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Solid. Gold.
Centerra Gold Inc. 2011 Annual Report
Suite 1500
1 University Avenue
Toronto, Ontario
Canada M5J 2P1
T 416.204.1953
F 416.204.1954
www.centerragold.com
Centerra Cover.indd 1
02/04/12 6:45 AM
Corporate Profi le
Centerra is a Canadian-based gold mining company engaged in operating, developing, acquiring and
exploring gold properties primarily in Asia, the former Soviet Union and other emerging markets
worldwide. The Company is the largest Western-based gold producer in Central Asia with two operating
gold mines located in the Kyrgyz Republic and Mongolia. In 2011, Centerra produced 642,380 ounces
of gold at a total cash cost of $502 per ounce produced.
Centerra’s objective is to establish annual gold production of 1.5 million ounces and build shareholder
value by maximizing the potential of its current properties, expanding its portfolio of gold mining
operations, continuing to increase its reserves and resources and add additional exploration properties.
Centerra’s shares trade on the Toronto Stock Exchange (TSX) under the symbol CG. The Company is
headquartered in Toronto, Ontario, Canada.
Contents
2 Financial Highlights
4 President’s Message
6 Reserves
8 Platform for Growth
11 2011 Year-end Gold Reserve and Resource Summary
12 Kumtor
14 Boroo
16 Corporate Responsibility
17 Management’s Discussion and Analysis
74 Report of Management’s Accountability
75 Independent Auditors’ Report
76 Consolidated Financial Statements
80 Notes to the Consolidated Financial Statements
124 Definitions
126 Corporate Information
All dollar amounts are expressed in U.S. dollars in this report, except as otherwise indicated.
Cautionary Note Regarding Forward-looking Statements
Certain information contained or incorporated by reference herein which are not historical facts are
“forward-looking statements” within the meaning of certain securities laws, including the Securities
Act (Ontario). Such forward-looking statements include forecasted gold production and cash costs for
2012, expected 2012 capital expenditures, 2012 mining and exploration plans and forecasted expenditures
on community investments. Such forward-looking statements involve risks, uncertainties and other factors
that could cause actual results, performance, prospects and opportunities to differ materially from those
expressed or implied by such forward-looking statements. For a detailed discussion of such risks and other
factors, see the Management’s Discussion and Analysis included in this Annual Report and the Company’s
most recent Annual Information Form which is available on SEDAR.
Although Centerra believes that the assumptions inherent in these forward-looking statements are
reasonable, the reader should not place undue reliance on these statements. Forward-looking information
is as of March 27, 2012. For a detailed discussion of the key assumptions and risk factors, please refer to the
Management’s Discussion and Analysis included in this Annual Report. Centerra disclaims any intention
or obligation to update or revise any forward-looking statements whether as a result of new information,
future events or otherwise, except to the extent required by applicable laws.
Printed in Canada using VOC-free inks.
Centerra Cover.indd 2
02/04/12 6:45 AM
Thanks to a strong year, Centerra
stands on solid ground today.
Gold Reserves and Ounces Mined
)
s
’
0
0
0
(
s
e
c
n
u
O
d
l
o
G
8,500
7,500
6,500
5,500
4,500
3,500
2,500
1,500
500
-500
-1,500
-2,500
-3,500
-4,500
-5,500
-6,500
-7,500
8.1
Reserves
million ounces
7.0
million cumulative
ounces mined
since 2004
2004
2005
2006
2007
2008
2009
2010
2011
Gold has a wholeness and integrity that has earned it the reputation of
being not just precious, but solid. Solid in form. Solid as a standard of
excellence… and success. In 2011, we produced more than 640,000 ounces
of success, invested $40 million in exploration, maintained a debt-free
fi nancial position, and increased our earnings per share. We are one of
few mining ventures in the world today that has stayed true to gold as
its source of business and shareholder returns. A solid commitment.
With strong results.
2011_Centerra_Page 1-15.indd 1
Mar/31/2012 1:24 PM
2011 ANNUAL REPORT 1
26%
Return on Equity
In 2011 we had a year of solid returns, delivering
returns above many of our peers. This allows us
to pursue future opportunities using our fi nancial
strength and strong balance sheet.
Financial Highlights
Selected Annual Information
2011
2010
2009 (1)
Revenue – millions
Earnings before unusual items – millions
Earnings per share before unusual items – $ per share
Unusual items – millions
Net earnings – millions
Earnings per share – $ per share
Cash provided by operations – millions
Cash fl ow per share – $ per share
Cash and short-term investments – millions
Total assets – millions
Ounces produced – 100% basis
Total cash cost – $ per oz produced (2)
Average realized price – $ per oz
$1,020
$371
$1.57
–
$371
$1.57
$435
$1.84
$568
$1,689
642,380
$502
$1,569
$850
$322
$1.37
–
$322
$1.37
$281
$1.19
$413
$1,400
678,941
$440
$1,236
$685
$109
$0.48
$49
$60
$0.27
$246
$1.04
$323
$1,072
675,582
$459
$1,013
Revenue (1)
($ millions)
Earnings per Share (1)
Before unusual items ($)
Cash Flow from Operations (1)
($ millions)
1,020
850
685
636
1.57
1.37
0.45
0.48
435
281
246
166
2008 2009 2010
2011
2008 2009 2010
2011
2008 2009 2010
2011
(1) The Company’s 2009 information has not been restated to conform to IFRS and is presented in accordance with Canadian Generally Accepted Accounting Principles.
(2)
As a result of Kumtor’s Restated Investment Agreement signed in 2009, total cash cost per ounce for 2009 has been restated to exclude operating and revenue-based taxes.
Total cash cost per ounce produced is a non-GAAP measure and is discussed under “Non-GAAP Measures” in the MD&A.
2 CENTERRA GOLD INC.
Strong Performance
An industry comparison
Centerra share price S&P/TSX Global Gold Index Gold Price (London PM Fix)
CG-T Volume
D
11
F
M
A
M
J
J
A
S
O
N
D
12
F
Centerra’s 2011 results outperformed an important
benchmark, the S&P/TSX Global Gold Index, the
recognized bellwether of investment opportunities in
the gold space in Canada. This performance is a solid
vote of confi dence for more growth in a marketplace
where fortune favours the self-assured. The stronger
our underpinning of assets, equity and capital, the more
boldly we can pursue the opportunities.
We have a three point plan of action to do so:
Operations: Get the most from the gold we already know
is in the ground by maximizing existing operations.
Exploration: Find new ground with new sources of
gold by expanding our exploration activities, especially
in emerging markets.
Acquisitions: Acquire other ventures to add to our
growth, combining the strengths, properties and assets
with our own.
30%
20%
10%
0%
-10%
-20%
4M
3M
2M
1M
$45
million dollars is our planned investment
in exploration in 2012. Our performance
allows us to put our best foot forward in
searching the world for hidden wealth
that waits to be discovered.
24%
Return on Assets is a solid indicator of
how we have managed ourselves into
a strong position to make wise and
profi table decisions about future growth.
2011_Centerra_Page 1-15.indd 3
Mar/31/2012 1:24 PM
2011 ANNUAL REPORT 3
President’s
Message
Looking at 2011, it was a good year for the Company both
fi nancially and operationally. The gold price reached
an all-time high of $1,895 per ounce on the London
PM Fix, as the fi nancial markets reacted to the negative
fi nancial news from Europe and other countries around
the world. With the higher gold prices, the Company
generated record revenues and strong earnings and
continued to build a solid debt-free balance sheet.
The improved gold price and our strong fi nancial position
enabled the Company to pay almost $100 million in
dividends to shareholders during the year.
Centerra had another strong year in exploration,
replacing reserves mined at Kumtor, delivering initial
resources at the Kara Beldyr JV in Russia and at
ATO, our new discovery in Mongolia and advancing
Öksüt, our JV in Turkey. The Company’s proven and
probable reserves total 8.1 million contained ounces
of gold. These reserves do not include our high-grade
underground inferred resources at Kumtor in the
SB Zone which totals 1.8 million contained ounces of
gold with an average grade of 13.6 grams per tonne and
the 629,000 contained ounces of gold with an average
grade of 12.0 grams per tonne in the Stockwork Zone.
Both of these mineralized structures are open along
strike and at depth. We are continuing our exploration
work to expand these resources as the underground
develops and moves towards initial production in 2013.
In 2011, we achieved our production forecast with
consolidated gold production of 642,380 ounces. Gold
production at Kumtor was 583,156 ounces, up three
percent for the year. At Boroo, 59,224 ounces of gold
were produced as the site only processed stockpiled
material during the year, since no mining activities
were carried out and the heap leach facility remained
idle pending issuance of a fi nal operating permit by
government authorities. The Boroo mill continues to
operate processing stockpiled material. We were able
to bring back some of the mining crew this year as we
mine the remaining reserves in Pit 6 in 2012.
Our total cash costs came in at a respectable $502 per
ounce produced for 2011. This was a 14% increase from
2010’s total cash cost of $440 per ounce produced due
mainly to higher labour costs and higher diesel fuel
prices which negatively impacted our costs.
On the fi nancial front during 2011, Centerra recorded
net earnings of almost $371 million or $1.57 per share
refl ecting a 27 percent increase in our realized gold
price in the year. Also during the year, we generated
about $435 million in cash from operations. At the end
of the year we had $568 million of cash and short-term
investments, as well as a $150 million undrawn credit
facility. We also invested $188 million for the future
of our operations and $40 million in exploration.
We continue to be debt-free, and our gold sales remain
unhedged, allowing us to participate in all of the upside
of any increases in the gold price.
For 2011, our revenues increased to $1,020 million,
20 percent more than a year earlier, largely due to the
positive movement in the gold prices. Our average
realized gold price was $1,569 per ounce in 2011, up
from $1,236 per ounce in 2010.
Looking forward in 2012, we are forecasting
consolidated gold production to be in the range of
450,000 to 470,000 ounces. This is down from our
original forecast of 635,000 to 685,000 ounces due to
increased ice movement in the southeast section of the
4 CENTERRA GOLD INC.
2011_Centerra_Page 1-15.indd 4
Mar/31/2012 1:24 PM
55%
With the rising gold price Centerra’s
cash fl ow from operations increased 55%
over the prior year.
pit at Kumtor which delays access to the high-grade
SB Zone. Mining operations at Kumtor in 2012 are now
expected to produce between 390,000 to 410,000 ounces
of gold. The production profi le this year at Kumtor
is back-ended with the production weighted to the
fourth quarter.
At Boroo, gold production for 2012 is forecast to
be 60,000 ounces. The 2012 production forecast
assumes no production from the heap leach facility
or the Gatsuurt project due to uncertainties with
permitting. The Boroo mill is expected to process
mostly higher grade heap leach ore stockpiles for the
fi rst eight months of 2012, followed by processing the
higher grade ore from Pit 6 from September 2012 to
January 2013. Receipt of the fi nal heap leach operating
permit would add approximately 2,000 ounces of gold
per month. At Gatsuurt, the project is ready to begin
mining the oxide ore on receipt of the fi nal approvals
and regulatory commissioning.
In 2012, we will continue to invest in our properties.
Total capital expenditures are estimated to be $389 million,
which includes $49 million of sustaining capital and
$340 million of growth capital. Of the growth capital
$328 million will be invested at Kumtor and $12 million
in Mongolia. We will continue our aggressive exploration
program investing $45 million, an increase from the
$40 million spent in 2011. Exploration and business
development programs will continue to focus on Asia,
in particular Central Asia, Turkey, Russia and China to
meet the longer term growth targets of Centerra.
I am pleased to report that in 2011 Centerra introduced
guidelines for a level C report. Centerra has a history
of investing in various sustainable development and
strategic investment projects in the countries and
communities where it operates. In 2012, total
sustainable community investments are forecast at
$26 million, in accordance with Centerra’s Community
Investment policy.
We are proud of our record of safe, responsible
mining in the Kyrgyz Republic and Mongolia and I
applaud our employees for their continuous efforts in
maintaining a safe and healthy workplace and achieving
the production goals of the Company. I look forward
to continuing to advance our projects in Mongolia;
develop the underground at Kumtor; grow our reserves
and resources and expand our exploration programs;
and lastly, look for new growth opportunities through
acquisitions.
On March 14, 2012, the Company announced certain
changes in the Board of Directors and management of
Centerra that will take effect on May 17, 2012, after our
annual general meeting of shareholders. Mr. Patrick
James, Director and Chair and Mr. Ian Austin, Director,
will both retire from the Board. I will replace Mr. James
as the Chair of the Board and will concurrently step
down as Centerra’s President and CEO. Mr. Ian Atkinson
will become Centerra’s new President and CEO and
Mr. David Groves will be promoted to the position of
Vice President, Global Exploration.
the Company’s fi rst corporate responsibility report
which followed the Global Reporting Initiative’s
Stephen A. Lang
President and Chief Executive Offi cer
2011_Centerra_Page 1-15.indd 5
Mar/31/2012 1:24 PM
2011 ANNUAL REPORT 5
Reserves.
have 8.1 million contained ounces of gold in proven and probable reserves
– as well as 2.4 million contained ounces of gold of high-grade
inferred resources underground at Kumtor.
+
8In 2011, we replaced the reserves we started the year with, and now
A strong reserve base is a solid foundation for everything we do and for our future growth.
Reserve rich companies can increase rapidly in value, and this is especially true when the
price of gold is high, as it was in 2011. When gold prices are lower, we must look hard at the
costs of mining it in areas that do not give it up easily. However, as prices rise, so does the
rationale for spending more to get the gold out of the ground. Delivering greater profi tability
from all areas of the business is a key factor for success in the gold industry.
6 CENTERRA GOLD INC.
2011_Centerra_Page 1-15.indd 6
Mar/31/2012 1:24 PM
Öksüt
JV
Altunhisar
JV
Akarca
JV
Kumtor
Mine
Boroo
Mine
Kara
Beldyr
JV
Dvoinoy
JV
ATO
Laogouxi
JV
Gatsuurt
Deposit
2011 Gold Production
Kumtor – 583,156 oz
Boroo – 59,224 oz
2012 Estimated Gold Production
Kumtor – 390,000 – 410,000 oz
Boroo – 60,000 oz
2011 ANNUAL REPORT 7
2011_Centerra_Page 1-15.indd 7
02/04/12 11:33 AM
Platform
for growth.
In 2012, we will spend over 50% of our exploration budget on our land
holdings with a solid focus on long-term growth. We are exploring opportunities
in Russia, China, Turkey and other territories in Central Asia and Asia.
50%
Exploration leads the way to growth for a company like Centerra. Opportunities abound
– we just need to realize them. It takes knowledge, expertise and hard work. We are the
largest Western-based gold producer in Central Asia, and after 15 years of operating
there, it continues to be a solid platform for growth – particularly our properties in the
Kyrgyz Republic and in Mongolia. We know these areas intimately, and have developed
location-specifi c expertise in how to get the gold out of the ground. We have worked hard
at partnering with local companies, understanding political infrastructure, and building
relationships that will continue to grow over time. There is plenty of gold in Asia, and we
have staked our claim to it. We have a solid case. And a competitive advantage.
8 CENTERRA GOLD INC.
2011_Centerra_Page 1-15.indd 8
Mar/31/2012 1:24 PM
Exploration Expenditures
(millions)
50
40
30
20
10
0
$25
$31
$40
$45
2009
2010
2011
2012E
Over 50% of 2012 exploration budget to be
spent on our current land holdings at
• Kumtor: $15M
• Mongolia: $8M
• JV’s in Russia, Turkey, China: +$12M
Kumtor focus
• SB and Stockwork Zones
• Regional drilling
Mongolia focus
• ATO and other land holdings
Invested $40 million in exploration in 2011
Kumtor
Mongolia
Joint Ventures & Other
Kyrgyz Republic
Location:
Ownership: 100%
Activity:
Drilling in the Kumtor Central pit,
underground Stockwork and SB zones,
NE area, Sarytor and SW pits.
Regional; Karasay and
Koendy Projects
$13 million
Mongolia
100%
ATO Discovery
Exploration budget
increased, drilling
surface work continues
Turkey, Russia, China, U.S. (Nevada)
Earning interests
Drilling, mapping,
sampling, geophysics
and administration
$11 million
$16 million
Reserves and Resources
Reserves
As of December 31, 2011, Centerra’s proven and probable reserves increased 694,000 contained ounces (before accounting
for 2011 production) to 8.1 million ounces of contained gold, compared to 8.2 million ounces as of December 31, 2010.
This represents an increase of 9% before accounting for 793,000 contained ounces processed at Kumtor and Boroo during
2011. All 2011 year-end reserves were estimated using a gold price of $1,200 per ounce compared to $1,000 per ounce at
December 31, 2010.
Kumtor’s proven and probable mineral reserves remain at 6.3 million ounces of contained gold as of December 31,
2011. At Kumtor proven and probable reserves increased by 704,000 contained ounces of gold, before accounting for
the processing of 709,000 contained ounces during 2011, replacing reserves mined during the year. All of the increase in
the Central Pit open pit reserves is a result of additional exploration drilling primarily on the Southwest Extension of
the SB Zone. This drilling has continued to outline a new zone of mineralization that lies immediately to the northwest
of the Southwest Extension of the SB Zone. The drilling has also increased the average reserve grade for the Central Pit
to 3.7 g/t Au, compared to 3.4 g/t Au in 2010. There has been no change in cut-off grades used for reserve estimation.
At Boroo, proven and probable reserves total 298,000 ounces of contained gold, after accounting for the processing
of 84,000 contained ounces during 2011. At the reserve gold price assumption, the Boroo operation could potentially
continue to feed the mill for over two years utilizing existing low-grade stockpiles.
At Gatsuurt, proven and probable reserves remain unchanged at 1.5 million contained ounces of gold.
2011 ANNUAL REPORT 9
2011_Centerra_Page 1-15.indd 9
Mar/31/2012 1:24 PM
Resources
As of December 31, 2011, Centerra’s measured and indicated resources increased by 36% or 1.8 million ounces over the
December 31, 2010 fi gures to total 6.7 million ounces of contained gold, compared to 4.9 million contained ounces as of
December 31, 2010 (all resource estimates are exclusive of reserves). The increase from the 2010 year-end measured and
indicated resources is attributable to an increase in resources at Kumtor together with the addition of new resources for
both the ATO project in Mongolia and the Kara Beldyr joint venture project in Russia.
The Company’s inferred resources also increased by 570,000 contained ounces of gold year-over-year. At Kumtor,
the inferred resources in the high-grade underground SB Zone increased by 393,000 contained ounces to 1.8 million
contained ounces of gold with an average grade of 13.6 g/t. This increase is primarily a result of exploration drilling that
has extended the strike length of the high-grade underground resources along strike to the northeast and southwest. The
cut-off grade was lowered to 6 g/t Au, from the 7 g/t Au used in previous estimates, which refl ects updated cost estimates
for mining, however, this has only a minimal impact on the resource estimation. Inferred open pit resources decreased
by 65,000 contained ounces of gold in the Central Pit. In addition, exploration drilling in 2011 at the Northeast Prospect
resulted in the addition of 150,000 contained ounces of gold to the inferred open pit resources to 278,000 ounces of
contained gold with an improvement of grade to 2.1 g/t Au.
The initial resource estimate for the ATO project in Mongolia has a measured and indicated resource of 824,000 ounces
of contained gold together with signifi cant silver, lead and zinc and an inferred resource of 26,000 ounces of contained
gold together with silver, lead and zinc.
The resource estimate on a 100% basis for the Gord Zone on the Kara Beldyr property in Russia has an indicated
resource of 289,000 ounces of contained gold and an inferred resource of 211,000 ounces of contained gold. At the time
of this annual report Centerra holds a 70% equity interest in the property.
Polymetallic Mineral Resources (as of December 31, 2011)
Tonnes
(000’s)
Category
Gold Contained
Silver Contained
Grade
(g/t)
Gold (6) Grade
(g/t)
(oz 000’s)
Silver Grade
(%)
(oz 000’s)
Lead Contained Zinc Contained
Zinc
Lead Grade
(lbs 000’s)
(%)
(lbs 000’s)
ATO Project (4)
Oxide Mineral Resources (1) (2) (4) (5) (7) (8)
(> $6.50 NSR cut-off Grade)
Measured Resources
Indicated Resources
Measured and Indicated
3,345
2,966
6,311
Inferred Resources (3)
244
1.4
0.8
1.1
0.5
146
77
223
4
8.8
7.4
8.2
4.9
950
707
1,657
38
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Sulphide Mineral Resources (1) (2) (4) (5) (7) (8)
(> $25.50 NSR cut-off Grade)
6,960
Measured Resources
Indicated Resources
9,012
Measured and Indicated 15,972
1.4
1.0
1.2
Inferred Resources (3)
1,174
0.6
320
281
601
22
7.5
7.9
7.8
5.2
1,685
2,301
3,986
0.864
0.692
0.767
132,572
137,486
270,058
1.542
1.269
1.388
236,605
252,123
488,728
196
0.704
18,221
1.068
27,642
(1)
Mineral resources have been estimated on the following metal prices (gold $1,200 per ounce), (silver $20 per ounce), (lead $ 0.87 per lb), (zinc $0.87 per lb). Ian Atkinson is the
Qualifi ed Person for purposes of NI 43-101, please refer to Centerra’s MD&A, AIF and technical reports fi led on SEDAR.
(2) Mineral resources are in addition to reserves. Mineral resources do not have demonstrated economic viability.
(3)
Inferred mineral resources have a great amount of uncertainty as to their existence and as to whether they can be mined economically. It cannot be assumed that all or part of the
inferred resources will ever be upgraded to a higher category.
(4) Centerra’s equity interest in the ATO project is 100%.
(5) Numbers may not add up due to rounding.
(6) The contained gold resources have also been included in Centerra’s 2011 Year-end Gold Reserve and Resource Summary
(7)
(8) Variables used to calculate NSR values include:
The ATO resources are estimated based on a Net Smelter Return cut-off grade of $6.50 NSR per tonne for oxide mineralization and $25.50 NSR per tonne for sulphide mineralization.
Oxide total recovery of Gold=60%
Oxide total recovery of Silver=40%
Sulphide Net Smelter Return total recovery of gold=70%
Sulphide Net Smelter Return total recovery of silver=70%
Sulphide Net Smelter Return total recovery of lead=81%
Sulphide Net Smelter Return total recovery of zinc=51%
Payable royalty on total recovered gold=9.0%
Payable royalty on total recovered silver=6.75%
Payable royalty on total recovered lead=6.75%
Payable royalty on total recovered zinc=6.75%
10 CENTERRA GOLD INC.
_Centerra_Page 10-12.indd 10
02/04/12 7:02 AM
2011 Year-end Gold Reserve and Resource Summary
(as of December 31, 2011)
Gold Mineral Reserves (9) (20) (21)
(tonnes and ounces in thousands)
Proven
Probable
Total Proven and Probable
Property (11)
Kumtor (13)
Boroo (15)
Gatsuurt (16) (23)
Total
Tonnes
(g/t)
3,023
8,767
–
11,790
1.6
0.8
–
1.0
Grade Contained
Gold (oz) Tonnes
Grade Contained
(g/t) Gold (oz)
Grade Contained
(g/t) Gold (oz)
Tonnes
153
215
–
368
56,671
891
16,349
73,911
3.4
2.9
2.8
3.2
6,125
83
1,489
7,697
59,694
9,658
16,349
85,701
3.3
1.0
2.8
2.9
6,278
298
1,489
8,065
Gold Measured and Indicated Mineral Resources (10) (20) (21)
(tonnes and ounces in thousands)
Measured
Indicated
Total Measured and Indicated
Grade Contained
Gold (oz) Tonnes
Grade Contained
(g/t) Gold (oz)
Grade Contained
(g/t) Gold (oz)
Tonnes
Property (11)
Kumtor (12) (13)
Boroo (12) (15)
Gatsuurt (12) (16) (23)
Ulaan Bulag (17)
ATO (18)
Kara Beldyr (19)
Total
Tonnes
(g/t)
43,262
452
–
–
10,305
–
54,019
2.3
2.2
–
–
1.4
–
2.1
Gold Inferred Mineral Resources (10) (20) (21) (22)
(tonnes and ounces in thousands)
Property (11)
Kumtor Open Pit (12) (13)
Kumtor SB Underground (14)
Kumtor Stockwork Underground (14)
Boroo (12) (15)
Gatsuurt (12) (16) (23)
Ulaan Bulag (17)
ATO (18)
Kara Beldyr (19)
Total
3,141
32
–
–
466
–
3,639
22,687
4,464
5,533
1,555
11,978
3,790
50,007
2.3
1.5
2.4
1.5
0.9
2.4
1.9
1,658
210
426
73
358
289
3,014
65,949
4,916
5,533
1,555
22,283
3,790
104,026
2.3
1.5
2.4
1.5
1.2
2.4
2.0
4,799
242
426
73
824
289
6,653
Grade Contained
(g/t) Gold (oz)
Tonnes
9,195
4,040
1,633
7,323
5,926
315
1,418
3,354
33,204
2.4
13.6
12.0
1.0
2.6
1.3
0.6
2.0
3.8
694
1,760
629
235
491
13
26
211
4,059
(9)
The mineral reserves have been estimated based on a gold price of $1,200 per ounce. Ian Atkinson is the Qualifi ed Person for purposes of NI 43-101, please refer to Centerra’s
MD&A, AIF and technical reports fi led on SEDAR.
(10) Mineral resources are in addition to reserves. Mineral resources do not have demonstrated economic viability.
(11)
Centerra’s equity interests as of this annual report are: Kumtor 100%, Gatsuurt 100%, Boroo 100%, Ulaan Bulag 100%, ATO 100% and Kara Beldyr 70%. All contained ounces in
table above are shown on a 100% basis.
(12) Open pit resources occur outside the current ultimate pits which have been designed using a gold price of $1,200 per ounce.
(13)
The open pit reserves and resources at Kumtor are estimated based on a cut-off grade of 0.85 gram of gold per tonne for the Central Pit and 1.0 grams of gold per tonne for the
Southwest, Sarytor and Northeast deposits.
(14) Underground resources occur below the Central pit and are estimated based on a cut-off grade of 6.0 grams of gold per tonne.
(15) The open pit reserves and resources at Boroo are estimated based on a 0.5 gram of gold per tonne cut-off grade.
(16)
The open pit reserves and resources at Gatsuurt are estimated using either a 1.2, 1.4 or 1.5 grams of gold per tonne cut-off grade depending on ore type and process method and
include the Central Zone and Main Zone deposits.
(17) The open pit resources at Ulaan Bulag are estimated on a cut-off grade of 0.8, 0.9 or 1.0 grams of gold per tonne depending on ore type and process method.
(18)
The ATO open pit resources are estimated based on a Net Smelter Return (NSR) cut-off grade of $6.50 NSR per tonne for oxide mineralization and $25.50 NSR per tonne for
sulphide mineralization
(19) The open pit resources at Kara Beldyr are estimated based on a 1.0 gram of gold per tonne cut-off grade and the contained ounces are shown on a 100% basis.
(20) A conversion factor of 31.10348 grams per ounce of gold is used in the reserve and resource estimates.
(21) Numbers may not add up due to rounding.
(22)
Inferred mineral resources have a great amount of uncertainty as to their existence and as to whether they can be mined economically. It cannot be assumed that all or part of
the inferred resources will ever be upgraded to a higher category.
In July 2009, the Mongolian Parliament enacted legislation that would prohibit mineral prospecting, exploration and mining in water basins and forest areas in the territory of
Mongolia and provides for the revocation of mining and exploration licences affecting such areas. The legislation exempts any “mineral deposit of strategic signifi cance”. If the
legislation is not repealed or amended or if Gatsuurt is not designated as a “mineral deposit of strategic importance” that is exempt from this legislation, mineral reserves at
Gatsuurt may have to be reclassifi ed as mineral resources or eliminated entirely.
(23)
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02/04/12 7:02 AM
2011 ANNUAL REPORT 11
Kumtor
Centerra owns 100 percent of the Kumtor gold mine which is located in the Kyrgyz Republic, about 350 kilometres
southeast of the capital Bishkek and about 60 kilometres north of the border with the People’s Republic of China.
It is the largest gold mine operated in Central Asia by a Western-based company, having produced more than
8.4 million ounces of gold between 1997 and the end of 2011.
Production (100%)
2004
2005
2006
2007 (2) 2008 (2)
2009 (2)
2010
2011
Ore mined (thousands of tonnes)
Ore milled (thousands of tonnes)
Average mill head grade (grams/tonne)
Recovery (%)
Gold produced (thousands of ounces) (1)
Total Cash Cost (2)
Per tonne milled – ($)
Per ounce produced – ($)
3,303
5,654
4.4
82.1
657
6,135
5,649
3.4
81.2
501
3,887
5,696
2.3
73.0
304
5,182
5,545
2.4
72.7
301
4,967
5,577
3.9
79.7
556
23.24
200
24.40
274
28.99
544
29.28
540
43.65
438
4,464
5,780
3.7
76.7
525
41.80
460
5,765
5,594
4.0
79.5
568
6,020
5,815
3.8
80.8
583
41.50 (3) 48.38
482
409 (3)
Notes:
(1) Centerra’s equity interest is 100% following the 2004 initial public offering.
(2)
As a result of Kumtor’s Restated Investment Agreement signed in 2009, operating costs and total cash cost per ounce produced for 2009, 2008 and 2007
have been restated to exclude operating and revenue-based taxes. Total cash cost per ounce produced is a non-GAAP measure and is described under
“Non-GAAP Measures” in the Management’s Discussion and Analysis accompanying this annual report.
(3) Restated to exclude community investments costs.
Mining the Central Pit
During 2011, Kumtor produced 583,156 ounces of gold from the SB Zone in the Central Pit. Gold production for
the year was 3% greater than 2010 due to processing more tonnes of ore as a result of the higher availability of the
mill in 2011 at 94% compared to 91% in 2010. The average recovery in 2011 was slightly better than 2010 due to
the constant metallurgical feed grade which had a positive effect. Total cash cost per ounce produced was $482,
an increase over 2010 levels due to the higher operating costs related to an increase in labour costs and increased
costs for diesel fuel.
Mining operations at Kumtor in 2012 will be accelerated in the southwest portion of the Kumtor Pit, to access
part of the new reserves found in 2011 to provide higher grade ore for the Kumtor mill. Gold production from the
mine is expected to be between 390,000 and 410,000 ounces in 2012 down from the original forecast of 575,000 to
625,000 ounces as the scheduled access to the high-grade SB Zone has been delayed due to increased ice movement.
The delay results in deferring production from the high-grade SB Zone expected in 2012 into 2013–2015. The revised
production profi le will continue to be weighted to the fourth quarter.
Replacing reserves
In 2011, Kumtor successfully replaced the reserves it mined in the Central Pit as a result of additional drilling
done on the Southwest Extension of the SB Zone. Proven and probable reserves at Kumtor as of December 31, 2011
total 6.3 million ounces of contained gold (see “2011 Year-end Gold Reserve and Resource Summary”). The 2011
drilling continued to outline a new zone of mineralization that lies immediately to the northwest of the Southwest
Extension of the SB Zone. The drilling has also increased the average reserve grade for the Central Pit to 3.7 g/t Au,
compared to 3.4 g/t Au in 2010 with no change in cut-off grades used for reserve estimation.
