stockpiles. Moving on to Slide 10, we announced our 2023 operating guidance for Mount Milligan in January. Paul provided the production highlights, but I would like to add more details. Mount Milligan is expected to produce between 160,000 to 170,000 ounces of gold and 60 million to 70 million pounds of copper in 2023, with production weighted towards the second half of the year. Approximately 30% to 35% of concentrate sales are anticipated in the fourth quarter. The lower production in 2023 compared to 2022 is due to mine sequencing, with the grade profiles for both gold and copper being slightly lower. Mount Milligan's gold production costs for the year are expected to be in the range of $900 to $950 per ounce sold. The all-in sustaining costs on a byproduct basis are projected to be between $1,075 and $1,125 per ounce due to increased production costs, higher capital expenditures, and lower copper byproduct credits resulting from less copper sales expected in 2023 compared to 2022. Moving to Slide 11, I will briefly touch on the reserves and resource update for Mount Milligan. In October 2022, we released a new reserve estimate showing an increase of 1.1 million contained ounces of gold and 260 million pounds of contained copper, extending the mine life by four years until 2033. This update was effective December 31, 2021, emphasizing that the reserves and resource statement for the end of 2022 reflects the depletion from the past year. The 55,000 meters of drilling completed in 2022 will aid in updating the current resource model, which will be included in the 2023 mineral reserves and resources update next year. As of year-end 2022, the estimated proven and probable gold mineral reserves at Mount Milligan totaled 2.6 million ounces, while copper reserves were estimated at 902 million pounds. On Slide 12, at the Öksüt Mine, proven and probable reserves were estimated at 0.9 million ounces of gold as of December 31, 2022, down from 1.1 million ounces at the end of 2021. The 0.2 million ounce decrease can be attributed to processing ore this past year into an existing inventory of about 100,000 ounces of gold and carbon. There are also over 200,000 ounces of recoverable gold on the heap leach pad and stockpiles. Our resource update, incorporating exploration drilling from 2022, is ongoing and will be included in the 2023 mineral reserves update. As expected, our 2022 focus for Öksüt was on preparing and submitting technical studies to support the amended EIA, completing the mercury abatement retrofit on time and under budget, and preparing for the operational restart. On Slide 13, we have outlined reserves and resources for the MBU. As of December 31, 2022, the total measured and indicated resources at TCM were estimated at 177 million pounds of contained molybdenum, with 166 million pounds at the Endako Mine. These figures have not changed since Centerra acquired Thompson Creek Metals in 2016. As Paul mentioned, we are currently focused on issuing a prefeasibility for a potential restart of the Thompson Creek Mine in Q3 2023. The Thompson Creek Mine typically has a higher grade compared to Endako and has historically operated at a lower unit cost per pound of molybdenum. When we issue the Thompson Creek Mine prefeasibility, we will provide an update on the reserves and resources. Moving to Slide 14, here’s a brief overview of our Moly Business Unit, which has three components: the Thompson Creek Mine, currently under care and maintenance with a possible restart being evaluated and a prefeasibility in preparation; the Endako Mine, also on care and maintenance with no medium-term restart plans due to focus on Thompson Creek; and the Langeloth Metallurgical Facility in Pittsburgh, which is operational and processes third-party molybdenum concentrate into products sold mainly to the U.S. steel and chemical markets. Langeloth used to receive feed from the Thompson Creek and Endako mines and is also part of our focus for the prefeasibility assessment of a potential restart of the Thompson Creek Mine. Now, I will hand it over to Darren, our Chief Financial Officer, to go over the financial highlights.

