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Centerra Gold Inc. (NYSE:CGAU) Q4 2023 Earnings Call Transcript February 23, 2024

Centerra Gold Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Thank you for standing by. This is the conference operator. Welcome to the Centerra Gold Fourth Quarter 2023 Conference Call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Lisa Wilkinson, Vice President, Investor Relations and Corporate Communications with Centerra Gold. Please go ahead.

Lisa Wilkinson: Thank you, operator, and good morning, everyone. Welcome to Centerra Gold’s fourth quarter 2023 results conference call. Joining me on the call today are Paul Tomory, President and Chief Executive Officer; Paul Chawrun, Chief Operating Officer; and Darren Millman, Chief Financial Officer. Our release yesterday details our fourth quarter 2023 results. It should be read in conjunction with our MD&A and financial statements, both of which can be found on SEDAR, EDGAR and our website. All figures are in U.S. dollars, unless otherwise noted. Presentation slides accompanying this webcast are available on Centerra’s website. Following the prepared remarks, we will open the call for questions. Before we begin, I would like to caution everyone that certain statements made today may be forward-looking and are subject to risks which may cause our actual results to differ from those expressed or implied.

Please refer to the cautionary statements included in the presentation as well as the risk factors set out in our annual information form. Certain measures we will discuss are non-GAAP measures. Please refer to the description of non-GAAP measures in our news release and MD&A issued yesterday. I will now turn the call over to Paul Tomory.

Paul Tomory: Thanks, Lisa, and good morning, everyone. To start, I’d like to express my sympathy and support to everyone impacted as a result of a recent slip of the heap leach pad at the mine in Türkiye. We have sent a mine rescue team to assist in the recovery efforts and our thoughts and prayers are with the affected individuals. Moving on to Centerra’s performance, we delivered a strong finish to 2023, achieving both production and cost guidance for the year. Fourth quarter was our second consecutive quarter of significant free cash flow, and we ended the year with over $600 million in cash and cash equivalents. I’d also like to highlight annual record performance at Mount Milligan in both the mine and the plant. Our recently announced additional agreement with Royal Gold allows us to look at the Mount Milligan copper-gold porphyry deposit much more broadly and to assess its potential to be a multi-decade operation.

This is a key first step in our strategy to realize the full potential of this cornerstone asset in a top-tier mining jurisdiction. Looking ahead at Mount Milligan, we’ve initiated a preliminary economic assessment to evaluate the potential of a mine life extension beyond 2035. The PEA is expected to be completed in the first half of 2025. We will also continue to invest in exploration drilling to unlock the large mineral endowment in Mount Milligan, setting the stage for potential future resource additions. And finally, we’re continuing to advance site-wide optimization program, assessing all aspects of the operation to maximize the potential of the ore body to set Mount Milligan up for long-term success to 2035 and beyond. In addition to our strategic approach on Mount Milligan, we’re also focused on several key areas in 2024.

We expect to complete the feasibility study for the Thompson Creek restart in the middle of 2024 as well as an initial resource estimate of the Goldfield Project by the end of 2024. In the year ahead, we expect to continue to deliver on our strategic plan to maximize the value of the assets in our portfolio. Finally, I’d like to touch on a recent ESG achievement. In 2020, Öksüt joined the International Cyanide Management Institute as a signatory. Over a span of three years, the site underwent a certification program to align with the Institute’s principles and standards practice. In early January, Öksüt successfully attained certification for the Institute, confirming complete adherence to the International Cyanide Management Code. This was a collaborative effort with team members from ESG, occupational health and safety, process, maintenance and construction departments working together to achieve this significant milestone.

And with that, I’ll pass the call over to Paul Chawrun to walk us through our operational performance for the quarter.

Paul Chawrun: Thank you, Paul. On Slide 5, we show operating highlights at Mount Milligan for the quarter. The Mount Milligan mine produced over 40,000 ounces of gold and almost 20 million pounds of copper in the fourth quarter, achieving 2023 production guidance ranges for both gold and copper. For 2023, Mount Milligan achieved annual records for total tonnes mined and plant throughput at over 50 million tonnes mined and 21.7 million tonnes processed, respectively. Looking ahead, in 2024, we expect Mount Milligan to produce 180,000 to 200,000 ounces of payable gold, which is 23% higher than last year, mainly due to mine sequencing and higher gold grade. 2024 payable copper production is expected to be between 55 million to 65 million pounds.