At Kumtor, the inferred underground resources in the high-grade SB Zone increased by 393,000 ounces to
1.8 million contained ounces of gold with an average grade of 13.6 g/t as a result of exploration drilling that has
extended the strike length of the high-grade underground resources along strike to the northeast and southwest.
The cut-off grade was lowered to 6 g/t Au, from the 7 g/t Au used in previous estimates, which refl ects updated cost
estimates for mining; however, this has only a minimal impact on the resource estimation. Inferred underground
resources in the Stockwork Zone total 629,000 contained ounces of gold with an average grade of 12.0 g/t.
12 CENTERRA GOLD INC.
_Centerra_Page 10-12.indd 12
02/04/12 7:02 AM
Continuing underground development
In 2011, the Company advanced construction of the underground access to the high-grade SB Zone and Stockwork
Zone to defi ne and explore the high-grade resource at depth. At year-end, total development advance was
1,864 metres, which includes 903 metres advance in Decline #1 (SB Zone decline) and 961 metres in Decline #2
(Stockwork Zone decline). The Stockwork Drive reached its design limit in October 2011 and delineation drilling
of the Stockwork Zone is ongoing.
The underground development project at Kumtor is on track to achieve the connection of Decline #1 with
Decline #2 in the third quarter of 2012. The connection will provide for improved fl ow-through ventilation of
the underground development. Decline #1 has approximately 125 metres of development advance remaining
and Decline #2 has approximately 660 metres of development advance remaining to join the two declines.
An additional 708 metres of development advance is required in order to access the SB Zone. First ore from the
SB Zone is expected in the second quarter of 2013.
Decline #2 will facilitate the access for exploration drilling to test down dip extensions in the area referred to as
the Saddle Zone located between the SB and Stockwork Zones. During 2012 drilling will continue from Decline #1
to test the new zone of mineralization on the Southwest Extension of the SB Zone and the down dip extensions
of the SB Zone.
Kumtor Cost Performance 2009–2011
Annual Operating Costs ($ millions)
Mining
Milling
Site administration (1)
Bishkek administration (1)
Management fees
Production taxes and royalties (1)
By-product credits
Other
Total operating costs (1)
Unit operating costs
Mining costs ($/t mined material)
Milling costs ($/t milled material)
Total operating costs ($/t milled material) (1)
Total cash costs ($/oz produced) (1) (2)
2009
2010
2011
132.2
54.7
39.2
15.3
0.6
–
(1.9)
1.5
241.6
1.14
9.46
41.80
460
123.3
56.1
36.8 (3)
15.6
0.6
–
(2.8)
2.6
232.2 (3)
1.06 (2)
10.03
41.50 (3)
409 (3)
157.8
63.5
47.2
15.4
0.6
–
(6.2)
3.0
281.3
1.32 (2)
10.92
48.38
482
Notes:
(1)
As a result of Kumtor’s Restated Investment Agreement signed in 2009, operating costs and total cash cost per ounce produced for 2009 has been
restated to exclude operating and revenue-based taxes. Total cash cost per ounce produced is a non-GAAP measure and is described under
“Non-GAAP Measures” in the Management’s Discussion and Analysis accompanying this annual report.
(2) Unit mining costs excludes $10.9 million and $39.4 million of capitalized pre-stripping costs in 2010 and 2011, respectively.
(3) Restated to exclude community investments costs.
2011_Centerra_Page 1-15.indd 13
Mar/31/2012 1:24 PM
2011 ANNUAL REPORT 13
Boroo
Centerra Gold owns a 100 percent interest in the Boroo mine which is located 110 kilometres northwest of
Ulaanbaatar, Mongolia’s capital. Although this is a relatively remote part of the world, Boroo is within three
kilometres of the all-weather Ulaanbaatar–Irkutsk highway and enjoys easy access to the Trans-Mongolian
railway. This open-pit operation began commercial production in the fi rst quarter of 2004 and has produced
approximately 1.6 million ounces of gold through the end of 2011.
Production (100%)
2004
2005
2006
2007
2008
2009
2010
2011
Heap leach material mined
(thousands of tonnes)
Ore mined direct millfeed
(thousands of tonnes)
Ore milled (thousands of tonnes)
Average mill head grade (grams/tonne)
Recovery (%) (1)
Gold produced
(thousands of ounces) (2) (3)
Total Cash Cost (4)
Per tonne milled – ($)
Per ounce produced – ($)
–
–
–
3,601
3,629
3,481
1,694
–
1,884
1,850
4.5
93.7
2,865
2,231
4.2
91.5
3,082 (1)
2,387
4.3
87.0
2,362
2,549
3.6
85.3
2,416
2,496
2.7
77.7
2,913
2,077
2.6
72.9
2,399
2,466
1.9
71.8
–
2,340
1.1
68.9
246
286
283
255
193
151
111
59
17.57
149
23.49
183
25.77
217
24.35
244
29.52
382
33.04
456
27.08 (5)
601 (5)
17.56
694
Notes:
(1) Excludes heap leach ore.
(2) Gold produced in 2004 includes pre-commissioning production for January and February of 2004.
(3) Centerra’s equity interest is 100% from October 17, 2007.
(4)
Total cash cost per ounce produced is a non-GAAP measure and is described under “Non-GAAP Measures” in the Management’s Discussion and Analysis
accompanying this annual report and represents post-commissioning production costs from March 1, 2004.
(5) Restated to exclude community investment costs.
Good performance
The Boroo mine produced 59,224 ounces of gold at a total cash cost of $694 per ounce produced in 2011. While
continuing to perform well, gold production was lower than 2010 due to the processing of stockpiled materials
with lower mill head grades, and lower recoveries as a result of no mining activities, which ceased at the end of
November 2010. The higher total cash costs resulted from the 47% decrease in produced ounces.
At Boroo the 2012 production profi le is approximately 60,000 ounces of gold and assumes mining of Pit 6, which
started in January 2012. The Company’s production profi le for Boroo in 2012 does not include any production
from the heap leach facility or from the Gatsuurt project due to the uncertainties with permitting. The Gatsuurt
project has been delayed due to not receiving the necessary approvals and regulatory commissioning because of
the Mongolian Water and Forest Law. See “Other Corporate Developments – Mongolia” in the Management’s
Discussion and Analysis accompanying this annual report.
The Boroo mill is expected to process mostly higher grade heap leach ore stockpiles for the fi rst eight months
of 2012, followed by processing the higher grade ore from Pit 6 from September 2012 to January 2013. During
September to December 2012, the Boroo mill is expected to process a mixture of higher grade Pit 6 ore with
an average grade of approximately 2.1 g/t and stockpiled heap leach material with grades between 0.67-0.76 g/t.
Total cash cost for 2012 is expected to be $810 per ounce produced.
Receipt of the fi nal heap leach operating permit at Boroo would add approximately 2,000 ounces of gold per
month. At Gatsuurt, the project is ready to begin mining the oxide ore on receipt of the fi nal approvals and
regulatory commissioning.
14 CENTERRA GOLD INC.
2011_Centerra_Page 1-15.indd 14
Mar/31/2012 1:24 PM
Boroo Cost Performance 2009–2011
Annual Operating Costs ($ millions)
Mining
Milling
Leaching
Site administration
Ulaanbaatar administration
Production taxes and royalties
By-product credits
Other
Total operating costs
Unit operating costs
Mining costs ($/t mined material)
Milling costs ($/t milled material)
Leaching costs ($/t material stacked)
Leaching costs ($/t material leached)
Total operating costs ($/t milled material)
Total cash costs ($/oz produced) (1)
2009
2010
2011
20.0
17.8
6.7
8.0
8.0
8.0
(0.4)
0.5
68.6
1.61
8.57
1.37
0.76
33.04
456
20.5
21.1
2.3
8.3
6.7 (2)
7.2
(0.3)
0.9
66.8 (2)
1.81
8.57
2.32
0.53
27.08 (2)
601 (2)
2.1
21.0
0.3
7.7
6.0
3.9
(0.3)
0.4
41.1
–
8.99
–
0.76
17.56
694
(1)
Total cash cost per ounce produced is a non-GAAP measure and is described under “Non-GAAP Measures” in the Management’s Discussion and Analysis
accompanying this annual report.
(2) Restated to exclude community investments costs.
Gatsuurt
The Gatsuurt project is approximately 35 kilometres from the Boroo mine and is connected to the Boroo mine site
by a 55 kilometre road. The Gatsuurt project is ready to begin production of the oxide ore on receipt of the fi nal
approvals and regulatory commissioning from the Mongolian authorities. The plan is to truck the Gatsuurt ore
for processing at Boroo. First, the oxide ore from Gatsuurt would be processed through the existing Boroo mill
facilities which would then be followed by the Gatsuurt sulphide ore, after the mill has been modifi ed to
accommodate the ore. The Boroo processing facility will have to be modifi ed to include a bio-oxidation circuit
to recover gold from the refractory Gatsuurt ore.
For 2012, no capital has been forecast for the development of the deeper sulphide ores at Gatsuurt and will
only be invested following successful regulatory commissioning of the Gatsuurt project. The engineering and
construction of the bio-oxidation facility to be located at the Boroo mill, which is needed to treat Gatsuurt
sulphide ores, will be restarted only after the approval to begin mining at Gatsuurt has been received from
Mongolian authorities.
2011_Centerra_Page 1-15.indd 15
Mar/31/2012 1:24 PM
2011 ANNUAL REPORT 15
100%
is our goal for the corporate responsibilities accepted by a company like ours
in the business we are in. We are proud of our participation in the far-off communities
partnering with locals for social and economic development creating value
for everyone. In the co-operative relationship that results from our involvement,
we stand solid on the highest principles of corporate citizenship.
A Solid Citizen.
Implementing responsible mining practices and aligning our operations with international standards are essential
for the growth of a responsible resource company. Wherever we operate, a key measure of success is that our
stakeholders, including our employees and the neighbouring communities, gain signifi cant benefi ts from our
activity. Our approach to creating value is simple. We are open about our mining activities and we approach
corporate responsibility by engaging stakeholders – groups who infl uence or are infl uenced by our activities or
performance. In all of its operations, Centerra strives to meet the highest international standards, including the
Performance Standards of the International Finance Corporation and the Sustainable Development Framework
of the International Council of Mining and Metals. Additionally, Centerra has played an active role in promoting
the Extractive Industries Transparency Initiative (“EITI”) in the Kyrgyz Republic and Mongolia. The Company’s
mines in these countries were among the fi rst to sign on, report and help improve EITI infrastructure in their
respective countries and in 2011 Centerra became a supporting company of the EITI.
16 CENTERRA GOLD INC.
Centerra Text.indd 16
Mar/28/2012 12:15 PM
MANAGEMENT’S
DISCUSSION
AND
ANALYSIS
For the Fiscal Year Ended December 31, 2011
18 Centerra’s Business
19 Gold Industry, Key Economics and
Recent Market Uncertainty
21 Growth and Strategy
26 Selected Annual Information
27 Results
Overview of 2011 Versus 2010
Results of Operating Segments
Fourth Quarter Results
Quarterly Results – Last Eight Quarters
42 Balance Sheet
Asset Retirement Obligations
Gold Hedging and Off-Balance Sheet Arrangements
Liquidity and Capital Resources
44 Contractual Obligations
44 Non-GAAP Measures
50 Critical Accounting Estimates
52 Changes in Accounting Policies
53 Disclosure Controls and Procedures and
Internal Control Over Financial Reporting
53 Sustainable Development
53 2012 Outlook
58 Qualified Person & QA/QC
59 Risk Factors
72 Caution Regarding Forward-Looking Information
2011_Centerra_Page 17-18.indd 17
Mar/31/2012 1:26 PM
2011 ANNUAL REPORT 17
The following discussion has been prepared as of February 23, 2012, and is intended to provide a review of the
fi nancial position of Centerra Gold Inc. (“Centerra” or the “Company”) as at and for the fi nancial year ended
December 31, 2011 and results of operations in comparison with those as at and for the fi nancial year ended
December 31, 2010. This discussion should be read in conjunction with the Company’s audited fi nancial
statements and notes thereto for the year ended December 31, 2011 prepared in accordance with International
Financial Reporting Standards. In addition, this discussion contains certain forward-looking information
regarding Centerra’s businesses and operations. See “Risk Factors” and “Caution Regarding Forward-Looking
Information” in this discussion. All dollar amounts are expressed in United States (US) dollars, except as
otherwise indicated. Additional information about Centerra, including the Company’s Annual Information Form
for the year ended December 31, 2011, will be available on the Company’s website at www.centerragold.com and
on the System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com.
CONVERSION TO IFRS
As prescribed by the CICA Accounting Standards Board, the Company adopted the requirements of the
International Financial Reporting Standards (“IFRS”) in its statements of account as of January 1, 2011, including
the restatement of its opening balance sheet of January 1, 2010. The restatement of the Company’s comparative
balances from those previously reported under Canadian GAAP standards to those converted IFRS standards is
fully explained and reconciled in note 33 of the Company’s December 31, 2011 consolidated fi nancial statements
as fi led on SEDAR.
CENTERRA’S BUSINESS
Centerra is a Canadian-based gold company, focused on acquiring, exploring, developing and operating gold
properties in Asia, the former Soviet Union and other emerging markets world-wide. Centerra’s common shares
are listed for trading on the Toronto Stock Exchange. As of February 23, 2012, being the date of this Management’s
Discussion and Analysis (“MD&A”), there are 236,353,942 common shares issued and outstanding.
As of December 31, 2011, Centerra’s assets consist of a 100% interest in the Kumtor mine, located in the Kyrgyz
Republic, a 100% interest in the Boroo mine and a 100% interest in the Gatsuurt development property, both
located in Mongolia, a 50% interest in the Kara Beldyr property in Russia (subsequently increased to 70% in
January 2012), a 50% interest in the Öksüt property in Turkey and 100% interest in various exploration and
advanced exploration properties including the Altan Tsagaan Ovoo (“ATO”) property in northeast Mongolia.
Additionally, the Company is earning an interest in other joint venture exploration properties located in Russia,
Turkey, China, the United States (Nevada) and Mongolia.
Substantially all of Centerra’s revenues are derived from the sale of gold. The Company’s revenues are derived
from production volumes from its mines and gold prices realized. Gold doré production from the Kumtor mine is
purchased by Kyrgyzaltyn JSC (“Kyrgyzaltyn”) for processing at its refi nery in the Kyrgyz Republic while gold
doré produced by the Boroo mine is exported and until September 30, 2011 sold under a refi ning agreement with
Johnson Matthey Limited (“JM”). Pursuant to the agreement with JM, the gold doré can also be sold (at the
Company’s election) to a third party who has an account with JM. In September 2011, the Company’s subsidiary
that owns the Boroo mine entered into a master sale agreement with Auramet Trading LLC (“Auramet”) for this
purpose. As a result, starting in October 2011 the gold doré from Boroo continued to be shipped to JM for refi ning
but the product was sold to Auramet at agreed market terms. Sales to JM under the refi ning agreement are based
on the afternoon fi xing price on the London Bullion Market (“London PM fi x”), whereas sales under the Auramet
master sale agreement are based on spot gold prices. The Gatsuurt property is in the development phase. The
Kara Beldyr, Öksüt and other Russian, Turkish, Chinese and Mongolian properties are in the exploration phase.
In 2011, the Company’s two mines produced a total of 642,380 ounces of gold, ranking Centerra as an
intermediate-sized North American-based gold producer.
18 CENTERRA GOLD INC.
2011_Centerra_Page 17-18.indd 18
Mar/31/2012 1:26 PM
The average spot price for gold in 2011 based on the London PM fi x was $1,572 per ounce, an increase of 28%
over the average in 2010. This follows year-over-year increases of 26% in 2010 and 11% in 2009. The average
realized price of gold received by Centerra in 2011 was $1,569 per ounce. Historically, gold has been seen to be
a hedge against infl ation and U.S. dollar weakness. A number of factors continue to support the strengthening
of the gold price, including a general wariness with respect to the stability of the U.S. dollar, sustainability of
sovereign debt levels, concerns about the possibility of infl ation stemming from aggressive economic stimulus
programs, heightened equity market volatility and an increase in the demand for gold for investment purposes
(see the discussion below under “Gold Industry, Key Economic Trends and Recent Market Uncertainty”).
The Company’s costs are comprised primarily of the cost of producing gold from its two mines, its joint
venture projects, administrative costs from the Toronto, Bishkek, Ulaanbaatar and other exploration offi ces
worldwide and secondarily from depreciation and depletion. There are many operating variables that affect the
cost of producing an ounce of gold.
In the mine, costs are infl uenced by the ore grade and the stripping ratio. The stripping ratio means the
tonnage of waste material which must be removed to allow the mining of one tonne of ore. The ore grade refers
to the amount of gold contained in a tonne of ore. The signifi cant costs of mining are labour, diesel fuel and
equipment maintenance.
In the mill, costs are dependent mainly on the ore grade and the metallurgical characteristics of the ore which
can impact gold recovery. For example, a higher grade ore would typically contribute to a lower unit production
cost. The signifi cant costs of milling are reagents, consumables, mill maintenance and energy.
Both mining and milling costs are affected by labour costs, which depend on the availability of qualifi ed
personnel in the regions where the operations are located, the wages in those markets, and the number of people
required. Mining and milling activities involve the use of many materials. The varying costs of acquiring these
materials and the amount used in the processing of the ore also infl uence the cash costs of mining and milling.
The non-cash costs are infl uenced by the amount of costs related to the mine’s acquisition, development and
ongoing capital requirements and the estimated useful lives of capital items.
Over the life of each mine, another signifi cant cost that must be planned for is the closure, reclamation and
decommissioning of each operating site. In accordance with standard practices for Western-based mining
companies, Centerra carries out remediation and reclamation work during the operating period of the mine,
where feasible, in order to reduce the fi nal decommissioning costs. Nevertheless, the majority of rehabilitation
work can only be performed following the completion of mining operations. Centerra’s practice is to record
estimated fi nal decommissioning costs based on conceptual closure plans, and to disclose these costs according
to the principles of IFRS. In addition, Kumtor has established a reclamation trust fund to pay for these costs
(net of forecast salvage value of assets) from the revenues generated over the life of mine. Annually Boroo
deposits 50% of the upcoming year’s annual reclamation budget into a government account and recovers this
money when the annual reclamation commitments are completed.
GOLD INDUSTRY, KEY ECONOMICS AND RECENT MARKET UNCERTAINTY
The two principal uses of gold are product fabrication and bullion investment. A broad range of end uses
is included within the fabrication category, the most signifi cant of which is the production of jewelry.
Other fabrication uses include offi cial coins, electronics, miscellaneous industrial and decorative uses, medals
and medallions.
Global gold industry production is expected to grow at a modest rate over the next few years after signifi cant
growth from 1995 to 2001 followed by virtually fl at production levels through to 2008. The growth in production
beginning in 2009 and expected in the coming few years is a function of a higher gold price which has made
previously marginal deposits economically viable. Centerra believes the cost of gold production in U.S. dollar
terms is rising globally due primarily to a declining quality of reserves at producing mines, higher costs of
construction and equipment and higher cost of labour and certain consumables. There has been signifi cant
59420_Centerra_Financials.indd 19
27/03/12 8:21 AM
2011 ANNUAL REPORT 19
consolidation among gold producers since 2002, and this is expected to continue as established producers seek to
replenish reserves and junior producers seek capital. To replace mined reserves, producers are exploring in new
regions because there are fewer remaining opportunities in conventional gold mining locations.
As well as supply factors internal to the industry, described above, external factors impact the gold price.
One of these important factors is the trade-weighted U.S. dollar exchange rate. Historically, there has been a
strong inverse correlation between the trade-weighted U.S. dollar exchange rate and the gold price resulting in
a positive gold price trend during extended periods of U.S. dollar weakness. Notwithstanding periods in which
this correlation at times breaks down, as witnessed in the recent years of global fi nancial crisis, in general a weak
U.S. dollar is positive for gold. Another factor affecting the gold price which has gained in importance is
investment demand. Since the beginning of the global fi nancial crisis in late 2007, investor demand for gold has
signifi cantly increased. The protracted period of fi nancial instability, high unemployment and stagnant economic
growth in developed countries, combined with increasing sovereign debt levels as governments endeavour to
stimulate an economic recovery have shaken investor confi dence in traditional investment vehicles in favour of
gold as a safe haven. Investor demand via gold exchange traded funds (“ETF’s”) which allow investors to more
directly invest in gold without holding the physical asset is expected to have increased by approximately 15%,
year-over-year, in 2011, notwithstanding a level of disinvestment at times during the year when investors sold
their investments to cover losses in other investment vehicles in their portfolio. Whilst investment in ETFs has
continued to grow, total investment demand in 2011 is expected to have declined, year-over-year. This may be
attributable to periods of higher risk aversion which saw investors shift to the U.S. dollar as a safe haven. In
addition, the latter part of the fourth quarter saw signifi cant gold selling as investors monetized their gold
holdings to rebalance investment portfolios and cover losses. Consumers also became more reluctant to invest
in gold as prices for the metal hit record highs in the third quarter. Investor sentiment towards gold can thus
have a material impact on the gold price.
Other factors that have impacted the gold price include central bank reserves management, producer hedging/
de-hedging activity, and geopolitical concerns.
The Company believes that fundamentals remain positive for gold in the coming year. Burgeoning federal
defi cits in the U.S. resulting from economic stimulus measures are expected to weaken the U.S. dollar and
ultimately usher in a period of higher infl ation. The role of gold as a hedge against infl ation would support
continued demand for the metal as would growing appetite by central banks and developing Asian nations
seeking a more reliable store of value as compared with other investments. In addition, as governments seek to
stimulate economic growth, a shift to more accommodative monetary policies would also be positive for gold.
Doubts in respect of an eventual resolution to sovereign debt levels, particularly in the Eurozone and the United
States, and the effectiveness of measures to promote economic growth in these countries could also support
continued interest in gold.
Financial liquidity provides the Company’s with the ability to fund future operating activities and investments.
Centerra has two operating mines located in the Kyrgyz Republic and Mongolia. Centerra generated $434.9 million
in cash from operations in 2011 and has a balance of cash and short-term investments of $568.2 million at
December 31, 2011. The Company’s fi nancial risk management policy focuses on cash preservation, while
maintaining the liquidity necessary to conduct operations on a day-to-day basis. The Company manages
counterparty credit risk, in respect of cash and short-term investments, by maintaining bank accounts with
highly-rated U.S. and Canadian banks and investing only in highly-rated Canadian and U.S. Government bills,
term deposits or banker’s acceptances with highly-rated fi nancial institutions, and corporate direct credit of
highly-rated, highly-liquid issuers. The Company has no outstanding debt, and it is expected that all planned
capital and operating expenditures can be funded out of cash fl ow for 2012. See “Caution Regarding Forward-
Looking Information”.
20 CENTERRA GOLD INC.
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Continued uncertainty in global fi nancial markets has constrained the ability of many companies to access
capital markets fi nancing. Although Centerra has no current requirements for such funding, fi nancial markets
have retained an interest in gold producers and, under the right conditions, equity issues of many of these
producers have been well received. In November 2010, Centerra secured a three-year, $150 million revolving
credit facility to increase liquidity available for future growth initiatives. The Company may also contemplate
an equity issue to support such growth initiatives. See “Caution Regarding Forward-Looking Information”.
The following table shows the average afternoon gold price fi xing, by quarter, on the London Bullion Market
for 2010, and 2011:
Quarter
2010 Q1
2010 Q2
2010 Q3
2010 Q4
2011 Q1
2011 Q2
2011 Q3
2011 Q4
Average Gold Price ($)
1,109
1,197
1,227
1,367
1,386
1,506
1,702
1,688
GROWTH AND STRATEGY
Centerra’s growth strategy is to increase its reserve base and expand its current portfolio of mining operations by:
• developing new reserves at or near its existing mines from in-pit and underground sources;
• advancing late-stage exploration properties, including properties earned into through the use of joint
venture vehicles, through drilling and feasibility studies, as warranted; and
• actively pursuing selective acquisitions in Asia, the former Soviet Union and opportunistically other
emerging markets worldwide.
Centerra’s growth strategy could be impacted by the risk factors described on page 59.
During 2011, the Company continued its exploration drilling activities in and around the Kumtor mine site and
on its various advanced exploration projects in the Asian region. On February 9, 2012, the Company released the
results of the updated reserve and resource estimates for the Kumtor and Boroo mines and updated its resource
profi le for its advanced projects providing estimates on the Company’s reserves and resources as of December 31,
2011. Overall, the Company was successful in replacing the reserves it mined in the Kumtor Central Pit during
2011, thereby increasing its total proven and probable reserves by 694,000 contained ounces, an increase of 9%
(before accounting for the processing of 793,000 contained ounces in 2011 at its Kumtor and Boroo operations),
to 8.1 million ounces of contained gold. Measured and indicated resources increased by 36% or 1.8 million ounces
when compared to December 31, 2010 to total 6.7 million ounces of contained gold, from additions around the
Central pit at Kumtor, the new discovery at the Altan Tsagaan Ovoo (“ATO”) project in Mongolia and from
the Kara Beldyr joint venture project in Russia. Inferred resources were also increased at Kumtor’s high-grade
SB Underground project and at the Kara Beldyr project, of which Centerra currently owns a 70% interest.
The 2011 year-end reserves and resources were estimated using a gold price of $1,200 per ounce compared
to $1,000 per ounce in 2010. See the “2011 Year-end Gold Reserve and Resource Summary” table and the
“Polymetallic Mineral Resources” summary table.
59420_Centerra_Financials.indd 21
27/03/12 8:21 AM
2011 ANNUAL REPORT 21
Reserves:
As of December 31, 2011, Centerra’s proven and probable reserves increased 694,000 contained ounces (before
accounting for 2011 production) to 8.1 million ounces of contained gold, compared to 8.2 million ounces as of
December 31, 2010. This represents an increase of 9% before accounting for 793,000 contained ounces processed
at Kumtor and Boroo during 2011. All 2011 year-end reserves were estimated using a gold price of $1,200
per ounce compared to $1,000 per ounce at December 31, 2010.
At Kumtor, before accounting for the processing of 709,000 contained ounces during 2011, proven and probable
reserves increased by 704,000 contained ounces of gold replacing reserves mined during the year. All of the
increase in the Central Pit open pit reserves is a result of additional exploration drilling primarily on the Southwest
Extension of the SB Zone. This drilling has continued to outline a new zone of mineralization that lies immediately
to the northwest of the Southwest Extension of the SB Zone. The drilling has also increased the average reserve
grade for the Central Pit to 3.7 g/t Au, compared to 3.4 g/t Au in 2010. There has been no change in cut-off grades
used for reserve estimation.
At Boroo, after accounting for the processing of 84,000 contained ounces during 2011, proven and probable
reserves total 298,000 contained ounces of gold. At the reserve gold price assumption, the Boroo operation could
potentially continue to feed the mill for over two years utilizing existing low-grade stockpiles.
At Gatsuurt, proven and probable reserves remain unchanged at 1.5 million contained ounces of gold.
Resources
As of December 31, 2011, Centerra’s measured and indicated resources increased by 36% or 1.8 million ounces
over the December 31, 2010 fi gures to total 6.7 million ounces of contained gold, compared to 4.9 million
contained ounces as of December 31, 2010. The increase from the 2010 year-end measured and indicated
resources is attributable to an increase in resources at Kumtor together with the addition of new resources for
both the ATO project in Mongolia and the Kara Beldyr joint venture project in Russia.
The Company’s inferred resources also increased by 570,000 contained ounces of gold year-over-year. At
Kumtor, the inferred resources in the high-grade underground SB Zone increased by 393,000 contained ounces
to 1.8 million contained ounces of gold with an average grade of 13.6 g/t. This increase is primarily a result of
exploration drilling that has extended the strike length of the high-grade underground resources along strike
to the northeast and southwest. The cut-off grade was lowered to 6 g/t Au, from the 7 g/t Au used in previous
estimates, which refl ects updated cost estimates for mining, however, this has only a minimal impact of the
resource estimation. Inferred open pit resources decreased by 65,000 contained ounces of gold in the Central Pit.
In addition, exploration drilling in 2011 at the Northeast Prospect resulted in the addition of 150,000 contained
ounces of gold to the inferred open pit resources to 278,000 ounces of contained gold with an improvement of
grade to 2.1 g/t Au.
The initial resource estimate for the ATO project in Mongolia has a measured and indicated resource of
824,000 ounces of contained gold together with signifi cant silver, lead and zinc and an inferred resource of
26,000 ounces of contained gold together with silver, lead and zinc.
The resource estimate on a 100% basis for the Gord Zone on the Kara Beldyr property in Russia has an
indicated resource of 289,000 ounces of contained gold and an inferred resource of 211,000 ounces of contained
gold. As of January 2012, Centerra holds a 70% equity interest in the property.
22 CENTERRA GOLD INC.
59420_Centerra_Financials.indd 22
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2011 YEAR-END GOLD RESERVE AND RESOURCE SUMMARY
(as of December 31, 2011)
Gold Mineral Reserves (1) (12) (13)
(tonnes and ounces in thousands)
Property (3)
Kumtor (5)
Boroo (7)
Gatsuurt (8) (15)
Total
Proven
Probable
Total Proven and Probable
Tonnes Grade
(g/t)
Contained
Gold (oz)
Tonnes Grade
(g/t)
Contained
Gold (oz)
Tonnes Grade Contained
Gold (oz)
(g/t)
3,023
8,767
–
11,790
1.6
0.8
–
1.0
153
215
–
368
56,671
891
16,349
73,911
3.4
2.9
2.8
3.2
6,125
83
1,489
7,697
59,694
9,658
16,349
85,701
3.3
1.0
2.8
2.9
6,278
298
1,489
8,065
Gold Measured and Indicated Mineral Resources (2) (12) (13)
(tonnes and ounces in thousands)
Property (3)
Kumtor (4) (5)
Boroo (4) (7)
Gatsuurt (4) (8) (15)
Ulaan Bulag (9)
ATO (10)
Kara Beldyr (11)
Total
Measured
Indicated
Total Measured and Indicated
Tonnes Grade
(g/t)
Contained
Gold (oz)
Tonnes Grade
(g/t)
Contained
Gold (oz)
Tonnes Grade Contained
Gold (oz)
(g/t)
43,262
452
–
–
10,305
–
54,019
2.3
2.2
–
–
1.4
–
2.1
3,141
32
–
–
466
–
3,639
22,687
4,464
5,533
1,555
11,978
3,790
50,007
2.3
1.5
2.4
1.5
0.9
2.4
1.9
1,658
210
426
73
358
289
3,014
65,949
4,916
5,533
1,555
22,283
3,790
104,026
2.3
1.5
2.4
1.5
1.2
2.4
2.0
4,799
242
426
73
824
289
6,653
Gold Inferred Mineral Resources (2) (12) (13) (14)
(tonnes and ounces in thousands)
Property (3)
Kumtor Open Pit (4) (5)
Kumtor SB Underground (6)
Kumtor Stockwork UG (6)
Boroo (4) (7)
Gatsuurt (4) (8) (15)
Ulaan Bulag (9)
ATO (10)
Kara Beldyr (11)
Total
Tonnes
Grade (g/t)
Contained Gold (oz)
9,195
4,040
1,633
7,323
5,926
315
1,418
3,354
33,204
2.4
13.6
12.0
1.0
2.6
1.3
0.6
2.0
3.8
694
1,760
629
235
491
13
26
211
4,059
(1) The mineral reserves have been estimated based on a gold price of $1,200 per ounce.
