Earnings Call Transcript - CGAU Q2 2021

Operator, Operator

Greetings and welcome to the Centerra Gold 2021 Second Quarter Results Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. As a reminder, this conference is being recorded Tuesday, August 10, 2021. I would now like to turn the conference over to Mr. John Pearson, Vice President of Investor Relations. Please go ahead, sir.

John Pearson, Vice President, Investor Relations

Thank you, Maria. Welcome to Centerra Gold’s second quarter 2021 results conference call. Summary slides are available on Centerra Gold’s website to accompany each of the 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 those questions. Please note that all figures are in U.S. dollars unless otherwise noted. Joining me on the call today is Scott Perry, President and Chief Executive Officer; Dan Desjardins, Chief Operating Officer; and Darren Millman, Chief Financial Officer. I would also 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 these measures we will discuss today are non-GAAP measures. So please refer to our description of non-GAAP measures in our news release and MD&A issued earlier 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 our website at centerragold.com. Now, I’ll turn the call over to Scott.

Scott G. Perry, President and Chief Executive Officer

Thanks John and good day everyone. Thank you for joining us for our earnings conference call. I'm referencing our accompanying slide presentation deck and I am just starting off on Slide number 5. I just want to start with some of the recent developments in the Kyrgyz Republic with regards to our Kumtor mines. Just some prepared remarks that I want to iterate here. So look, it has been nearly three months since the Kyrgyz Republic took control of the Kumtor mine and I would like to give you an update on where things stand with regard to the company. We here at Centerra are very saddened for what our employees and friends who worked at Kumtor are going through. Our thoughts and best wishes go out to all those that were closely affected by what the Kyrgyz government has done. It's important to note the key takeaway from the call today and our results is that Centerra remains financially strong with solid performance and a healthy outlook at our other operations and businesses. These comprise the Mount Milligan gold and copper mine, the Öksüt gold mine, and our Molybdenum Business Unit. As illustrated in our future results, our cash position at the end of June was up by almost U.S. $60 million quarter-on-quarter and currently represents some $883 million. This represents total liquidity of almost U.S. $1.3 billion. We remain on track to achieve our 2021 production and cost items at both the Mount Milligan and Öksüt mines. Regarding the situation at Kumtor, it remains widely unchanged since we updated you after the Kyrgyz government seized the mine in mid-May using unsubstantiated environmental tax and safety claims to appoint a third-party external management to run the operation. Sadly, the government’s unjustified actions have put thousands of well-paying jobs of Kyrgyz nationals and the businesses of hundreds of Kyrgyz suppliers at risk. The government’s behavior has also threatened the future of foreign investment in the country. As you know, global investors want certainty; they want to know that the government will respect signed agreements and not change the rules without warning. So that is the state of play. As we have said all along, we prefer to engage in a constructive dialogue with the Kyrgyz authorities to resolve this dispute as we have done in the past. But so long as the Kyrgyz authorities refuse to engage, we will continue to pursue legal steps to preserve the value of our assets and to protect the interests of our shareholders and our various other stakeholders. That includes binding international arbitration proceedings that we have initiated as well as the court actions in Toronto and New York. As we have said, while we continue to believe that the Kumtor mine is a valuable asset, with or without it our company is financially strong with significant cash on hand, no meaningful debt, and a robust outlook at our continuing operations in Canada and Turkey. Using that as a segue I can now transition to the next slide on Slide 6. Just want to provide some of the key highlights from our recent reported Q2 results. First and foremost, in terms of safety, we have continued to see our company-wide homesite leadership program paying dividends to the organization. During the quarter, a key highlight at our Öksüt mine was where they achieved 1 million hours of consecutive lost time incident-free operations. All our sites are maintaining corrective COVID-19 measures and in terms of our vaccination rollout, we are seeing very good progress, whereby we have now provided second vaccines to 64% and 55% of our site employees at Mount Milligan and Öksüt respectively. One of the key notable achievements during the quarter that we are very proud of with regard to our Mount Milligan team is