Thanks, Paul and good morning, all. For those following on the slide deck, I'll initially be speaking to Slide 16. Centerra recorded $208 million net revenue during the quarter, consisting of the Mount Milligan Mine and the Molybdenum Business Unit. No revenue was recorded at the Öksüt Mine. At the Mount Milligan Mine, gold sales and copper sales were $67 million and $53 million, respectively. In the quarter, Mount Milligan sold 49,444 ounces of gold and 15.4 million pounds of copper. The Öksüt Mine has no recorded sales or production in the quarter. We continue to hold distorted gold and carbon inventory of 100,000 recoverable ounces. The costs associated with the Öksüt sold in carbon inventory is approximately $450 all-in-sustaining cost per ounce which is being capitalized as a current asset within inventory. Importantly, this quarter, we are highlighting our additional 200,000 ounces in heap leach pad and stockpiles that will be subsequently processed once we return to operational status at the Öksüt Mine. At the Molybdenum Business Unit, approximately 4 million pounds of molybdenum was sold, generating $87 million with an average market price in the quarter of $21.49 per pound on molybdenum. During the quarter, the Molybdenum Business Unit generated $8.6 million in free cash flow with a focused effort on reducing inventory levels. During the quarter, the Mount Milligan Mine operations average gold price realized was $1,352 per ounce and $3.43 per pound of copper. This incorporates the existing stream arrangement over the mine. Cash used in operating activities by operations was approximately $10 million for the quarter, and generated a $25 million free cash flow deficit in the quarter. As noted in the MD&A, the Mount Milligan Mine generated $26 million in positive free cash flow and $16 million in free cash flow for the quarter. For the year, the Mount Milligan Mine generated over $100 million in free cash flow. As noted by Paul, another strong operational performance at Mount Milligan Mine with record annual throughput at the mill. Given no sales occurred in the Öksüt Mine in the quarter with operations continuing, we had $16 million used from treasury. This is a reduction from the previous quarter at $23 million as a result of reduction in activities at the site. The net loss from continued operation was $130.1 million in the quarter, with a $13.7 million in adjusted net loss per quarter. The earnings in the quarter attributable to operations were $30 million contributed from the Mount Milligan Mine, a $3.4 million loss on the Öksüt Mine and a $5 million loss from the Molybdenum Business Unit. For the quarter, there were three adjusting items: the Kemess impairment loss of $138 million net of tax, deferred income tax recovery of $14 million resulting from the underlying tax base adjustment of the Öksüt Mine, and a $4.4 million non-cash gain on derecognition of past employee health plan at the Langeloth facility. This was in connection with the spending of the union workforce with no future commitments on the plan. On the Kemess impairment loss, as the company and its technical team focus on the delivery of the prefeasibility and the potential restart of the Thompson Creek Mine in Q3 2023 together with the delivery of the initial resource of the Goldfield by midyear, there have been no resources, financial or otherwise committed to the Kemess Project. Given this was a similar status at the end of 2021, this has resulted in an impairment indicator under IFRS 16 with a subsequent impairment assessment occurring in Q4 and reclassification of the Kemess Project as a noncore asset. The impairment consists of two components: a value and per instituted gold equivalent ounces and evaluation of capital equipment outside if you refer to Note 7 of the financial segments for further detail. The all-in sustaining costs reported for the quarter was relatively high compared to the previous quarter. This was primarily driven by lower copper production in Q4 and thus resulting in lower copper credits. Paul has explained this earlier with the ore presented to the mill in Q4 being high gold grade, low copper grade. I would also highlight that in 2022, all our operating cost metrics were either within guidance or performed better in the 2022 guidance range previously provided. Now I will be speaking to Slide 17. For the full year, Centerra produced 244,000 ounces of gold and 74 million pounds of copper. Given the inventory levels at Öksüt tunnel restart, recent operational performance, we are well-placed as we move into 2023. In Q4, we returned $23 million to shareholders in dividends and share buybacks, with a total of $60 million in returns to shareholders in 2022. In early February, we initiated changes to streamline corporate structure and reduced workforce levels at regional and corporate offices with an overall 20% reduction in headcount. The company has exited 2022 with a cash balance of $532 million and over $900 million in liquidity. Given our strong financial position, the Board has declared a quarterly dividend of $0.07 per share. Those are my closing comments. With that, I'll pass it to Paul to finish off.

Okay. No, thank you very much, Darren and Paul. At this stage, operator, I think we'll open up for questions, please. All right. Well, thank you very much all for attending. We look forward to speaking on our next quarterly call. Enjoy your weekend. Thank you, operator.

Thank you. Ladies and gentlemen, that does conclude today's call. We thank you for your participation and ask that you please disconnect your lines. Have a good day.