(2) Mineral resources are in addition to reserves. Mineral resources do not have demonstrated economic viability.
(3) Centerra’s equity interests as of this MD&A are: Kumtor 100%, Gatsuurt 100%, Boroo 100%, Ulaan Bulag 100%, ATO 100% and Kara Beldyr 70% (as of January 2012). All
contained ounces in table above are shown on a 100% basis.
(4) Open pit resources occur outside the current ultimate pits which have been designed using a gold price of $1,200 per ounce.
(5) The open pit reserves and resources at Kumtor are estimated based on a cut-off grade of 0.85 gram of gold per tonne for the Central Pit and 1.0 grams of gold per tonne for the
Southwest, Sarytor and Northeast deposits.
(6) Underground resources occur below the Central pit and are estimated based on a cut-off grade of 6.0 grams of gold per tonne.
(7) The open pit reserves and resources at Boroo are estimated based on a 0.5 gram of gold per tonne cut-off grade.
(8) The open pit reserves and resources at Gatsuurt are estimated using either a 1.2, 1.4 or 1.5 grams of gold per tonne cut-off grade depending on ore type and process method and
include the Central Zone and Main Zone deposits.
(9) The open pit resources at Ulaan Bulag are estimated on a cut-off grade of 0.8, 0.9 or 1.0 grams of gold per tonne depending on ore type and process method
(10) The ATO open pit resources are estimated based on a Net Smelter Return (NSR) cut-off grade of $6.50 NSR per tonne for oxide mineralization and $25.50 NSR per tonne for
sulphide mineralization.
(11) The open pit resources at Kara Beldyr are estimated based on a 1.0 gram of gold per tonne cut-off grade and the contained ounces are shown on a 100% basis.
(12) A conversion factor of 31.10348 grams per ounce of gold is used in the reserve and resource estimates.
(13) Numbers may not add up due to rounding.
(14) Inferred mineral resources have a great amount of uncertainty as to their existence and as to whether they can be mined economically. It cannot be assumed that all or part of
the inferred resources will ever be upgraded to a higher category.
(15) In July 2009, the Mongolian Parliament enacted legislation that would prohibit mineral prospecting, exploration and mining in water basins and forest areas in the territory of
Mongolia and provides for the revocation of mining and exploration licenses affecting such areas. The legislation exempts any “mineral deposit of strategic signifi cance”. If the
legislation is not repealed or amended or if Gatsuurt is not designated as a “mineral deposit of strategic importance” that is exempt from this legislation, mineral reserves at
Gatsuurt may have to be reclassifi ed as mineral resources or eliminated entirely. See “Other Corporate Developments – Mongolia” and “Risk Factors”.
2011 ANNUAL REPORT 23
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Polymetallic Mineral Resources
(as of December 31, 2011)
Category
Tonnes
Gold
(000’s) Grade
(g/t)
ATO Project (19)
Contained
Silver
Gold (21) Grade
(g/t)
(oz 000’s)
Contained
Silver
(oz 000’s)
Lead Contained
Grade
(%)
(lb 000’s)
Lead Grade
(%)
Zinc Contained
Zinc
(lb 000’s)
Oxide Mineral Resources (16) (17) (19) (20) (22) (23)
(> $6.50 NSR cut-off Grade)
Measured Resources
Indicated Resources
Measured and Indicated
Inferred Resources (18)
3,345
2,966
6,311
244
1.4
0.8
1.1
0.5
146
77
223
4
8.8
7.4
8.2
4.9
950
707
1,657
38
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Sulphide Mineral Resources (16) (17) (19) (20) (22) (23)
(> $25.50 cut-off Grade)
Measured Resources
Indicated Resources
Measured and Indicated
Inferred Resources (18)
6,960
9,012
15,972
1,174
1.4
1.0
1.2
0.6
320
281
601
22
7.5
7.9
7.8
5.2
1,685
2,301
3,986
196
0.864
0.692
0.767
0.704
132,572
137,486
270,058
18,221
1.542
1.269
1.388
1.068
236,605
252,123
488,728
27,642
(16) Mineral resources have been estimated on the following metal prices (gold $1,200 per ounce), (silver $20 per ounce), (lead $ 0.87 per lb), (zinc $0.87 per lb).
(17) Mineral resources do not have demonstrated economic viability.
(18) Inferred mineral resources have a great amount of uncertainty as to their existence and as to whether they can be mined economically. It cannot be assumed that all or part of
the inferred resources will ever be upgraded to a higher category.
(19) Centerra’s equity interest in the ATO project is 100%.
(20) Numbers may not add up due to rounding.
(21) The contained gold resources have also been included in Centerra’s 2011 Year-end Gold Reserve and Resource Summary
(22) The ATO resources are estimated based on a Net Smelter Return cut-off grade of $6.50 NSR per tonne for oxide mineralization and $25.50 NSR per tonne for sulphide
mineralization.
(23) Variables used to calculate NSR values include;
Oxide total recovery of gold=60%
Oxide total recovery of Silver=40%
Sulphide Net Smelter Return total recovery of gold=70%
Sulphide Net Smelter Return total recovery of silver=70%
Sulphide Net Smelter Return total recovery of lead=81%
Sulphide Net Smelter Return total recovery of zinc=51%
Payable royalty on total recovered gold=9.0%
Payable royalty on total recovered silver=6.75%
Payable royalty on total recovered lead=6.75%
Payable royalty on total recovered zinc=6.75%
24 CENTERRA GOLD INC.
59420_Centerra_Financials.indd 24
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Reconciliation of Gold Reserves and Resources
(in thousands of ounces of contained gold) (8) (9)
December 31
2011
2011 Addition
2010 (1)
Throughput (2)
(Deletion) (3)
December 31
2011
Gold Proven and Probable Mineral Reserves
Kumtor (4) (5)
Boroo (4)
Gatsuurt (4) (7) (11)
Total Proven and Probable Reserves
Gold Measured and Indicated Mineral Resources
Kumtor (4) (6)
Boroo (4)
Gatsuurt (4) (7) (11)
Ulaan Bulag (4)
ATO (4)
Kara Beldyr (4)
Total Measured & Indicated Resources
Gold Inferred Mineral Resources (10)
Kumtor Open Pit (4) (6)
Kumtor Stockwork Underground (4)
Kumtor SB Underground (4)
Boroo (4)
Gatsuurt (4) (7) (11)
Ulaan Bulag (4)
ATO (4)
Kara Beldyr (4)
Total Inferred Resources
6,283
392
1,489
8,164
4,134
242
426
80
0
0
4,882
759
628
1,367
233
491
11
0
0
3,489
709
84
0
793
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
704
(10)
0
694
665
0
0
(7)
824
289
1,771
(65)
1
393
2
0
2
26
211
570
6,278
298
1,489
8,065
4,799
242
426
73
824
289
6,653
694
629
1,760
235
491
13
26
211
4,059
(1) Reserves and resources as reported in Centerra’s Annual Information Form fi led in March 2011.
(2) Corresponds to mill feed at Kumtor and Boroo.
(3) Changes in reserves or resources, as applicable, are attributed to information provided by drilling and subsequent reclassifi cation of reserves or resources, an increase in the gold
price, changes in pit designs, reconciliation between the mill and the resource model, and changes to operating costs.
(4) Centerra’s equity interests as of this MD&A are as follows: Kumtor 100%, Gatsuurt 100%, Boroo 100%, Ulaan Bulag 100%, ATO 100% and Kara Beldyr 70% (as of January 2012).
Contained ounces are on a 100% basis in the table above at each property.
(5) Kumtor open pit reserves include the Central Pit and the Southwest and Sarytor Deposits.
(6) Kumtor open pit resources include the Central Pit, Southwest Deposit, Sarytor Deposit and Northeast Deposit.
(7) Gatsuurt open pit reserves and resources include the Central Zone and Main Zone deposits.
(8) Centerra reports reserves and resources separately. The amount of reported resources does not include those amounts identifi ed as reserves.
(9) Numbers may not add up due to rounding.
(10) Inferred mineral resources have a great amount of uncertainty as to their existence and as to whether they can be mined economically. It cannot be assumed that all or part of
the inferred resources will ever be upgraded to a higher category.
(11) In July 2009, the Mongolian Parliament enacted legislation that would prohibit mineral prospecting, exploration and mining in water basins and forest areas in the territory of
Mongolia and provides for the revocation of mining and exploration licenses affecting such areas. The legislation exempts any “mineral deposit of strategic signifi cance”. If the
legislation is not repealed or amended or if Gatsuurt is not designated as a “mineral deposit of strategic importance” that is exempt from this legislation, mineral reserves at
Gatsuurt may have to be reclassifi ed as mineral resources or eliminated entirely. See “Other Corporate Developments – Mongolia” or “Risk Factors”.
59420_Centerra_Financials.indd 25
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2011 ANNUAL REPORT 25
SELECTED ANNUAL INFORMATION
The consolidated fi nancial statements of Centerra are prepared in accordance with International Financial
Reporting Standards, as issued by the International Accounting Standards Board and have been measured
and expressed in United States dollars. Some of the information discussed below are non-GAAP measures.
See “Non-GAAP Measures”.
$ millions, unless otherwise specifi ed
Year Ended December 31
Revenue
Cost of sales
Mine standby costs
Regional offi ce administration
Earnings from mine operations
Revenue-based taxes
Other operating expenses
Exploration and business development
Corporate administration
Earnings from operations
Other (income) and expenses
Finance costs
Gain on sale of exploration project
Unusual items – Kyrgyz agreement
Earnings before income taxes
Income tax expense
Net earnings
Earnings per common share (basic and diluted) – $/share
Total assets
Long-term provision for reclamation and deferred income taxes
Operating Highlights
Gold sold – ounces sold
Gold produced – ounces poured
Average realized price – $/oz sold
Gold spot market price – $/oz (1)
Cost of sales – $/oz sold
Total cash cost – $/oz produced (2)
Total production cost – $/oz produced (2)
2011
2010
2009(1)
$
1,020
$
850
$
382
0
21
617
132
15
43
45
381
(1)
4
–
–
379
8
371
1.57
1,689
56
$
$
$
$
342
1
21
485
99
8
32
52
294
1
2
(35)
–
327
4
322
1.37
1,400
31
$
$
$
$
$
$
$
$
685
399
4
23
259
60
–
26
34
139
(1)
2
–
49
89
29
60
0.27
1,072
21
650,258
642,380
1,569
1,572
588
502
687
$
$
$
$
$
687,706
678,941
1,236
1,225
498
440
555
$
$
$
$
$
676,394
675,582
1,013
973
590
459
607
$
$
$
$
$
(1) The Company’s 2009 information has not been restated to conform to IFRS and is presented in accordance with Canadian Generally Accepted Accounting Principles.
(2) Average for the period as reported by the London Bullion Market Association (U.S. dollar Gold P.M. Fix Rate).
(3) Total cash cost, total production cost per ounce produced are non-GAAP measures and are discussed under “Non-GAAP Measures”.
26 CENTERRA GOLD INC.
2011_Centerra_Page 26.indd 26
Mar/31/2012 1:28 PM
RESULTS
2011 In Review:
• Signifi cant precious and base metal exploration discovery in Eastern Mongolia at the ATO property
announced July 11, 2011. Initial measured and indicated resource of 824,000 ounces of contained gold,
• Proven and probable reserves increased by 694,000 contained ounces replacing the 2011 production at
Kumtor and measured and indicated resources increased by 36% or 1.8 million ounces, including the ATO
discovery,
• Earned a 50% interest in the Öksüt exploration project in Turkey that has returned signifi cant intercepts of
oxidized gold mineralization from drilling activity in 2011,
• Increased dividend payout in 2011 to include a special dividend of Cdn$0.30 per share and annual dividend
of Cdn$0.10 per share during the year (total of US$99.3 million paid),
• Achieved milestone of $1 billion in revenue in 2011,
• Centerra became a supporting company of the Extractive Industries Transparency Initiative (EITI)
promoting good governance and responsible mining: both Kumtor and Boroo have played an active role in
supporting the EITI in their respective countries of operation,
• The remedial measures the Company has put in place to manage the ice and waste movement in the
South-East high-wall at Kumtor over the last few years continued throughout 2011,
• Filed an updated technical report for the Kumtor Mine in March 2011,
• Converted the Company’s accounting principles to IFRS from Canadian Generally Accepted Accounting
Principles.
Overview of 2011 Versus 2010
Centerra’s 2011 and 2010 results refl ect fully consolidated interests in the Kumtor and Boroo mines, a fully
consolidated interest in the Gatsuurt and ATO properties and 50% ownership in the Company’s jointly-controlled
entities, Kara Beldyr (Russia) and Öksüt (Turkey).
For the year ended December 31, 2011, the Company recorded net earnings of $370.9 million or $1.57 per share,
compared to net earnings of $322.3 million or $1.37 per share in 2010. The increase refl ects a 27% increase in the
realized gold price in the year, partially offset by lower gold ounces sold, the settlement of $14.1 million with the
Kyrgyz Social Fund, the settlement with the Mongolian government of $2.6 million for the alluvial claim and the
contribution of $10 million to the Kyrgyz government for the construction and repair of 27 schools in the country
(see “Other Corporate Developments”). The earnings in 2010 included a 22% increase in the realized gold price,
the gain recorded from the sale of the REN property of $34.9 million partially offset by the contribution of
$6.4 million by Boroo Gold LLC (“BGC”, the Company’s wholly-owned subsidiary that owns the Boroo mine)
to the construction of a maternity hospital in Ulaanbaatar.
During 2011, the Company’s earnings from mine operations was $616.5 million (60% of revenue), compared to
$485.2 million (57% of revenue) in 2010. Earnings from mine operations are defi ned as revenue less cost of sales
(including cash and non-cash items), mine standby costs and regional offi ce administration. The increase in the
earnings from mine operations is due to increased margins, resulting primarily from higher realized gold prices,
partially offset by higher operating costs and lower gold sales.
Revenue:
Revenue for 2011 in creased by $170.6 million, or 20%, to $1,020.3 million compared to $849.8 million in the same
period of 2010 due to a 27% increase in the realized gold price partially offset by lower ounces produced and sold.
Gold production was 642,380 ounces in 2011 compared to the 678,941 ounces reported in 2010. This reduction
refl ects lower gold production at Boroo (-47%) mostly due to lower grades and lower recoveries processed through
the mill. At Boroo, the ore became increasingly refractory during 2010 and throughout 2011 and the grades and
recoveries continued to decline throughout 2011. Mining activities at Boroo were temporarily suspended in
November 2010 but resumed in January 2012. The mill at Boroo operated in 2011 by processing stockpiled material
from the pit and higher grade material from the heap leach stockpiles. Gold sold in 2011 totalled 650,258 ounces
2011 ANNUAL REPORT 27
59420_Centerra_Financials.indd 27
27/03/12 8:21 AM
(599,494 ounces from Kumtor and 50,764 ounces from Boroo) compared to 687,706 ounces in 2010 (568,390 ounces
from Kumtor and 119,316 ounces from Boroo). The average realized gold price for 2011 was $1,569 per ounce
compared to $1,236 per ounce in the same period of 2010 refl ecting higher spot prices for gold throughout the year.
Consolidated gold production in 2011 of 642,380 ounces was within the Company’s initial guidance of 600,000
– 650,000 ounces.
Cost of sales:
As a result of the IFRS conversion, cost of sales now includes non-cash depreciation, depletion and amortization
(“DD&A”) in addition to operating cash costs related to the product sold in the period. The comparative period
also refl ects this change in treatment.
Cost of sales was $382.3 million in 2011 compared to $342.2 million in 2010. The increase results from higher
operating costs for labour, diesel and other consumables at Kumtor, the settlement reached between Kumtor
and the Kyrgyz government relating to the Kyrgyz Social Fund totalling $14.1 million and increased DD&A
of $22 million. As a result of the social fund settlement, beginning in the fourth quarter of 2011, the amounts
contributed to the social fund include a portion for the high altitude premiums paid to employees, which
increased the contributions in the fourth quarter of 2011 by $2.3 million.
Depreciation, depletion, and amortization associated with production increased by 30% to $98.4 million in
2011 from $75.6 million in 2010 as a result of higher depreciation for the expanded mobile fl eet at Kumtor, which
was increasingly used to move waste and ice in 2011, and higher amortization of deferred stripping costs on
cutback 12B. (See “2012 Outlook” and “2012 Depreciation, Depletion and Amortization”.) Cost of sales per ounce
sold was $588 in 2011 compared to $498 in 2010, as more waste had to be moved to expose lower grade ore
thereby resulting in higher cost ounces being sold in 2011.
Total cash cost per ounce produced for 2011 increased to $502 compared to $440 per ounce in 2010 (total cash
cost per ounce produced is a non-GAAP measure and is discussed under “Non-GAAP Measures”). The increase in
2011 refl ects the impact of lower production levels due to lower grades and recoveries and higher operating costs
at Kumtor and at Boroo as discussed in the “Results of Operating Segments” for Kumtor and Boroo.
Total cash cost of $502 per ounce in 2011 was slightly above the Company’s guidance of $480 – $500 per ounce
(which was revised in the third quarter 2011), due mainly to increased operating costs.
Taxes:
Centerra recorded an amount of $131.8 million in 2011 for revenue-based tax expense in respect to the Kyrgyz
segment compared to $98.6 million in 2010, and an amount of $8.1 million in 2011 in respect of income tax
expense at Boroo compared to $4.4 million in 2010.
Pursuant to the Restated Investment Agreement between Centerra, Kumtor Gold Company CJSC (“KGC),
Kumtor Operating Company CJSC (“KOC”) and the Government of the Kyrgyz Republic (the “Government”),
dated as of June 6, 2009 (the “Restated Investment Agreement”), the tax regime previously applicable to the
Kumtor project was replaced by a simplifi ed regime with effect from January 1, 2008. Under this simplifi ed
regime, tax is paid at a rate of 13% of gross revenue. In addition, with effect from January 1, 2009, Kumtor makes
a monthly contribution of 1% of gross revenue to the Issyk-Kul Oblast Development Fund. This new regime,
which was approved by the Kyrgyz Parliament on April 30, 2009 (considered the date of substantial enactment
for fi nancial reporting purposes), replaced a number of taxes previously imposed. The increase in revenue-based
taxes expensed in 2011 over that of 2010 refl ects the increase in revenue from the higher realized gold price
recognized by Kumtor in 2011.
The Restated Investment Agreement also provides for an annual payment to the State budget of 4% of gross
revenue. This annual payment is reduced by the amount of capital and exploration expenditures incurred in the
Kyrgyz Republic. Any of these expenditures not applied as a credit in the year are carried forward to future years.
As at December 31, 2011, the excess expenditure in the Kyrgyz Republic on capital and exploration over 4% of
gross revenue being carried forward to future years is $382.9 million. This excess amount is subject to audit by
the Kyrgyz authorities.
28 CENTERRA GOLD INC.
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The tax regime for Boroo Gold LLC, which owns the Boroo mine in Mongolia, is governed by a Stability
Agreement with the Government of Mongolia. That agreement was amended August 3rd, 2007, effective from
January 1, 2007, to establish an income tax rate at 25% of taxable income over 3 billion Mongolian Tugriks (MNT)
(approximately $2.2 million at the 2011 year-end exchange rate) with a tax rate of 10% applicable to taxable
income up to that amount. Income tax expense in the Mongolian segment is determined by reference to the MNT.
The increase of $3.7 million in Boroo’s income tax expense for the year 2011 compared to that of the prior year,
resulted primarily from the tax expense that was recorded as a result of the weakening MNT versus the United
States dollar during 2011 on U.S. dollar-denominated monetary assets.
Losses incurred by Centerra’s entities in the North American segment have not been tax effected.
Goodwill:
During the year ended December 31, 2011, the Company undertook its normal annual review of the goodwill
recorded by the Kyrgyz reporting unit. As a result, management concluded that current circumstances did not
indicate that the carrying value of the unit exceeded its fair value.
Exploration:
Exploration expenditures for 2011 totalled $39.6 million, an increase of 27% over the 2010 expenditures of
$31.3 million.
Exploration expenditures at Kumtor totalled $12.7 million where work focused on drill testing the extent and
grade of the Southwest extension of the SB zone as well as testing the mineralization within and below the KS11
open pit design at deeper elevations in the Saddle and SB zones. This work had positive results, returning
signifi cant mineralized intercepts both within and immediately below the KS11 design pit which contributed to
the reserve and resource increases published by the Company in its February 9, 2012 news release. Exploration
drilling was carried out in Decline #1 immediately below the Davidoff glacier to test the Kumtor structure and
also in Decline #2 to the test the extension of the Stockwork Zone: drilling will continue in 2012 as access becomes
available. Resource delineation drilling of the Stockwork Zone commenced in the second quarter of 2011 showing
some initial positive results. Regional exploration at Kumtor continued in 2011 across all major areas on the
Kumtor mining concession returning encouraging results in the Northeast and Southeast areas and disappointing
results were seen at Petrov and Bordoo areas. In addition trenching, prospecting, and target defi nition work
continued in the Kumtor district. Results from the work have been encouraging and additional drilling is planned
in 2012.
In Mongolia, 2011 exploration expenditures totalled $11.4 million compared to $8.4 million in 2010. Exploration
work focused on the ATO project with drilling, trenching, mapping, geochemical and geophysical surveys being
carried out on the ATO prospect and in the district. In July 2011, the Company announced its new precious/base
metal discovery in northeast Mongolia at the ATO property where drilling has outlined three breccia pipes with
an initial measured and indicated resource of 824,000 ounces. Exploration work is continuing and additional
metallurgical testwork will be carried out along with baseline social environmental and hydrological studies.
Results continue to be encouraging and additional work on the large ATO land holding is planned for 2012.
Expenditures in Russia were $5.1 million in 2011 with the focus on drilling targets identifi ed on the Kara
Beldyr joint venture (“JV”) in the Tyva Republic. Drilling in 2011 was carried out on the Gord, Camp and Ezen
zones, which confi rmed the main geological features previously identifi ed and returned promising results. In
January 2012, Centerra earned a further 20% interest in the property, bringing its total ownership interest to 70%.
Further work on the project will continue in 2012 and will be funded on a pro-rata basis with Centerra’s joint
venture partner Central Asia Goldfi elds.
In Turkey, $4.3 million was spent on exploration in 2011. In the fourth quarter of 2011, Centerra earned a 50%
interest in the Öksüt property, a joint venture with Stratex International PLC, and subsequent to the 2011 year-
end, Centerra exercised its right to earn an additional 20% interest in the Öksüt joint venture (for a total interest
of 70%) by agreeing to invest a further $3 million on exploration work over the next two years. The drilling
59420_Centerra_Financials.indd 29
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2011 ANNUAL REPORT 29
program on the property continued in 2011 and returned signifi cant results from the Ortaçam North prospect.
Additional drilling and metallurgical test work are planned for 2012.
In the United States 2011 expenditures were $2.1 million with work focused on drilling activities on the Oasis
projects in Nevada. Data for the Tonopah Divide project was compiled and it was determined that the project
does not have the size potential to meet Centerra’s requirements. As a result, a decision was made to sell our
interest in the property.
In 2011, the Company entered into three new joint venture agreements covering projects located in the Amur
region of Russia, Central Anatolia region of Turkey and Heilongjiang region of China. The Company will earn
ownership interests in these joint ventures as the predetermined spending thresholds are met.
Generative work continued in China and other prospective regions in Asia in 2011.
Subsequent to the 2011 year-end Centerra decided to close its exploration offi ce in Reno, Nevada and to refocus
its exploration efforts outside of the Great Basin in Nevada, USA to those areas in which it is having more success,
such as in Mongolia, Turkey, Russia and Kyrgyzstan.
Other operating expenses
Other operating expenses in 2011 were $15.5 million compared to $8.0 million in the prior year. The 2011 expense
includes $12.6 million for donations and sustainable development contributions made in both the Kyrgyz Republic
and Mongolia ($8.7 million in 2010), the settlement in the amount of $2.6 million relating to a claim with
government authorities in Mongolia regarding alluvial reserves on the Boroo project licenses (see “Other
Corporate Developments – Mongolia”), the net income of $0.1 million ($0.7 million in 2010) related to the
production of alluvial reserves at the Boroo property and various other community-based sustainability projects
supported by both operations.
The results also include corporate sustainability spending by Kumtor totalling $10.0 million in 2011 for the
construction and repair of 27 schools throughout the Kyrgyz Republic, while in 2010 Boroo funded the construction
of a maternity hospital in Ulaanbaatar in the amount of $6.4 million.
Net Earnings
Net earnings for 2011 were $370.9 million or $1.57 per share compared to $322.3 million or $1.37 per share in
2010. The 2010 comparative year included a gain of $34.9 million on the sale of the REN exploration property
in Nevada, USA.
Cash Flow:
Cash fl ow provided from operations for 2011 was $434.9 million compared to $281.0 million in 2010, primarily
as a result of higher earnings and lower working capital levels at the end of the year. Cash used in investing
activities totalled $473.5 million in 2011 compared to $119.6 million in the prior year. Investing activities in 2011
primarily include the outfl ow of funds for the investment in capital projects and the net purchase of short-term
investments, while in 2010 the investment in capital projects was partially offset by the receipt of funds from the
net redemption of short-term investments and proceeds received from the sale of the REN property. Investments
in capital projects of $175.1 million in 2011 compared to $208.2 million in 2010, represents lower spending on
growth projects mainly at Gatsuurt and lower spending for sustaining capital at Kumtor on equipment rebuilds.
Investments in growth capital for 2011 totalled $140.5 million ($164 million in 2010), while $34.6 million was
invested in sustaining capital ($44.2 million in 2010). A net amount of $290.4 million in short-term fi nancial
instruments were purchased in 2011, whereas a net amount of $63.7 million of short-term investments matured
in 2010. The net proceeds from the sale of the REN property added $34.9 million of investment cash in 2010.
Cash used in fi nancing activities in 2011 was $96.6 million ($7.6 million in 2010), including a dividend payment
of $99.3 million (dividend of $13.6 million in 2010) partially offset by proceeds for shares issued on the exercise
of stock options.
Net cash and short-term investments increased to $568.2 million from $413.0 million at the prior year end.
30 CENTERRA GOLD INC.
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Capital:
Capital expenditures (spent and accrued) in 2011 were $187.9 million as compared to $212.0 million in the prior
year. Sustaining capital in 2011 of $34.6 million (including $32.2 million at Kumtor and $1.8 million at Boroo),
compared to $44.2 million in 2010 (including $40.1 million at Kumtor and $3.5 million at Boroo). Growth capital
of $153.3 million in 2011, compared to $167.8 million the prior year, refl ects $148.5 million of spending at Kumtor
mainly on fl eet expansion and for the pre-stripping of cut-back 12B and 14A, $43.9 million on underground
development of phase I and II and spending at Boroo of $4.5 million in 2011 to raise the tailings dam.
Credit and Liquidity:
As at December 31, 2010 and 2011, the Company had no outstanding debt. On November 16, 2010, the Company
secured a three-year, $150 million revolving credit facility with the European Bank for Reconstruction and
Development (“EBRD”) to support future growth initiatives. The facility remains undrawn.
A signifi cant factor in determining profi tability and cash fl ow from the Company’s operations is the price of
gold. The spot market gold price based on the London PM fi x was $1,531 per ounce at the end of 2011. For 2011,
the gold price averaged $1,572 per ounce compared to $1,225 per ounce for the same period in 2010.
The Company receives its revenues through the sale of gold in U.S. dollars. The Company has operations in the
Kyrgyz Republic and Mongolia, and its corporate head offi ce is in Toronto, Canada. During 2011, the Company
incurred combined costs (including capital) totalling roughly $917 million. Approximately $409 million of this
(45%) was in currencies other than the U.S. dollar. The percentage of Centerra’s non-U.S. dollar costs, by currency
was, on average, as follows: 37% in Canadian dollars, 36% in Kyrgyz soms, 13% in Euros, 11% in Mongolian tugriks,
and approximately 3% in Russian Rubles, Australian dollars, Turkish Lira, British pounds, and Swiss Franc
combined. In 2011, the average value of the currencies of the Kyrgyz Republic, and the Eurozone appreciated
against the U.S. dollar by approximately 2.0%, and 3.8%, respectively, from their value at December 31, 2010. The
British Pound, Swiss Franc, Russian Ruble, and Australian Dollar also appreciated against the U.S. dollar by 2.6%,
5.1%, 3.7%, and 5.3%, respectively. The Turkish Lira declined in value by approximately 8.8% against the U.S. dollar.
On average, the value of both the Mongolian tugrik and the Canadian dollar remained virtually fl at to their value
at December 31, 2010 with a decline of 0.4% and an appreciation of 0.9%, respectively, against the USD. The net
impact of these movements in 2011, after taking into account currencies held at the beginning of the year, was
to increase annual costs by $6.2 million.
RESULTS OF OPERATING SEGMENTS
As of December 31, 2011, Centerra owns 100% of Kumtor, 100% of Boroo, Gatsuurt and the ATO project, and owns
50% of the Kara Beldyr and Öksüt joint venture projects.
Kumtor
The Kumtor open pit mine, located in the Kyrgyz Republic, is the largest gold mine in Central Asia operated by a
Western-based gold producer. It has been operating since 1997 and has produced over 8.4 million ounces of gold
to December 31, 2011.
In accordance with the mine plan, the focus at Kumtor in 2011 was to complete the stripping work necessary
to access the higher grade material from cut-back 12B and 14A and the removal of ice and waste material from the
high wall associated with the SB Zone. Ore from cut-back 12B was uncovered in May 2011 and as a result, Kumtor
began amortizing the associated pre-stripping costs previously capitalized. In the fi rst half of 2011, Kumtor
processed the high-grade material that had been stockpiled during the fourth quarter of 2010 and mined at the
beginning of 2011 from cut-back 12A. The mill blended ore from cutback 12B as it became available starting in
May 2011 with other lower grade stockpiled material. The higher grade benches from cut-back 12B were exposed
in November 2011 and this higher grade material was processed through the mill in the last two months of 2011.
As experienced in 2010, Kumtor had to manage an increased fl ow of ice on the southwest high wall during 2011.
59420_Centerra_Financials.indd 31
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2011 ANNUAL REPORT 31
To ensure continued safe mining, a 75 metre step-in was designed and implemented in the 12B cut-back that
allowed mining to continue safely. The deferred ore tonnage will be removed as part of a future cut back.
In addition and similar to the prior year, Kumtor managed the infl ow of melt waters during the warmer period
of this year (second and third quarters 2011). A permanent water pumping facility to effectively and effi ciently
dewater the pit has been designed and the equipment and supplies have been ordered as part of the future
pit operation.
As at September 2011, mine operations received, as planned, 36 new larger CAT 789 haul trucks, 4 Liebherr
shovels and 2 larger capacity drills. Accordingly, the average daily volume of materials moved in the fourth
quarter of 2011 by the mining operation increased by over 60% as compared to normal volumes moved in 2010.
