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Centerra reported May 15 a 1Q operating loss of $14.7 million, six cents per share, on revenues of $133.8 million. According to Centerra‘s press release, the loss “includes $19.2 million of abnormal mining costs, $4.6 million of mine-standby costs related to the work stoppage at Kumtor and a $1 million provision for the closure of the Company’s Reno exploration office. For the same period in 2011, the Company recorded net earnings of $136.6 million or $0.58 per common share based on revenues of $250.2 million in the same quarter last year reflecting significantly higher gold production and sales.”
Pearson says the quarterly loss is an anomaly. “We had to revise the mine plan at Kumtor. This was due to some accelerated movement in the ice and waste along one part of the pit wall, and it became unsafe to mine underneath that. So we had to shift to a different part of the open pit, which reduced our overall production outlook for the year while we mitigate the problem. We’re mining in a different part of the open pit, and so we’re stripping to get into the ore starting in September. So it basically just deferred some of the ounces that were planned to be mined this year into future periods.”
Before the end of 3Q, Centerra will release a review that will “examine the limits of the ultimate pit and life of mine plan at Kumtor.”
Kumtor has had one piece of good news this year. In February, Centerra announced a significant increase in its resources. Overall, the company’s measured and indicated resources as of December 31, 2011, increased by 36%, 1.8 million gold ounces, to 6.7 million ounces total. Kumtor represents 72% of this, but Centerra is not wholly dependent on Kyrgyzstan. It has important assets in several Asian countries, most notably Mongolia.
Pearson says, “Boroo has been mining since 2004, and it is winding down. We’re currently mining to gain access to the remaining reserves in the pit for the fourth quarter and processing stockpiles there for the last couple of years to process as we wait for the final approvals of our Gatsuurt development property, which is some 35 kilometers away. It’s connected to Boroo by a 55-kilometer road. So it’s the next mine development we see going into production.”
We’ve got a large land package [at ATO in Mongolia] and discovered three mineralized breccia pipes which we drilled out and outlined some resources on that, about 825,000 ounces of gold, 5.5 million ounces of silver and 270 million pounds of lead and 490 million pounds of zinc —John Pearson
When that will be has yet to be determined. “It’s all ready to go and operate as soon as we get the final approval from the Mongolian government,” Pearson says. “Then we’ll mine the ore at Gatsuurt and truck it back to the Boroo mill facility and process it at Boroo. Mind you, Mongolia just had a recent election. A new Parliament is being formed, and so nothing will happen before the fall session basically.”
Mining at Gatsuurt will begin with the oxide cap, and Pearson expects initial annual production of 120,000 to 150,000 ounces. “Once we get into the sulphides, production will probably come up to somewhere between 150,000 and 175,000 ounces.”
Another major Mongolia project is ATO. Pearson says, “This is about 500 kilometers to the east of our current operations in Mongolia. We’ve got a large land package there and discovered three mineralized breccia pipes which we drilled out and outlined some resources on that, about 825,000 ounces of gold, 5.5 million ounces of silver and 270 million pounds of lead and 490 million pounds of zinc. We are now in the process of converting that exploration license to a mining license.”
Centerra announced last year an initial resource calculation for its Kara Beldyr project in the Tyva Republic in Russia, 824,000 ounces, measured and indicated. Pearson also mentions “an exciting find in Turkey, our Stratex joint venture, the Öksüt property. We had a number of exciting drill intercepts there last fall and found 180-to-200-metre sections of oxidized, mineralized material averaging grades of 1.8 to 2 grams per tonne. Overall in 2012, we’re looking at spending about $45 million on exploration at all the different sites.”
- 4.57 grams per tonne gold, 16.39 g/t silver over 26.1 metres(including 13.59 g/t gold, 49.65 g/t silver over 5.8 metres)
- 1.35 g/t gold, 3.07 g/t silver over 8.1 metres(including 6.41 g/t gold, 11.3 g/t silver over 1.6 metres)
- 3.98 g/t gold, 80.25 g/t silver over 6.2 metres(including 12.45 g/t gold, 25.6 g/t silver over 1.5 metres)
Pearson believes that after Gatsuurt goes online, Centerra‘s annual gold production will be “probably close to a million ounces in a few years.” He concludes with regard to Kumtor, “We’ve faced these episodes of uncertainty before. We keep working at it to build shareholder value.”
According to a report by Trevor Turnbull of Scotia Capital, Centerra now represents an “unusual buying opportunity.” He argued that it “is used to weathering political storms, including the 2010 coup d’état, without impact to its Kumtor mine.” Turnbull maintained a price target of $23.
A less-rosy assessment came from Kazakhstan’s Halyk Finance: “We believe that the company will have to agree to a higher tax rate and expenditures on environmental protection and local community development [at Kumtor]. We have Centerra Gold under research coverage with a 12-month target price of $8.80 [and] a ‘Hold’ recommendation.”
At press time, Centerra had 236.3 million shares trading at $6.35 for a market cap of $1.5 billion.
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