Centerra finally has Kumtor approval, sees progress in Mongolia
miningweekly.com
By: Liezel Hill
30th April 2009
TORONTO (miningweekly.com) – After battling frustrating delays over investment agreements in the Kyrgyz Republic and Mongolia, Toronto-based Centerra Gold now plans to speed up growth-focused development that had been on hold pending negotiations, CEO Stephen Lang said on Thursday.
Not only has the Kyrgyz Parliament approved a deal for Centerra's Kumtor mine, but discussions over an agreement to govern the firm's Gatsuurt project, in Mongolia, have progressed far enough that the miner has decided to start building the road to the project, Lang reported.
With the uncertainty over Kumtor now eliminated, Centerra plans to “aggressively” advance exploration and development work at the mine, including plans for underground development, said COO Ron Colquhoun.
The company is reviewing its operating plan for the mine, and will provide a new three year production plan for Kumtor in the third quarter, including a review of the underground development options.
The agreement with the Kyrgyz government, which should be implemented by May 25, resolves investor uncertainty that has tainted Centerra since 2007, when the government considered a law which would challenge the validity of earlier Kumtor agreements, require the company to pay additional taxes, including on past activities, and proposed nationalising all the country's gold deposits under a State mining company.
The new investment agreement agreed to by Centerra, 53%-shareholder Cameco Corp and the government gives the government an increased share in Centerra, in exchange for an bigger concession area and a simplified, fixed tax regime of 14% of gross revenue for the Kumtor mine.
The new fiscal regime will be tax neutral, compared with the old system, at a gold price of about $950/oz, said CFO Jeff Parr.
The agreement will also have a positive affect on the company's reported cash costs, because it will no longer include taxes in the cost calculations.
Costs at Kumtor are expected to be $75/oz lower as a result, and $58/oz lower for Centerra as a whole, Parr said.
In the first quarter of this year, production at Kumtor missed expectations, after mining of ice and waste had to be accelerated to stabilise movement in the southeast pit wall, which means that less ore was mined and the operation processed lower-grade stockpile ore.
Gold production at Kumtor declined 16% year-on-year, to 63 021 oz.
However, Centerra has maintained its full year output forecast of between 560 000 oz and 600 000 oz, because it expects to mine higher grade ore during the third and fourth quarters.
Centerra, which also produces gold from the Boroo mine, in Mongolia, left its total production guidance unchanged too, at 720 000 oz to 770 000 oz of gold.
'EXCHANGING DOCUMENTS'
Meanwhile, negotiations are continuing with the government of Mongolia, for an investment agreement on Centerra's Gatsuurt project.
The company is making progress, and met recently in Toronto with members of the working group assigned to handle the agreement, Parr said.
“We are making progress...we are at the point where we will be exchanging documents.”
The company is feeling confident enough of an agreement being reached, that it plans to start building a road to the project during the second quarter.
The road engineering work is almost complete, and construction should take about 14 months.
“We expect some initial offsite ores to be processed at the Boroo mill by mid-2010,” Parr said.
M&A POTENTIAL
Lang also indicated on Thursday that Centerra may be considering potential merger and acquisition opportunities.
“From a business development standpoint, we have been on the sidelines until we resolved the issue in the Kyrgyz Republic,” he said.
“Now with that behind us, we can begin to look more aggressively at other opportunities outside of our organic growth pipeline.” |