Kumtor achieved the continuous mining rate of 500,000 tonnes per day as planned in the 2011 mine plan.
In 2011 the total underground development advance at Kumtor was 1,864 metres. Decline #1 (SB Zone decline)
advanced 903 metres while Decline #2 (Stockwork zone decline) advanced 961 metres in 2011. The Stockwork
drive reached its design limit in October 2011 and delineation drilling of the Stockwork Zone has begun.
Kumtor Operating Results
Year Ended December 31
Gold sold – ounces
Revenue – $ millions
Average realized price – $/oz sold
Cost of sales – $ millions (1)
Cost of sales – $/oz sold
Tonnes mined – 000s
Tonnes ore mined – 000s
Average mining grade – g/t (2)
Tonnes milled – 000s
Average mill head grade – g/t (2)
Recovery – %
Gold produced – ounces
Total cash costs – $/oz produced (3)
Total production cost – $/oz produced (3)
Capital expenditures – $ millions
2011
599,494
941.1
1,570
332.6
555
150,605
6,020
3.49
5,815
3.79
80.8
583,156
482
673
180.7
2010
Change
% Change
568,390
704.3
1,239
272.4
479
116,466
5,765
4.14
5,594
4.02
79.5
567,802
409
513
186.5
31,104
236.8
331
60.2
76
34,139
255
(0.65)
221
(0.23)
1.3
15,354
74
160
(5.8)
5%
34%
27%
22%
16%
29%
4%
(16%)
4%
(6%)
2%
3%
18%
31%
(3%)
(1) Cost of sales for 2011 and its comparative years exclude regional offi ce administration.
(2) g/t means grams per tonne.
(3) Total cash cost and total production cost are non-GAAP measures and are discussed under “Non-GAAP Measures”.
Revenue and Gold Production:
Revenue in 2011 increased to $941.1 million from $704.3 million in 2010, as a result of both higher sales volumes
and higher average realized price for gold. Gold sales for 2011 were 599,494 ounces at an average realized price
per ounce of $1,570 compared to 568,390 ounces at an average realized price of $1,239 per ounce in 2010. The
higher average realized gold price per ounce is due to higher gold spot prices.
Kumtor produced 583,156 ounces of gold for the twelve months of 2011 compared to 567,802 ounces of gold in
the same period of 2010. The increase resulted primarily from processing the high level of gold that was in circuit
at the end of 2010 as well as processing increased tonnes due to greater availability of the mill in 2011 at 94%
compared to 91% in 2010. The ore feed grade averaged 3.79 g/t with a recovery of 80.8% in 2011, compared to
4.02 g/t with a recovery of 79.5% in 2010. The grade reduction resulted from the sequencing of ore from the pit,
refl ecting the non-homogeneity of the ore body. Feed grades in 2010 saw high grades in the fi rst quarter with
decreasing grades in both the second and third quarter before obtaining higher grades from cut-back 12B in the
fourth quarter. In 2011, the metallurgical feed grade was very constant which had positive results on the average
recovery.
32 CENTERRA GOLD INC.
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Cost of Sales
The cost of sales at Kumtor, which includes non-cash DD&A associated with the ounces sold, was $332.6 million
in 2011, an increase of $60.2 million or 22% compared to 2010. This is primarily due to increased operating and
depreciation costs compared to the same period in 2010. The increase in 2011 includes $14.1 million representing
the settlement reached between Kumtor and the Kyrgyz government relating to the Kyrgyz Social Fund, higher
DD&A and increased operating costs.
As a result of an audit by the Kyrgyz Social Fund of the 2010 operating year an agreement was reached
whereby Kumtor and the Social Fund agreed that Kumtor would voluntarily pay $14.1 million representing
amounts for both Kumtor and its employees to September 30, 2011. As a result of this settlement, the social fund
contributions starting in the fourth quarter of 2011 are now calculated including the impact of the high altitude
premiums paid to employees. (See “Other Corporate Developments – Kyrgyz Republic”.)
Depreciation, depletion, and amortization associated with production increased by $28.9 million in 2011 over
the 2010 year. This increase was predominantly due to the increased depreciation of the expanded mining fl eet,
higher volumes of sales impacting depreciation calculated on a unit-of-production basis and the amortization of
the pre-stripping costs from cut-back 12B which began in May 2011 when ore was fi rst released. This was partially
offset by a buildup of inventories as a result of mining cutback 12B, which classifi ed a signifi cant amount of
mining related depreciation costs in inventory and from the additional reserves announced at the end of 2010 at
Kumtor, which reduced the charge from the assets depreciated on a unit of production basis. (See “2012 Outlook”
and “2012 Depreciation, Depletion and Amortization”.)
Operating cash costs at Kumtor increased in 2011 by $80.9 million before the capitalization of an additional
$28.5 million for pre-stripping activities (net amount of $52.4 million) compared to the 2010 year. This variance
can be explained as follows:
Mining costs in 2011 were $197.3 million, an increase in costs of $63.0 million or 47% compared to 2010. The
cost increase refl ects the higher mining rate achieved during 2011 where 29% more tonnes of waste and ore were
moved with Kumtor’s expanded mining fl eet. The increased mining activity resulted in increased costs for diesel
($28.6 million with $15.2 million of that resulting from the price increasing from US$0.59 to US$0.76 cents per
litre), national labour costs predominantly as a result of a new collective agreement with the unionized national
workforce signed in October 2010 ($16.2 million), explosives ($6.2 million of which $3.8 million is a result of a
higher purchase price), maintenance, tire and lubricant costs due to the expanded fl eet ($5.5 million), equipment
rental ($1.5 million), camp catering ($1.0 million), dewatering costs ($0.9 million), drilling bits ($0.7 million) and
other expenses ($2.4 million).
Milling costs in 2011 were $63.5 million, an increase of $7.4 million or 13% when compared to 2010. This was
primarily due to an increase in national labour costs ($2.3 million) resulting from the new collective agreement,
cyanide consumption ($1.4 million), other reagents which includes fl occulants, nitric acid, PAX and lime due to
both higher price and consumption partially resulting from additional tonnage processed ($1.2 million), grinding
media due to higher purchase price ($1.2 million), electricity ($0.8 million), sodium hydroxide ($0.6 million)
and other cost increases ($1.4 million). This was partially offset by lower carbon costs due to sourcing from an
alternate low cost producer and lower consumption of carbon from the circuit ($1.5 million).
Site administration costs in 2011 were $47.3 million, an increase of $10.5 million or 28% when compared
to the 2010 year. This was primarily due to an increase in national labour ($6.2 million) resulting from the
new collective agreement, road service costs due to additional waste dumps and increased cost of equipment
($1.7 million), insurance ($1.4 million), diesel costs ($1.0 million), food and camp supplies ($1.0 million),
equipment rental ($0.6 million) and maintenance materials ($0.6 million), partially offset by lower camp
catering and expatriate labour costs.
The ultimate impact of these cost changes on the reported results for cost of sales is dependant on the relative
levels of capital and operating activities and the buildup or drawdown of inventories during the periods presented.
59420_Centerra_Financials.indd 33
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2011 ANNUAL REPORT 33
Total cash cost per ounce produced in the twelve months of 2011 increased by $73 to $482 per ounce compared
to $409 per ounce for the same period in 2010 as a result of higher operating costs described above which
increased cash costs by $85 per ounce, partially offset by 3% higher production due to the higher throughput and
the drawdown of gold that remained in the circuit from 2010. Total cash cost per ounce produced is a non-GAAP
measure and is discussed under “Non-GAAP Measures”.
Cost of sales per ounce sold, which includes the impact of depreciation, depletion and amortization, for 2011
increased to $555 per ounce compared to $479 per ounce in 2010. The increased cost of sales per ounce sold
refl ects higher operating costs and depreciation due in part to higher throughput of lower grade ore and higher
waste and ice movement, partially offset by higher production levels.
Mine Standby Costs
Standby costs at the Kumtor mine in 2010 totalled $1.3 million (nil in 2011) as a result of the temporary suspension
of operations due to a ten-day strike initiated by the unionized employees on October 1, 2010. The labour dispute
was resolved on October 10, 2010, after which Kumtor resumed full operation.
Kumtor Regional Administration
Kumtor regional administration costs in 2011 were $15.4 million, $1 million or 7% higher than in 2010, mainly due
to higher labour costs.
Exploration
Exploration costs at Kumtor in 2011 were $12.7 million, $1.2 million or 10% higher than in 2010, refl ecting increased
drilling activity. As a result, additional costs were incurred primarily for national, contractor and expatriate
labour costs ($2.4 million) and drilling consumables ($0.5 million), partially offset by capitalizing delineation
drilling activities on the underground Stockwork zone ($1.6 million). Expenditures on exploration in the Kumtor
district primarily on the Karasay and Koendy licenses also increased to $0.9 million refl ecting increased
generative and target defi nition work in the Kumtor district.
Capital Expenditures
Capital expenditures in 2011 were $180.7 million compared to $186.5 million in 2010. The 2011 expenditures
included $32.2 million of sustaining capital, predominantly spent on the major overhaul program for heavy duty
equipment ($18.0 million), tailings dam lift ($4.9 million), ancillary equipment replacement ($2.6 million),
Balykchy Marshalling Yard relocation ($1.5 million), pit dewatering system ($1.0 million), replacement of light
vehicles ($0.7 million) and numerous other projects ($3.5 million). Growth capital investment in 2011 of
$148.5 million was spent on pre-strip capitalization ($53.4 million), underground development of phase I and II
($42.1 million), purchase of new CAT 789 haul trucks ($36.6 million), purchase of Liebherr shovels ($6.0 million),
waste rock dump buttress ($2.3 million), Stockwork delineation drilling ($1.8 million), purchase of other mobile
equipment ($1.3 million), purchase of drilling equipment ($1.2 million), purchase of three Mack trucks with
trailers ($0.7 million), purchase of dewatering pumps ($0.6 million) and numerous other projects ($2.5 million).
The Kumtor deposit is described in the Company’s most recently fi led Annual Information Form (the “AIF”)
and technical report dated March 22, 2011 (the “Kumtor Technical Report”) prepared in accordance with
National Instrument 43-101 Standards for Disclosure for Mineral Projects (“NI 43-101”). The Kumtor Technical
Report describes the exploration history, geology and style of gold mineralization at the Kumtor deposit. Sample
preparation, analytical techniques, laboratories used and quality assurance-quality control protocols used during
the drilling programs at the Kumtor site and satellite deposits are described in the Kumtor Technical Report.
A copy of the Kumtor Technical Report can be obtained on SEDAR at www.sedar.com.
34 CENTERRA GOLD INC.
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Boroo and Gatsuurt
The Boroo open pit mine, located in Mongolia, was the fi rst hard rock gold mine in Mongolia. It has produced
approximately 1.6 million ounces of gold since it began operation in 2004.
Boroo suspended its mining activities at the end of November 2010. Subsequently, due to delays in permitting
of the Gatsuurt project, a decision was made to mine and process the remaining refractory ore in pit 6. Mining
activities in pit 6 recommenced in January 2012 and are expected to continue for a period of 10 months. It is
expected that the remaining in situ refractory ore and the oxide stockpiles at Boroo will be processed through
the mill until the earlier of January 2014 or when the Gatsuurt regulatory commissioning occurs. Development
of the bio-oxidation facility to process Gatsuurt’s sulphide ore is subject to receiving all required approvals and
regulatory commissioning from the Mongolian Government allowing the Gatsuurt project to move forward.
Heap leach operations at Boroo remain under care and maintenance. The Company continues to work with
the Mongolian authorities to obtain the fi nal heap leach operating permit. See “Other Corporate Developments
– Mongolia”.
Boroo Operating Results
Year Ended December 31
Gold sold – ounces
Revenue – $ millions
Average realized price – $/oz sold
Cost of sales – $ millions (1)
Cost of sales – $/oz sold
Total tonnes mined – 000s (2)
Average mining grade (non heap leach material) – g/t (4)
Tonnes mined heap leach – 000s
Tonnes ore mined direct mill feed – 000s
Tonnes ore milled – 000s
Average mill head grade – g/t (3) (4)
Recovery – % (3)
Gold produced – ounces
Total cash costs – $/oz produced (5)
Total production cost – $/oz produced (5)
Capital expenditures (Boroo) – $ millions
Capital expenditures (Gatsuurt) – $ millions
2011
50,764
79.3
1,562
49.7
979
–
–
–
–
2,340
1.11
68.9
59,224
694
828
6.3
0.3
2010
119,316
145.5
1,219
69.8
585
11,358
1.33
1,694
2,399
2,466
1.86
71.8
111,139
601
770
7.9
17.2
Change
% Change
(68,552)
(66.2)
343
(20.1)
394
(11,358)
(1.33)
(1,694)
(2,399)
(126)
(0.75)
(2.9)
(51,915)
93
58
(1.6)
(16.9)
(57%)
(46%)
28%
(29%)
67%
(100%)
(100%)
(100%)
(100%)
(5%)
(40%)
(4%)
(47%)
15%
8%
(20%)
(98%)
(1) Cost of sales for 2011 and its comparative years exclude regional offi ce administration costs.
(2) 2010 includes heap leach material of 1,694,000 tonnes with an average mining grade of 0.70 g/t in 2010.
(3) Excludes heap leach ore.
(4) g/t means grams per tonne.
(5) Total cash cost and total production cost are non-GAAP Measure and are discussed under “Non-GAAP Measures”.
Revenue and Gold Production:
Revenues for 2011 were $79.3 million, compared to $145.5 million in 2010, refl ecting lower sales volume partially
offset by the higher year-over-year realized gold price. The lower ounces sold resulted from lower production
of gold in 2011 mainly due to the suspension of mining in November 2010, the lower grades achieved from the
stockpiled mill feed and lower ounces poured from the heap leach operation which remains idle since the expiry
of its temporary permit at the end of April 2009. (See “Other Corporate Developments – Mongolia”.)
Gold production at Boroo was 59,224 ounces in 2011, a reduction of 51,915 ounces of gold produced as compared
to 2010. The reduction is mainly due to the suspension in mining activities in November 2010 and the processing
of stockpiled materials with lower mill head grades and recovery in 2011, in addition to lower contribution from the
heap leach operation which remains idle pending issuance of a fi nal operating permit by government authorities.
Gold production of 59,224 ounces in 2011 was within fi nal guidance for the year. Boroo’s initial 2011 guidance
of approximately 50,000 ounces of gold was revised to approximately 60,000 ounces of gold at the end of the
third quarter refl ecting improved recoveries from the processing of the stockpiled ore through the mill.
2011 ANNUAL REPORT 35
59420_Centerra_Financials.indd 35
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Cost of sales:
The cost of sales, which includes non-cash DD&A associated with the ounces sold, was $49.7 million in 2011,
compared to $69.8 million in 2010. The reduction is primarily the result of a 57% decrease in ounces sold in 2011
as compared to 2010. The cost of sales per ounce sold of $979 in 2011 ($585 per ounce in 2010) was higher due to
the decrease in gold production partially offset by lower operating costs.
Depreciation, depletion and amortization from operations in 2011 totalled $10.1 million, a decrease of $6.1 million
or 38% compared to 2010. The reduction results mainly from the lower sales and production volumes in 2011
which impacted the equipment depreciated on a unit-of-production basis. Rates of depreciation for equipment
depreciated on a straight-line basis are not reduced as a result of lower production. In addition pit 3 pre-stripping
was fully amortized by the end of the third quarter of 2010. (See “2012 Outlook” and “2012 Depreciation, Depletion
and Amortization”.)
The operating costs (including costs such as mining, process ing, site administration, and royalties) for the year
decreased by $24.3 million compared to 2010.
Mining costs in 2011 were $2.1 million, $18.5 million or 90% lower than 2010, as mining activities were
suspended at the end of November 2010 and remained this way throughout 2011. The mining costs incurred
during 2011 represent continuing activities for site supervision, road maintenance work and maintenance on
equipment used on the tailings dam construction and reclamation requirements.
Milling costs in 2011 of $21.2 million remained unchanged from the prior year.
Costs for heap leaching activities of $0.3 million in 2011 were $2.0 million or 88% lower than 2010. Stacking
and crushing activities were suspended during the second quarter of 2010 pending issuance of the operating
permit, and in July 2011 the plant stopped the recirculation of solution.
Site administration costs in 2011 decreased by 8% to $7.7 million, $0.7 million lower than in 2010. This is
mainly due to lower camp catering costs incurred as a result of the lower number of manpower residing at the
mine site, since mining operation was halted in November 2010.
Royalties decreased in 2011 by $3.3 million or 45% to $3.9 million due to the 57% lower ounces sold in 2011
compared to 2010, partially offset by higher realized gold price.
The ultimate impact of these cost changes on the reported results for cost of sales is dependant on the relative
levels of capital and operating activities and the build-up or drawdown of inventories during the periods
presented.
Total cash costs per ounce produced increased to $694 per ounce for 2011 compared to $601 per ounce in 2010.
This increase results primarily from reduced levels of production partially offset by lower costs. Total cash cost of
$694 per ounce produced in 2011 was lower than the revised guidance of approximately $750 per ounce provided
in the third quarter for 2011 and refl ects lower operating costs. (Total cash cost per ounce is a non-GAAP measure
and is discussed under “Non-GAAP Measures”.)
On a unit cost basis, cost of sales per ounce sold, which includes the impact of depreciation, depletion and
amortization, increased to $979 in 2011 compared to $585 in 2010 refl ecting the lower ounces sold.
Boroo Regional Administration:
Regional administration costs in 2011 decreased by 12% to $6.0 million, $0.8 million lower than in 2010. This is
mainly due to lower payroll related cost and lower administrative expenditures.
Exploration:
No expenditures were made on exploration by the Company at the Boroo mine site in either 2011 or 2010.
Exploration expenditures in Mongolia were $11.4 million in 2011 compared to $8.2 million in 2010. This refl ects
signifi cant additional drilling performed on the Altan Tsagaan Ovoo property in northeast Mongolia to follow up
on the discovery of signifi cant precious/base metal mineralization on the property.
36 CENTERRA GOLD INC.
59420_Centerra_Financials.indd 36
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Capital Expenditures:
Capital expenditures at Boroo were $6.3 million in 2011 compared to $7.9 million in 2010. The decrease is mainly
due to lower mobile equipment component change-outs performed as a result of halting the mining activities in
November 2010. At Gatsuurt, $0.3 million was spent in 2011 mainly for contractors’ costs, as compared to 2010
when $17.3 million was spent on road building and development of phases 1 and 2 of the project.
The Boroo deposit is described in the Company’s most recently fi led AIF and a technical report dated
December 17, 2009 prepared in accordance with NI 43-101, which are available on SEDAR at www.sedar.com.
The technical report describes the exploration history, geology and style of gold mineralization at the Boroo
deposit. Sample preparation, analytical techniques, laboratories used and quality assurance-quality control
protocols used during the drilling programs at the Boroo site are the same as, or similar to, those described
in the technical report.
Gatsuurt Project
As at December 31, 2011, proven and probable reserves for the Gatsuurt Project are estimated at 16.3 million
tonnes averaging 2.8 g/t for a total of 1.5 million ounces of contained gold. Measured and Indicated resources are
exclusive of proven and probable reserves and are estimated at 5.5 million tonnes averaging 2.4 g/t for a total of
426,000 ounces of contained gold.
In December 2005, a feasibility study was completed with the conclusion that mining and processing of the
Gatsuurt Project ores was technically and economically feasible. The plan proposed in the feasibility study is to
mine the Gatsuurt Project ores by open pit mining methods, to transport the mined ore by a 55 kilometres haulage
road to the Boroo processing plant for gold extraction, and the production of doré bars for sale. The mined waste
will be stored at the Gatsuurt site in areas designated for that purpose.
The Gatsuurt Project anticipates mining and processing of the Gatsuurt Project ores in two phases; an oxide
ore phase and a sulphide ore phase. The oxide ore phase encompasses mining of the Gatsuurt oxide and transition
ores, haulage of the ores to the Boroo processing plant, and processing of the ores utilizing the existing Boroo CIL
facility. As sulphide ores are encountered during mining, they will be stockpiled at the Gatsuurt site for future
processing. Concurrent with the oxide ore phase, a fl otation and bio-oxidation facility will be constructed at the
Boroo processing plant in preparation of processing the Gatsuurt Project sulphide phase ores. The sulphide ore
phase encompasses the mining, haulage and processing of the Gatsuurt Project sulphide ores, which are refractory
in nature, through a fl otation and bio-oxidation facility constructed at the Boroo processing plant.
The Company anticipates overall gold recovery of 87% for the Gatsuurt Project oxide ore, and 73% for the
transitional ore, using the existing Boroo processing facility. Pilot plant test results have confi rmed that an overall
gold recovery of 87% is achievable for the refractory sulphide ore utilizing bio-oxidation technology followed by
cyanide leaching.
Approval to begin construction of the Gatsuurt Project was received from Centerra’s Board of Directors in
December 2008. To date, $33.3 million has been expended on pre-production site construction and initial
engineering of the proposed fl otation and bio-oxidation facility. The Gatsuurt Project site infrastructure and
engineering for the fl otation and bio-oxidation facility are substantially complete. Completed site infrastructure
includes a 55 km haul road to the Boroo mill, a services and administration building, a water diversion system of
dams and channels, a construction camp, pads for ore and waste stockpiles, and a fueling station. Going forward,
all development and construction activities at Gatsuurt have been suspended pending clarifi cation of the impact
of the Water and Forest Law on the Gatsuurt Project and until fi nal approvals and regulatory commissioning to
commence mining are received. See “Other Corporate Developments – Mongolia”.
The Gatsuurt deposit is described in the Company’s most recently fi led AIF and a technical report dated May 9,
2006 prepared in accordance with NI 43-101, which are available on SEDAR at www.sedar.com. The technical
report describes the exploration history, geology and style of gold mineralization at the Gatsuurt deposit. Sample
preparation, analytical techniques, laboratories used and quality assurance-quality control protocols used during
the drilling programs at the Gatsuurt site are the same as, or similar to, those described in the technical report.
The development of Gatsuurt is subject to certain risks and uncertainties. See “Other Corporate Developments
– Mongolia” and “Risk Factors”.
2011 ANNUAL REPORT 37
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FOURTH QUARTER RESULTS
Financial and Operating Summary
Three Months Ended December 31
Revenue – $ millions
Cost of sales – $ millions
Net earnings – $ millions
Earnings per common share – $ basic and diluted
Cash provided by operations – $ millions
Capital expenditures – $ millions
Average realized gold price – $/oz sold
Gold sold – ounces
Cost of sales – $/oz sold
Gold produced – ounces
Total cash cost – $/oz produced (1)
Total production cost – $/oz produced (1)
2011
248.0
104.1
79.4
0.34
60.3
30.0
1,690
146,704
709
151,562
603
820
2010
Change
% Change
322.2
89.6
150.8
0.64
129.5
55.4
1,376
234,148
383
249,866
308
401
(74.3)
14.5
(71.3)
(0.30)
(69.2)
(25.4)
314
(87,444)
327
(98,304)
295
419
(23%)
16%
(47%)
(47%)
(53%)
(46%)
23%
(37%)
85%
(39%)
96%
104%
(1) Total cash cost and total production cost are non-GAAP measures and are discussed under “Non-GAAP Measures”. As a result of Kumtor’s Restated Investment Agreement, total
cash cost and total production cost per ounce measures have been restated to exclude operating and revenue-based taxes.
Overview
In the fourth quarter of 2011, the Company recorded net earnings of $79.4 million or $0.34 per common share,
compared to net earnings of $150.8 million ($0.64 per common share) over the same period of 2010. In 2010,
gold production was heavily weighted to the fourth quarter while in 2011 production was more evenly spaced
throughout the year.
Revenue and Gold Production:
Revenue in the fourth quarter of 2011 was $248.0 million compared to $322.2 million during the same period of
2010. Fourth quarter 2011 revenue refl ects a 37% decrease in ounces sold (146,704 ounces in the fourth quarter
2011 versus 234,148 ounces in the fourth quarter of 2010). Lower sold ounces were partially offset by a higher
realized gold price ($1,690 per ounce in the fourth quarter of 2011 versus $1,376 per ounce in the fourth quarter
of 2010).
The Company produced 151,562 ounces in the fourth quarter of 2011, 98,304 ounces or 39% lower than the
same period in 2010. Lower gold production was realized at both Boroo and Kumtor. The Boroo production in the
fourth quarter of 2011 was lower by 8,567 ounces compared to the same period of 2010 due to lower grades and
lower recovery of the stockpiled ore processed by the mill. In 2010, the Boroo operation was still mining until the
end of November. The Kumtor production in the fourth quarter of 2011 was lower by 89,737 ounces compared to
the same period of 2010 when the mill processed higher grade material (averaging 7.1 g/t) from the newly exposed
cut-back 12A. The majority of the mill feed processed by Kumtor in the fourth quarter of 2011 included ore
sourced from cut-back 12B which resulted in a lower head grade (averaging 3.8 g/t) and recovery than the
comparative quarter.
Cost of sales:
Cost of sales, which includes non-cash DD&A associated with the ounces sold, was $104.1 million in the fourth
quarter 2011 which is an increase of $14.5 million or 16% compared to the same period of 2010. The increase
resulted from higher operating and non-cash costs at Kumtor, where 35% more waste and ice tonnage was moved
in the fourth quarter 2011 compared to the same period of the prior year, higher labour costs due to the new
collective agreement and the higher social fund contributions resulting from its application to the high altitude
premium ($2.3 million incremental cost in the fourth quarter of 2011 where the Company also paid the employees’
share), partially offset by lower sales volumes.
38 CENTERRA GOLD INC.
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Depreciation, depletion and amortization from operations increased by $10.6 million in the fourth quarter of
2011 compared to the same period last year, mainly from the increased depreciation of the expanded mining fl eet,
the higher throughput achieved at Kumtor including the movement of waste and ice and the amortization of the
pre-stripping costs from cut-back 12B at Kumtor.
Fourth quarter operating cash costs (including costs such as mining, processing, site administration, and
royalties) prior to the allocation to capitalized pre-stripping increased fro m $79.7 million in 2010 to $91.7 million
in 2011. Allocation to pre-stripping was lower in 2011 totalling $6.0 million compared with $10.9 million in 2010
making the operating cash costs $85.7 million in 2011 compared with $68.8 million in 2010 on a net basis. The
increase is explained as follows:
At Kumtor, quarter over quarter, operating costs (before allocation to capitalized pre-stripping) increased by
$17.9 million or 28% primarily due to higher mining costs (up $14.7 million), higher milling costs ($1.3 million)
and higher site administration costs ($1.9 million). The increase in mining costs of $14.7 million (39% higher than
the same quarter in 2010) refl ects the higher mining rate achieved during the fourth quarter of 2011 where 26%
more tonnes of waste and ore were moved with Kumtor’s expanded mining fl eet. The higher costs are due to the
increased mining activity which includes diesel ($6.3 million including a $1.9 million effect due to the price
increasing from US$0.68 to US$0.76 cents), national labour cost due to increased workforce and social fund
payments as discussed in “Other Corporate Developments” ($3.4 million), and higher costs for explosives
($1.8 million) of which $1.4 million is a result of a higher purchase price and higher maintenance, tire and
lubricant costs due to the expanded fl eet ($1.5 million), lower allocation of service equipment ($0.7 million) and
other increases of $1.0 million. The milling and site administration costs increased due to higher national labour,
reagents and diesel costs.
Operating costs at Boroo were down $5.9 million quarter-over-quarter primarily due to reduced costs for
mining ($4.6 million), heap leaching ($0.4 million) and royalties ($1.3 million), partially offset by an increase
in milling costs ($0.4 million). The mining costs were lower as Boroo ceased mining activities at the end of
November 2010. Heap leaching costs were $0.4 million lower as no crushing and stacking activities occurred
starting in the fourth quarter of 2010, and the recirculation of solution was stopped in the fourth quarter of 2011.
Royalties decreased in 2011 due to the 57% fewer ounces sold in the 2011 fourth quarter.
The impact of these cost changes on cost of sales and other reported results varies with the changing levels of
capital and operating activities and the build-up or drawdown of inventories during the periods presented.
On a unit basis, cost of sales per ounce sold for the fourth quarter of 2011 was $709 compared to $383 for the
same period of 2010 primarily due to lower production, higher operating costs where lower grade ore was mined
and processed and higher waste and ice was moved in the fourth quarter of 2011.
Total cash cost per ounce produced was $603 in the fourth quarter of 2011 compared to $308 per ounce in
the same period of 2010 after allocation of costs to capitalized pre-stripping. Total cash operating costs of
$91.4 million in the fourth quarter of 2011 were $14.4 million or 19% higher than the $77.7 million in the same
period in 2010. Gold production in the fourth quarter of 2011 was signifi cantly down by 98,304 ounces or 39%,
refl ecting lower grades processed primarily from stockpiles at Kumtor compared to the high grade material from
cut-back 12B mined and processed in the fourth quarter of 2010, lower grade material processed at Boroo in the
fourth quarter of 2011, lower recoveries at both sites and higher cash operating costs refl ecting a larger fl eet
which increased throughput to move signifi cantly higher levels of rock waste and ice at Kumtor. (Total cash cost
is a non-GAAP measure and is discussed under “Non-GAAP Measure – Total Cash Cost.”)
Mine Standby Costs
During the fourth quarter 2010 Kumtor recorded $1.3 million as standby costs as a result of the temporary
suspension of operations due to a ten-day strike initiated by the unionized employees on October 1, 2010.
The labour dispute was resolved on October 10, 2010, after which Kumtor resumed full operation.
59420_Centerra_Financials.indd 39
27/03/12 8:21 AM
2011 ANNUAL REPORT 39
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization associated with production in the fourth quarter 2011 totalled
$30.3 million, an increase of $10.6 million or 54% as compared to the same period in 2010 due to higher
depreciation at Kumtor as a result of the increased capital fl eet including the 36 new larger haul trucks which
were fully commissioned at the end of the third quarter 2011 and increased amortization of deferred pre-stripping
costs in the fourth quarter of 2011. In addition, Kumtor moved 35% more waste and ice while capitalizing less of
these non-cash pre-stripping costs in the fourth quarter of 2011 ($2.2 million capitalized in Q4 2011 compared to
$3.5 million in Q4 2010).
Exploration:
Exploration expenditures for the fourth quarter of 2011 were $11.7 million compared to $11.2 million in the fourth
quarter of 2010 refl ecting continued signifi cant spending at the Kumtor property, at the ATO project in Mongolia
and at the Kara Beldyr project in Russia.
Kyrgyz Republic
A total of $2.9 million was spent on exploration in the Kyrgyz Republic in the fourth quarter of 2011. The drilling
program on the Kumtor property focused on testing the extent and grade of mineralization within and below the
current KS11 pit design and for mineralization at deeper elevations in the Saddle and SB Zones. Drilling in the
fourth quarter to test the Southwest Extension of the SB Zone returned a number of signifi cant mineralized
intercepts both within and immediately below the KS11 design pit. This drilling has continued to outline a new
zone of mineralization fi rst identifi ed in drilling at the start of 2011 that lies immediately to the northwest of the
Southwest Extension of the SB Zone. This drilling has had a positive impact on the year-end resource estimate.