Both gold and copper production are expected to be evenly weighted throughout the year, but sales in the second half of 2024 are expected to contribute approximately 55% of the annual sales. In the fourth quarter, gold production costs were $946 per ounce and all-in sustaining costs on a by-product basis were $946 per ounce. Full year 2023 gold production cost at Mount Milligan were $1,088 per ounce, which was in line with the guidance range. Full year all-in sustaining costs were $1,156 per ounce, beating the guidance range. Looking ahead, Mount Milligan’s 2024 all-in sustaining costs are expected to be $1,075 to $1,175 per ounce. In the fourth quarter, we embarked on a site-wide optimization program at Mount Milligan focused on an integrated holistic assessment of occupation and health and safety, mine and plant operations.

We are encouraged by the preliminary cash flow improvement estimates from the first phase of work on this program, and we expect to start realizing the benefits of the program later this year. As a result, the potential cost savings are not included in the Mount Milligan’s 2024 cost guidance ranges. On Slide 6, as Paul mentioned earlier, we are assessing Mount Milligan’s potential to be a multi-decade operation. We now have 250 million tonnes of reserves at Mount Milligan, extending our mine life out to 2035. In addition, we have substantially increased our resource to 260 million tonnes, most of which is classified as measured or indicated. And lastly, we have additional drilled inventory, which has not been incorporated into the resources, where we intend to continue drilling with the objective of further increases to the resources.

Aerial view of modern machinery operating in a gold mining site.Aerial view of modern machinery operating in a gold mining site.

Aerial view of modern machinery operating in a gold mining site.

We intend to incorporate these additional resources into an optimized mine plan in support of a preliminary economic assessment. On Slide 7, to provide more detail, we are targeting deposits to the west and southwest of the main pit within the current mining lease. At Goldmark and South Boundary, there are possibilities for near surface additions. At North Slope, DWBX and Saddle West, we continue to test for depth extension. And finally, I commend the Mount Milligan site team for embracing the site optimization program. The team has been fully engaged and is dedicated to enhancing the culture for continuous improvement through this important initiative. To date, we started to see evidence of this continually improved safety performance in the fourth quarter and year-to-date.

On Slide 8 are the operating highlights at Öksüt. Öksüt closed out the year with a second consecutive quarter of strong performance. Fourth quarter production was over 88,000 ounces and full year production was almost 196,000 ounces, achieving the midpoint of the guidance range. Production guidance for 2024 at Öksüt is estimated to be 190,000 to 210,000 ounces of gold, which is aligned with our previously disclosed life of mine plan published last September. As we are still going through the buildup of inventory, approximately 60% of the annual production is expected to be weighted to the first half of this year. Gold production costs and all-in sustaining costs on a by-product basis in the fourth quarter of 2023 were $474 per ounce and $671 per ounce, respectively.

Full year 2023 gold production costs and all-in sustaining costs were $457 per ounce and $675 per ounce, respectively, in line with the guidance ranges. Looking ahead, 2024 gold production cost guidance is expected to be $650 to $750 per ounce and all-in sustaining cost guidance is expected to be $900 to $1,000 per ounce. Costs in 2024 at Öksüt are expected to be higher than previously disclosed in the life of mine plan due to a new multiyear contract with the existing mining and hauling service provider as well as higher weighted average cost per ounce in the remaining inventory. To wrap up, I’d like to commend the Öksüt team for outperforming their 2023 safety targets and achieving one year without a lost time injury in early December.

This milestone demonstrates our priority to the safety of our workforce and our commitment to the journey towards achieving zero harm. I’ll now pass on to Darren to walk through our financial highlights for the quarter.