the ongoing improvements they are demonstrating in mill productivity. During the quarter we saw excellent mechanical availability and Mount Milligan actually achieved record throughput for the quarter exceeding 60,000 tons per calendar day, which has been excellent results. The third bullet point, Darren, our Chief Financial Officer will talk about it in more detail. But obviously following the seizure of the Kumtor Mine, you have seen the appropriate accounting classifications in our financial results whereby we have deconsolidated Kumtor and classified it as a discontinued operation during the quarter. This resulted in a change of control loss of some U.S. $926 million. In terms of our continuing operations, in terms of the fourth bullet point here, we saw again a very good quarter of production; we are seeing very good productivity and very good unitary cost of our operations. Our company-wide gold output from our continuing operations was just under 70,000 ounces of gold and some 20 million pounds of copper. In terms of the corresponding owned sustaining costs in the six bullet point here, you can see company-wide we had a very low competitive all-in sustaining cost of some $676 per ounce. On that second last bullet point here, in terms of our guidance for this year, we are continuing to reiterate our guidance to Mount Milligan and Öksüt, and I think if you look at the performance for the first half of this year, our operations are in an excellent position to achieve their guided outlook. Also, the very last bullet point, as you can see, we have continued to be a financially strong company, a very profitable company, we are generating meaningful free cash flow. You can see our guidance here for this year; we are guiding through free cash flow of up to $175 million from our continuing operations. Just moving on to the next slide on Slide 7, just some other key highlights here. The four bullet points, as I mentioned, we saw good production, good levels of gold output, and corresponding all-in sustaining cost was very low. So we saw good margins. As you can see here in the fourth bullet point, our continuing operations generated just under $31 million of positive free cash flow. In terms of our treasury position, the second last bullet point, we continue to have a peer-leading balance sheet, debt-free, and we finished the quarter with just under $883 million in cash. The last bullet point, again, the Board recognizing the strong operating performance and financial performance during the quarter, we increased our quarterly dividend to Canadian $0.07 per share. Just moving on to the next slide on Slide 8, just again in terms of the company's cash flow profile and treasury profile, you can see the chart here in the top right; it's just an illustration of our balance sheet over the last five to six years. And you can see increasingly that we've been building out our balance sheet just given the strong free cash flow levels that we've been generating from the operations. So, as I mentioned earlier, it is a debt-free balance sheet and we've got some $883 million in cash. Referencing the chart down at the bottom, particularly the middle chart, this is Öksüt, our newest operation in Turkey. We've had a great experience with Öksüt in Turkey. We have built this mine on time, on budget; last year was a very successful year whereby the mine generated some $105 million in positive free cash flow. As of today, we've essentially recouped more than half of our investment already. Here at Öksüt, we're now transitioning into a higher-grade profile. In the back of this year, you will see growing levels of gold output and that will continue into 2022 and 2023, where we're expecting meaningful increases in gold output. So suffice to say, given that growing level of gold output, we are also expecting a meaningful increase in terms of profitability and free cash flow at Öksüt. Just moving on to Slide 9, just in terms of our environmental and social governance profile, a number of bullet points here. First bullet point, as I mentioned at the outset, safety is obviously absolutely paramount and we continue to pursue a zero-harm environment and we're seeing a number of milestones demonstrating that we're on track in that regard. The third bullet point, we had no environmental incidents during the quarter, which is as it should be. And the second last bullet point here, we're continuing the journey in terms of advancing our diversity, equity, and inclusion initiatives, including our current state assessment that was completed recently. The last bullet point, Centerra is a member of the World Gold Council and World Gold Council approximately 18 months ago rolled out their responsible gold mining principles. We are signatories to these principles and we are currently implementing these with our operations. We are in good stead in terms of being able to attest to our full compliance with these principles in the coming 18 months. With that, I now want to pass the call over to Dan Desjardins, our Chief Operating Officer. Dan.