Regional exploration drilling continued in the fourth quarter of 2011 with up to four drills testing targets in the
Northeast, Sarytor, and Southwest areas. The drilling programs were designed to test the extensions to known
mineralization with encouraging results. The drilling of these targets will continue into 2012.
Mongolia
In Mongolia, $4.2 million was spent on exploration in the fourth quarter of 2011 mainly in the Dornod region
where exploration was carried out in the ATO District and included diamond drilling, trenching, mapping,
geochemical and geophysical surveys and on the ATO project where exploration drilling, baseline and
environmental work were continued.
Russia
Spending in Russia in the fourth quarter of 2011 totalled $1.8 million and focused mainly on the more advanced
Kara Beldyr project ($1.1 million) and to a lesser extent the recently acquired Dvoinoy project ($0.4 million).
On the Kara Beldyr property, drilling on the Gord, Ezen and Camp Zones continued to provide encouraging
results intersecting known mineralization and confi rming continuity of previous intercepts.
At the Dvoinoy project, a drill program was started in early December to test geochemical and geophysical
anomalies identifi ed over the Dvoinoy prospect. Drilling will continue into 2012.
Turkey
Spending in Turkey during the fourth quarter of 2011 totalled $0.9 million, mainly on the Öksüt project where
Centerra earned a 50% interest in the joint venture during the quarter. Drilling of the Ortaçam North prospect
on the Öksüt JV continued to return signifi cant intercepts of oxidised gold mineralization. The drilling program
will continue in 2012 to further test the mineralized zone identifi ed.
Other Expenses
In the fourth quarter of 2011, Boroo recorded a charge of $2.6 million for the resolution of a claim with the
Mongolian government regarding sterilized alluvial reserves on the Boroo property (see “Other Corporate
Developments”).
40 CENTERRA GOLD INC.
59420_Centerra_Financials.indd 40
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Net Earnings
Net earnings for the fourth quarter of 2011 were $79.4 million or $0.34 per share compared to $150.6 million or
$0.64 for the comparative quarter of 2010.
Cash Flow
Cash provided by operations was $60.3 million for the fourth quarter of 2011 compared to $129.5 million for the
fourth quarter of the prior year. The decrease refl ects primarily lower earnings from lower production in the
fourth quarter of 2011.
Capital Expenditures
Capital expenditures in the fourth quarter of 2011 totalled $30.0 million compared to $55.4 million in the same
period of 2010. Capital expenditures included $9.0 million spent and accrued on sustaining capital projects
($9.4 million in the same period of 2010) and $21.0 million invested in growth capital ($46.0 million in the same
period of 2010). The major growth capital initiatives at Kumtor were related to the underground development
project ($11.1 million) and the capitalized pre-stripping for cut-back 14A ($8.3 million). The growth capital
expenditures for Boroo and Gatsuurt in the fourth quarter of 2011 amounted to $0.3 million compared to
$1.2 million in the same period of 2010 which represented spending at Boroo on raising the main cell of the
tailings dam to process Boroo ores.
Goodwill:
During fourth quarter ended December 31, 2011, the Company undertook its normal annual review of goodwill
which is related to the Kyrgyz reporting unit. As a result, management concluded that current circumstances did
not indicate that the carrying value of the Kyrgyz reporting unit exceeded its fair value.
Taxes:
Centerra recorded revenue-based tax expense of $33.6 million for the Kyrgyz segment in the fourth quarter of
2011 compared to $40.5 million in the same period in 2010. In the Mongolian segment, an income tax expense
of $0.9 million was recorded in the fourth quarter of 2011 compared to a recovery of $4.0 million in the fourth
quarter of 2010.
The decrease in the revenue-based tax expense recorded by the Kyrgyz segment refl ects 17% lower revenue in
the last quarter of 2011.
Income tax expense in the Mongolian segment is determined by reference to the Mongolian Tugrik (MNT).
The increase of $4.9 million in income tax expense in the segment in the fourth quarter of 2011 compared to the
fourth quarter of 2010 resulted primarily from the tax expense recorded as a result of the weakening MNT versus
the U.S. dollar in the fourth quarter 2011 on Boroo’s U.S. dollar-denominated monetary assets.
QUARTERLY RESULTS – LAST EIGHT QUARTERS
Over the last eight quarters, Centerra’s results refl ect the positive impact of rising gold prices and increasing cash
costs. Non-cash costs have also progressively increased over 2011 as depreciation at Kumtor grew with its expanded
mining fl eet and the amortization of capitalized stripping. Cost of sales in the second and third quarters of 2011
included a charge for the settlement of the Kyrgyz Social Fund audit totalling $14.1 million and an increase to labour
costs in the fourth quarter of 2011 resulting from the revised social fund calculation which now includes the high
altitude premium (note that the Company paid both the employer and employee portions). In the fi rst quarter of
2011 cost of sales was reduced due to the processing of low cost ore stockpiled in the fourth quarter of 2010 when
Kumtor accessed and mined high grade material from the central pit. Cost of sales was also impacted by higher costs
of labour and diesel in the second, third and fourth quarters of 2011. Other charges for Kumtor in the third quarter
of 2011 include $10 million for special funding of a school improvement program in the Kyrgyz Republic, while
Boroo committed to funding and accrued for the construction of a maternity hospital totalling $6.4 million in the
fourth quarter of 2010. The fourth quarter of 2011 includes other charges of $2.5 million for the resolution of a claim
2011 ANNUAL REPORT 41
59420_Centerra_Financials.indd 41
27/03/12 8:21 AM
by the Mongolian authorities in relation to the sterilization of alluvial reserves at the Boroo property (see “Other
Corporate Developments”). The results for the third quarter of 2010 include the gain on sale of the REN exploration
property of $34.9 million. The quarterly fi nancial results for the last eight quarters are shown below:
Key results by quarter
Quarterly Data Unaudited
$ millions, except per share data
Revenue
Net earnings
Earnings per share
Q4
248
79
2011
Q3
278
84
Q2
244
71
2010 (1)
Q1
250
137
Q4
323
151
Q3
120
17
Q2
152
30
Q1
255
124
(basic and diluted)
0.34
0.35
0.30
0.58
0.64
0.07
0.13
0.53
(1) revised under IFRS
BALANCE SHEET
Inventory
Total inventory at December 31, 2011 of $292 million ($195 million at December 31, 2010) includes gold inventory
of $136 million ($82 million in 2010) and supplies inventory of $156 million ($113 million in 2010). The increase
refl ects a build-up of gold inventory and in-transit gold inventory at the end of 2011 and increased parts
requirements from the expanded capital fl eet at Kumtor.
Property, Plant and Equipment
The aggregate book value of property, plant and equipment at December 31, 2011 of $590 million, compares to
$519 million at the end of 2010 and is allocated as follows: Kyrgyz $469 million, Mongolia $120 million and
corporate entities $1 million. The increase in 2011 relates mainly to the growth projects at Kumtor, being the
underground project and the mine fl eet expansion.
Share capital
As of February 23, 2012, Centerra had 236,353,942 shares outstanding and options to acquire 737,547 common
shares outstanding under its stock option plan with exercise prices ranging between Cdn$4.81 and Cdn$22.28
per share, with expiry dates ranging between 2014 and 2017.
Asset Retirement Obligations
The total future asset retirement obligations were estimated by management based on the Company’s ownership
interest in all mines and facilities, estimated costs to reclaim the mine sites and facilities and the estimated timing
of the costs to be incurred in future periods.
The Company has estimated the net present value of the total asset retirement obligations to be $55.6 million
as at December 31, 2011 (December 31, 2010 – $40.3 million). These payments are expected to commence over the
next 1 to 10 years. The Company used a risk-free rate of 2.0% at Kumtor and 0.6% at Boroo to calculate the present
value of the asset retirement obligations.
The increase in 2011 in the present value of the obligation of $15.3 million was mainly as a result of the latest
update to the closure costs estimates at both sites which increased the provision by $16.5 million, an accretion
increase of $1.2 million, partially offset by cash spending on on-going reclamation of $2.4 million. In December
2011, the Company revised the closure plan at Boroo with the effect of deferring the reclamation spending at the
site and updated the closure costs for Kumtor and Boroo. As a result of the increase in estimated mine life, decrease
in discount rate and update to the closure cost plan the present value of the obligation at Boroo increased by
$9.0 million. A similar update to Kumtor’s closure cost plan and decrease in discount rate resulted in an increase
to the obligation of $7.5 million.
The Company’s future undiscounted decommissioning and reclamation costs have been estimated to be
$62.9 million before salvage value.
42 CENTERRA GOLD INC.
59420_Centerra_Financials.indd 42
27/03/12 8:21 AM
Gold Hedging and Off-Balance Sheet Arrangements
The Company had no gold hedges in place as of December 31, 2011. Centerra currently intends that its gold
production will remain unhedged.
Centerra does not enter into off-balance sheet arrangements with special purpose entities in the normal
course of its business, nor does it have any unconsolidated affi liates. In the case of joint ventures, the Company’s
proportionate interest for consolidation purposes is equivalent to the economic returns to which it is entitled
as a joint venture partner.
Liquidity and Capital Resources
At December 31, 2011, Centerra held cash and cash equivalents of $195.5 million, plus short-term investments of
$372.7 million. In November 2010, Centerra secured a three-year, $150 million revolving credit facility to increase
liquidity available for future growth initiatives. Centerra believes it has suffi cient cash to carry out its business
plan in 2012, including its exploration plans. To the extent that a new property is acquired and/or developed,
additional fi nancing may be required. Continued uncertainty in global fi nancial markets has constrained the
ability of many companies to access capital markets funding. Although Centerra has no current requirements for
such funding, the markets have retained an interest in gold producers and, under the right conditions, equity
issues of many of these companies have been well received. With the conclusion in 2009 of the transactions
contemplated in the Agreement on New Terms (June 11, 2009) and the divestiture by Cameco of its interest in
Centerra (December 30, 2009), management of Centerra believes that the Company is well positioned to grow
and may contemplate an equity issue to support growth initiatives. (See “Caution Regarding Forward Looking
Information” and “Risk Factors”.)
The Company’s cash is derived from cash provided by operating activities. A summary of the Company’s cash
position and changes in cash is provided below:
$ millions
Cash provided by operating activities
Short-term investments redeemed (purchased) – net
Cash provided by (used in) other investing activities
Cash provided by (used in) fi nancing activities
Cash provided (used) during the year
Cash and cash equivalents, beginning of the year
Cash and cash equivalents, end of the year
2011
435
(290)
(183)
(97)
(135)
331
196
2010
281
64
(183)
(8)
154
177
331
Cash provided by operations was $435 million in 2011 compared to $281 million in 2010. The increase over 2010
refl ects higher earnings from higher realized prices and lower working capital levels, partially offset by higher
operating costs and lower production.
Investing activities in 2011 totalled $474 million, including $290 million in U.S. Government securities and
commercial paper purchased in the year and investments of $35 million in sustaining capital and $141 million
in growth capital spent at the Kumtor and Boroo mines. The comparative in 2010 of $119 million includes the
receipt of $64 million in matured funds from short-term U.S. Government securities and commercial paper,
proceeds of $35 million on the sale of the REN property and further refl ects $44 million of sustaining capital
and $164 million of growth capital spent at the Kumtor and Boroo mines. Cash spent on fi nancing activities
includes a dividend payment in 2011 of $99 million, compared to a $14 million dividend paid in 2010.
Working capital, which consists of accounts receivable, prepaids, inventory, supplies and accounts payable,
increased in 2011 by $44 million compared to an increase of $79 million in 2010.
59420_Centerra_Financials.indd 43
27/03/12 8:21 AM
2011 ANNUAL REPORT 43
CONTRACTUAL OBLIGATIONS
The following table summarizes Centerra’s contractual obligations, including payments due for the next fi ve
years and thereafter, as of December 31, 2011.
$ millions
Kumtor
Reclamation trust deed (1)
Capital equipment (2)
Operational supplies
Lease of premises
Boroo
Conservation fund (3)
Capital projects
Corporate
Lease of premises (4)
Total contractual obligations
Due in
Less than
One year
Due in
1 to 3
Years
Due in
4 to 5
Years
Due
After 5
Years
$
8.2
$
7.7
$
7.9
$
4.1
98.2
44.5
Total
$ 27.9
98.2
44.5
0.1
0.2
0.1
0.2
–
–
–
–
2.1
$ 173.0
0.4
$ 147.5
0.8
9.0
$
0.9
8.6
$
$
–
–
–
7.9
(1) Centerra’s future decommissioning and reclamation costs for the Kumtor mine are estimated to be $37.0 million. The estimated future cost of closure, reclamation and
decommissioning of the project are used as the basis for calculating the amount to be deposited in the Reclamation Trust Fund ($27.9 million). This restricted cash is funded by
sales revenue, annually in arrears and on December 31, 2011 the balance in the fund was $9.1 million (2010 – $7.4 million), with the remaining $27.6 million to be funded over the
life of the mine.
(2) Agreement as at December 31, 2011 to purchase capital equipment.
(3) The Company has agreed to donate funds to the Tiamen conservation fund in Mongolia.
(4) Lease of corporate offi ce premises expiring in November 2016.
NON-GAAP MEASURES
This MD&A presents information about total cash cost of production of an ounce of gold and total production
cost per ounce for the operating properties of Centerra. Except as otherwise noted, total cash cost per ounce
produced is calculated by dividing total cash costs by gold ounces produced for the relevant period. Total
production cost per ounce produced includes total cash cost plus depreciation, depletion and amortization
divided by gold ounces produced for the relevant period. Total cash cost and total production cost per ounce
produced are non-GAAP measures.
Total cash costs include mine operating costs such as mining, processing, administration, royalties and
operating taxes (except at Kumtor where revenue-based taxes are excluded), but exclude amortization,
reclamation costs, fi nancing costs, capital development and exploration. Certain amounts of stock-based
compensation have been excluded as well. Total production costs includes total cash cost plus depreciation,
depletion and amortization. Total cash cost per ounce produced and total production cost per ounce produced
have been included because certain investors use this information to assess performance and also to determine
the ability of Centerra to generate cash fl ow for use in investing and other activities. The inclusion of total cash
cost per ounce produced and total production cost per ounce produced may enable investors to better understand
year-over-year changes in production costs, which in turn affect profi tability and cash fl ow.
44 CENTERRA GOLD INC.
59420_Centerra_Financials.indd 44
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Total Cash Cost per ounce Produced and Total Production Cost per ounce Produced
can be reconciled as follows:
(unaudited)
Year ended December 31,
Fourth Quarter
($ millions, unless otherwise specifi ed)
2011
2010
2011
2010
Centerra:
Cost of sales, as reported
Less: Non-cash component
Cost of sales, cash component
Adjust for: Refi ning fees & by-product credits
Regional offi ce administration
Mining Standby Costs
Non-operating costs
Inventory movement
Total cash cost – 100%
Depreciation, depletion, amortization and accretion
Inventory movement – non-cash
Total production cost – 100%
Ounces poured – 100% (000)
Total cash cost per ounce produced
Total production cost per ounce produced
Kumtor:
Cost of sales, as reported
Less: Non-cash component
Cost of sales, cash component
Adjust for: Refi ning fees & by-product credits
Regional offi ce administration
Mining Standby Costs
Non-operating costs
Inventory movement
Total cash cost – 100%
Depreciation, depletion, amortization and accretion
Inventory movement – non-cash
Total production cost – 100%
Ounces poured – 100% (000)
Total cash cost per ounce produced
Total production cost per ounce produced
Boroo:
Cost of sales, as reported
Less: Non-cash component
Cost of sales, cash component
Adjust for: Refi ning fees & by-product credits
Regional offi ce administration
Mining Standby Costs
Non-operating costs
Inventory movement
Total cash cost – 100%
Depreciation, depletion, amortization and accretion
Inventory movement – non-cash
Total production cost – 100%
Ounces poured – 100% (000)
Total cash cost per ounce produced
Total production cost per ounce produced
$ 382.3
98.4
$ 283.9
(3.3)
21.3
0.2
(14.1)
34.4
$ 322.4
99.3
19.5
$ 441.1
642.4
$ 502
$ 687
$ 332.6
88.3
$ 244.3
(3.3)
15.3
–
(14.1)
39.1
$ 281.3
88.9
22.0
$ 392.2
583.2
$ 482
$ 673
$ 49.7
10.1
$ 39.6
(0.1)
6.0
0.2
–
(4.7)
$ 41.1
10.4
(2.5)
$ 49.0
59.2
$ 694
$ 828
$ 342.2
75.6
$ 266.6
(0.1)
21.1
1.3
(0.2)
10.1
$ 298.8
76.3
1.6
$ 376.7
678.9
$ 440
555
$
$ 272.4
59.4
$ 213.0
(0.2)
14.3
1.3
–
3.6
$ 232.0
59.6
(0.5)
$ 291.1
567.8
$ 409
513
$
$ 69.8
16.2
$ 53.6
0.1
6.8
–
(0.2)
6.5
$ 66.8
16.7
2.1
$ 85.6
111.1
601
770
$
$
$ 104.1
30.3
$ 73.8
(0.3)
5.9
–
–
11.9
$ 91.3
30.5
2.5
$ 124.3
151.6
$ 603
$ 820
$ 96.9
29.1
$ 67.7
(0.3)
4.1
–
–
8.9
$ 80.4
29.2
2.5
$ 112.1
138.7
$ 580
$ 808
$ 89.6
19.7
$ 70.0
(0.3)
6.7
1.3
0.7
(1.4)
$ 76.9
19.8
3.5
$ 100.2
249.8
308
401
$
$
$
72.1
17.7
$ 54.4
(0.3)
4.7
1.3
0.7
(1.2)
$ 59.6
17.7
2.4
79.7
228.4
261
349
$
$
$
$
$
7.2
1.1
6.1
–
1.8
–
–
3.0
10.9
1.3
–
12.2
12.9
$ 849
951
$
$
$
$
$
17.5
2.0
15.5
–
2.0
–
–
(0.2)
17.3
2.1
1.1
$ 20.5
21.4
810
959
$
$
$
59420_Centerra_Financials.indd 45
27/03/12 8:21 AM
2011 ANNUAL REPORT 45
RELATED PARTY TRANSACTIONS
Kyrgyzaltyn JSC
Revenues from the Kumtor gold mine are subject to a management fee of $1.00 per ounce based on sales volumes,
payable to Kyrgyzaltyn JSC (“Kyrgyzaltyn”), a shareholder of the Company and a state-owned entity of the
Kyrgyz Republic.
The table below summarizes 100% of the management fees and concession payments paid and accrued by
Kumtor Gold Company to Kyrgyzaltyn and the amounts paid and accrued by Kyrgyzaltyn to Kumtor according to
the terms of a Restated Gold and Silver Sales Agreement between KOC, Kyrgyzaltyn and the Government of the
Kyrgyz Republic, entered into in June 2009.
Twelve months ended December 31
($ thousands)
Management fees paid by KGC to Kyrgyzaltyn
Gross gold and silver sales from KGC to Kyrgyzaltyn
Deduct: refi nery and fi nancing charges
Net sales revenue received by KGC from Kyrgyzaltyn
2011
2010
$
599
$
568
$ 944,020
(2,947)
$ 941,073
$ 706,823
(2,558)
$ 704,265
Gold produced by the Kumtor mine is purchased at the mine site by Kyrgyzaltyn for processing at its refi nery in
the Kyrgyz Republic pursuant to a Restated Gold and Silver Sale Agreement (the “Sales Agreement”). Under the
Sales Agreement Kyrgyzaltyn is required to pay for gold within 12 calendar days of shipment from the Kumtor
mill at a price that is fi xed based on the London PM fi xed price of gold on the London Bullion Market. The
obligations of Kyrgyzaltyn are partially secured by a pledge of 2,850,000 shares of Centerra owned by Kyrgyzaltyn,
the value of which fl uctuates with the market price of Centerra’s shares. Based on movements of Centerra’s share
price, and the value of individual or unsettled gold shipments, the maximum exposure refl ecting the shortfall in
the value of the security as compared to the value of any unsettled shipments during the year, was $44.8 million
for 2011 and $35.5 million in 2010.
As at December 31, 2011, $47.4 million was outstanding under the Sales Agreement (December 31, 2010 –
$89 million).
Related party balances
The assets and liabilities of the Company include the following amounts due from and to Kyrgyzaltyn:
(Thousands of US$)
Prepaid expenses
Amounts receivable
Total related party assets
Amounts payable
Total related party liabilities
Dividend
(Thousands of US$)
Dividends paid to Kyrgyzaltyn
December 31 December 31
2010
2011
January 1
2010
$
143
47,366
$ 47,509
–
$
–
$
$
12
88,997
$ 89,009
–
$
–
$
$
$
$
$
–
37,861
37,861
175
175
2011
2010
$ 29,412
$
4,412
TRANSACTIONS WITH DIRECTORS AND KEY MANAGEMENT
The Company transacts with key individuals from management and with its directors who have authority and
responsibility to plan, direct and control the activities of the Company. The nature of these dealings were in the
form of payments for services rendered in their capacity as director (director fees, including share-based payments)
and as employees of the Company (salaries, benefi ts and share-based payments).
46 CENTERRA GOLD INC.
59420_Centerra_Financials.indd 46
27/03/12 8:21 AM
Key management personnel are defi ned as the executive offi cers of the Company including the President and
Chief Executive Offi cer, Vice President and Chief Financial Offi cer, Vice President and Chief Operating Offi cer,
Senior Vice President Global Exploration, General Counsel and Corporate Secretary, Vice President Business
Development and Vice President Human Resources.
During 2011 and 2010, remuneration to directors and key management personnel were as follows:
Thousand of US$
Key Management Personnel
Salaries and benefi ts
Share-based compensation:
Earned during the year
Appreciation during the year from previous grants
Directors
Fees earned and other compensation
Share-based compensation:
Earned during the year
Appreciation during the year from previous grants
2011
2010
$
5,462
$
5,461
8,280
941
$ 14,683
$
1,055
1,151
(607)
1,599
$
6,546
4,788
16,795
945
855
3,563
5,363
$
$
$
OTHER CORPORATE DEVELOPMENTS
Kyrgyz Republic
As previously disclosed, Kumtor Operating Company (“KOC”), the Company’s Kyrgyz Republic operating
subsidiary was in a dispute with the Kyrgyz Republic Social Fund (the “Social Fund”) regarding whether Social
Fund contributions were required to be paid with respect to a high-altitude premium payable to KOC employees.
This dispute began in 2010 and eventually led to KOC fi ling a claim in September 2011 to invalidate an assessment
issued by the Social Fund requiring KOC to pay approximately $6.7 million in contributions owing for the 2010
operating year. The matter was resolved in the third quarter of 2011 when KOC and the Social Fund reached an
agreement whereby Kumtor would voluntarily pay to the Social Fund $14.1 million, covering the 2010 operating
year ($6.7 million) and the fi rst nine months of 2011 ($7.4 million), without any penalties, fi nes and fi nancial
sanctions and agreed to apply the Social Fund contribution to the high altitude premium in the future. Going
forward, KOC will pay the employer’s portion of the Social Fund deduction for the high altitude premium and
the employees will be responsible for the employee portion of such deduction.
On October 30, 2011 the Kyrgyz Republic held presidential elections which were won by the former Prime
Minister Almazbek Atambayev of the Social Democratic Party of Kyrgyzstan in the fi rst round.
On December 5, 2011, the Company announced that it was experiencing an interruption in the transfer of
diesel fuel and other supplies from the Kumtor marshalling yard to the mine site due to an illegal roadblock.
The marshalling yard is located in the town of Balykchy in the Issyk-Kul Region of the Kyrgyz Republic and is
approximately 270 kilometres from the Kumtor mine. The road block was voluntarily lifted on December 6, 2011
and the transfer of diesel fuel and other supplies resumed. The interruption did not affect the Company’s 2011
production and cost guidance, nor were the mine or milling operations affected.
Kumtor’s collective bargaining agreement expires at the end of 2012. A related work stoppage during 2012
could have a signifi cant impact on Kumtor achieving its forecasted production (see “Risk Factors”). On February 6,
2012 unionized employees at Kumtor began an illegal strike following a dispute regarding the social fund deductions.
Production at Kumtor has been suspended. On February 16, 2012 an agreement was reached with the Kumtor
Trade Union and unionized employees returned to work. The cost of the settlement for 2012 will be approximately
$4 million. The impact of the strike on production is being evaluated.
59420_Centerra_Financials.indd 47
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2011 ANNUAL REPORT 47
Mongolia
In the fourth quarter of 2011, Centerra’s wholly-owned subsidiary, Boroo Gold LLC, which owns the Boroo
project, resolved the previously disclosed very signifi cant claim for compensation that it received from the
Mongolian General Department of Specialized Inspection (“SSIA”) in October 2009 following the June 2009
inspection at the Boroo project. The claim related to certain mineral reserves, including state alluvial reserves,
covered by the Boroo project licenses, that are recorded in the Mongolian state reserves registry, but for which
there are no or incomplete records or reports of mining activity. Pursuant to the resolution, Boroo Gold LLC
accrued approximately $2.6 million in the 2011 year-end results and subsequently paid the amount in January
2012. While this claim has been resolved, other regulatory issues remain outstanding in Mongolia, including the
issuance of a fi nal heap leach permit. The Company continues to have discussions with regulatory offi cials
regarding the issuance of the permit. See “Risk Factors”.
As previously disclosed, the Mongolian Parliament enacted the Law to Prohibit Mineral Exploration And Mining
Operations At River Headwaters, Protected Zones Of Water Reservoirs And Forested Areas (the “Water and Forest
Law”) in 2009. Under the Water and Forest Law, mineral prospecting, exploration and mining in water basins
and forestry areas in Mongolia are prohibited, and the affected licenses are subject to revocation. The legislation
provides a specifi c exemption for “mineral deposits of strategic importance”, which would exempt the Boroo hard
rock deposit from the application of the legislation. Centerra’s Gatsuurt licenses and its other exploration license
holdings in Mongolia however, are currently not so exempt. Under the Minerals Law of Mongolia, Parliament on
its own initiative or, on the recommendation of the Government, may designate a mineral deposit as strategic. Such
designation could result in Mongolia receiving up to a 34% interest in the Gatsuurt deposit.
In 2010, the Company received correspondence from the Minerals Resource Authority of Mongolia (“MRAM”)
stating that certain of its mining and exploration licenses, including the Gatsuurt mining licenses, could be
revoked under the Water and Forest Law. In 2010, the Company was also informed by the Ministry of Mineral
Resources and Energy (“MMRE”) that since the Gatsuurt licenses were within the area designated, on a
preliminary basis, as land where mineral mining is prohibited under the Water and Forest Law, and that the
MMRE would communicate further with the Company on negotiations with respect to an investment agreement
for the Gatsuurt project once the MMRE received additional clarity on the impact of the Water and Forest Law
on the Gatsuurt project. In November 2010, the Company also received a letter from the MMRE indicating that
operations at the Gatsuurt project cannot be commenced while the implementation of the Water and Forest Law
is being resolved. Accordingly, further approvals and regulatory commissioning of Gatsuurt will be delayed as a
result of the Water and Forest Law.
In November 2010, the Mongolian cabinet announced its intention to initiate the revocation of 1,782 mineral
licenses under the Water and Forest Law on a staged basis, beginning with the revocation of 254 alluvial gold
mining licenses, the list of which was fi nalized by the Mongolian Parliament in 2011. The Company has three
licenses on the list of alluvial gold mining license that may be revoked. None of these licenses are material to the
Company. In particular, the Company’s principal Gatsuurt hardrock mining licenses are not on the list of alluvial
licenses to be revoked. In accordance with the Water and Forest Law, the Company submitted in February 2011
a formal request for compensation for the three licenses to be revoked, which requests were updated again in
January 2012 as a result of the fi nalization of the list.
The Mongolian Government announced in 2010 that it is considering taking the following actions as the next
stages of its implementation of the Water and Forest Law:
• preparing and submitting to the cabinet a proposal to designate as “strategic” those deposits, the
development of which would contribute to regional social and economic development and, at the same
time, require signifi cant amounts of compensation;
• revoking all licenses for non-gold mining operations which utilize surface water;
• revoking all 460 gold exploration licenses and providing compensation;
• revoking all 931 non-gold exploration licenses and providing compensation;
• revoking and providing compensation to all remaining affected mining licenses.
Of the Company’s 55 mineral licenses, 36 licenses (including the Gatsuurt hard rock licenses) are included in
the 1,782 licenses referred to in the cabinet announcement as subject to staged revocation.
48 CENTERRA GOLD INC.
59420_Centerra_Financials.indd 48
27/03/12 8:21 AM
The Company understands that Mongolia’s cabinet expects that the Water and Forest Law will take until approxi-
mately November 2012 to fully implement. According to statements by offi cials, the Mongolian Government estimates
that the total compensation due to mining companies for the revocation of their licenses will amount to approximately
US$4 billion, representing a very substantial part of the Mongolia’s annual gross domestic product for 2010.
The Water and Forest Law has attracted opposition from Mongolia’s alluvial miners, the Mongolian National
Mining Association and other groups. A group of parliamentarians proposed amendments to the Water and Forest Law
in 2011 to reduce its impact on environmentally-sound mining operations. The Company understands that as drafted,
such amendments would allow the Gatsuurt project to proceed. Such amendments were discussed by a Mongolian
parliamentary committee in 2011 which then referred it to Parliament for further discussion. The Parliament did
not discuss the amendment during the 2011 but such amendments may be tabled for discussion in 2012.
Centerra is reasonably confi dent that the economic and development benefi ts resulting from its exploration and
development activities will ultimately result in the Water and Forests Law having a limited impact on the Company’s
Mongolian activities. There can be no assurance, however, that this will be the case. Unless the Water and Forest Law
is repealed or amended such that the law no longer applies to the project or Gatsuurt is designated as a “mineral
deposit of strategic importance” that is exempt from the Water and Forest Law, mineral reserves at Gatsuurt may
have to be reclassifi ed as mineral resources or eliminated entirely and the Company may be required to write-off
the associated investment in Gatsuurt and Boroo. As at December 31, 2011, the Company had net assets recorded
amounting to approximately $36 million related to the investment in Gatsuurt and approximately $25 million
remaining capitalized for the Boroo mill facility and other surface structures which are expected to be utilized for the
processing of ore from Gatsuurt. Although the Company expects to exploit the Gatsuurt deposit, should this not be
the case, the Company would be required to write-off these amounts. A revocation of the Company’s mineral licenses,
including the Gatsuurt mineral license, or the reclassifi cation of mineral reserves or the write-off of assets could have
an adverse impact on Centerra’s future cash fl ows, earnings, results of operations and fi nancial condition.
The heap leach operation at Boroo remained idle in 2011 awaiting issuance of the fi nal operating permit from
the Mongolian Government. Unless the Company is successful in obtaining the fi nal heap leach operating permit,
it will be required to write-off the associated investment which totals $15.9 million at December 31, 2011.
