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

Greetings, and welcome to the Centerra Gold Investor Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Tuesday, June 1, 2021. I would now like to turn the conference over to John Pearson, Vice President, Investor Relations. Please go ahead.

Thank you, Rita, and thanks, everyone, for joining our call today. 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 questions. Joining me on the call today is Scott Perry, President and Chief Executive Officer; and Yousef Rehman, our General Counsel. I would 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. Please refer to the caution regarding forward-looking information in our news release and our other filings which all can be found on SEDAR and EDGAR and on the company's website at centerragold.com. And now I'll turn the call over to Scott.

Thank you, John, and thank you, everyone, for dialing in this morning on short notice. As you have seen, since we last spoke to you all on May 18, there has been some additional developments in the Kyrgyz Republic. We wanted to provide the market with an update and give everyone an overview of the additional actions we have taken to protect the interest of Centerra and its stakeholders in response to the unjustified seizure of the Kumtor Mine by the government of the Kyrgyz Republic. I will walk you through our announcement, and we will take Q&A on this call. However, we would also encourage you all to listen into a U.S. federal court hearing that will be taking place in New York Southern District, which will expect to take place shortly. And there, you will hear further additional details. As you all may have seen in the press release we published last night, Centerra's wholly-owned subsidiaries that own and operate the Kumtor Mine, namely Kumtor Gold Company and Kumtor Operating Company, have commenced the filing in the Southern District of New York under Chapter 11 of the Federal U.S. Bankruptcy Code. Chapter 11 is a court-supervised process that provides, among other things, for a worldwide automatic stay of all claims against Kumtor Gold Company and Kumtor Operating Company. The objective of this action is to preserve the value of Kumtor Gold Company and Kumtor Operating Company and to prevent any further efforts by the Kyrgyz government to nationalize the mine or to otherwise dispose of it in violation of our investment agreements. Our goal is to ensure that the Kyrgyz government does not directly or indirectly profit from its unlawful expropriation of the Kumtor Mine. Importantly, Centerra hosted this U.S. legal process, which is internationally recognized, will help facilitate potential negotiations with the Kyrgyz government, which, despite our repeated overtures to open a dialogue, has been unresponsive. At the same time, Centerra is conducting a strategic review related to its ownership of Kumtor Gold Company and Kumtor Operating Company that will consider all possible alternatives to preserve and enhance value to Centerra's stakeholders in light of the recent events. We want to make it clear that Centerra is not a party to, or affected by, the Chapter 11 filing. The Chapter 11 proceeding will not impact any other areas of Centerra's business, including the Mount Milligan Mine in Canada, the Öksüt Mine in Turkey and our molybdenum business in North America. We are financially strong with more than USD 800 million in cash and in excess of USD 1.2 billion in liquidity as of March 31, 2021. In addition, the restructuring proceeding initiated by Kumtor Gold Company and Kumtor Operating Company will not impact Centerra's other operations and businesses. It is also worth noting that Kumtor Gold Company and Kumtor Operating Company are currently solvent with total assets, including the Kumtor Mine, in excess of USD 1.1 billion and no external bank debt. I want to emphasize that we continue to believe that the Kumtor Mine remains a valuable asset, notwithstanding the Kyrgyz Republic's recent actions. As we have previously discussed, when the Kyrgyz Republic seized the Kumtor Mine, the government installed former Centerra Board Director, Tengiz Bolturuk, as temporary external manager on May 17, which was in violation of the government's obligations to Centerra, Kumtor Gold Company and Kumtor Operating Company. Public statements by government officials and actions taken by Mr. Bolturuk indicate that the government and others, including the state-owned entity, Kyrgyzaltyn Joint Stock Company, intend to use spurious environmental and tax claims to assert Kumtor Gold Company is insolvent under Kyrgyz law and to potentially strip Kumtor Gold Company of its assets. Due to the external manager taking control of the Kumtor Mine and Kumtor's operations in the Republic, Kumtor Gold Company is no longer able to defend effectively against these claims in the Kyrgyz Republic courts. Kumtor Gold Company's operations and activities have always carefully adhered to agreements with the Kyrgyz Government and applicable laws as they relate to the environment, safety and taxation. We strongly believe that the government's claims are entirely without merit and our pretext for a cloaked form of nationalization of the Kumtor Mine without compensation. Let me say again that we had repeatedly asked the Kyrgyz Government to discuss its concerns with us, yet the government has refused to engage with us in any way. We remain willing and available to hold a constructive dialogue with them. But as our recent actions demonstrate, we will continue to use all available legal and financial means to protect the interest of Centerra and its stakeholders from the government's concerted and premeditated effort to take control of the Kumtor Mine. This includes our previously announced arbitration proceedings to enforce the long-standing agreements with the Kyrgyz Republic that gives Centerra, Kumtor Gold Company and Kumtor Operating Company, the right to own and operate the Kumtor Mine. That concludes my prepared remarks. I would now like to pass the call back to our operator so that we can move into the Q&A portion of this call. Operator, if I can pass it back to you, please.

