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

Thank you for standing by. This is the conference operator. Welcome to the Centerra Gold Inc. Mount Milligan Update Conference Call. [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.

Thank you, operator, and welcome to Centerra Gold's Mount Milligan Update Conference Call to discuss the Mount Milligan mine life extension and the additional Royal Gold agreement. A copy of the news releases can be found on SEDAR, EDGAR and on our website. Joining me on the call today is Paul Tomory, President and Chief Executive Officer. Other members of our executive leadership team are available for the Q&A session. All figures are in U.S. dollars, unless otherwise noted. Presentation slides are available on Centerra Gold's website to accompany this webcast. Following the prepared remarks, we will open the call for questions from analysts. 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 statement included in the presentation as well as the risk factors set out in our annual information form. I will now turn the call over to Paul Tomory.

Thanks very much, Lisa. We've announced that Centerra has entered into a mutually beneficial additional agreement with Royal Gold, which provides an increase in payments for Mount Milligan gold and copper production sold to Royal Gold among other things. This has resulted in a life of mine extension to 2035 and established favorable parameters for potential future mine life extensions at Mount Milligan. Extending Mount Milligan's mine life by 2 years is a key first step in our strategy to realize the full potential of this cornerstone asset in a top-tier mining jurisdiction. The next step of our strategy is to further increase mine life at Mount Milligan beyond 2035, which will be done in 3 phases and discussed in the next 3 slides. First, we will be immediately initiating a preliminary economic assessment to evaluate the substantial resources with a goal to unlock value beyond the current 2035 mine life. The scope of the PEA will include significant drilling to the west of the pit, not currently included in the existing resource, plus the inclusion of a substantial existing resource, most of which is classified as measured or indicated. The PEA will also evaluate capital projects to support a further expansion of Mount Milligan's mine life, including options for a new tailing storage facility and potential process plant upgrades. We will also be starting the associated engagement on permitting and stakeholder relations. We expect to complete this PEA in the first half of 2025. Second, we are continuing our exploration drilling program. We are encouraged by the significant mineral down in at Mount Milligan, setting the stage for potential future resource additions. Last year, most of our exploration drilling was in the pit and 3 brownfield areas within the mining lease. In these areas, results showed mineralization extending west and below the pit. At Goldmark and South Boundary, there are possibilities for near-surface additions. While at North Slope DWBX and Saddle West, we continue to test for depth extensions. We're investing $5 million to $7 million and exploration spending in Mount Milligan in 2024 to continue our program to potentially expand the mineral resource base further. Finally, we are continuing to advance the site optimization program in Mount Milligan, which began in the fourth quarter of 2023. With the longer-term potential of Mount Milligan, we are looking at all aspects of the operation to maximize the potential of the ore body and to set the mine up for long-term success to 2035 and beyond. As part of the optimization program, we are looking holistically at continued improvements in our Occupational Health and Safety as well as mine and plant operations. We are encouraged by the preliminary estimates of potential cash flow improvements from the first phase of our drilling program, and we expect to start realizing the benefits of this program in late 2024. Now shifting our focus to the additional agreement we entered into with Royal Gold. It provides cost support to Mount Milligan in the form of additional payments by Royal Gold for the metal deliveries it receives from Mount Milligan. This has allowed us to immediately extend the mine life by 2 years to 2035 and it grows the mineral resource to 510 million tonnes, inclusive of reserves. It will also establish more favorable parameters for future mine life extensions, which enables us to study the conversion of existing mineral resources into reserves and further invest in drilling at Mount Milligan. Under the additional agreement with Royal Gold, Centerra will receive increased cash payments from Mount Milligan gold and copper deliveries. Details of the increased cash payments are outlined in the table on Slide 7. Percentage of metal delivery to Royal Gold remains unchanged at 35% gold and 18.75% copper. As part of the additional agreement, Centerra has agreed to make certain payments and deliveries to Royal Gold, including an upfront cash payment of $24.5 million and a commitment to deliver an aggregate of 50,000 ounces of gold, of which, just over 32,000 ounces are expected to be delivered by Centerra in relation to the sale of our 50% interest in the Greenstone Gold Mines partnership. Also, starting in, approximately 2030, Centerra will make payments equal to 5% of Mount Milligan's annual free cash flow which will double for a total of 10% per year, starting in approximately 2036. We are encouraged by this announcement and the prospect for continued optimization at Mount Milligan, which will benefit our shareholders, our partner at Royal Gold, Mount Milligan's First Nations partners, employees and local stakeholders. I'll conclude there and open the call to questions from our analysts.

[Operator Instructions] The first question is from Ovais Habib with Scotiabank. Okay. I guess we'll move on to the next caller. The next question is from Jeremy Hoy with Canaccord Genuity.

Just first question is the -- we've mentioned that the mine life is immediately extended to 2035, there's an increase to resources that is reflected in the MRMR that was also released this morning in parallel?

Correct.