In November 2010, the Mongolian Parliament passed amendments to its Minerals Law that modifi ed the
existing royalty structure on mineral projects. Pursuant to the amended royalty structure, the royalty rate is no
longer a fi xed percentage but is graduated and dependent upon the commodity price in U.S. dollars. In the case of
gold, there is a basic 5% royalty fee that applies while gold is less than $900 per ounce. For any increase of $100
to the price of gold, there is a corresponding 1% increase to the royalty fee. Accordingly, at $900 per ounce, the
royalty fee increases to 6% which continues until the gold price reaches $1,000 per ounce at which point, the
royalty increases to 7%, at $1,100 per ounce, the royalty increases to 8%, and at $1,200 per ounce, the royalty
increases to 9%. The highest royalty fee rate is reached at 10% when gold is $1,300 per ounce and above. The
graduated royalty became effective as of January 1, 2011 for all mining projects in Mongolia. On January 19, 2011,
the Standing Committee of the State Great Hural of Mongolia issued a resolution to the Mongolian Government
which, among other things, resolved to direct the Government to enter into negotiations to have the graduated
royalty structure apply to business entities that have already entered into a stability agreement and/or an
investment agreement. This would include the Company’s Boroo project which is currently operating pursuant
to a stability agreement entered with the Mongolian Government. The Company is of the opinion that the Boroo
stability agreement provides, among other things, legislative stabilization for its Boroo operations and accordingly
the graduated royalty fee is not applicable to Boroo’s remaining operations. As of the date of this Annual MD&A,
the Company is not aware of any response or activity by the Mongolian Government on this State Great Hural
of Mongolia resolution. Despite this, the Company cannot provide any assurances that Boroo will not be made
subject to the graduated royalty fee. If the graduated royalty fee does apply to Boroo, it may have an adverse
impact on Centerra’s future cash fl ows, earnings, results of operations or fi nancial condition. Regardless of
whether the graduated royalty fee applies to the Boroo operations, it will apply to gold produced from the
Gatsuurt project, when developed.
The Boroo stability agreement expires in July 2013, after which time Boroo’s operations will be subject to
prevailing tax and royalty fees.
2011 ANNUAL REPORT 49
59420_Centerra_Financials.indd 49
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Corporate Matters
In April 2011, Centerra declared a special dividend of Cdn$0.30 per share and an annual dividend of Cdn$0.10 per
share, payable on May 18, 2011 to shareholders of record on May 12, 2011. This was the Company’s fi rst special
dividend.
In March 2011, Centerra was served by a Turkish company, Sistem Muhenkislik Insaat Sanayi Ticaret SA
(“Sistem”), with a notice of enforcement to seize any shares and dividends in Centerra held in the name of the
Kyrgyz Republic, followed by a notice of garnishment in April 2011 for any debts owed by Centerra to the Kyrgyz
Republic (the “Republic”). These notices were served by Sistem through the Sheriff in Toronto as part of the
enforcement proceedings brought by Sistem in the Ontario Superior Court to collect approximately US$11 million
with additional interest, owed to Sistem by the Republic in accordance with a judgment of the Ontario Superior
Court enforcing an international arbitration award against the Republic. In these Ontario proceedings, Sistem
alleges that the shares in Centerra owned by Kyrgyzaltyn JSC, and any dividends paid in respect of those shares,
are in fact legally and benefi cially owned by the Republic and are therefore subject to execution to pay the
judgment. Based on legal advice received, Centerra disputes those allegations and maintains that Kyrgyzaltyn JSC
alone is the legal and benefi cial owner of the shares and any dividends in respect of those shares, based on the
applicable legal principles and the binding agreements with Kyrgyzaltyn JSC. As a result and notwithstanding
such notices of enforcement and garnishment, Centerra paid its May 18, 2011 dividend (as discussed above) in the
total amount of approximately Cdn$31 million to Kyrgyzaltyn JSC. Sistem is continuing with its claim regarding
the Centerra shares owned by Kyrgyzaltyn JSC. If this claim is successful in the Ontario court proceedings,
Sistem may have a right to execute its judgment against those shares and may assert a claim against Centerra in
respect of the payment of the dividends to Kyrgyzaltyn JSC. However, Centerra believes it has a strong defence to
that claim based on the facts and the law. At a motion in September 2011, Kyrgyzaltyn JSC was formally added as
a party to the proceeding.
Kyrgyzaltyn has brought a motion to be heard by the Ontario Superior Court (to be heard in April 2012) to set aside
the Ontario judgment enforcing the arbitration award on the basis that the court did not have jurisdiction to entertain
the application or in the alternative that there is a foreign court which is a more convenient forum to hear and decide
the issues of legal and benefi cial ownership of the shares as between Kyrgyzaltyn and the Kyrgyz Republic.
For information on forward-looking information, see “Caution Regarding Forward-Looking Information”.
For information regarding risk factors relevant to Centerra and its operations, please see “Risk Factors” in this
MD&A and in the Company’s most recently fi led Annual Information Form.
CRITICAL ACCOUNTING ESTIMATES
Centerra prepares its consolidated fi nancial statements in accordance with International Financial Reporting
Standards, as issued by the International Accounting Standards Board. In doing so, management is required to
make various estimates and judgments in determining the reported amounts of assets and liabilities, revenues and
expenses for each year presented and in the disclosure of commitments and contingencies. Management bases
its estimates and judgments on its own experience, guidelines established by the Canadian Institute of Mining,
Metallurgy and Petroleum and various other factors believed to be reasonable under the circumstances. In
reference to the Company’s signifi cant accounting policies as described in note 3 to the Consolidated Financial
Statements management believes the following critical accounting policies refl ect its more signifi cant estimates
and judgments used in the preparation of the consolidated fi nancial statements.
i.
Share-based Compensation
Share based compensation costs recognized for the share-based compensation plans are subject to the
estimate of what the ultimate payout will be using the Black-Scholes option pricing model, Monte Carlo
simulation model, which are based on signifi cant assumptions such as volatility, expected life, expected
dividends, risk-free interest rate and expected forfeiture rates.
50 CENTERRA GOLD INC.
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ii. Asset retirement obligation
Amounts recorded for asset retirement obligations and the related accretion expense require the use of
estimates of the future costs the Company will incur to complete the reclamation and remediation work
required to comply with existing laws and regulations at each mine site. The Company assesses and
revises its asset retirement obligations on an annual basis or when new material information becomes
available. Actual costs incurred may differ from those amounts estimated. Also, future changes to
environmental laws and regulations could increase the extent of reclamation and remediation work
required to be performed by the Company. Increases in future costs could materially impact the amounts
charged to operations for reclamation and remediation. The provision represents management’s best
estimate of the present value of the future reclamation and remediation obligation. The actual future
expenditures may differ from the amounts currently provided.
iii. Reserves
Certain assumptions are dependent upon reserves, which represent the estimated amount of ore that
can be economically and legally extracted from the Company’s properties. In order to estimate reserves,
assumptions are required about a range of geological, technical and economic factors, including quantities,
grades, production techniques, recovery rates, production costs, transportation costs, commodity demand,
commodity prices and exchange rates. Estimating the quantity and/or grade of reserves requires the size,
shape and depth of ore bodies to be determined by analyzing geological data such as drilling samples. This
process may require complex and diffi cult geological judgments to interpret the data. Economic assumptions
used to estimate reserves could change from period to period and as additional geological data is generated
during the course of operations, estimates of reserves may change from period to period. Changes in reported
reserves may affect the Company’s fi nancial results and fi nancial position.
iv. Depreciation, depletion and amortization period for property plant and equipment
The Corporation makes estimates about the expected useful lives of property plant and equipment and the
expected residual values of the assets based on the estimated current fair value of the assets, the Company’s
mine plan and the cash fl ows they generate. Changes to these estimates, which can be signifi cant, could
be caused by a variety of factors, including future production differing from current forecasts of future
production, expansion of mineral reserves through exploration activities, differences between estimated
and actual costs of mining and differences in gold price used in the estimation of mineral reserves.
Signifi cant judgment is involved in the determination of useful life and residual values for the computation
of depreciation, depletion and amortization and no assurance can be given that actual useful lives and
residual values will not differ signifi cantly from current assumptions.
v.
Impairment of long-term assets
An impairment test is performed by comparing the carrying amount of the asset or cash-generating unit
to their recoverable amount, which is calculated as the higher of an asset’s or cash-generating unit’s fair
value less costs to sell. Fair value less costs to sell is calculated based upon a discounted cash fl ow analysis,
which requires management to make a number of signifi cant assumptions including assumptions relating
to future operating plans, gold prices, discount rates, exchange rates and future growth rates. Please see
note 11 for additional information.
vi. Deferred income taxes
The Company operates in a number of tax jurisdictions and is, therefore, required to estimate its income
taxes in each of these tax jurisdictions in preparing its fi nancial statements. In calculating the income
taxes, consideration is given to factors such as tax rates in the different jurisdictions, non-deductible
expenses, valuation allowances, and changes in tax law and management’s expectations of future results.
The Company estimates deferred income taxes based on temporary differences between the income and
losses reported in its fi nancial statements and its taxable income and losses as determined under the
applicable tax laws. The tax effect of these temporary differences is recorded as deferred tax assets or
59420_Centerra_Financials.indd 51
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2011 ANNUAL REPORT 51
liabilities in the fi nancial statements. The calculation of income taxes requires the use of judgment and
estimates. If these judgments and estimates prove to be inaccurate, future earnings may be materially
impacted.
vii. Inventories of stockpiles ore, in-circuit and Gold doré
In determining mine operating costs recognized in the Consolidated Statements of Earnings and
Comprehensive income, the Company’s management makes estimates of quantities of ore stacked on heap
leach pads and in process and the recoverable gold in this material to determine the average costs of
fi nished goods sold during the period. Changes in these estimates can result in a change in mine operating
costs of future periods and carrying amounts of inventories.
CHANGES IN ACCOUNTING POLICIES
As prescribed by the CICA Accounting Standards Board, the Company adopted the requirements under IFRS 1,
First-time Adoption of International Financial Reporting Standards in its statements of account as of January 1, 2011,
including the restatement of its opening balance sheet of January 1, 2010. As the December 31, 2011 fi nancial
statements are the Company’s fi rst annual fi nancial statements prepared using IFRS, these fi nancial statements
should be read in conjunction with the IFRS transition disclosures included in note 33 to the fi nancial statements.
note 33 contains reconciliations and descriptions of the effect of the transition from Canadian Generally Accepted
Accounting Principles (“CGAAP”) to IFRS on equity, earnings and comprehensive income, along with line-by-line
reconciliations of the consolidated statements of fi nancial position as at December 31, 2010 and January 1, 2010,
and the consolidated statements of earnings and comprehensive income for the year ended December 31, 2010.
The accounting policies presented in the December 31, 2011 consolidated fi nancial statements of the Company
have been applied consistently to all periods presented and in preparing the opening IFRS statement of fi nancial
position at January 1, 2010 for the purposes of the transition to IFRS.
Future changes in accounting policies
Recently issued but not adopted accounting guidance are as follows:
IFRS 7 Financial Instruments – Disclosures (“IFRS 7”) was amended by the IASB in October 2010 and provides
guidance on identifying transfers of fi nancial assets and continuing involvement in transferred assets for disclosure
purposes. The amendments introduce new disclosure requirements for transfers of fi nancial assets including
disclosures for fi nancial assets that are not derecognized in their entirety, and for fi nancial assets that are
derecognized in their entirety but for which continuing involvement is retained. The Company intends to adopt
IFRS 7 in its fi nancial statements for the annual period beginning on January 1, 2013. The Company does not
expect IFRS 7 to have a material impact on its fi nancial statements.
The IASB has issued IFRS 9 Financial Instruments (“IFRS 9”) which proposes to replace IAS 39 Financial
Instruments Recognition and Measurement. The replacement standard has the following signifi cant components:
establishes two primary measurement categories for fi nancial assets — amortized cost and fair value; establishes
criteria for classifi cation of fi nancial assets within the measurement category based on business model and cash
fl ow characteristics; and eliminates existing held to maturity, available-for-sale and loans and receivable categories.
This standard is effective for the Company’s annual year end beginning January 1, 2015 (as amended from
January 1, 2013 by the IASB in December 2011). The Company will evaluate the impact of the change to its
consolidated fi nancial statements based on the characteristics of its fi nancial instruments at the time of adoption.
IFRS 10 Consolidated Financial Statements (“IFRS 10”), which replaces parts of IAS 27, Consolidated and
Separate Financial Statements (“IAS 27”) and all of SIC-12 Consolidation – Special Purpose Entities, changes the
defi nition of control which is the determining factor in whether an entity should be consolidated. Under IFRS 10,
an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with
the investee and has the ability to affect those returns through its power over the investee. The Company intends
to adopt IFRS 10 in its fi nancial statements for the annual period beginning on January 1, 2013. The Company
does not expect IFRS 10 to have a material impact on its fi nancial statements.
52 CENTERRA GOLD INC.
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IFRS 11 Joint Arrangements (“IFRS 11”), which replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly
Controlled Entities – Non-monetary Contributions by Venturers, requires a venturer to classify its interest in a joint
arrangement as either a joint operation or a joint venture. For a joint operation, the joint operator will recognize
its assets, liabilities, revenue and expenses, and/or its relative share thereof. For a joint venture, the joint venturer
will account for its interest in the venture’s net assets using the equity method of accounting. The choice to
proportionally consolidate joint ventures is prohibited. This new standard is applicable for accounting periods
beginning January 1, 2013. The Company is assessing the impact of IFRS 11 on its results of operations and
fi nancial position and will adopt IFRS 11 in its fi nancial statements effective from January 1, 2013.
DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL
OVER FINANCIAL REPORTING
As of December 31, 2011, Centerra evaluated its disclosure controls and procedures and internal control over
fi nancial reporting, as defi ned in the rules of the Canadian Securities Administrators. These evaluations were
carried out under the supervision of and with the participation of management, including Centerra’s Chief
Executive Offi cer and the Chief Financial Offi cer. Based on these evaluations, the Chief Executive Offi cer and
the Chief Financial Offi cer concluded that the design and operation of these disclosure controls and procedures
and internal control over fi nancial reporting were effective.
SUSTAINABLE DEVELOPMENT
Centerra believes in the principles of sustainable development. In endeavoring to achieve its strategic objectives,
the Company strives to be a leading performer among its peers with regard to shareholder value, business ethics,
workplace safety, environmental protection and community development. Centerra believes that its strong
commitment to these principles, which is supported by its past practices, will further its objective of becoming
a sought-after partner in Asia, Central Asia, the former Soviet Union and other emerging markets worldwide.
During 2011, the Company released its fi rst Corporate Responsibility Report for its 2010 reporting year.
The report is available on the Company’s website at www.centerragold.com.
2012 OUTLOOK
Centerra’s 2012 consolidated gold production is forecast to be between 635,000 and 685,000 ounces. The Kumtor
mine is expected to produce between 575,000 and 625,000 ounces in 2012. Kumtor’s 2012 planned mining
sequence results in a production profi le with a large portion of the gold production occurring in the fourth
quarter. The high-grade material from the SB Zone is only available for mining at the end of the third quarter of
2012 when it is exposed by cut-back 14A. On a quarterly basis, Kumtor’s 2012 gold production is forecast to have
12% of gold production being recovered in the fi rst quarter, 20% in the second quarter, 25% in the third quarter
and 43% in the fourth quarter. Gold production in the fi rst quarter of 2012 will also be impacted by four days of
scheduled mill maintenance of the ball and SAG mills. The Company is also evaluating the impact of the 10-day
strike which occurred in February 2012.
Kumtor’s collective bargaining agreement expires at the end of 2012. A related work stoppage during the year
could have a signifi cant impact on Kumtor achieving its forecasted production (see “Risk Factors”). A work
stoppage in the fourth quarter would have a larger negative impact on Kumtor achieving its forecasted production
for the year. The Company’s production forecast is contingent on its ability to strip enough material from cut-back
14A during the year to expose the high grade SB zone by the end of the third quarter. Additionally, achieving the
2012 production is dependent on the timely delivery of new mining equipment and successfully maintaining the
mining rates of the waste and ice in the southeast portion of the pit to gain access to the higher grade ore.
At the Boroo mine, gold production is forecast to be approximately 60,000 ounces and assumes mining of
Pit 6. The 2012 forecast also assumes no production from the heap leach facility or the Gatsuurt project due
to uncertainties with permitting. The Boroo mill is expected to process mostly higher grade heap leach ore
stockpiles for the fi rst eight months of 2012, followed by processing the higher grade ore from Pit 6 from
2011 ANNUAL REPORT 53
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September 2012 to January 2013. During September to December 2012, the Boroo mill is expected to process
a mixture of higher grade Pit 6 ore with an average grade of approximately 2.1 g/t and stockpiled heap leach
material with grades between 0.67 – 0.76 g/t.
Receipt of the fi nal heap leach operating permit would add approximately 2,000 ounces of gold a month.
At Gatsuurt, the project is ready to begin mining the oxide ore on receipt of the fi nal approvals and regulatory
commissioning.
Centerra’s 2012 gold production and unit costs are forecast as follows:
Kumtor
Boroo
Consolidated
2012 Production Forecast
(ounces of gold)
2012 Total Cash Cost (1)
($ per ounce produced)
575,000 – 625,000
approx. 60,000
635,000 – 685,000
430 – 465
810
465 – 500
(1) Total cash cost is a non-GAAP measure and includes mine operating costs such as mining, processing, regional offi ce administration, royalties and production taxes (except at
Kumtor where revenue-based taxes are excluded), but excludes amortization, reclamation costs, fi nancing costs, capital development, community investments and exploration.
2012 EXPLORATION EXPENDITURES
Exploration expenditures of $45 million are planned for 2012, a 13% increase from the $39.6 million spent in 2011.
The 2012 program will continue the aggressive exploration work at the Kumtor mine together with an increase in
the exploration in the Kumtor district; planned expenditures are expected to be about $15 million. In Mongolia,
$8 million is allocated for exploration programs and work will continue along the Onon trend in eastern Mongolia
and to follow up on the positive results on the Altan Tsagaan Ovoo (“ATO”) project.
In 2012, drilling programs will continue on the Kara Beldyr and Dvoinoy projects in Russia and expenditures
for the two projects are expected to be approximately $6 million. Drilling programs will also continue in Turkey
on the Company’s joint venture projects with expenditures expected to be approximately $6 million. Drilling of
the Laogouxi project in China is expected to commence in the second quarter. In addition, generative programs
will continue in Central Asia, Russia, China, and Turkey to increase the pipeline of projects that the Company is
developing to meet the longer term growth targets of Centerra.
Subsequent to 2011 year-end Centerra decided to close its exploration offi ce in Reno, Nevada and to refocus its
exploration efforts outside of the Great Basin in Nevada, USA to those areas in which it is having more success,
such as in Mongolia, Turkey, Russia and Kyrgyzstan.
2012 CAPITAL EXPENDITURES
The capital expenditures for 2012 are estimated to be $389 million, including $49 million of sustaining capital and
$340 million of growth capital.
Capital expenditures include:
Projects
(millions of dollars)
Kumtor mine
Mongolia
Corporate
Consolidated Total
2012 Growth Capital
2012 Sustaining Capital
$ 328
12
$
–
$ 340
$ 45
3
$
1
$
$ 49
Kumtor
At Kumtor, 2012 total capital expenditures are forecast to be $373 million including $45 million of sustaining
capital. The largest sustaining capital spending will be the major overhaul maintenance of the heavy duty mine
equipment ($21 million), expenditures for dewatering and infrastructure ($8 million), effl uent treatment plant
relocation ($5 million), tailings dam construction works ($4 million) and for equipment replacement and other
items ($7 million).
54 CENTERRA GOLD INC.
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Growth capital investment at Kumtor for 2012 is forecast at $328 million, which includes pre-strip costs
related to the development of the open pit ($128 million), purchase of new mining equipment including 25 CAT
789 haul trucks, 4 drills and 4 Hitachi 3600 shovels ($126 million) and other items ($11 million). Growth capital
for 2012 has increased compared to the most recent Kumtor technical report as purchases of mine expansion
equipment planned for 2013 ($61 million) have been brought forward to 2012. This was done to ensure that all of
the new CAT 789 haul trucks were of the same model “C” series, given that CAT is discontinuing the C series in
late 2012. Additionally, the added capacity will help to ensure the required mine production rate is maintained.
Also included in the 2012 growth capital investment is $63 million which is for the underground project to continue
to develop the SB and Stockwork Zones, as well as for delineation drilling and capital purchases in 2012.
The underground development project at Kumtor is on track to achieve breakthrough of Decline 1 with Decline 2
in the third quarter of 2012 and is expected to intersect fi rst ore in the SB Zone in the second quarter of 2013.
Mongolia (Boroo & Gatsuurt)
At Boroo, sustaining capital expenditures in 2012 are expected to be about $3 million primarily for component
change-outs and mill maintenance. Growth capital is forecast at $12 million, which includes capitalized pre-
stripping costs of Pit 6 at Boroo ($11 million).
No capital for the development of the deeper sulphide ores at Gatsuurt has been forecast and will only
be invested following successful regulatory commissioning of the Gatsuurt project. The engineering and
construction of the bio-oxidation facility to be located at the Boroo mill, which is needed to treat Gatsuurt
sulphide ores, will be restarted only after the approval to begin mining at Gatsuurt has been received from
the Government of Mongolia.
2012 DEPRECIATION, DEPLETION AND AMORTIZATION
Depreciation, depletion and amortization expenses included in costs of sales expense for 2012 are forecast to be
approximately $133 million. Changes in DD&A are a result of increases or decreases to certain of the Company’s
capital assets. Refer to the Company’s 2011 Audited Financial Statements note 9 for further details on the related
capital assets.
(In millions)
Kumtor
Mine equipment
Less DD&A capitalized to pre-stripping costs (1)
Pre-stripping costs amortized
Mine development and other mining assets
Mill assets
Administration assets and other
Inventory movement (non-cash)
Subtotal for Kumtor
Boroo
Mine equipment
Less DD&A capitalized to pre-stripping costs
Pre-stripping costs amortized
Mine development and other mining assets
Mill assets
Administration assets and other
Inventory movement (non-cash)
Subtotal for Boroo
Consolidated Total
2012
DD&A
Forecast
$ 80
(34)
54
8
9
10
(14)
113
$
$
4
(2)
12
1
1
2
2
$ 20
$ 133
2011
DD&A
Actual
$ 69
(14)
32
5
8
10
(22)
$ 88
$
2
–
–
1
1
3
3
$
10
$ 98
2010
DD&A
Actual
$
$
$
$
$
36
(4)
–
7
9
10
1
59
3
–
4
1
2
9
(2)
16
76
(1) Use of the Company’s mining fl eet for pre-stripping activities results in a portion of the depreciation related to the mine fl eet to be allocated to capitalized pre-strip costs.
2011 ANNUAL REPORT 55
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Kumtor
At Kumtor, the forecast for 2012 DD&A expensed as part of costs of sales is $113 million. The increase over the
three years refl ects a signifi cant expansion of the mining fl eet in order to achieve higher throughput levels of
materials moved and the increasing stripping of waste required by the deposit. This is the largest component of
deprecation expense in 2012 totalling $80 million. The mine equipment assets are depreciated on a straight-line
basis over their estimated useful lives. The depreciation expense related to mine equipment engaged in a
stripping campaign is capitalized as pre-stripping costs.
During 2012 Kumtor will be mining the remaining ore from cut-back 12B and continuing stripping campaigns
on cut-backs 14A and 14B. The costs to remove waste within the various cut-backs include mining operating costs
such as labour, diesel and maintenance costs, as well as the depreciation expense for the mine equipment used in
the stripping campaign. Labour and consumables costs (such as diesel costs) have been steadily increasing over
the last several years due to both increases in price and demand with the expanding operation at Kumtor. These
costs are capitalized as pre-stripping costs and amortized over the ounces contained in the ore body exposed by
the stripping campaign.
Based on the sequencing of production at Kumtor for 2012, ore from cut-backs 12B and 14A will be mined
resulting in the amortization through cost of sales of $54 million in capitalized pre-stripping costs. As Kumtor
mines the ore from cut-back 12B, it will amortize the remaining unamortized capitalized pre-stripping costs of
$13 million related to that cut-back. The forecast assumes that the stripping campaign for cut-back 14A is completed
by the fourth quarter of 2012 providing access to the ore in the fourth quarter. The ore in cut-back 14A will be
partially mined in the fourth quarter and the amortization expense for 2012 for the capitalized pre-stripping
costs related to cut-back 14A is forecast at $41 million. The stripping campaign for cut-back 14B was started in
December 2011 and is expected to continue throughout 2012 with the goal of reaching ore in 2013. Therefore,
no amortization expense is expected to be recorded on cut-back 14B in 2012.
Boroo
At Boroo, the forecast for 2012 DD&A expensed as part of costs of sales is $20 million, compared to $10 million
in 2011 and $17 million in 2010. The increase in 2012 refl ects the resumption of mining in Pit 6. The largest
component of deprecation expense is related to amortization of capitalized pre-stripping costs related to Pit 6.
In January 2012 Boroo re-commenced mining activities in Pit 6 requiring the stripping of waste before ore is
exposed. The costs of removing waste for this stripping campaign before the ore is mined will be capitalized as
pre-stripping costs and amortized over the ounces contained in the Pit 6 ore. The forecast assumes that the
stripping campaign for Pit 6 is completed early in the third quarter of 2012 and the processing of Pit 6 ore through
the mill completed in January 2013. The amortization expense for 2012 for the capitalized pre-stripping costs
related to Pit 6 production is forecast at $12 million.
2012 CORPORATE ADMINISTRATION AND SUSTAINABLE
COMMUNITY INVESTMENT
Corporate and administration expenses for 2012 are forecast at approximately $41 million.
Total sustainable community investments for 2012 are forecast at $26 million, in accordance with Centerra’s
Community Investment policy. Note that these costs are not included in total cash cost per ounce produced
(total cash cost per ounce produced is a non-GAAP measure and is discussed under “Non-GAAP Measures”).
Centerra has a history of investing in various community sustainable development and strategic investment
projects in the countries and communities where it operates. For example in 2010, BGC invested $6.4 million
towards the construction of a new maternity hospital in Ulaanbaatar and in 2011 KGC contributed $10 million
for the construction and repair of 27 schools throughout the Kyrgyz Republic. The Company intends to include
sustainable community investment expenditures as part of its regular guidance.
56 CENTERRA GOLD INC.
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TAXES
Pursuant to the Restated Investment Agreement, Kumtor’s operations are not subject to corporate income taxes.
The agreement replaced the prior tax regime applicable to the Kumtor project with a simplifi ed regime effective
January 1, 2008. This simplifi ed regime, which assesses tax at 13% on gross revenue (plus 1% for the Issyk-Kul
Oblast Development Fund effective January 2009), was approved and enacted by the Parliament of the Kyrgyz
Republic in 2009.
The corporate income tax rate for Centerra’s Mongolian subsidiary, BGC is 25% for taxable income over 3 billion
Mongolian tugriks (approximately $2.2 million at the 2011 year-end foreign exchange rate) with a tax rate of 10%
for taxable income up to that amount.
REGULATORY MATTERS
In January 2012, Centerra’s wholly owned subsidiary, BGC, which owns the Boroo project, resolved the previously
disclosed very signifi cant claim for compensation that it received from the Mongolian General Department of
Specialized Inspection (“SSIA”) in October 2009 following the June 2009 inspection at the Boroo project. The
claim related to certain mineral reserves, including state alluvial reserves, covered by the Boroo project licenses,
that are recorded in the Mongolian state reserves registry, but for which there are no or incomplete records or
reports of mining activity. Pursuant to the resolution, Boroo Gold LLC has accrued approximately $2.6 million in
its 2011 year-end statements. While this claim has been resolved, other regulatory issues remain outstanding in
Mongolia, including the issuance of a fi nal heap leach permit.
SENSITIVITIES
Centerra’s revenues, earnings and cash fl ows for 2012 are sensitive to changes in certain variables and the Company
has estimated their impact on revenues, net earnings and cash from operations.
Impact on
Costs
Revenues
Cash fl ow
Earnings before
income tax
5.1
7.1
2.6
1.2
3.8
33.5
–
–
–
–
28.4
7.1
2.6
1.2
3.8
28.4
7.1
2.6
1.2
3.8
($ millions)
Gold Price
Diesel Fuel (1)
Kyrgyz som
Mongolian tugrik
Canadian dollar
Change
$50/oz
10%
1 som
25 tugrik
10 cents
(1) a 10% change in diesel fuel price equals $11/oz produced
MAJOR ASSUMPTIONS
The following material assumptions have been used to forecast production, costs and future capital expenditures;
• a gold price of $1,700 per ounce,
• exchange rates:
x $1USD:$1.01 CAD
x $1USD:46.00 Kyrgyz Som
x $1USD:1,235 Mongolian Tugrik
x $1USD:0.74 Euro
• diesel fuel price assumption:
x $0.71/litre at Kumtor
x $1.13/litre at Boroo
The assumed diesel price of $0.71/litre at Kumtor assumes that no Russian export duty will be paid on the fuel
exports from Russia to the Kyrgyz Republic.
59420_Centerra_Financials.indd 57
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2011 ANNUAL REPORT 57
Diesel fuel is sourced from separate Russian suppliers for both sites and only loosely correlates with world oil
prices. Political and supply pressures and policies may cause the average price of fuel from Russia to be higher.
The diesel fuel price assumptions were made when the price of oil was approximately $99 per barrel.
Other important assumptions include the following:
• Any recurrence of political and civil unrest in the Kyrgyz Republic will not impact operations, including
movement of people, supplies and gold shipments to and from the Kumtor mine,
• grades and recoveries at Kumtor will remain consistent with the life-of-mine plan to achieve the forecast
gold production,
• the dewatering program at Kumtor continues to produce the expected results and the water management
system works as planned,
• the remedial plan to deal with the Kumtor waste and ice movement continues to be successful, see “Kumtor
Mine – Geotechnical Issues Affecting the Kumtor Open Pit” in the Company’s most recently fi led annual
information form,
• no unplanned delays in or interruption of scheduled production from our mines, including due to civil
unrest, natural phenomena, labour, regulatory or political disputes, equipment breakdown or other
developmental and operational risks,
• any labour dispute that occurs at Kumtor does not impact the Company’s mine plan regarding the stripping
of cut-back 14A and subsequent access to the SB zone in the third quarter,
• infl ation rates in countries where Centerra operates remain stable,
• no further suspension of Boroo’s operating licenses, and
• all necessary permits, licenses and approvals are received in a timely manner.
Production and cost forecasts and capital estimates are forward-looking information and are based on key
assumptions and subject to material risk factors. If any event arising from these risks occurs, the Company’s
business, prospects, fi nancial condition, results of operations or cash fl ows could be adversely affected. Additional
risks and uncertainties not currently known to the Company, or that are currently deemed immaterial, may also
materially and adversely affect the Company’s business operations, prospects, fi nancial condition, and results of
operations or cash fl ows. See the sections entitled “Risk Factors” in the Company’s most recently fi led annual
information form, available on SEDAR at www.sedar.com and see also the discussion below under the heading
“Cautionary Note Regarding Forward-looking Information”.
QUALIFIED PERSON & QA/QC
The reserves and resources estimates and other scientifi c and technical information in this news release were
prepared in accordance with the standards of the Canadian Institute of Mining, Metallurgy and Petroleum and
National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”) and were reviewed, verifi ed
and compiled by Centerra’s geological and mining staff under the supervision of Ian Atkinson, Certifi ed Professional
Geologist, Centerra’s Senior Vice-President, Global Exploration, who is the qualifi ed person for the purpose of NI 43-101.
