Centerra Gold Inc. (CG) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. I am Michael Parrett, Chairman of Centerra's Board of Directors. And on behalf of the Board, I would like to welcome you to this Annual Meeting of Shareholders of Centerra Gold Inc. I'm joined today by Centerra's President and CEO, Mr. Scott Perry, as well as our General Counsel and Corporate Secretary, Mr. Yousef Rehman. Also participating on this virtual meeting are members of the current board and members of management of Centerra. Similar to last year, and in light of the COVID pandemic, we are holding this meeting in a virtual-only format. The health and safety of our communities, shareholders, employees and other stakeholders is of paramount importance. We're disappointed that we can't see everyone today, but we hope that you are all being -- keeping safe and healthy. And certainly, we hope this is the last of these types of formats and meetings. A couple of housekeeping matters to go through before we commence the business at hand. First of all, all microphones are automatically on mute. But questions by shareholders and proxy holders can be submitted to myself and Scott via the Lumi chat option. Please be patient as there will be a slight delay in the publication of the communications received. Secondly, questions will generally only be addressed during the question period at the end of the meeting. However, questions regarding procedural matters or those directly related to a specific motion may be addressed during the meeting. Now depending on the number of questions we receive, we may not be able to address all of them. If we cannot address all the questions raised during the meeting, a member of management will endeavor to respond in writing as soon as practical afterwards. We always appreciate comments and feedback from our shareholders, and we encourage you to reach out to our Investor Relations department with any questions that you may have. Also, questions or comments containing inappropriate language, hostilities or that are otherwise disruptive to the orderly conduct of the meeting will not be published or answered. And questions or comments which are already answered or that are redundant will not be published or answered. Now we will conduct the vote on all matters before us today by a single electronic ballot. The electronic ballot is now available on your screen, and it will remain open for all items of business. This will allow you to choose to vote on each resolution immediately or wait to vote until all items of business have been presented. Once all items of business are brought forward before the meeting, shareholders and proxy holders will have approximately 1 minute to complete the electronic ballot. I will then announce balloting has closed and direct the scrutineers to tabulate and report on the voting rights -- results of each of the matters. The polls are now open. If we encounter any technical difficulties with this webcast, please stay logged on and we'll resume as soon as practical afterwards. And lastly, to expedite the formal part of the meeting, I will move all the motions, and none of the motions will need to be seconded. We will now proceed with the formal part of the meeting to conduct the business, which is set forth in the notice dated March 26, 2021, and was sent to all shareholders. On April 9, 2021, notice of meeting and the management information circular, form of proxy, the annual report containing the financial statements and auditors' report thereon, were made available to all shareholders entitled to receive notice. The Secretary has an Affidavit from AST Trust, Centerra's registrar and transfer agent, attesting to the mailing of the notice of this meeting. Unless there are any objections, I propose that we take the notice of meeting as having been read. In accordance with the bylaws of the company, I will act as Chair of this meeting. Yousef Rehman, General Counsel and Corporate Secretary of Centerra, will act as secretary. And with the consent of the meeting, AST Trust company, by its representatives, will act as scrutineer. I've been advised by the secretary that based upon the scrutineer's report on attendance, we have a quorum for the meeting. I now declare that this Annual Meeting of Shareholders is duly constituted for the transaction of business. There are 2 matters to deal with as part of the formal business of the meeting. First, the election of directors; and secondly, the appointment of auditors. Following this, Centerra's President, Scott Perry -- President and CEO, Scott Perry will provide an update on Centerra's activities, after which, we would be happy to respond to any questions. I have the minutes from last year's meeting of shareholders, which was held on May 1, 2020, unless there are any objections, I propose that we dispense with the reading of the minutes. The company has made available, through notice and access, to all shareholders, copies of its annual report and consolidated financial statements for the year ended December 31, 2020, and the auditor's report thereon. If any shareholder or proxy holder has any questions on them, I would ask them to submit them to be dealt with later during the general question period following management's presentation. We will now proceed with the election of directors. The Board of Directors has determined that the number of directors to be elected at the meeting is 11. All of the directors proposed for nomination in the management information circular made available to shareholders in connection with this meeting have agreed to stand for election. The company has adopted an advanced notice bylaw, which requires that any director nominations be received by the company in advance of this meeting. As no such nominations have been received, I move to nominate the following individuals set out in the management information circular for election to the Centerra Board: Tengiz Bolturuk, Richard Connor, Dushen Kasenov, Nurlan Kyshtobaev, Jacques Perron, Scott Perry, Sheryl Pressler, Bruce Walter, Paul Wright, Susan Yurkovich and myself, Michael Parrett. I declare nominations closed and move a motion to elect