[Operator Instructions] Our first question comes from the line of Trevor Turnbull with Scotiabank.

I understand, obviously, you're not able to engage properly with the government. I was wondering if through your Directors appointed by Kyrgyzaltyn and the ones that remain on the Board, if you have any insight, are they -- do you know if you're -- if those appointed Directors are able to communicate with the government and have a sense of what the government is thinking? And do you get any insight through them?

Yes. Hi, Trevor. What I would put forward is the 2 Kyrgyz-appointed Directors that we have on our Board, they are not part of the senior political leadership in Kyrgyzstan. And obviously, as a result, they're not really part of that sort of inner circle. So no, we have unfortunately not been able to gather a lot of understanding or intelligent or communication channels through those 2 Kyrgyz-appointed Directors.

Okay. And then the only other question I had related to the shareholder agreement, which got referenced a few times on the last conference call. One of the things within that was a -- I think it's called a risk rights program that you had in the original agreement. It was a bit confusing because, originally, it appeared that the risk rights was set up in conjunction with political risk policies and political risk insurance. And what I was wondering is -- and I know that the risk rights kind of served 2 purposes. One was in the event of a political risk of insurance payout, it was a way of distributing the proceeds of that to shareholders. And there was also a mechanism where potentially some shares, such as the Kyrgyz shares, could be canceled. But what I was unclear is if a political risk payout was a necessary trigger or if, in fact, just someone can determine there's been a political risk event which would allow that risk rates program to still be in effect?

No, thanks for that question, Trevor. Yousef, do you want to respond to that, please?

Yes. I would just say, I mean, the actions we've taken today don't affect or -- what we announced in our news release of last week in that. There's a restriction -- given the Kyrgyz action, there's a restriction on their ability to sell their shares in Kumtor to [ revolt ] the shares. So that will continue. And we have sort of arrangements under the, we say, shareholder agreement to support that. So that's about it, as much as I can say on that, Trevor.

Yes. And just -- I guess my understanding was that those are, in fact, a bit 2 separate issues. One, that you do have that right kind of separate from the risk rights to prevent the Kyrgyz from, say, disposing of shares without speaking to you and going through consent from Centerra. I guess maybe to ask one other way about the risk rates, is that something that you actually know? Or is that something that potentially has to be looked at through the courts to know kind of exactly what the status of those risk rates might be?

Yes. I mean I guess the -- in terms of the risk rights plan, that's, again, as part of our -- the strategic review that's been announced here, I would say that's certainly something the special committee will be looking at. But it would be premature to speculate too much further on that.

There are no further questions at this time. [Operator Instructions] We have received the question from the line of Fahad Tariq with Credit Suisse.

The strategic review for Kumtor, can you just give more color on that? I know the strategic review from the wording of the press release is specifically for Kumtor, not other operations. So any color you can give there? What does that mean exactly?

Yes. Look, Fahad, as we said in the press release, the strategic review, we're going to look to consider a range of options to obviously preserve and enhance value for Centerra's stakeholders but also looking to ensure that the Kyrgyz government does not directly or indirectly profit from its unlawful expropriation of the Kumtor Mine. So that's the key aspect that we're focusing on right now. And I guess that's under the umbrella of our overall fiduciary obligations. So we're always looking at opportunities where we can maximize value, daylight value or take those courses of action that are in the best interest of all of that stakeholders. And so as we mentioned in the press release, this strategic review is an implicit sort of initiative under that fiduciary obligation.

Okay. Understood. Maybe if I ask a little differently. Hypothetically, if the government came back and said, we're open to formally purchasing Kumtor from Kumtor Gold Company, is that -- would that be under the purview of alternatives?

Yes. That example and many other scenarios that you can come up with, all of them would be duly considered in terms of what is in the best interest of Centerra shareholders and Centerra stakeholders. And myself, management, the Board, we're certainly cognizant again of our fiduciary obligations. So any opportunity to surface or daylight value for our stakeholders, it will be duly considered.

Okay. Understood. And then last question. Can you just remind us in the arbitration process, what are key milestones or time lines that we should be watching for over the next weeks and months?

Yes. Yousef, are you happy to speak to that, please?

Yes. I think, I mean, the next milestone is the appointment of the arbitrator, which would expect to happen in the next few weeks here. And then we're obviously considering other potential interim release, if necessary. So that's something under consideration.

Our next question comes from the line of Anita Soni from CIBC World Markets.