Daniel R. Desjardins, Chief Operating Officer

Thanks, Scott. Good morning, everyone. Please move to Slide 11. Centerra continues to prioritize the health, safety, and well-being of our employees, contractors, communities, and other stakeholders, as COVID-19 is still with us. We put a great emphasis on vaccinations in the past quarter, and all of our sites have higher vaccination rates than the regions that they work. We continue to modify our COVID-19 protocols at all our locations to help prevent infection and reduce the potential spread of COVID. All of these great efforts of our people have allowed for continuous operation. For 2021, we have a number of operating highlights. In Q2, we continued to focus on improving our safety performance of the Centerra company wide with good results. Our Q2 was 0.18, much better than our target of 0.41, but we still had two reportable injuries in the quarter. We have an excellent program that we call Work Safe Home Safe, which focuses on employee behavior worn at home and we rolled out training virtually with great success. An excellent milestone is our Öksüt mine, where we achieved 1 million people hours lost time injury-free, with the number now exceeding 1.5 million work hours. On the production front, we had another strong quarter at our two operating sites producing 69,854 ounces of gold and 19.8 million pounds of copper at an all-in sustaining cost of $676 per ounce. Mount Milligan specifically produced 54,675 ounces at $486 per ounce with copper credit of 19.8 million pounds. Öksüt produced 15,179 ounces at $947. Again, overall we have a very competitive all-in sustaining cost for the quarter of $676. Of note, the Mount Milligan mine had an excess of 8 million cubic meters of water in the tailings pond inventory at June 30th. We actually stopped pumping water from surface earlier than planned because we had the maximum water inventory that we require. We now have access to well-understood underground water, as well as additional permits for surface water until the end of 2023. We continue to work with our First Nation partners and regulators to permit for a long-term solution of water and for a life of mine as part of our long-term water strategy. Both Mount Milligan and Öksüt mines are running well, and we are well on track to achieve our 2021 production and cost guidance. Please move over to Slide 12 and we'll view operational key focus. Again, safety is our highest priority, and we continue to roll out our safety programs to constantly improve our safety performance. We've embraced our Work Safe, Home Safe program for three years now, and we are focused also on visible self-leadership and developing and rolling out our critical controls. Q2 again had no loss time incidents, which is a great step forward. Those who follow the company can see that we have removed Kumtor from our 2021 and three-year outlook production and cost guidance. Mount Milligan continues to hit its stride and is achieving a record quarterly throughput of 5.6 million tons. Through excellent mechanical availability, we have a new process control system on our side, and we have great focus by the team on the ore blending for optimal throughput. The BC wall players had minimal effect on non-Milligan operations. Late in the quarter, there was fire damage on the rail route used by CM to transport our concentrate from site to the Port of Vancouver. CM has subsequently repaired the damage, and we are currently not experiencing any transportation issues, but we will continue to monitor closely. There are currently no visible forest fires in the vicinity of the mine. We don't expect an impact on 2021 production, but we may have a slight lag in our Q3 shipments to catch up on the rail disruptions. We are on track for the installation of a new stage flotation reactor to be upgraded by the end of the year, and all studies are showing that this will have improvements in our copper and gold recoveries. Öksüt, our newest operation, continues as planned, with major ore coming from the Keltepe Pit. Please move to Slide 13. We have detailed our production cost guidance for 2021. Overall, our mid-range of guidance is near 300,000 ounces at a very competitive all-in sustaining cost of $750 to $800 per ounce. With the strong copper credit, Mount Milligan has an excellent all-in sustaining cost guidance of 530 to 580 per ounce on 180,000 to 200,000 ounces of gold. For Öksüt, we are guiding 90,000 to 100,000 ounces at an all-in sustaining cost of 730 to 780 per ounce. Again, our capital expenditures on a consolidated basis are looking to come in between $95 million and $115 million for the year. Going to the next Slide 14, you can see we are looking to substantially increase our gold production at Öksüt for the next two years, moving to higher grade ore. Mount Milligan remains relatively steady at similar production levels over the three years. Now, Darren will take us through our financial results.