each of these 11 nominees as directors of the company. For those shareholders and proxy holders who have properly registered for today's meeting, you may vote for or withhold in respect of each individual Director nominee now or wait until all items of business are presented. As voting today is being conducted by a single ballot, we will continue with the next item of business, which is the appointment of auditors and the authorization of the directors to fix the remuneration. I move a motion to approve the appointment of KPMG LLP as the auditors of the company for the ensuing year and to authorize the directors of the company to fix the remuneration to be paid to the auditors. This concludes the items of business to be considered at today's meeting. We will now provide registered shareholders and proxy holders approximately 1 minute to complete the electronic ballot. If you have not already done so, please indicate your vote on the electronic ballot by pressing for or withhold buttons next to the resolutions electing each individual director nominee and the appointment of KPMG LLP as auditors of the company. Once electronic balloting closes, the voting page will disappear and your ballots will automatically be submitted. The scrutineers will then compile and report on results of voting on all items of business. While we wait, I'd just like to comment that the last 15 months has been extraordinary for -- and unheralded for any human being on the Planet Earth. We would like to take the opportunity to thank all the members of the Centerra team who've operated under extenuating circumstances. They all remain focused, adaptive, creative and committed to the health and safety of themselves as well as the well-being of their fellow workers, and it's been under very difficult circumstances. And notwithstanding this, that our operations continued very smoothly through the year. And it's a credit to everyone on the Centerra team from the executive group in Toronto, to the management team in Toronto, to every single one of our operations, to every operator, to every truck driver, every person in the mill, everyone in maintenance and our exploration teams. As well as the people that support them, the men and women, ladies and gentlemen, who feed our people at the operations and keep our operations clean and sanitized. On behalf of the Board and shareholders, I want to thank each and every one of you for your commitment this year. Thank you. Balloting is now closed. The scrutineers will now tabulate the voting results. While they do this, I would like to introduce Mr. Scott Perry, Centerra's President and CEO, who will present the company's financial performance for 2020.

Thank you, Mike, and good day to everyone, and thank you for joining us for our Annual General Meeting. I hope everyone is well and safe. I just want to start off on Slide 8 of the presentation deck, which is our forward-looking disclaimer. So if I can -- yes. This is our forward-looking disclaimer. During the course of my presentation and my associated remarks, I will be commenting and referencing forward-looking information. So please, at your leisure, do consult this statement in that regard. Just advancing to the next slide on Slide 9. Given all of the recent developments in the Kyrgyz Republic, I thought I would take a moment to talk about those first. As we announced this past Friday, a new external management law was passed by the Kyrgyz Republic parliament. It was introduced, it passed through 3 readings and was adopted in a single day. Mr. Akylbek Japarov was a sponsor of the law, and he stated that it only applies to Kumtor and not any other mining company. So from our perspective, it is clearly discriminatory. Mr. Akylbek Japarov is also the chair of the state commission reviewing Kumtor's activities. The state Commission is set to report shortly, and it's no coincidence that the $3 billion environmental claim was advanced and decided on by the Kyrgyz Republic courts at the same time as the law on external management was approved. The law itself is designed to allow external management to be imposed, where there is a threat to human health or the environment. Now of course, we believe the environmental claims are baseless as more than anything, this exact claim was settled in the 2017 strategic agreement. Kumtor's environmental record is excellent. And it's important to note that the Kumtor mine was first financed by international finances, EBRD and the IFC, and it, therefore, has had to adhere to their high environmental standards. In addition, the government's own independent consultant has noted. And we have always carried out any of their recommendations. Likewise, in terms of safety, I want to note that Kumtor just recently celebrated 1 year of lost time incident-free operations. So to suggest that Kumtor's operations pose imminent danger to human life, we believe, is completely unreasonable. We would not enjoy such excellent support of our employees and local communities if we are putting human health or the environment at risk. As always, Centerra has tried to engage with the Kyrgyz government on any disputes or misunderstandings, and we will continue to do so. However, we will also not hesitate to use all other means at our disposal, including international arbitration to protect the rights and interests of the company and our shareholders. Just advancing to the next slide on Slide 10. So looking to just recap the 2020 calendar year, and I'm primarily just going to speak to the bullet points on the top left. First bullet point, it was a very strong year for us on the operational front. We produced in excess of 820,000 ounces of gold, which favorably exceeded the upper end of our guidance. That level of gold production came at a very low competitive all-in sustaining cost of $729 per ounce, which also favorably outperformed the lower end of our guidance. The second bullet point, subsequent to year-end, we disposed or we divested 50% of our interest in the Greenstone Gold Mines partnership to some $210 million in cash plus potential contingent milestone payments of an additional $75 million. The fourth bullet