Centerra Gold financial results for 2017

Andrey KozhokaruFebruary 26, 2018

For 2017 the Company's revenue amounted to 1.2bn USD (+58% y/y), operating income reached 208.6mn USD (+25% y/y), with net profit of 209.5mn USD (+38% y/y).

2017 revenue grew due to the inclusion of the full operating year of the Mount Milligan mine and the increase in the production at Kumtor. In 2017 the net profit of the Company was influenced by a number of one-off events: payment of 60mn USD according to the agreement with the Kyrgyz government, writing off Mongolian assets for 41.3mn USD, tax benefits of 21.3mn USD due to the introduction of the new tax legislation in the USA and the receipt of 9.8mn USD from realization of Mongolian assets. Excluding one-off events, the Company's net profit for 2017 amounted to 281mn USD (+75% y/y). All-in sustaining costs on a co-product basis before taxes amounted to 737USD/ounce for gold (+ 5% y/y) and 3 240USD/ton for copper (-11% y/y). Total capital expenditures for the reporting period, including stripping, amounted to 326.3mn USD (247.7mn USD in 2016).

For 2017 Centerra Gold produced 785 316 ounces of gold (+31% y/y), of which 562 749 ounces (+2% y/y) was produced at Kumtor and 222 567 ounces (+366% y/y) at Mount Milligan. The Mount Milligan mine produced 24.3kt of copper (+415% y/y). Due to lack of water in late December 2017, processing of ore at Mount Milligan was suspended. On February 5, 2018, the processing partially resumed at the throughput level of 30kt of ore per day. The Company plans to reach 55kt per day throughput in 2H2018. Therefore, the Company intends to obtain permission for the long-term use of water from the nearest to Mount Milligan lake to prevent a reduction in the capacity in the future.

On January 8, Centerra Gold announced the completion of the acquisition of all issued shares of Aurico Metals for 310mn CAD (244mn USD, USD/CAD 1.27). With the acquisition of the latter, Centerra received two gold-copper projects Kemess Underground and Kemess East, and a royalty portfolio.

In January 2018, the Company received a pastureland permit to commence the Oksut project in Turkey. The launch of the project was approved by the Board of Directors and the beginning of construction works is scheduled for April 2018.

Our opinion:

The Company's revenue for 2017 exceeded our forecast by 10% due to the increase in prices for products sold in 4Q2017, as well as higher production levels at the Kumtor mine. Meanwhile, the production forecasts provided by the Company for 2018 at 645-715koz of gold and 21.3-23.6kt of copper, in our opinion, are conservative and considerably concede to our latest expectations. We believe that the launch of the low-cost Oksut project, the effect of which will be foreseen in the medium term, is positive for the Company. We also believe that one of the main negative drivers for the value of the Company's shares in the past few months was operating problems at Mount Milligan mine. Our recommendation is currently under revision.