Darren J. Millman, Chief Financial Officer

Thanks, Dan, and good morning all. For those following on the slide deck, I am on Slide 16. Centerra recorded $202 million in revenue during the quarter. This relates to our continuing operations as defined in our financial statements. This primarily includes the Mount Milligan mine, the Öksüt mine, and a Molybdenum Business Unit. Revenue materially consists of $94 million in gold sales, $50 million in copper sales, and $46 million from our Molybdenum Business Unit. During the quarter, the company's continuing operations average gold price realized was $1,419 per ounce of gold and $2.92 per pound of copper. These incorporate the existing streaming arrangements over the Mount Milligan mine. In the quarter in our continued operations, we sold 66,642 ounces of gold, 51,000 ounces from the Mount Milligan mine, which is a 47% increase compared to the prior year quarter, and 15,000 gold ounces attributable to the Öksüt mine, and as you recall, the Öksüt mine only declared commercial production on May 31, 2020. Prior to the actions taken by the Kyrgyz Republic government, the Kumtor mine produced and sold approximately 49,000 ounces of gold. We also sold 19.5 million pounds of copper in the quarter. The net earnings during the quarter from our continued operations was $33 million. This included the adjusting of $10.8 million non-cash expense attributable to the reclamation liability increase due to unfavorable discount rate movement. The adjusted earnings from a continued operations perspective was $49.9 million for the quarter or $0.17 per share. Earnings attributable from an operations perspective were $42.4 million contributed from the Mount Milligan mine, $16.1 million contributed from the Öksüt mine, and a $14.8 million loss attributable to the Molybdenum BC share. This was primarily attributable to the reclamation expense of $10.8 million mentioned earlier. The net loss including both continued and discontinued operations was $851 million. As noted in our disclosures, we classified the Kumtor operations as discontinued operations on May 15th, resulting from the actions by the Kyrgyz Republic government and continued actions thereafter. The three items to highlight within discontinued operations were $44.8 million net earnings from the Kumtor mine recorded up until May 15th, and a $926 million charge recorded on the loss of control of the Kumtor mine, and a $15.3 million gain recorded on the close out of hedges in connection with the Kumtor mine. For clarity, as of June 30, no value was recorded in the balance sheet associated with the Kumtor mine. I will now move to Slide 17. Centerra's continued operations in the quarter recorded production cost of $593 per ounce and an all-in sustaining cost of $676 per ounce. At an asset level, Mount Milligan recorded all-in sustaining cost of $486 per ounce, and Öksüt recorded all-in sustaining cost of $947 per ounce for the quarter. As noted in the bottom right-hand chart, Centerra's continued operations year-to-date has produced 140,000 ounces of gold, so tracking well to achieve 2021 production guidance. One of the left-hand charts notes our free cash flow year-to-date of approximately $100 million from our continued operations with up to $175 million guided for 2021 at a gold price of $750. On a go-forward basis as Dan noted, there is potential for slight delay in that Milligan sales. This could result in a low level of free cash flow in Q3 compared to Q4. Now moving to Slide 18. The company ended the quarter debt-free with $883 million in cash as referenced in the bottom right-hand chart. As disclosed in the MD&A and summarized in the bottom left-hand chart, we offset a three-year gold production guidance excluding the Kumtor mine. You will note we're guiding to a 40% increase in gold output through our continued operations and a similar reduction in our cost profile. The graph noting annual guidance points. As a result of that, free cash flow will significantly increase as we move into 2022. Finally, given the cash generation of our continued operations, a closing cash position of $883 million and total liquidity of just under $1.3 billion, the Centerra Board declared a quarterly dividend of $0.07 for the quarter, which represents a 40% increase from the prior quarter. With that, I'll pass it back to Scott.

Scott G. Perry, President and Chief Executive Officer

Thanks, Darren. And just to round out and wrap up the call, I'll just speak to Slide 20. So again, just in terms of some of the key bullet points here in the left, first bullet point, as we heard Dan and Darren speak to, we are reiterating our gold production guidance for Mount Milligan and Öksüt. You can see it illustrated here. This year we are guiding for up to 310,000 ounces. In terms of the corresponding all-in sustaining costs, we are expecting to produce this gold at $750 per ounce. So given the prevailing metal price environment and that competitive all-in sustaining cost profile, I think that's going to make for robust margins, and I think you're seeing that bear into the free cash flow guidance, where we are guiding up to $175 million this year. Fourth bullet point again, it was another strong operating quarter; we are seeing good operating momentum at our continuing operations, again producing some 70,000 ounces of gold at a very low competitive all-in sustaining cost of $676 per ounce. Lastly, the final bullet point, as Darren just spoke to, we really are continuing to maintain and grow a appealing balance sheet; it's debt-free and finished the quarter with cash of $883 million. Just given where we see our business going in terms of the free cash flow guidance this year, and in terms of the growing level of gold output coming from Turkey next year, I think this balance sheet will continue to grow moving forward. As I mentioned at the very outset of the call and as we've disclosed in our MD&A, there are a number of legal proceedings that we have commenced in connection with Kumtor, both against the Kyrgyz government and Kyrgyzaltyn. As we move into the question-and-answer portion of the call, I just want to caveat that unfortunately we will be limited in our ability to provide details related to those ongoing proceedings. So with that caveat, operator, Maria, if I can now pass it over to you to coordinate the Q&A portion, please.

Operator, Operator

Thank you. Our first question comes from Trevor Turnbull from Scotiabank. Your line is open.

Trevor Turnbull, Analyst

Hi, thank you. Thank you, Scott. Maybe start with operations, just a quick question on Mount Milligan. I know that Darren was talking about the long-term water plan and solutions up there. Can you talk a little bit about what that might look like or what the CAPEX might be involved with that? I did notice that until that's finalized, you haven't provided any CAPEX guidance, but I wondered if you could just give an order of magnitude description of it?