point, just in terms of our financials, given the strong level of gold output and the low corresponding all-in sustaining costs, we saw record margins throughout our business. Company-wide, we generated some $604 million of positive free cash flow. And you can see in parenthesis there, just each of the individual contributions that our mines made during the course of the year. So each mine was meaningfully producing positive free cash flow. That strong profitability and cash flow, the fifth bullet point, resulted in us finishing the year with a peer-leading corporate debt-free balance sheet of some $545 million in cash. The last bullet point there was also a significant development, and this was subsequent to year-end, but represents a lot of the efforts that were carried out in 2020. We've been investing significantly and strategically in our exploration program, and it's really paid dividends. Most recently, in February of this year, we announced a 5-year extension in the reserve delineated asset life at Kumtor. And I think importantly, just in terms of the in situ reserve grade, we've seen a 15% increase. This is exciting given that Kumtor is one of our cornerstone assets. The charts down the bottom just illustrate the levels of positive free cash flow quarter-over-quarter at each of our existing operations. And I think the third chart from the left, Öksüt, this is our newest gold mining operation in Turkey. This is exciting. Öksüt, in 2020, we poured our first gold in the Q1 period. In Q2, we declared commercial production. And you can see in the back half of the year, just the meaningful step-up in profitability and positive free cash flow. This is metaphorically our third leg of the stool. I think it's going to be an important source of high-quality, low cost production. And that's exciting when we consider that in lieu of Centerra's fundamentals moving forward. Just advancing to the next slide, on Slide 11. Just in terms of last year's environmental social governance profile, a number of highlights here on the slide. Just firstly, the first bullet point I definitely want to recognize all of our employees and contractors. Everyone has really embraced our company-wide work-safe-home-safe safety leadership program, and we continue to believe that, that is bearing fruit in terms of our pursuit of zero harm operations. Most recently subsequent to year-end, we've announced a number of milestones, and one that's a particular note is Kumtor where we had in excess of 4,000 employees and contractors. We recently celebrated 1 year of consecutive lost time incident-free operations. The second bullet point, just in terms of our social license to operate as at the end of 2020, we had achieved 90 consecutive months without any business interruption event. Third bullet point in terms of environmental incidents. We saw no incidents during the quarter, which is as it should be. And I might just reference to the last bullet point. Centerra is a member of the World Gold Council and the World Gold Council has released their responsible gold mining principles. We are a signatory to these principles, and we are now implementing all of these at each of our operations. The objective is to establish full compliance by the end of 2022. And I'm pleased to report that we are in very good stead in terms of our ability to demonstrate compliance. Just advancing to the next slide on Slide 12. A number of highlights here on the slide. I'll just speak to 2 of them. The first bullet point. Again, I referenced the strong profitability. You see that likewise in terms of our net earnings result. For the calendar year, we reported net earnings of some $408 million or $1.39 per share. On an adjusted basis, it was approximately $462 million or approximately $1.57 per share. The third bullet point, though, I think what really speaks volumes is just the level of free cash flow that we're seeing within our business model. So again, company-wide, $604 million. But as you can see in parenthesis, each of the individual mining operations was contributing significant levels of positive free cash flow, and that's obviously put us in really good stead when you consider our treasury position and our balance sheet. Just advancing to the next slide on Slide 13. In my introductory remarks, I referenced that the balance sheet is potentially peer leading. I think our free cash flow is also peer-leading particularly so when you consider our peer group here, this is the North American comparative peer group in terms of the intermediate gold producers. You can see the chart at the top here, just in terms of total quantum of positive free cash flow, Centerra had one of the largest levels of free cash flow during the year. And then likewise, the chart down the bottom, which is just illustrating the net debt or net cash balance sheet profile, again, amongst the comparative peer group, Centerra was positioned with the strongest net cash position. So again, I think that does favorably differentiate Centerra vis-à-vis the comparative peer group. Advancing to the next slide on Slide 14. This chart here is just illustrating our actual year-end gold production results, which is the gold column and that's compared to the blue column, which is the midpoint of the original guidance that we issue at the beginning of each year. And you can see that year-over-year, Centerra has had a very good track record in terms of delivering against guidance. And this is important, doing what you say you're going to do, especially so when it comes to our operating credibility and how that's perceived in the capital markets. I think it also speaks to the underlying quality of the asset base and just the confidence that management does derive from that asset base when we set our guidance and our ability to deliver on that guidance. Just advancing to the next slide on Slide 15. I don't have any slides on Kumtor or Mount Milligan. We literally tried to keep the presentation brief, but I thought it wouldn't do Öksüt justice if we didn't have at least 1 slide on Öksüt being our newest gold mining operation. If I go back to 2019, we were exclusively focused on construction at