Darren Millman: Thanks, Paul. Slide 9 details our fourth quarter financial results. In the quarter, we incurred a net loss of $28.8 million or a loss of $0.13 per share. There were several adjusting items in the quarter, including $50 million of reclamation provision reevaluation expense and $34.1 million of noncash impairment loss related to the resource change at the Kemess Project and the sale of the Berg Project among other things. As a result of the one-time items adjusting net earnings in the fourth quarter was $61.2 million or $0.28 per share. In the fourth quarter, sales were 130,281 ounces of gold and 16.6 million pounds of copper. The average realized price was $1,846 per ounce of gold and $3 per pound of copper, which incorporates the existing stream arrangements at the Mount Milligan Mine.

At the Molybdenum Business Unit in the fourth quarter, approximately 2.1 million pounds of molybdenum was sold at an average molybdenum price of $20.35 per pound, generating $47 million in revenue. In the fourth quarter of 2023, additions to property, plant and equipment, and total capital expenditure was $68 million and $36 million, respectively. Consolidated all-in sustaining costs on a by-product basis for the quarter were $831 per ounce, which achieved our 2023 guidance target. Slide 10 shows our financial highlights for the quarter. The fourth quarter was our second consecutive quarter of significant free cash flow. Cash generated by operating activities was $146 million in the quarter, and free cash flow was $111 million. For the full year 2023, cash provided for operating activities was $246 million and free cash flow was $160 million.

At the Mount Milligan Mine, cash provided by the mine operations and free cash flow were $29 million and $14 million, respectively, in the fourth quarter. For the full year, cash provided by operating activities was $114 million and free cash flow was $73 million. At Öksüt, in the fourth quarter, the mine generated $144 million in cash from operations and $128 million in free cash flow. For the full year, cash provided by operating activity was $275 million, and free cash flow was $238 million. At the Langeloth metallurgical facility, approximately $6 million of investment in working capital from the first quarter was released during the fourth quarter. However, the Molybdenum Business Unit as a whole had a free cash flow deficit of $9 million in the fourth quarter.

In the fourth quarter, we received a $25 million payment from Orion Mine Finance Group in relation to the December 2021 sale of our interest in the Greenstone Project. In the fourth quarter, our cash balance grew by $121 million to $613 million. This provides us with total liquidity over $1 billion and positions the company well to execute on our strategic plan and deliver shareholder value. Given our strong financial position, the Board declared a quarterly dividend of $0.07 per share. Slide 11 shows our 2024 outlook. In 2024, we expect to produce between 370,000 ounces and 410,000 ounces of gold, which is 11% higher than last year, and copper production is expected to be between 55 million and 65 million pounds of copper. 2024 consolidated gold production cost and all-in sustaining costs are expected to be $800 to $900 per ounce and $1,075 and $1,175 per ounce, respectively.

2024 sustaining capital expenditure are expected to be $100 million to $125 million and non-sustaining capital guidance is $8 million to $15 million. We continue to invest in exploration. In 2024, we expect to spend $35 million to $45 million. Approximately 48% of exploration spending is related to brownfield targets and 52% is related to greenfield and general exploration programs. In 2024, Öksüt’s current income tax paid is expected to be between $85 million and $95 million. Given the timing of the statutory payments made in Türkiye, the annual royalty payment and income tax payments relating to Q4 2023 and Q1 2024 will be made in the second quarter of 2024. As a result, our cash flow in the second quarter of 2024 will be impacted by these cash payments.

We’re expecting a solid 2024 with a high gold production compared to last year, and we expect to continue to generate strong cash flow from our operations. I’ll pass it back to Paul for some closing remarks.

Paul Tomory: Thanks very much, Darren. Before we wrap up the call and on behalf of the Board of Directors, I’d like to take this opportunity to thank Darren for his hard work and dedication for the past 11 years at Centerra. And personally, it’s been a pleasure for me to have worked with Darren over the past 10 months, as I myself have done my own onboarding here. He’s built a strong financial position for the company with over $1 billion of liquidity, no debt, and has set us up for a successful CFO transition. Ryan Snyder will be taking over from Darren as CFO in April. Ryan has been with us for almost two years as VP of Finance and is very well positioned for this new opportunity. We wish Darren and his family all the best as they relocate back home to Australia. And with that, I’ll conclude and open the call to questions.

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