Scott G. Perry, President and Chief Executive Officer

Yeah. Thanks Trevor. And Dan, are you happy to respond to that question just in terms of some of our current evaluations that are underway?

Daniel R. Desjardins, Chief Operating Officer

Absolutely. Good morning, Trevor. Right now, we are in a very, very strong position. The tailings are full. We're drawing in probably more than half of our required water from underground. Basically those are permanent facilities. Now we have a little bit of connecting up green power, in terms of hydroelectric permanent solutions to some of our pumps, but that's going very well. We are drawing right now from two very local rivers within four kilometers of the mine site; those were temporary installations that we've been setting up each year using a contractor. So we've been able to satisfy our water needs fully. We're looking at two solutions right now. One is further distance away. We're still engineering the capital cost, but that'll be in the neighborhood of say $30 million to $40 million. We also are still, strongly looking at very near-mine solutions that would be certainly less than $10 million in terms of capital. But right now, we're sitting in a very good position and we have permits until the end of 2023 for the way we're set up right now.

Trevor Turnbull, Analyst

Okay. Thanks, Dan. I also had a quick question on Öksüt, just was there any or maybe I missed it, but was there any update on permitting for the Güneytepe pit?

Scott G. Perry, President and Chief Executive Officer

Dan you want to take that too.

Daniel R. Desjardins, Chief Operating Officer

Yeah, absolutely. We continue to work with the government. There is still a court case between two of the government agencies on who has control of the land and that should be coming to fruition here in September when they go back into session. We've adjusted our plans, but in the near term, there is no effect, and we also have re-engineered our access to the Güneytepe pit, in case we don't get permit for the larger footprint, we would still be able to access as our original feasibility plans indicated.

Trevor Turnbull, Analyst

Okay, thank you. And then maybe I had a quick question on the dividends. You mentioned that you've raised the dividend, and that the dividends are essentially waived for the Kyrgyzaltyn shares. It said that they're waived to the extent that they can be attributed to KGC or Kumtor. And I guess I had a question about the language; does that mean that there is a portion of the dividend that Kyrgyzaltyn is eligible for that is not attributable to Kumtor?

Scott G. Perry, President and Chief Executive Officer

Yeah, Trevor it is Scott. No, it is our determination. I mean, as you know, dividends are paid out of retained earnings and it is our determination that the entirety of our retained earnings position has been attributable to Kumtor. So in terms of the dividend distribution during the quarter, again, the dissemination was that it's entirely attributable to Kumtor. So, as you know, there's a series of restrictions in place in terms of the Kyrgyzaltyn shareholding, in terms of their ability to receive dividends, in terms of their ability to transfer shares, since their ability to vote on those shares, so they will have no entitlement to the recently declared dividends.

Trevor Turnbull, Analyst

Okay. That helps clear it up. And I guess my last point or comment is, is just on your summary slide that you closed with. You make a very compelling case on the continuing operations, in terms of their cost structures and their cash flow generation. But it doesn't really get to any per share metrics, which is kind of where I struggle. And I just wondered how you would kind of frame the investment thesis with respect to kind of per share metrics and per share valuation, should we be thinking about your capital structure as intact going forward with the Kyrgyzaltyn shares or should we be thinking that at some point there will be a reduced share count that negates, that essentially removes those shares from the calculus?

Scott G. Perry, President and Chief Executive Officer

Yeah. I mean, if you look at our free cash flow guidance for this year, up to $175 million in cash, that's approximately $0.65 per share in terms of free cash flow, which moving forward, we expect that to grow just given the rising gold outputs that we're expecting from Turkey as we move into that higher grade sequence. So next year 2022, 2023, I think you're going to see some very meaningful increases in terms of the free cash flow generated from our continuing operations, given the current sort of prevailing metal price environment. Obviously in terms of our broader share counts, there are some opportunities here. Obviously, we are open to engaging in negotiations with the political leadership in Kyrgyzstan, in terms of looking to resolve the situation for a constructive dialogue. And look, we're certainly open to all possibilities, which could include, the Kyrgyzaltyn shareholding and what that could potentially mean for a reduction in our share counts. The other thing I want to mention is our balance sheet. I think I've been describing it as a peer leading balance sheet, relative size compared to peer groups. We think it's going to continue to grow, and maybe there are opportunities there as well in terms of strategizing with the board around capital return initiatives, etcetera. But it's all kind of preliminary right now, Trevor, but I think as a management team and speaking on behalf of the board, we do recognize that we have some opportunities here which we'll continue to evaluate. Obviously during the quarter you saw us take one small step or a measure or a token in terms of increasing the dividend by some 40%. But I think we certainly have the financial capacity to continue to evaluate other potential capital initiatives. So, sorry, Trevor. That was a long answer.