Öksüt, and it was a laser focus. We wanted to make sure that we deliver this project on time and on budget. In January of 2020, we poured our first goal, and that marks the completion of construction. The original budget was $220 million, and we ended up coming in at a final total cost of around $200 million. So nearly 10% under budget. And the first gold pour was on time. So that was an excellent performance by our Turkish management team. And then you look at our results in 2020, which is on the top left, the column on the far -- the column on of left there on the top left, the gold production last year was some 106,000 ounces, which exceeded the upper end of guidance. But I think what really distinguishes this asset is the third row in that table. Öksüt's all-in sustaining costs last year was some $494 per ounce. So already, in its first year of operations, it was one of our lowest cost, highest margin assets. You can see the chart down there at the bottom right there. Again, this is in terms of the free cash flow contribution. You can see commercial production was declared in Q2 of last year. And in the back half of last year, you can see just the immediate step-up in the levels of free cash flow that Öksüt was generating for the business. In totality, Öksüt generated around $105 million of positive free cash flow last year. Again, the original construction cost was $200 million. So already in its first year of operations. It's nearly paid back 50% of its upfront construction investment, which is fantastic. As I mentioned in the outset, it's an exciting asset just in terms of Centerra's fundamentals moving forward. Again, it's that increased diversity within our -- increased diversification in our portfolio. It's going to be our third very important source of high-quality, low-cost production. Just advancing to the next slide on Slide 16. At the beginning of this year, for the first time, we've released multiyear guidance. So we've released a 3-year outlook, which is what we're illustrating here on this slide. And I think it's an attractive outlook. If you look at the fourth row in this table, this is the company-wide gold production profile. And we're seeing some considerable organic growth here moving forward. So 2021, this year, we're expecting up to 820,000 ounces of gold. And then you can see, in subsequent years, 2022, 2023, we could be producing in excess of 1 million ounces of gold per annum. The seventh row in this table is the corresponding company-wide all-in sustaining costs. And again, just given that growing level of production and that growing denominator effect, you can see that we are expecting our all-in sustaining cost to decrease significantly. So obviously, this all makes for growing margins in the prevailing gold price environment. Our guidance for 2021, and we were assuming a gold price of $1,750 in terms of our free cash flow guidance, we're expecting free cash flow could be as high as USD 400 million. So if we use that as a yardstick in terms of what that could mean for the subsequent years, I think Centerra is very well positioned for ongoing profitability and positive free cash flow regardless of where we are in the prevailing gold price environment, just given our low unitary costs, particularly so in terms of the all-in sustaining cost metric. Just advancing to the next slide, and this is my last slide, on Slide 17. So to wrap everything up, I'd really just highlight a couple of bullet points again in the top left. So first bullet point, I think the team really delivered during unprecedented challenging times, as our Chairman commented it was an extraordinary year. But in terms of our preventative health measures, our protocols as well as the public health measures in the various jurisdictions, we managed to navigate all the challenges that the global pandemic brought upon us. So much so that we produced a level of gold that was in excess of our guidance at a corresponding all-in sustaining cost that was lower than our guidance. So it was an excellent performance by our leadership teams throughout the company. And then the second last bullet point, you can see that strong level of production, the low unitary costs, the resulting free cash flow we really have finished the year with a peer-leading balance sheet. We've got no corporate debt outstanding, with a net cash position of some USD 545 million. And if you accept my representations from the guidance slide, we are expecting ongoing free cash flow generation, ongoing profitability. So that gives me high confidence to represent or advocate that Centerra's business model moving forward is an internally funded business model. So with that, we'll look to move into the question-and-answer portion of this meeting. And I'd just mention that we are happy to respond to any questions from our shareholders and proxy holders. We would like to remind you that questions which were already answered or that are redundant or repetitive will not be published nor answered. We'll answer as many questions as time permits. Please do limit your questions to topics relating to today's subject matter, and please keep your questions short and to the point. And we'll now give our attendees a brief moment to type in their questions. Okay. Thank you, everyone. There being no questions, I will now pass the microphone and proceedings back to Michael Parrett, our Chairman, for the final voting results.

Okay. Thank you, Scott. I have been provided with the scrutineer's report regarding the matters voted on. Based on the results of voting, I declare that each of the 11 directors nominated has been elected as a director of Centerra to hold office until the next annual meeting of shareholders or until their respective successors are duly elected or appointed. The scrutineer has also indicated that the motion to appoint KPMG LLP as the auditors of the company for the ensuing year, and to authorize the directors of the company to fix the remuneration to be paid to the auditors has been carried. As there is no further formal business to come before this meeting, we will terminate the meeting and thank you all for attending. Stay safe and healthy.