Sample preparation, analytical techniques, laboratories used and quality assurance-quality control protocols used
during the exploration drilling programs are done consistent with industry standards and independent certifi ed
assay labs are used with the exception of the Kumtor project as described in its technical report.
The Kumtor deposit is described in Centerra’s most recently fi led AIF and a technical report dated March 22,
2011 prepared in accordance with NI 43-101. The technical report has been fi led on SEDAR at www.sedar.com.
The technical report describes the exploration history, geology and style of gold mineralization at the Kumtor
deposit. Sample preparation, analytical techniques, laboratories used and quality assurance-quality control
protocols used during the drilling programs at the Kumtor site are described in the technical report.
The Boroo deposit is described in Centerra’s most recently fi led AIF and a technical report dated December 17,
2009 prepared in accordance with NI 43-101, which is available on SEDAR at www.sedar.com. The technical
report describes the exploration history, geology and style of gold mineralization at the Boroo deposit. Sample
preparation, analytical techniques, laboratories used and quality assurance-quality control protocols used during
the drilling programs at the Boroo site are the same as, or similar to, those described in the technical report.
58 CENTERRA GOLD INC.
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The Gatsuurt deposit is described in the Company’s most recently fi led AIF and in a technical report dated
May 9, 2006 prepared in accordance with NI 43-101. The technical report has been fi led on SEDAR at www.sedar.
com. The technical report describes the exploration history, geology and style of gold mineralization at the
Gatsuurt deposit. Sample preparation, analytical techniques, laboratories used and quality assurance-quality
control protocols used during the drilling programs at the Gatsuurt project are the same as, or similar to, those
described in the technical report or AIF.
RISK FACTORS
Below are some risk factors that Centerra believes can have a material effect on the profi tability, future cash fl ow,
earnings, results of operations, stated reserves and fi nancial condition of the Company. If any event arising from
these risks occurs, the Company’s business, prospects, fi nancial condition, results of operations or cash fl ows
could be adversely affected, the trading price of Centerra’s common shares could decline and all or part of any
investment may be lost. Additional risks and uncertainties not currently known to the Company, or that are
currently deemed immaterial, may also materially and adversely affect the Company’s business operations,
prospects, fi nancial condition, results of operations or cash fl ows.
Centerra’s business is sensitive to the volatility of gold prices
Centerra’s revenue is largely dependent on the world market price of gold. Gold prices are subject to volatile
movements over time and are affected by numerous factors beyond Centerra’s control. These factors include:
global supply and demand; central bank lending, sales and purchases; expectations for the future rate of infl ation;
the level of interest rates; the strength of, and confi dence in, the U.S. dollar; market speculative activities; and
global or regional political and economic events, including the performance of Asia’s economies.
If the market price of gold falls and remains below production costs of any of Centerra’s mining operations for
a sustained period, losses would be sustained, and, under certain circumstances, there may be a curtailment or
suspension of some or all of Centerra’s mining and exploration activities. Centerra would also have to assess the
economic impact of any sustained lower gold prices on recoverability and, therefore, the cutoff grade and level of
Centerra’s gold mineral reserves and resources. These factors could have an adverse impact on Centerra’s future
cash fl ows, earnings, results of operations, stated mineral reserves and fi nancial condition.
Centerra’s principal operations are located in the Kyrgyz Republic and Mongolia and
are subject to political risk
All of Centerra’s current gold production and mineral reserves are derived from assets located in the Kyrgyz
Republic and Mongolia, countries that have experienced political diffi culties in recent years including, in the
Kyrgyz Republic, civil unrest in April 2010 that resulted in the ouster of the incumbent President. Accordingly,
there continues to be a risk of future political instability.
Centerra’s mining operations and gold exploration activities are affected in varying degrees by political
stability and government regulations relating to foreign investment, social unrest, corporate activity and the
mining business in each of these countries. Operations may also be affected in varying degrees by terrorism,
military confl ict or repression, crime, extreme fl uctuations in currency rates and high infl ation in Central Asia.
The relevant governments have entered into contracts with Centerra or granted permits, licenses or concessions
that enable it to conduct operations or exploration and development activities. Notwithstanding these arrangements,
Centerra’s ability to conduct operations or exploration and development activities is subject to obtaining and/or
renewing permits or concessions (including a permanent license with respect to the Boroo heap leach operations,
a certifi cate of temporary land use in relation to its concession area around the Kumtor project, and permits and
concessions to begin mining activities at Gatsuurt), changes in laws or government regulations or shifts in
political attitudes beyond Centerra’s control.
There can be no assurance that industries deemed of national or strategic importance like mineral production
will not be nationalized. Government policy may change to discourage foreign investment, renationalization of
mining industries may occur or other government limitations, restrictions or requirements not currently foreseen
2011 ANNUAL REPORT 59
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may be implemented. There can be no assurance that Centerra’s assets will not be subject to nationalization,
requisition or confi scation, whether legitimate or not, by any authority or body. While there are often provisions
for compensation and reimbursement of losses to investors under such circumstances, there is no assurance that
such provisions would effectively restore the value of Centerra’s original investment. Similarly, Centerra’s
operations may be affected in varying degrees by government regulations with respect to restrictions on
production, price controls, export controls, income taxes, expropriation of property, environmental legislation,
labour legislation, mine safety, and annual fees to maintain mineral properties in good standing. There can be
no assurance that the laws in these countries protecting foreign investments will not be amended or abolished
or that these existing laws will be enforced or interpreted to provide adequate protection against any or all of
the risks described above. Furthermore, there can be no assurance that the agreements Centerra has with the
governments of these countries will prove to be enforceable or provide adequate protection against any or all
of the risks described above.
Centerra has made an assessment of the political risk associated with each of its foreign investments and
currently has political risk insurance covering its investments in the Kyrgyz Republic which is intended to mitigate
a portion of any losses. The Company does not currently have political risk insurance covering its investments in
Mongolia. From time to time, Centerra assesses the costs and benefi ts of maintaining such insurance and may not
continue to purchase the coverage. Furthermore, there can be no assurance that the insurance would continue to
be available at any time or that particular losses Centerra may suffer with respect to its foreign investments will
be covered by the insurance. These losses could have an adverse impact on Centerra’s future cash fl ows, earnings,
results of operations and fi nancial condition if not adequately covered by insurance.
Changes in, or more aggressive enforcement of, laws, regulations and
government practices could adversely impact Centerra’s business
Mining operations and exploration activities are subject to extensive laws and regulations, both in the countries
where mining operations and exploration activities are conducted and in the mining company’s home jurisdiction.
These relate to production, development, exploration, exports, imports, taxes and royalties, labour standards,
occupational health, waste disposal, protection and remediation of the environment, mine decommissioning and
reclamation, mine safety, toxic substances, transportation safety and emergency response, social responsibilities
and sustainability, and other matters.
Compliance with these laws and regulations increases the costs of exploring, drilling, developing, constructing,
operating and closing mines and other facilities. It is possible that the costs, delays and other effects associated
with these laws and regulations may impact Centerra’s decision as to whether to continue to operate existing
mines, ore refi ning and other facilities or whether to proceed with exploration or development of properties.
Since legal requirements change frequently, are subject to interpretation and may be enforced to varying degrees
in practice, Centerra is unable to predict the ultimate cost of compliance with these requirements or their effect
on operations.
If the laws and regulations relating to the Company’s operations were to change, or the enforcement of such
laws and regulations were to become more rigorous, the Company could be required to incur signifi cant capital
and operating expenditures to comply, which could have a material adverse effect on the Company’s fi nancial
position.
The Minerals Law of Mongolia provides the government of Mongolia with the right to take
up to a 50% interest in the exploitation of a minerals deposit of strategic importance
In 2006, the Mongolian Parliament passed the Minerals Law that, among other things, empowers Parliament to
designate mineral deposits that have a potential impact on national security, economic and social development
or deposits that have a potential of producing above 5% of the country’s GDP as deposits of strategic importance.
The state may take up to a 50% interest in the exploitation of a minerals deposit of strategic importance where
state funded exploration was used to determine proven mineral reserves and up to a 34% interest in an investment
to be made by a license holder in a mineral deposit of strategic importance where proven reserves were determined
through funding sources other than the state budget.
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The designation of any of the Company’s mineral deposits in Mongolia as deposits of strategic importance
under the Minerals Law could have a signifi cant material adverse effect on Centerra’s future cash fl ows, earnings,
results of operations, stated reserves and fi nancial conditions.
The November 2010 Amendments to the 2006 Mongolian Minerals Law may result in a signifi cant
increase to the royalty payments payable in connection the Company’s Mongolian operations
In November 2010, the Mongolian Parliament also passed amendments to the Minerals Law of Mongolia that
modifi ed the existing royalty structure on mineral projects. Pursuant to the amended royalty structure, the royalty
rate is no longer a fi xed percentage but is graduated and dependent upon the commodity price in U.S. dollars.
In the case of gold, there is a basic 5% royalty fee that applies while gold is less than $900 per ounce. For any
increase of $100 to the price of gold, there is a corresponding 1% increase to the royalty fee. Accordingly, at
$900 per ounce, the royalty fee increases to 6%, at $1,000 per ounce, the royalty increases to 7%, at $1,100 per
ounce, the royalty increases to 8%, and at $1,200, the royalty increases to 9%. The highest royalty fee rate is 10%
when the price of gold is $1,300 per ounce and above. The graduated royalty became effective as of January 1,
2011 for all mining projects in Mongolia. On January 19, 2011, the Standing Committee of the State Great Hural
of Mongolia issued a Direction to the Government which, among other things, resolved to direct the Mongolian
Government to enter into negotiations to have the graduated royalty structure apply to business entities that have
already entered into a stability agreement and/or an investment agreement. This would include the Company’s
Boroo project which is currently operating pursuant to a stability agreement entered with the Mongolian
government. The Company is of the opinion that the Boroo stability agreement provides, among other things,
legislative stabilization for its Boroo operations and accordingly the graduated royalty fee is not applicable to
Boroo’s remaining operations.
The Company is of the opinion that the Boroo Stability Agreement (which remains in effect until July 2013)
affords Boroo protection against the new laws described above, but Centerra’s Gatsuurt project does not yet have
any such benefi ts. Centerra has been in discussions with the Government of Mongolia to obtain an investment
agreement for the development and mining of the Gatsuurt project which would stabilize the tax regime applicable
to Gatsuurt, and including whether such new mineral laws will apply to Gatsuurt. In April 2010, the MMRE
indicated to Centerra that further discussions and negotiations with respect to any investment agreement would
be postponed until the MMRE received clarifi cation on the application of the Water and Forest Law on the
Gatsuurt project. Even with the Water and Forest Law matter being resolved, there can be no assurance that any
negotiations will be successful. In addition, Centerra holds other exploration and mining licenses in Mongolia
which are not subject to the Boroo Stability Agreement and which may not be subject to any investment
agreement to be entered into for Gatsuurt, and therefore these exploration and mining licenses may become
subject to such new Mongolian mining laws.
The imposition of the new graduated royalty regime on any of the Company’s operations in Mongolia could
have a signifi cant material adverse effect on Centerra’s future cash fl ows, earnings, results of operations, stated
mineral reserves and fi nancial conditions.
The Water and Forest Law could result in the revocation of the
Company’s mineral licenses in Mongolia
In July 2009, the Mongolian Parliament passed the Water and Forest Law, which would have the effect of
revoking any issued licenses covering such areas. The legislation provides a specifi c exemption for “mineral
deposits of strategic importance”, and accordingly, the Company expects that the main Boroo mining licenses will
not be subject to the Water and Forest Law. The Company’s Gatsuurt licenses and its other exploration license
holdings in Mongolia are currently not so exempt. For a further discussion on the regulatory action described
above see “Other Corporate Developments – Mongolia”.
The revocation of the Company’s mining or exploration licenses in Mongolia under the Water and Forest could
have a signifi cant material adverse effect on Centerra’s future cash fl ows, earnings, results of operations, stated
mineral reserves and fi nancial conditions.
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2011 ANNUAL REPORT 61
The Company’s operations at the Boroo project have been suspended in the past,
and continue to face scrutiny from Mongolian regulatory authorities
On June 12, 2009, the main operating licenses at the Company’s Boroo project were suspended by the MRAM
following extensive inspections of the Boroo mine operation conducted by the SSIA. In its report, the SSIA
expressed its view that a number of defi ciencies existed at the Boroo project. After discussions by Centerra and
its subsidiaries with both the MRAM and the SSIA, the suspension of the operating licenses was lifted on July 27,
2009. Despite the lifting of the suspension, several issues arising from the inspections continue to be discussed
by Centerra and the Mongolian regulatory authorities.
In particular, on October 23, 2009, the Company received a very signifi cant claim from the SSIA in respect of
certain mineral reserves, including state alluvial reserves covered by the Boroo project licenses, that are recorded
in the Mongolian state reserves registry but for which there are no or incomplete records or reports of mining
activity. In the fourth quarter of 2011, Centerra’s wholly-owned subsidiary, Boroo Gold LLC, which owns the
Boroo project, resolved this claim and accrued approximately $2.6 million. This claim was paid in full in
January 2012.
The SSIA inspections in 2009 raised a concern about the production and sale of gold from the Boroo heap
leach facility. The heap leach facility was operated under a temporary permit from June 2008 until the expiry of
the temporary permit in April, 2009 and paid all relevant royalties and taxes with respect to gold produced from
the heap leach facility during that period. BGC believes that it had all necessary permits to carry out its heap
leach activities and that any regulatory concerns are unfounded. While BGC is continuing its effort to obtain a
fi nal permit for the operation of its heap leach facility at the Boroo project, there can be no assurance that a fi nal
permit will be obtained. The failure to obtain a fi nal permit for the Boroo project heap leach facility could have a
material adverse impact on Centerra.
On November 2, 2009, Centerra received a letter from the Mongolian Ministry of Finance reiterating some
of the issues raised by the SSIA and indicating that the Boroo Stability Agreement would be terminated if such
issues were not resolved within a period of 120 days from the date of the letter. The deadline has since passed
and the Company continues to be in discussions with the Ministry of Finance regarding such concerns.
While the Company believes that the issues raised by the Ministry of Finance will be resolved through
negotiations with the authorities without a material impact on the Company, there can be no assurance that this
will be the case. The Company’s inability to resolve these issues through negotiation could have a signifi cant
material adverse effect on Centerra’s future cash fl ows, earnings, results of operations, stated mineral reserves
and fi nancial conditions.
If the environmental laws and regulations relating to the Company’s operations were to
change, or the enforcement of such laws and regulations were to become more rigorous,
the Company could be required to incur signifi cant capital and operating expenditures
The Company is subject to environmental regulation in connection with the Company’s exploration, development
and operation activities in each of the jurisdictions in which it operates. The fi nancial and operational effects
of the Company’s environmental protection requirements relate primarily to the Company’s operations in the
Kyrgyz Republic, where it operates the Kumtor project, and in Mongolia, where it operates the Boroo project, and
has a 100% interest in the both the Gatsuurt, ATO and Ulaan Bulag exploration and development properties.
If the environmental laws and regulations relating to the Company’s operations, including its operations in the
Kyrgyz Republic and Mongolia, were to change, or the enforcement of such laws and regulations were to become
more rigorous, the Company could be required to incur signifi cant capital and operating expenditures to comply,
which could have a material adverse effect on the Company’s fi nancial position.
Centerra’s mineral reserves may not be replaced
The Kumtor and Boroo projects are currently Centerra’s only sources of gold production. Based on the current
life-of-mine plan, Kumtor will be depleted by 2021. At Boroo, mining has ceased as of the end of November 2010,
and the mill will continue to operate for at least a further two years processing low-grade stockpiled ore, some of
62 CENTERRA GOLD INC.
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which is low-grade and was originally intended for the heap leach. Additionally, if the bio-oxidation facility
is not constructed, the Boroo transitional ores would be depleted by 2013. If Centerra’s existing mineral reserves
(including mineral reserves at the Gatsuurt deposit in Mongolia) are not replaced either by the development or
discovery of additional reserves and/or extension of the life-of-mine at Kumtor or Boroo or through the acquisition
or development of an additional producing mine, this could have an adverse impact on Centerra’s future cash
fl ows, earnings, results of operations and fi nancial condition, including as a result of requirements to expend
funds for reclamation and decommissioning. Although Centerra is actively engaged in programs to increase
mineral reserves and expand the life-of-mine at Kumtor, as well as to develop and mine the Gatsuurt deposit
in Mongolia, there can be no assurance that these programs will be successful.
Centerra may experience further ground movements at the Kumtor project
On July 8, 2002, a highwall ground movement at the Kumtor project resulted in the death of one of Centerra’s
employees and the temporary suspension of mining operations. The movement led to a considerable shortfall
in 2002 gold production because the high-grade Stockwork Zone was rendered temporarily inaccessible.
Consequently, Centerra milled lower grade ore and achieved lower recovery rates. In February 2004, movement
was also detected in the southeast wall of the open pit and a crack was discovered at the crest of the wall. In
February 2006, there was further movement detected in the southeast wall of the open pit. In July 2006, there
was ground movement in the northeast wall of the open pit that required the adoption of a new mining sequence
at Kumtor and resulted in lower than anticipated gold production in 2006. In the fi rst quarter of 2007, minor
slope movement was detected in the waste dump above the SB Zone highwall in the Central pit. Deformation
cracks in the waste rock above the till focused attention on wall instability seated in the glacial till between the
waste dumps and the underlying bedrock. Drilling has indicated that further push backs of the Central pit will
encounter unfrozen, water saturated till. The outer face of the till is frozen and hence the water behind the slope
face is pressurized. The depressurization and dewatering programs which were established at the mine in 2008
and continuously operated since, have reduced the hydrological content of the waste dump and the till.
Although extensive efforts are employed by Centerra to prevent further ground movement, there is no
guarantee against such movements. A future ground movement could result in a signifi cant interruption of
operations. Centerra may also experience a loss of mineral reserves or a material increase in costs, if it is
necessary to redesign the open pit as a result of a ground movement. The consequences of a ground movement
will depend upon the magnitude, location and timing of any such movement. If mining operations are interrupted
to a signifi cant magnitude or the mine experiences a signifi cant loss of mineral reserves or materially higher costs
of operation, this would have an adverse impact on Centerra’s future cash fl ows, earnings, results of operations
and fi nancial condition.
Centerra will experience further waste and ice movement at the Kumtor project
During 2011, continued movement of waste and ice from the South East Ice Wall into the Kumtor Central pit
above the SB Zone section required the mining of ice and waste which reduced the production of ore. While
management has developed a plan to manage this movement (which plans have seen positive results in 2011),
there is no guarantee that these efforts will avert further negative impact on the Company’s expected production,
costs and earnings.
Although extensive efforts are being employed by Centerra to manage further waste and ice movements, there
is no guarantee that such efforts will be successful or that further waste and ice movements will not adversely
affect operations at the Kumtor project. Future movements could result in a signifi cant interruption of operations
or impede access to ore deposits. Centerra may also experience a loss of mineral reserves or a material increase
in costs if it is necessary to redesign the open pit as a result of waste and ice movements. The consequences of
further waste and ice movement into the Kumtor Central pit will depend upon the extent, location and timing
of any such movement. If mining operations are interrupted to a signifi cant magnitude or the mine experiences
a signifi cant loss of mineral reserves or materially higher costs of operation, this would have an adverse impact
on Centerra’s future cash fl ows, earnings, results of operations and fi nancial condition.
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2011 ANNUAL REPORT 63
Current and future litigation may impact the revenue and profi ts of the Company
The Company may, currently or in the future, be subject to claims (including the proceeding commenced by
Sistem, class action claims and claims from government regulatory bodies) based on allegations of negligence,
breach of statutory duty, public nuisance or private nuisance or otherwise in connection with its operations or
investigations relating thereto. While the Company is presently unable to quantify its potential liability under any
of the above heads of damage, such liability may be material to the Company and may materially adversely affect
its ability to continue operations.
In the proceeding commenced by Sistem, for example, Sistem is seeking to collect approximately US$11.1 million
(plus interest) owed to it by the Kyrgyz Republic, by looking to enforce against the shares of Centerra held by
Kyrgyzaltyn. See “Other Corporate Developments – Corporate Matters”.
Centerra’s mineral reserve and resource estimates may be imprecise
Mineral reserve and resource fi gures are estimates and no assurances can be given that the indicated levels of gold
will be produced or that Centerra will receive the price assumed in determining its mineral reserves. These estimates
are expressions of judgment based on knowledge, mining experience, analysis of drilling results and industry
practices. Valid estimates made at a given time may signifi cantly change when new information becomes available.
While Centerra believes that the mineral reserve and resource estimates included are well established and refl ect
management’s best estimates, by their nature mineral reserve and resource estimates are imprecise and depend, to
a certain extent, upon analysis of drilling results and statistical inferences that may ultimately prove unreliable.
Furthermore, fl uctuations in the market price of gold, as well as increased capital or production costs or
reduced recovery rates may render ore reserves uneconomic and may ultimately result in a reduction of reserves.
The extent to which mineral resources may ultimately be reclassifi ed as proven or probable mineral reserves is
dependent upon the demonstration of their profi table recovery. The evaluation of mineral reserves or resources
is always infl uenced by economic and technological factors, which may change over time.
No assurances can be given that any mineral resource estimate will ultimately be reclassifi ed as proven or
probable mineral reserves.
If Centerra’s mineral reserve or resource fi gures are inaccurate or are reduced in the future, this could have an
adverse impact on Centerra’s future cash fl ows, earnings, results of operations and fi nancial condition.
Centerra’s production and cost estimates may be inaccurate
Centerra prepares estimates of future production and future production costs for particular operations. No
assurance can be given that production and cost estimates will be achieved. These production and cost estimates
are based on, among other things, the following factors: the accuracy of mineral reserve estimates; the accuracy
of assumptions regarding ground conditions and physical characteristics of ores, such as hardness and presence
or absence of particular metallurgical characteristics; equipment and mechanical availability; labour availability;
access to the mine; facilities and infrastructure; suffi cient materials and supplies on hand; and the accuracy of
estimated rates and costs of mining and processing, including the cost of human and physical resources required
to carry out Centerra’s activities. Failure to achieve production or cost estimates, or increases in costs, could have
an adverse impact on Centerra’s future cash fl ows, earnings, results of operations and fi nancial condition.
Centerra’s estimates on production and costs are, where applicable, based on historical costs and productivity
experience. Despite this, actual production and costs may vary from estimates for a variety of reasons, including
actual ore mined varying from estimates of grade, tonnage, dilution and metallurgical and other characteristics;
short-term operating factors relating to the ore reserves, such as the need for sequential development of
orebodies and the processing of new or different ore grades; risks and hazards associated with mining; natural
phenomena, such as inclement weather conditions, fl oods, earthquakes, pit wall failures and cave-ins; and
unexpected labour shortages or strikes. Costs of production may also be affected by a variety of factors, including:
changing waste-to-ore ratios, ore grade metallurgy, labour costs, costs of supplies and services (such as, for
example, fuel and power), general infl ationary pressures and currency exchange rates. Failure to achieve
production estimates could have an adverse impact on the Company’s future cash fl ows, earnings, results
of operations and fi nancial condition.
64 CENTERRA GOLD INC.
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Centerra’s future exploration and development activities may not be successful
Exploration for and development of gold properties involve signifi cant fi nancial risks and may be subject to
political risks that even a combination of careful evaluation, experience and knowledge may not eliminate. While
the discovery of an orebody may result in substantial rewards, few properties that are explored are ultimately
developed into producing mines. Major expenses may be required to establish mineral reserves by drilling,
constructing mining and processing facilities at a site, connecting to a reliable infrastructure, developing
metallurgical processes and extracting gold from ore. Centerra cannot ensure that its current exploration and
development programs will result in profi table commercial mining operations or replacement of current
production at existing mining operations with new mineral reserves. Also, substantial expenses may be incurred
on exploration projects that are subsequently abandoned due to poor exploration results or the inability to defi ne
mineral reserves that can be mined economically.
Centerra’s ability to sustain or increase present levels of gold production is dependent on the successful
acquisition or discovery and development of new orebodies and/or expansion of existing mining operations.
The economic feasibility of development projects is based upon many factors, including the accuracy of mineral
reserve estimates; metallurgical recoveries; capital and operating costs; government regulations relating to prices,
taxes, royalties, land tenure, land use, importing and exporting and environmental protection; and gold prices,
which are highly volatile. Development projects are also subject to the successful completion of feasibility studies,
issuance of necessary governmental permits and availability of adequate fi nancing.
Development projects have no operating history upon which to base estimates of future cash fl ow. Estimates
of proven and probable mineral reserves and cash operating costs are, to a large extent, based upon detailed
geological and engineering analysis. Centerra also conducts feasibility studies that derive estimates of capital
and operating costs based upon many factors, including anticipated tonnage and grades of ore to be mined and
processed; the confi guration of the orebody; ground and mining conditions; expected recovery rates of the gold
from the ore; and anticipated environmental and regulatory compliance costs.
It is possible that actual costs and economic returns of current and new mining operations may differ materially
from Centerra’s best estimates. It is not unusual for new mining operations to experience unexpected problems
during the start-up phase and to require more capital than anticipated. These uncertainties could have an adverse
impact on Centerra’s future cash fl ows, earnings, results of operations and fi nancial condition.
Centerra’s future prospects may suffer due to enhanced competition for
mineral acquisition opportunities
Signifi cant and increasing competition exists for mineral acquisition opportunities throughout the world. As a
result of this competition, some of which is with large, better established mining companies with substantial
capabilities and greater fi nancial and technical resources, Centerra may be unable to acquire rights to exploit
additional attractive mining properties on terms it considers acceptable. Accordingly, there can be no assurance
that Centerra will acquire any interest in additional operations that would yield mineral reserves or result in
commercial mining operations. Centerra’s inability to acquire such interests could have an adverse impact on
its future cash fl ows, earnings, results of operations and fi nancial condition. Even if Centerra does acquire such
interests, the resultant business arrangements may not ultimately prove benefi cial to Centerra’s business.
Gold mining is subject to a number of operational risks and Centerra may not be
adequately insured for certain risks
Centerra’s business is subject to a number of risks and hazards, including environmental pollution, accidents or
spills; industrial and transportation accidents; unexpected labour shortages, disputes or strikes; cost increases for
contracted and/or purchased goods and services; shortages of required materials and supplies; electrical power
interruptions; mechanical and electrical equipment failure; changes in the regulatory environment; natural
phenomena, such as inclement weather conditions, fl oods, earthquakes, pit wall failures, tailings dam failures
and cave-ins; encountering unusual or unexpected climatic conditions that may or may not result from global
warming; and encountering unusual or unexpected geological conditions.
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2011 ANNUAL REPORT 65
While Centerra takes measures to mitigate the foregoing risks and hazards, there is no assurance that these
risks and hazards will not result in damage to, or destruction of, Centerra’s gold properties, personal injury or
death, environmental damage, delays in or interruption of or cessation of production from Centerra’s mines
or in its exploration or development activities, costs, monetary losses and potential legal liability and adverse
community and/or governmental action, all of which could have an adverse impact on Centerra’s future cash
fl ows, earnings, results of operations and fi nancial condition.
In February 2008, an unplanned shutdown of the ball mill at Kumtor was required to temporarily repair
the ring gear which had failed. The repair was completed in late March 2008 and the ball mill returned to full
operation. A new gear was ordered from the original supplier of the mill. In order to limit the impact which a
shut-down would have on production, the installation of the new gear was carried out in April 2010 when only
low-grade mill feed was being processed. In February 2009, the SAG mill at the Kumtor mill also experienced
a similar mechanical breakdown of the girth gear with the failure of two teeth. A spare girth gear was installed
immediately. A replacement for the damaged quadrant of the girth gear was manufactured and returned to
Kumtor stock in October 2010.
The Kumtor tailings dam design is currently approved by the Kyrgyz authorities to elevation 3,670.5 metres.
The dam crest is presently at elevation 3,664 metres. Kumtor is required to apply and obtain permits from the
Kyrgyz Government from time to time to address interim raising and construction activities. The next tailings
dam raising is scheduled for 2013.
In addition, the currently permitted tailings management facility does not have suffi cient capacity to store
the entire approximate 62 million tonnes of ore to be processed in the current life-of-mine plan. The capacity
shortfall of approximately 12 million tonnes of ore or 8.4 million cubic metres of tailings will require further
raising of the existing tailings dam beyond the 3,670.5 elevation, or the construction of an additional tailings
facility to be completed prior to 2019 for the last two years of the life-of-mine.
While the Company has obtained the necessary permits and authorizations in the past in connection with
tailings dam raises, there are no assurances that such permits and authorizations can be obtained in the future or
obtained in the timeframe required by the Company. If all necessary permits and authorizations are not obtained,
delays in, or interruptions or cessation of Centerra’s production from the Kumtor project may occur, which may
have an adverse impact on Centerra’s future cash fl ows, earnings, results of operations or fi nancial condition.
Although Centerra maintains insurance to cover some of these risks and hazards in amounts it believes to be
reasonable, its insurance may not provide adequate coverage in all circumstances. No assurance can be given that
insurance will continue to be available at economically feasible premiums or that it will provide suffi cient
coverage for losses related to these or other risks and hazards.
Centerra may also be subject to liability or sustain losses in relation to certain risks and hazards against which
it cannot insure or for which it may elect not to insure. The occurrence of operational risks and/or a shortfall or
lack of insurance coverage could have an adverse impact on Centerra’s future cash fl ows, earnings, results of
operations and fi nancial condition.
Centerra is subject to environmental, health and safety risks
Centerra expends signifi cant fi nancial and managerial resources to comply with a complex set of environmental,
health and safety laws, regulations, guidelines and permitting requirements (for the purpose of this paragraph,
“laws”) drawn from a number of different jurisdictions. Centerra believes it is in material compliance with these
laws. Centerra anticipates that it will be required to continue to do so in the future as the historical trend toward
stricter laws is likely to continue. The possibility of more stringent laws or more rigorous enforcement of existing
laws exists in the areas of worker health and safety, the disposition of wastes, the decommissioning and reclamation
of mining sites, restriction of areas where exploration, development and mining activities may take place and
other environmental matters, each of which could have a material adverse effect on Centerra’s exploration,
operations and the cost or the viability of a particular project.
Centerra’s facilities operate under various operating and environmental permits, licenses and approvals that
contain conditions that must be met and Centerra’s right to continue operating its facilities is, in a number of
instances, dependent upon compliance with these conditions. Failure to meet certain of these conditions could
66 CENTERRA GOLD INC.
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result in interruption or closure of exploration, development or mining operations or material fi nes or penalties,
all of which could have an adverse impact on Centerra’s future cash fl ows, earnings, results of operations and
fi nancial condition. Centerra is unable to quantify the costs of such a failure.