Okay. Great. And can you remind us of the timing of the Greenstone payments, please?

Yes, I'll pass that one over to or sorry, [indiscernible] in our Corporate Development group.

Yes. So on the Greenstone payments, they're tied to production at a mine. So within 30 days of certain production milestones, Orion will pay us 11,111 ounces. So that's after cumulative production of 250,000 ounces, 500,000 ounces and 700,000 ounces.

The next question is from Brian MacArthur with Raymond James.

Sorry, just to go back to the last question because I had that too. The Greenstone payments, can I confirm, I think you're supposed to get one in Q4. So I assume the ones we're talking about are the remaining three? And any guidance on when that timing might happen would be helpful, is that right?

Yes, that's right, Brian. So we already received one. Not one has been banked, but there's 3 more to come. And Mike, again, why don't you take the timing on those?

Yes. We're hesitant to provide guidance on another operation. So I don't want to give specific numbers here. But internally, we are expecting them all to come out over the next -- over the course of the next 2 and a bit years, and very encouraged by the ramp-up of the operation so far, and it looks like it's well on the way to hit that first production milestone.

Perfect. That's helpful. Second thing, I just want to confirm the extra free cash flow payment post 2030 that you make are after the stream. So effectively, they pay more in and then you pay some back out, but you're getting it at a different level. Is that the way to think about it?

That's correct.

And the third question, I know the focus of this call is Mount Milligan. But is it possible to give any comment on whether -- on the fortunate situation in Turkey and whether there's been any impact on your operations or whether you've had any guidance from the government on anything?

Yes. Well, first and foremost, our thoughts and prayers are with the impacted employees at the mine. So far, it's been business as usual. We've had visits from regulatory agencies and politicians at the mine. In fact, that took place today and went very well. And as of now, we remain unimpacted.

[Operator Instructions] Our next question is from Anita Soni with CIBC World Markets.

Congratulations on striking a deal with Royal Gold. I guess my first question is with respect to Mount Milligan. I think the production is a little higher than [indiscernible] and I think the Street was looking for in terms of gold for this year. Could you talk about sort of where that differs from what we would have seen on the mine tour back in October?

Anita, you're speaking about the 2024 guidance number?

Yes. Yes.

Yes. Paul, will you take that, just the profile of production this year?

Yes, sure. So we actually outlined at our Q3 results that we expected to have a little bit lower production than what we had guided, and we adjusted that down to 2023. You'll see that we achieved above the low end of the revised guidance. But the bulk of the reason for that was because we had very high rate ratios in some of what's called Zone 66 or Phase 7, and so now we're blending that in this year. And so it's a result of that.

Okay. All right. And then just in terms of the agreement with Royal Gold, could you just -- so you're evaluating options to extend beyond, I think, 2035, yes. So what kind of triggers and levers are you looking for at this stage? Like we couldn't you have added all of the resources at this point immediately?

Well, so there's significant resources beyond the reserves. So there's another 250 million tonnes of currently drilled inventory. Beyond that, there remains mineralization as well as some drilling. It's simply just a matter of time. So this agreement has allowed us to increase the bulk resource significantly. And so the work in this PEA will be really threefold. One, there's going to be a lot more drilling so that we can include those in a wire frame. And then we also need to look at where we would situate second tailings in because the practical capacity of the current dam is 2035. So that's going to be a big focus of this PEA. And then lastly, we're also going to look at potential upgrades to the process plant to address the pyrite. But does that answer the question? So we have significant...

Yes, that answers it. And then just in the interest of time, I've got to hop to another one. The final thing was the molybdenum business unit. Just at a high level, can you give me an idea of like comparatively, what's the total bill this year for the molybdenum business unit in terms of outflow compared to what it was last year in terms of outflow?

Well, that's a conditional question because in the second quarter, we plan to release an FS, which would be a favorable company with limited notice proceed. So there would be a reasonably large capital bill in that second half, but that's conditional. I think you're speaking about the guidance we put out yesterday on the capital, Darren, I'll pass that over to you.

Yes. So Phase 1, and we highlighted the PFS is spend between $100 million to $125 million and that we depended on the release of the feasibility study coming out in Q2. So that will be the focus. So our existing guidance has some of that preliminary costs in our 2024 guidance but the bulk of it will be spent, which is not in the guidance coming from July 2024 onwards. So just really preliminary work using existing equipment moving some tonnage.

I was more driving towards a steady state kind of number. Like last year, there was no -- obviously, no expansion. So I'm just trying to compare this year's spend on a sustaining basis to the last year's?

It's certainly higher because we're already doing some preparatory early works. And we're probably looking at $5 million to $10 million more in that time period. But as I said, this will all be conditional on the potential approval of going forward with the project sometime in Q2. But yes, I think what you're getting at is the run rate will be higher this year ex of that investment decision simply because we're already doing preparatory ramp-up work.

This concludes the question-and-answer session and today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.