Trevor Turnbull, Analyst

Yeah, no, that's good. I guess maybe one last question just with respect to you mentioned potentially you remain open to speaking to the government in ways that you may be able to talk to them about the shares. Are there also legal remedies, and if so, are they something that you kind of need the other legal processes to take to kind of play out before you would consider those? In other words, the international arbitration, the case you have in Canada, and so forth, do those need to kind of conclude before you think about next steps legally?

Scott G. Perry, President and Chief Executive Officer

It's difficult for me to respond to that, Trevor. As I mentioned, it is tough to comment on the legal proceedings. But right now our primary focus is on the international arbitration, as well as the Chapter 11 proceedings down in New York. They are the legal measures we're taking right now that we think best position us in terms of protecting the rights of our shareholders and the overall values, on behalf of our stakeholders.

Trevor Turnbull, Analyst

Yeah. And then there's also the case in Canada against the temporary manager, kind of what is the outcome you're looking for there in that particular case?

Scott G. Perry, President and Chief Executive Officer

It's all kind of out sort of legal measures, looking to substantiate that what's taken place here is invalid, it's without merit, and it's in direct contravention in terms of our project agreements and our investment agreements.

Trevor Turnbull, Analyst

No, okay. Fair enough. Alright, thank you, Scott. That's all I had.

Operator, Operator

The next question comes from the line of Michael Siperco from RBC Capital Markets. Please go ahead.

Michael Siperco, Analyst

Thank you guys for taking my question. Scott, you just touched on it a little bit, but I was hoping you could talk a little bit more about that balance sheet and capital allocation, and I suppose that would be a key question Kumtor notwithstanding, as you said, it is still preliminary but what really drives your thinking on those fronts if we're looking at dividends, cash return, and M&A as well. I suppose, are you seeing opportunities out there, is it too early to think about that, can you give a little bit more color around how you're thinking about the balance sheet?

Scott G. Perry, President and Chief Executive Officer

We recognize that we have a significant sort of debt-free balance sheet, and we think that's going to continue to grow just given where the position is and just the underlying profitability that you're seeing right now. We regularly sort of strategize and deliberate on this with the board. Over the last sort of 18 months you have seen us take a number of steps in regards to that dividend distributions. We quickly reinstituted that dividend program. We then increased the dividends to $0.04 per share. Last year we increased it to $0.05 per share, and you saw most recently we declared a dividend of $0.07 per share. So on that front, we have been taking some steps. Obviously, there are potentially other capital return opportunities here. As I was mentioning earlier, we could be evaluating and thinking about our share counts. But one of the challenges we have, Michael, is I don't think we can do anything until we have resolved the situation with Kumtor and the Kyrgyzaltyn shareholding. What I mean by that, say you're asking me about a share buyback scenario. Under that scenario if Kyrgyzaltyn was not participating, we'd be effectively increasing or concentrating their ownership position within the organization. That brings with it a number of other considerations as part of the overall calculus. So I think until we have that result, it kind of restricts our ability to evaluate in earnest any kind of a share buyback scenario.

Michael Siperco, Analyst

Regarding mergers and acquisitions, you have sold some assets and still hold others in your portfolio. Considering your cash balance, which is significant, is it too soon to discuss a long-term strategy, or is it still dependent on the developments in Kyrgyzstan?

Scott G. Perry, President and Chief Executive Officer

I personally like to be a little more contrarian in terms of when we do get equivocated in terms of inorganic growth. For example, during the time I've been with Centerra, when we were quite active in terms of acquiring Mount Milligan or Kemess, it was in the low phase of the gold price cycle when gold was trading around $1,250. I think that's a better time to maximize the likelihood of a value-creating sort of transaction. So given where we are in the gold price cycle right now, I find it a little bit more difficult to envision doing things that are going to be representing compelling sort of value accretive opportunities. At the same time, I'm not ruling it out. Obviously I think in terms of our go-forward position here, be it our balance sheet, our profitability, our cost profile, I think we're in a fantastic position and it's something we can look to capitalize on. But I think just speaking more broadly in terms of where the industry is positioned, I think the industry is doing really well. The industry is quite profitable with these gold prices, and I think everyone's balance sheets have largely been repaired. So I think it's going to be difficult in terms of actionability, in terms of opportunities presenting themselves. And that's fine from my perspective; I'm willing to be patient, and I think we've got a great business here moving forward, but we recognize that that balance sheet provides us a lot of optionality. I think that's a competitive position for us to be in.

