Centerra down 16% on Q3 impairment charge

Centerra Gold’s mill at its Mount Milligan copper-gold mine in British Columbia. Source: Centerra Gold Inc.

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Centerra Gold Inc. [CG-TSX; CAGDF-OTC] on Wednesday October 30 reported higher than expected gold production in the third quarter of 2019. But the good news was offset by a US$230 million impairment charge at its Mount Milligan gold-copper mine in British Columbia.

The impairment charge prompted Centerra to report a third quarter loss of US$165 million or 56 cents per share. The adjusted earnings of US$75 million or 26 cents a share in the quarter beat the analysts’ consensus estimate of 14 cents per share.

The Mount Milligan Mine is one of two flagship assets in the Centerra Gold portfolio. The other is the Kumtor Mine, which is located in the Kyrgyz Republic. The company’s portfolio also includes the Oksut Gold Project in Turkey and the late stage Kemess development project in B.C.

Located about 120 km northwest of Prince George in central B.C., Mount Milligan is a conventional truck-shovel, open pit copper and gold mine. It features a copper processing plant with a design capacity of 62,500 tonnes per day.

Proven and probable reserves at the end of 2016 stood at 496.2 million tonnes, grading 0.187% copper or roughly 2 billion pounds of contained copper, and 0.36 grams gold per tonne or 5.76 million ounces.

Centerra has been dogged by water issues in recent years, and recently attributed a dip on 2018 earnings to the fact that Mount Milligan was forced to operate at a reduced capacity for a portion of the year due to a shortage of water.

However, higher grades and recoveries at Kumtor and higher gold grades at Mt. Milligan enabled Centerra to produce a better than expected 206,000 ounces of gold and 21.2 million pounds of copper in the third quarter. That includes 150,305 ounces from Kumtor and 55,355 ounces from Mt. Milligan

On Wednesday, the company said the Mt. Milligan impairment charge was due to lower long-term mine recoveries and cost escalations. As part of Centerra’s recent annual budgeting process, the company predicted that long term recoveries are expected to decrease and recent cost escalation will continue at current levels in the short to medium term.

Meanwhile, the company is in the process of reviewing the reserves and resources and following the review, is expecting to report a material reduction.

On a more positive note, the company announced news that could reduce the risk of reoccurring water availability issues in the coming months at Mt. Milligan. During the summer, the company said surface water flows were augmented by rainier than usual weather in July and August. The company has also experienced successes in its groundwater exploration program and expects to bring such ground water sources on line in December, 2019.

Centerra now expects that it will not need to slow down mill throughput in the first quarter of 2020 even though the company had previously indicated that this might be a possibility.

Centerra shares declined on the news, falling 16.8% or $2.13 to $10.52 on volume of 1.2 million shares traded. The shares trade in a 52-week range of $4.76 and $13.

The stock fell even through Centerra raised its 2019 gold production guidance to 730,000-765,000 ounces from an earlier forecast of 705,000-750,000 ounces.

The company said construction at the Oksut Project in Turkey is now 79% complete and remains on scheduled with the first gold pour expected in January of 2020.

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