Michael Siperco, Analyst

Okay, great. Thanks. And maybe just one last one for me, high level on the dispute with Kyrgyzstan, obviously the situation is very different than it's been in the past. This is maybe just my perception or opinion, but it does seem that based on local media reports that the government's comments are maybe more heated, the rhetoric is more heated, more specific commentary about past agreements, denunciations, that sort of thing. Absent direct contact with the government, can you comment at all on what you're seeing in terms of their public statements, maybe relative to those past disputes?

Scott G. Perry, President and Chief Executive Officer

Well, I'm seeing what you're seeing, and it's a lot of hyperbole. It is a lot of rhetoric, and all of it is unsubstantiated. This has been the typical sort of Kyrgyz playbook. I think you've got to take it with a appropriate pinch of salt, if you will. We'll put it in that context. We don't react to it as you have seen. What we are focused on is obviously trying to engage with the Kyrgyz leadership, and that's how I've always resolved these disputes, through constructive dialogues. If you look at history, eventually, both sides come to the table, but in the absence of having any meaningful engagements, it forces us to take the legal measures that you've seen us showing in terms of the arbitration and the Chapter 11 proceedings. We just have to continue to watch and see how this unfolds, Mike.

Michael Siperco, Analyst

Okay, great. Thanks very much for the time.

Operator, Operator

The next question comes from the line of Anita Soni from CIBC World Markets. Your line is open.

Anita Soni, Analyst

Good morning. Thank you for taking my call. I'm not going to inquire about Kumtor because that seems clear at this point, but I would like to focus on operations and some of the other moving parts. The Molybdenum business is currently generating a net cash draw of $35 million this year. Do you anticipate this trend will continue into 2022 and 2023? Is this an ongoing situation, or do you believe it will only be a one-time occurrence reflected in the 2021 forecast?

Scott G. Perry, President and Chief Executive Officer

Yeah, thanks Anita. Darren, do you want to respond to that and in your response, Darren, just make sure you point out that it's buildup in inventory that will be monetized in due course? Over to you, Darren.

Darren J. Millman, Chief Financial Officer

Hi Anita. It's basically driven by the fact that Molybdenum prices have dramatically increased. When we put out guidance for 2021 at the start of the year, I think we were pricing around $12 a pound. It is predominantly driven by a working capital increase, call it 80% to 90% of that. We don't expect that unless the Molybdenum prices continue to spike up again in 2022-2023, then you'll see potentially an additional buildup of cash into the business. But it's probably just driven by the Molybdenum price increase, nothing more. If it's currently flat, obviously, we'd like to recoup some of that $30 million of approximate cash inflow into the business. But that's the real driver behind it.

Anita Soni, Analyst

Okay. And then secondly, Darren, Mount Milligan's depreciation increased. Can you just walk me through why it increased for this year?

Darren J. Millman, Chief Financial Officer

I'll try to reflect, why don’t you speak to Mount Milligan like new life of mine. I think back in 2020, we obviously reduced the mine log. So, that was the driver of the sort of mine life, which means we need to increase that depreciation period on a period basis. I will have to dive in a little bit deeper but at the top of my head, that would be the driver and obviously we've had a high throughput, high production coming in during the quarter. So, that’ll be attached to that piece. Once again, we could dive in a bit further and get back to you as well, if you like.

Anita Soni, Analyst

Yeah. That would be helpful. I think what you're describing would drive, we will not be doing the movement that you're talking about it going up again this quarter or for this year. So, anyway I just want to get around to understand what the main drivers there were? And then on corporate administration, I think there was an increase there, is that a $15 million, is that more along the lines of all the legal things that you're dealing with and perhaps on a long-run rate, we should be more along the lines of the original number of $35 million to $40 million or even less now that you're not necessarily worrying about the Kumtor mine?

Scott G. Perry, President and Chief Executive Officer

Yes.

Anita Soni, Analyst

Okay. Lastly, regarding operations for Öksüt, is the Phase 3, 4, and 5 tripping primarily complete at the Keltepe Pit? Should we expect higher grades aligned with reserve rates in the latter half of the year, or will that be more of a next year situation?

Scott G. Perry, President and Chief Executive Officer

Dan, do you want to speak to that please?

Daniel R. Desjardins, Chief Operating Officer

Yes, certainly. You are correct. We are now starting to already experience higher grades, and we plan to carry that forward to really over the next two and a half years.

Anita Soni, Analyst

Okay. And I guess one last question on Mount Milligan, it seems like you're running a little higher than the top end of your guidance range, particularly on gold. Is there something that we should be thinking about in the second half of the year in terms of throughput ramifications or grade ramifications that would look at more towards the mid-point or within the guidance range, or do you continue to expect some actual performance?

Scott G. Perry, President and Chief Executive Officer

Dan, do you want to speak to that?

Daniel R. Desjardins, Chief Operating Officer

Certainly can. We are having excellent throughput, and that is continuing into the third quarter, which is great. We are focused as well on both gold and copper, but we have gone through some fairly high grade gold sections of our pit. So we're still confident on guidance. We're also seeing excellent recovery in both copper and gold, and hopefully that will continue, as we've got additional process controls in our plant. So we're still feeling very strong on our guidance there.

Anita Soni, Analyst

Okay. Thank you. That's it for my questions.

Operator, Operator

Our last question comes from the line of Mike Jalonen from Bank of America. Your line is open.

Michael Jalonen, Analyst

Good morning. Scott, just following on a comment about better grades about Molybdenum earlier this year. I can't remember who said it, Scott, but that was ending new life of mine studies at both Mount Milligan and Öksüt in October and November. I didn't say anything this time about those. Is that still the plan for those to be released or completed?

Scott G. Perry, President and Chief Executive Officer

Yeah, hi Mike. So, Dan and his engineering technical services team, they're doing a number of evaluations in terms of what we're seeing in terms of conceptual sort of life of mine opportunities at Mount Milligan as well as Öksüt. That work is well underway. But in terms of committing to a timeline, we haven't made that commitment in terms of our public disclosure; it is potentially an opportunity for us in terms of our typical year-end reserves and resources. It really comes down to whether or not what is the materiality in terms of what we're seeing. If it's something material, then obviously we'd have to disclose it. If it's not material then maybe it is something that we don't disclose. That's something that we will continue to evaluate, and we just have to see how that unfolds here over the course of this year.

Michael Jalonen, Analyst

Okay. Well, thanks. And one last question, Scott, I guess if you put Kumtor to the side, obviously, you got a great balance sheet, great free cash flow, but the gold load is awash with 300,000 to 400,000 ounces of gold producers. And I could go to the Denver Gold Forum, I'd be tripping all over them on the atrium or the bar. Just wondering how does the return obviously is one way, but how this entire gold space stabilizes itself among all these companies now?

Scott G. Perry, President and Chief Executive Officer

Well, look, speaking, talking to my own book, obviously, I would put forward that what differentiates Centerra, what distinguishes Centerra, is our peer-leading cash position, but I think also we've pretty much peer-leading cost profile. If you look at our guidance for this year, it looks like results in Q2. I mean, sub-$700 per ounce, that really is lower first quarter. I think that distinguishes us. But then also we've got some natural organic growth taking place here as we move forward over the next two and a half years, and that's particularly in Turkey. As Dan mentioned earlier, we are getting into a high-grade sequence, we're expecting our gold production levels at Öksüt to more than double 2022-2023 relative to this year. That's obviously going to make for growing free cash flow and growing profitability. I think as we spoke to, we've been doing some things in terms of capital return initiatives or shareholder-friendly initiatives. There have been some meaningful increases in our dividend distributions. If there is an opportunity to do more that's something we have to continue to evaluate with the Board. Those attributes I just put forward Mike, I really do think that distinguishes Centerra in a favorable manner. Obviously underpinning all of this would be the valuations, and does that represent an interesting investment proposition? I think that's how it would sound, Mike.

Michael Jalonen, Analyst

Okay, well thank you for that and good luck.

Scott G. Perry, President and Chief Executive Officer

Thank Mike.

Operator, Operator

There are no further questions on the lines.

Scott G. Perry, President and Chief Executive Officer

With that I'd like to thank everyone for joining us on our call today, and we will wrap up the call right now. Well, thank you everyone. Goodbye.

Operator, Operator

This does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.