Centerra’s properties, including the Gatsuurt project, may be subject to defects in title
Centerra has investigated its rights to explore and exploit all of its material properties, and, except as described
below, to the best of its knowledge, those rights are in good standing. However, no assurance can be given that
such rights will not be revoked or signifi cantly altered to Centerra’s detriment. There can also be no assurance
that Centerra’s rights will not be challenged or impugned by third parties, including local governments. On
December 6, 2006, Gatsuurt LLC commenced arbitration before the Mongolian National Arbitration Court
(“MNAC”) alleging non-compliance by Centerra’s subsidiary, CGM, with its obligation to complete a feasibility
study on the Gatsuurt property by December 31, 2005 and seeking the return of the license. Centerra believed
that Gatsuurt LLC’s position was without merit. CGM challenged the MNAC’s jurisdiction and the independence
and impartiality of the Gatsuurt LLC nominee to the arbitration panel. Centerra and Gatsuurt LLC have reached
an agreement to terminate arbitration proceedings. Further to that agreement CGM paid $1.5 million to Gatsuurt
LLC. On signing of a defi nitive agreement, but subject to CGM having entered into an investment agreement with
the Government of Mongolia in respect of the development of the Gatsuurt project, CGM will make a further
non-refundable payment to Gatsuurt LLC in the amount of $1.5 million. Final settlement with Gatsuurt LLC is
subject to the negotiation and signing of a defi nitive settlement agreement.
Centerra is currently in discussions with the applicable Kyrgyz regulatory authorities regarding a certifi cate
of temporary land use in relation to its concession area in the Kyrgyz Republic. The Company is in receipt of a
governmental decree authorizing the issuance of the certifi cate and is in discussions to obtain the fi nal certifi cate.
The Company expects that a new certifi cate of temporary land use will be issued shortly, although there can be
no assurance that this will be the case.
Although Centerra is not currently aware of any existing title uncertainties with respect to any of its properties
except as discussed in the preceding paragraphs, there is no assurance that such uncertainties will not result in
future losses or additional expenditures, which could have an adverse impact on Centerra’s future cash fl ows,
earnings, results of operations and fi nancial condition.
Restrictive covenants in Centerra’s revolving credit facility may prevent the Company from
pursuing business activities that could otherwise improve the Company’s results of operations
Pursuant to Centerra’s Credit Facility, the Company must maintain certain fi nancial ratios and satisfy other
non-fi nancial maintenance covenants. The Company and its material subsidiaries are also subject to other
restrictive and affi rmative covenants in respect of their respective operations. Compliance with these covenants
and fi nancial ratios may impair the Company’s ability to fi nance its future operations or capital needs or to take
advantage of other favourable business opportunities. The Company’s ability to comply with these covenants and
fi nancial ratios will depend on its future performance, which may be affected by events beyond the control of the
Company. The Company’s failure to comply with any of these covenants or fi nancial ratios will result in a default
under the Credit Agreement and may result in the acceleration of any indebtedness under the Credit Agreement.
In the event of a default and Centerra is unable to repay any amounts then outstanding, the lender, EBRD may be
entitled to take possession of the collateral securing the Credit Facility, including certain mobile equipment used
in the operations at Kumtor and the Mongolian mining licenses, to the extent required to repay those borrowings.
Both projects are unionized and there are no assurances that any renewals of the collective
agreements can be negotiated on satisfactory terms. Centerra may also be subject to
labour unrest or other labour disturbances.
Non-management employees at Kumtor and Boroo (including those in head offi ce) are unionized and subject
to collective agreements. At Kumtor, the current collective bargaining agreement which was ratifi ed in October
2010, following a ten-day illegal work action, expires on December 31, 2012. As of February 6, 2012, unionized
employees at Kumtor began an illegal strike. See “Other Corporate Developments – Corporate”. At Boroo, the
2011 ANNUAL REPORT 67
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current collective agreement expires June 30, 2012. There can be no assurance that there will not be any delays
in the renewal process, that negotiations will not prove diffi cult or that Centerra will be able to renegotiate the
collective agreement on satisfactory terms, or at all. Centerra could be subject to labour unrest or other labour
disturbances including strikes as a result of any failure of negotiations which could, while ongoing, have a
material adverse impact on Centerra, including the achievement of any annual production guidelines and costs
estimates. The renewal of the collective agreement could result in higher on-going labor costs, which could have
a material adverse impact on Centerra’s future cash fl ows, earnings, results of operations and fi nancial condition.
In addition, existing collective agreement may not prevent a strike or work stoppage, and any such work stoppage
could have a material adverse impact on Centerra.
There can be no assurance that Centerra will be able to successfully complete negotiations
for an investment agreement for Gatsuurt and obtain all necessary permits and
commissions needed to commence mining activity at Gatsuurt
There can be no assurance that Centerra will be able to successfully negotiate with the Government of Mongolia
a mutually acceptable investment agreement for the development and operation of the Gatsuurt project.
While there is no legal requirement for an investment agreement to be executed before Centerra commences
development and mining operations at Gatsuurt, management of the Company believes that it is important for
the viability of the project.
Negotiations in 2010 regarding the Gatsuurt investment agreement were stopped in April 2010 when the
Company received a letter from the MMRE indicated that the Gatsuurt licenses were within the area designated,
on a preliminary basis, as land where mineral mining is prohibited under the Water and Forest Law, and that the
MMRE would communicate with the Company further on negotiations with respect to an investment agreement
for the Gatsuurt project once the MMRE received additional clarity on the impact of the Water and Forest Law
on the Gatsuurt project.
Mining activities at Gatsuurt is subject to Centerra obtaining from the Government of Mongolia the necessary
permits and commissions. There are no assurances that the Mongolian Government will grant such permits and
commissions to Centerra in a timely manner or at all, and on terms acceptable to Centerra. While the Company
did receive several permits during the course of 2010 in relation to the Gatsuurt project, in November 2010, the
Company received a letter from Mongolia’s Ministry of Finance indicating that operations at the Gatsuurt project
cannot be commenced while the implementation of the Water and Forest Law is being resolved. Accordingly,
further approvals and commissioning of Gatsuurt will be delayed as a result of the Water and Forest Law.
Centerra’s inability to develop and operate the Gatsuurt project could have an adverse effect on its future cash
fl ows, earnings, results of operations and fi nancial condition.
Centerra’s operations in the Kyrgyz Republic and Mongolia are located in areas of seismic activity
The areas surrounding both Centerra’s Kumtor project and Boroo project are seismically active. While the risks
of seismic activity were taken into account when determining the design criteria for Centerra’s Kumtor and
Boroo operations, there can be no assurance that Centerra’s operations will not be adversely affected by this kind
of activity, all of which could have an adverse impact on Centerra’s future cash fl ows, earnings, results of
operations and fi nancial condition.
Centerra’s properties are located in remote locations and require
a long lead time for equipment and supplies
Centerra operates in remote locations and depends on an uninterrupted fl ow of materials, supplies and services
to those locations. In addition, Centerra uses expensive, large equipment that requires a long time to procure,
build and install. Any interruptions to the procurement of equipment, or the fl ow of materials, supplies and
services to Centerra’s properties could have an adverse impact on its future cash fl ows, earnings, results of
operations and fi nancial condition. Access to the Kumtor project has been restricted on several occasions by
illegal roadblocks.
68 CENTERRA GOLD INC.
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Illegal mining has occurred on Centerra’s Mongolian properties, is diffi cult to control,
may disrupt its operations and may expose it to liability
Illegal mining is widespread in Mongolia. Illegal miners have and may continue to trespass on Centerra’s
properties and engage in very dangerous practices, including climbing inside caves and old exploration shafts
without any safety devices. Centerra is unable to continuously monitor the full extent of its exploration and
operating properties. The presence of illegal miners could also lead to project delays and disputes regarding
the development or operation of commercial gold deposits, including disputes with Mongolian governmental
authorities regarding reporting of reserves and mine production. The illegal activities of these miners could cause
environmental damage (including environmental damage from the use of mercury by these miners) or other
damage to Centerra’s properties or personal injury or death, for which Centerra could potentially be held
responsible, all of which could have an adverse impact on Centerra’s future cash fl ows, earnings, results of
operations and fi nancial condition.
Centerra may be unable to enforce its legal rights in certain circumstances
In the event of a dispute arising at Centerra’s foreign operations, Centerra may be subject to the exclusive
jurisdiction of foreign courts or may not be successful in subjecting foreign persons to the jurisdiction of courts
in Canada. Centerra may also be hindered or prevented from enforcing its rights with respect to a governmental
entity or instrumentality because of the doctrine of sovereign immunity.
The dispute resolution provisions of: (i) the Restated Investment Agreement and (ii) the Boroo Stability
Agreement stipulate that any dispute between the parties thereto is to be submitted to international arbitration.
However, there can be no assurance that a particular governmental entity or instrumentality will either comply
with the provisions of these or any other agreements or voluntarily submit to arbitration. Centerra’s inability
to enforce its rights could have an adverse effect on its future cash fl ows, earnings, results of operations and
fi nancial condition.
Centerra faces substantial decommissioning and reclamation costs
which may be diffi cult to predict accurately
At each of Centerra’s mine sites, Centerra is required to establish a decommissioning and reclamation plan.
Provision must be made for the cost of decommissioning and reclamation. These costs can be signifi cant and are
subject to change. Centerra cannot predict what level of decommissioning and reclamation may be required in
the future by regulators. If Centerra is required to comply with signifi cant additional regulations or if the actual
cost of future decommissioning and reclamation is signifi cantly higher than current estimates, this could have
an adverse impact on Centerra’s future cash fl ows, earnings, results of operations and fi nancial condition.
Centerra may experience reduced liquidity and diffi culty in obtaining future fi nancing
The further development and exploration of mineral properties in which Centerra holds or acquires interests
may depend upon its ability to obtain fi nancing through joint ventures, debt fi nancing, equity fi nancing or other
means. While the Company successfully negotiated a three-year $150 million revolving credit facility in 2010,
there is no assurance that Centerra will be successful in obtaining required fi nancing as and when needed in
the future.
Volatile gold markets and/or capital markets may make it diffi cult or impossible for Centerra to obtain further
debt fi nancing or equity fi nancing on favourable terms or at all. Centerra’s principal operations are located in, and
its strategic focus is on, Asia and the former Soviet Union, developing areas that have experienced past economic
and political diffi culties and may be perceived as unstable. This may make it more diffi cult for Centerra to obtain
further debt fi nancing. Failure to obtain additional fi nancing on a timely basis may cause Centerra to postpone
development plans, forfeit rights in its properties or joint ventures or reduce or terminate its operations. Reduced
liquidity or diffi culty in obtaining future fi nancing could have an adverse impact on Centerra’s future cash fl ows,
earnings, results of operations and fi nancial condition.
59420_Centerra_Financials.indd 69
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2011 ANNUAL REPORT 69
Global fi nancial conditions
The fi nancial crisis which began in the latter part of 2007 has resulted in global fi nancial conditions which are
characterized by continued high volatility, and fi nancial institutions are still recovering from signifi cant losses.
Access to public fi nancing and bank credit has been negatively impacted by both the rapid decline in value of
sub-prime mortgages and the resulting liquidity crisis as fi nancial institutions saw their balance sheet impaired.
Notwithstanding some improvement in the fi nancial health of major fi nancial institutions, global fi nancial
conditions may affect Centerra’s ability to obtain equity or debt fi nancing in the future on favourable terms.
Additionally, these factors, as well as other related factors, may cause decreases in Centerra’s asset values that may
be other than temporary, which may result in impairment losses. If such increased levels of volatility and market
turmoil continue, or if more extensive disruptions of the global fi nancial markets occur, Centerra’s operations
could be adversely impacted and the trading price of Centerra’s common shares may be adversely affected.
Currency fl uctuations
Centerra’s earnings and cash fl ow may also be affected by fl uctuations in the exchange rate between the U.S. dollar
and other currencies, such as the Kyrgyz som, the Mongolian tugrik, the Canadian dollar and the Euro. Centerra’s
consolidated fi nancial statements are expressed in U.S. dollars. Its sales of gold are denominated in U.S. dollars,
while production costs and corporate administration costs are, in part, denominated in Kyrgyz soms, Mongolian
tugriks, Canadian dollars, Euros and other currencies. Fluctuations in exchange rates between the U.S dollar
and other currencies may give rise to foreign exchange currency exposures, both favourable and unfavourable,
which may materially impact Centerra’s future fi nancial results. Although Centerra from time to time enters
into short-term forward contracts to purchase Canadian dollars and Euros, Centerra does not utilize a hedging
program to limit the adverse effects of foreign exchange rate fl uctuations in other currencies. In the case of the
Kyrgyz som and the Mongolian tugrik, Centerra cannot hedge currency exchange risk because such currencies
are not freely traded.
Short-term investment risks
The Company may from time to time invest excess cash balances in short-term instruments. Recent market
conditions affecting certain types of short-term investments of some North American and European issuers
as well as certain fi nancial institutions have resulted in heightened risk in holding some of these investments.
There can be no guarantee that further market disruptions affecting various short-term investments or the
potential failure of fi nancial institutions will not have a negative effect on the liquidity of investments made
by the Company.
Centerra’s success depends on its ability to attract and retain qualifi ed personnel
Recruiting and retaining qualifi ed personnel is critical to Centerra’s success. The number of persons skilled in the
acquisition, exploration and development of mining properties is limited and competition for such persons is
intense. As Centerra’s business activity grows, it will require additional key fi nancial, administrative and mining
personnel as well as additional operations staff. The Restated Concession Agreement relating to Centerra’s
Kumtor operations also requires two thirds of all administrative or technical personnel to be citizens of the
Kyrgyz Republic. However, it has been necessary to engage expatriate workers for Centerra’s operations in
Mongolia and, to a lesser extent, the Kyrgyz Republic because of the shortage of locally trained personnel.
Although Centerra believes that it will be successful in attracting, training and retaining qualifi ed personnel,
there can be no assurance of such success. If Centerra is not successful in attracting and training qualifi ed
personnel, the effi ciency of its operations could be affected, which could have an adverse impact on its future
cash fl ows, earnings, results of operations and fi nancial condition.
70 CENTERRA GOLD INC.
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As a holding company, Centerra’s ability to make payments depends on
the cash fl ows of its subsidiaries
Centerra is a holding company that conducts substantially all of its operations through subsidiaries, many of
which are incorporated outside North America. Centerra has no direct operations and no signifi cant assets other
than the shares of its subsidiaries. Therefore, Centerra is dependent on the cash fl ows of its subsidiaries to meet
its obligations, including payment of principal and interest on any debt Centerra incurs. The ability of Centerra’s
subsidiaries to provide it with payments may be constrained by the following factors: (i) the cash fl ows generated
by operations, investment activities and fi nancing activities; (ii) the level of taxation, particularly corporate
profi ts and withholding taxes, in the jurisdiction in which they operate; and (iii) the introduction of exchange
controls and repatriation restrictions or the availability of hard currency to be repatriated.
If Centerra is unable to receive suffi cient cash from its subsidiaries, it may be required to refi nance its
indebtedness, raise funds in a public or private equity or debt offering or sell some or all of its assets. Centerra
can provide no assurances that an offering of its debt or equity or a refi nancing of its debt can or will be
completed on satisfactory terms or that it would be suffi cient to enable it to make payment with respect to its
debt. The foregoing events could have an adverse impact on Centerra’s future cash fl ows, earnings, results of
operations and fi nancial condition.
Centerra may experience diffi culties with its joint venture partners
Centerra has a number of joint venture partners and it may in the future enter into additional joint ventures.
Centerra is subject to the risks normally associated with the conduct of joint ventures. These risks include
disagreement with a joint venture partner on how to develop, operate and fi nance a project and possible litigation
between Centerra and a joint venture partner regarding joint venture matters. These matters may have an adverse
effect on Centerra’s ability to pursue the projects subject to the joint venture, which could affect its future cash
fl ows, earnings, results of operations and fi nancial condition.
Centerra’s largest shareholder is the Kyrgyz Government
Centerra’s largest shareholder Kyrgyzaltyn, which is owned and controlled by the Kyrgyz Government, owns
approximately 33% of the common shares of Centerra. Pursuant to the terms of the Restated Investment
Agreement, Kyrgyzaltyn has two nominees on the board of directors of Centerra. There can be no assurance
that the Kyrgyz Government will not use its infl uence as Centerra’s largest shareholder to materially change
the direction of the Company. This concentration of ownership may have the effect of delaying or preventing
a change in control of Centerra, which may deprive Centerra’s shareholders of a control premium that might
otherwise be offered in connection with such a change of control. The Company is aware that Kyrgyzaltyn has
in the past received inquiries regarding the potential acquisition of some or all of its common shares and the sale
by Kyrgyzaltyn of its shareholdings to a third party could result in a new purchasing shareholder obtaining a
considerable interest in the Company. Should Kyrgyzaltyn sell some or all of its interest in Centerra, there can
be no assurance that an offer would be made to the other shareholders of Centerra or that the interests of such a
shareholder would be consistent with the plans of the Company or that such a sale would not decrease the value
of the common shares.
Centerra’s directors may have confl icts of interest
Certain of Centerra’s directors also serve as directors and/or offi cers of other companies involved in natural
resource exploration, development and production and consequently there exists the possibility for such
directors to be in a position of confl ict.
59420_Centerra_Financials.indd 71
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2011 ANNUAL REPORT 71
CAUTION REGARDING FORWARD-LOOKING INFORMATION
Information contained in this Annual MD&A which are not statements of historical facts, and the documents
incorporated by reference herein, may be “forward looking information” for the purposes of Canadian securities
laws. Such forward looking information involves risks, uncertainties and other factors that could cause actual
results, performance, prospects and opportunities to differ materially from those expressed or implied by such
forward looking information. The words “believe”, “expect”, “anticipate”, “contemplate”, “target”, “plan”,
“intends”, “continue”, “budget”, “estimate”, “may”, “will”, “schedule” and similar expressions identify forward-
looking information. These forward-looking statements relate to, among other things, the statements made under
the heading, “Outlook for 2012”, including the Company’s expectations regarding future growth, results of
operations, future production and sales, operating capital expenditures, and performance; expected trends in the
gold market, including with respect to costs of gold production; capital and operational expenses for 2012 and the
ability to fund them from cash fl ow or to access public markets (and its ability to do so successfully); exploration
plans for 2012 and the success thereof; mining plans at each of the Company’s operations; the receipt of
permitting and regulatory approvals at the Company’s Gatsuurt development property; the impact of the Water
and Forest Law on the Company’s Mongolian activities; the application of the new graduated royalty fee regime
under the 2006 Mongolian Minerals Law to the Company’s Mongolian properties; permitting of the Company’s
heap leach activities at the Boroo mine; anticipated delays and approvals and regulatory commissioning of the
Company’s Gatsuurt development property as a result of the Water and Forest Law; the continued success with
the management of ice and water movement at Kumtor; the Company’s business and political environment and
business prospects; and the timing and development of new deposits.
Forward-looking information is necessarily based upon a number of estimates and assumptions that, while
considered reasonable by Centerra, are inherently subject to signifi cant political, business, economic and
competitive uncertainties and contingencies. Known and unknown factors could cause actual results to differ
materially from those projected in the forward looking information. Material assumptions used to forecast
production and costs include those described under the heading “2012 Outlook”. Factors that could cause actual
results or events to differ materially from current expectations include, among other things: the sensitivity of the
Company’s business to the volatility of gold prices; the political risks associated with the Company’s principal
operations in the Kyrgyz Republic and Mongolia; the impact of changes in, or more oppressive enforcement of,
laws, regulations and government practices in the jurisdictions in which the Company operates; the effect of the
2006 Mongolian Minerals Law; the effect of the November 2010 amendments to the 2006 Mongolian Minerals
Law on the royalty payments payable in connection with the Company’s Mongolian operations; the effect of
the Water and Forest Law on the Company’s operations in Mongolia; the impact of continued scrutiny from
Mongolian regulatory authorities; the impact of changes to, or the increased enforcement of, environmental laws
and regulations relating to the Company’s operations; the Company’s ability to replace its reserves; ground
movements at the Kumtor Mine; waste and ice movement at the Kumtor Mine; litigation; the accuracy of the
Company’s reserves and resources estimate; the accuracy of the Company’s production and cost estimates; the
success of the Company’s future exploration and development activities; competition for mineral acquisition
opportunities; the adequacy of the Company’s insurance; environmental, health and safety risks; defects in title
in connection with the Company’s properties; the impact of restrictive covenants in the Company’s revolving
credit facility; the Company’s ability to successfully renew any collective agreements and to avoid any labour
disturbances; the Company’s ability to successfully negotiate an investment agreement for the Gatsuurt
development property and the Company’s ability to obtain all necessary permits and commissions needed to
commence mining activity at the Gatsuurt development property; seismic activity in the vicinity of the Company’s
operations in the Kyrgyz Republic and Mongolia; long lead times required for equipment and supplies given
the remote location of the Company’s properties; illegal mining on the Company’s Mongolian properties; the
Company’s ability to enforce its legal rights; the Company’s ability to accurately predict decommissioning
and reclamation costs; the Company’s ability to obtain future fi nancing; the impact of current global fi nancial
conditions; the impact of currency fl uctuations; the effect of recent market conditions on the Company’s short-
term investments; the Company’s ability to attract and retain qualifi ed personnel; the Company’s ability to make
72 CENTERRA GOLD INC.
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payments including payments of principal and interest on the Company’s debt facilities; risks associated with the
conduct of joint ventures; risks associated with the Company’s largest shareholder, the Kyrgyz government; and
possible director confl icts of interest. There may be other factors that cause results, assumptions, performance,
achievements, prospects or opportunities in future periods not to be as anticipated, estimated or intended. See
“Risk Factors” in the Company’s most recently fi led AIF available on SEDAR at www.sedar.com.
Furthermore, market price fl uctuations in gold, as well as increased capital or production costs or reduced
recovery rates may render ore reserves containing lower grades of mineralization uneconomic and may ultimately
result in a restatement of reserves. The extent to which resources may ultimately be reclassifi ed as proven or
probable reserves is dependent upon the demonstration of their profi table recovery. Economic and technological
factors which may change over time always infl uence the evaluation of reserves or resources. Centerra has not
adjusted mineral resource fi gures in consideration of these risks and, therefore, Centerra can give no assurances
that any mineral resource estimate will ultimately be reclassifi ed as proven and probable reserves.
Reserve and resource fi gures included in this MD&A are estimates and Centerra can provide no assurances
that the indicated levels of gold will be produced or that Centerra will receive the gold price assumed in
determining its reserves. Such estimates are expressions of judgment based on knowledge, mining experience,
analysis of drilling results and industry practices. Valid estimates made at a given time may signifi cantly change
when new information becomes available. While Centerra believes that these reserve and resource estimates are
well established and the best estimates of Centerra’s management, by their nature reserve and resource estimates
are imprecise and depend, to a certain extent, upon analysis of drilling results and statistical inferences which
may ultimately prove unreliable.
Centerra has not adjusted resource fi gures included herein in consideration of these risks and, therefore,
Centerra can give no assurances that any resource estimate will ultimately be reclassifi ed as proven and probable
reserves or incorporated into future production guidance. If Centerra’s reserve or resource estimates or
production guidance for its gold properties are inaccurate or are reduced in the future, this could have an adverse
impact on Centerra’s future cash fl ows, earnings, results of operations and fi nancial condition. Centerra estimates
the future mine life of its operations and provides production guidance in respect of its mining operations.
Centerra can give no assurance that mine life estimates will be achieved or that actual production will not differ
materially from its guidance. Failure to achieve estimates or production guidance could have an adverse impact
on Centerra’s future cash fl ows, earnings, results of operations and fi nancial condition.
Mineral resources are not mineral reserves, and do not have demonstrated economic viability, but do have
reasonable prospects for economic extraction. Measured and indicated resources are suffi ciently well defi ned
to allow geological and grade continuity to be reasonably assumed and permit the application of technical and
economic parameters in assessing the economic viability of the resource. Inferred resources are estimated on
limited information not suffi cient to verify geological and grade continuity or to allow technical and economic
parameters to be applied. Interred resources are too speculative geologically to have economic considerations
applied to them to enable them to be categorized as mineral reserves. There is no certainty that mineral resources
of any category can be upgraded to mineral reserves through continued exploration.
There can be no assurances that forward looking information and statements will prove to be accurate, as
many factors and future events, both known and unknown could cause actual results, performance or achievements
to vary or differ materially, from the results, performance or achievements that are or may be expressed or
implied by such forward looking statements contained herein or incorporated by reference. Accordingly, all such
factors should be considered carefully when making decisions with respect to Centerra, and prospective investors
should not place undue reliance on forward looking information. Forward looking information is as of February
23, 2012. Centerra assumes no obligation to update or revise forward looking information to refl ect changes in
assumptions, changes in circumstances or any other events affecting such forward looking information, except
as required by applicable law.
59420_Centerra_Financials.indd 73
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2011 ANNUAL REPORT 73
Report of Management’s Accountability
The Consolidated Financial Statements have been prepared by the management of the Company. Management
is responsible for the integrity, consistency and reliability of all such information presented. The Consolidated
Financial Statements have been prepared in accordance with International Financial Reporting Standards as
issued by the International Accounting Standards Board.
The preparation of the Consolidated Financial Statements involves the use of estimates and assumptions
based on management’s judgment, particularly when transactions affecting the current accounting period cannot
be fi nalized with certainty until future periods. Estimates and assumptions are based on historical experience,
current conditions and various other assumptions believed to be reasonable in the circumstances, with critical
analysis of the signifi cant accounting policies followed by the Company as described in note 3 to the Consolidated
Financial Statements. The preparation of the Consolidated Financial Statements includes information regarding
the estimated impact of future events and transactions. Actual results in the future may differ materially from the
present assessment of this information because future events and circumstances may not occur as expected.
In meeting its responsibility for the reliability of fi nancial information, management maintains and relies on a
comprehensive system of internal controls and internal audit checks to see if the controls are operating as designed.
The system of internal controls includes a written corporate conduct policy; implementation of a risk management
framework; effective segregation of duties and delegation of authorities; and sound and conservative accounting
policies that are regularly reviewed. This structure is designed to provide reasonable assurance that assets are
safeguarded and that reliable information is available on a timely basis. In addition internal and disclosure
controls have been documented, evaluated, tested and identifi ed consistent with National Instrument 52-109.
An internal audit function independently evaluates the effectiveness of these internal controls on an ongoing
basis and reports its fi ndings to management and the Audit Committee of the Company’s Board of Directors.
The Consolidated Financial Statements have been audited by KPMG LLP, independent external auditors
appointed by the Company’s shareholders. The external auditors’ responsibility is to express their opinion on
whether the Consolidated Financial Statements are fairly presented in accordance with International Financial
Reporting Standards as issued by the International Accounting Standards Board. KPMG LLP, whose report
appears on page 75, outlines the scope of their examination and their opinion.
The Company’s Directors, through its Audit Committee, are responsible for ensuring that management fulfi lls
its responsibilities for fi nancial reporting and internal controls. The Audit Committee met periodically with
management, the internal auditors, and the external auditors to satisfy itself that each group had properly
discharged its respective responsibility and to review the Consolidated Financial Statements before recommending
approval by the Board of Directors. The external auditors had direct and full access to the Audit Committee, with
and without the presence of management, to discuss their audit and their fi ndings as to the integrity of the
fi nancial reporting.
The Company’s President and Chief Executive Offi cer and the Company’s Vice President and Chief Financial
Offi cer have certifi ed the design and effectiveness of related internal controls over fi nancial reporting pursuant
to National Instrument 52-109.
Original signed by:
Original signed by:
Stephen A. Lang
President and Chief Executive Offi cer
Jeffrey S. Parr
Vice President and Chief Financial Offi cer
February 23, 2012
74 CENTERRA GOLD INC.
59420_Centerra_Financials.indd 74
27/03/12 8:21 AM
Independent Auditors’ Report
To the Shareholders of Centerra Gold Inc.
We have audited the accompanying consolidated fi nancial statements of Centerra Gold Inc., which comprise the
consolidated statements of fi nancial position as at December 31, 2011, December 31, 2010 and January 1, 2010,
the consolidated statements of earnings and comprehensive income, shareholders’ equity and cash fl ows for
the years ended December 31, 2011 and December 31, 2010, and notes, comprising a summary of signifi cant
accounting policies and other explanatory information.
Management’s responsibility for the consolidated fi nancial statements
Management is responsible for the preparation and fair presentation of these consolidated fi nancial statements
in accordance with International Financial Reporting Standards, and for such internal control as management
determines is necessary to enable the preparation of consolidated fi nancial statements that are free from material
misstatement, whether due to fraud or error.
Auditors’ responsibility
Our responsibility is to express an opinion on these consolidated fi nancial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance
about whether the consolidated fi nancial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated fi nancial statements. The procedures selected depend on our judgment, including the assessment
of the risks of material misstatement of the consolidated fi nancial statements, whether due to fraud or error.
In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair
presentation of the consolidated fi nancial statements in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal
control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness
of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated
fi nancial statements.
We believe that the audit evidence we have obtained in our audits is suffi cient and appropriate to provide a
basis for our audit opinion.
Opinion
In our opinion, the consolidated fi nancial statements present fairly, in all material respects, the consolidated
fi nancial position of Centerra Gold Inc. as at December 31, 2011, December 31, 2010 and January 1, 2010, and its
consolidated fi nancial performance and its consolidated cash fl ows for the years ended December 31, 2011 and
December 31, 2010 in accordance with International Financial Reporting Standards.
Toronto, Canada
February 23, 2012
KPMG LLP
Chartered Accountants, Licensed Public Accountants
Original signed by:
2011_Centerra_Page 75-76.indd 75
Mar/31/2012 1:31 PM
2011 ANNUAL REPORT 75
Consolidated Statements of Financial Position
(Expressed in Thousands of United States Dollars)
NOTES
December 31
2011
December 31
2010
January 1
2010
Assets
Current assets
Cash and cash equivalents
Short-term investments
Restricted cash
Amounts receivable
Inventories
Prepaid expenses
Property, plant and equipment
Goodwill
Long-term receivables and other
Long-term inventories
Deferred income tax asset
Total assets
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable and accrued liabilities
Revenue-based tax
Taxes payable
Current portion of provisions
Provisions
Deferred income tax liability
Shareholders’ equity
Share capital
Contributed surplus
Retained earnings
3(c)
3(e)
6
7
8
9
11
12
8
14(c)
13
14(a)
16
16
14(c)
25
Total liabilities and shareholders’ equity
Commitments and contingencies (note 26)
The accompanying notes form an integral part of these consolidated fi nancial statements.
Approved by the Board of Directors
Original signed by:
Patrick M. James,
Director
Ian G. Austin,
Director
$
195,539
372,667
179
56,749
279,944
26,836
931,914
590,151
129,705
24,674
12,174
–
756,704
$ 1,688,618
$
76,385
15,178
1,074
1,848
94,485
53,777
1,897
55,674
660,117
33,994
844,348
1,538,459
$ 1,688,618
$ 330,737
82,278
795
100,562
181,633
22,221
718,226
519,019
129,705
17,299
12,877
3,367
682,267
$ 1,400,493
$
70,909
25,489
1,865
9,553
107,816
30,880
–
30,880
655,178
33,827
572,792
1,261,797
$ 1,400,493
$ 176,904
145,971
–
44,281
151,822
11,718
530,696
382,250
129,705
6,554
23,120
62
541,691
$ 1,072,387
$
49,098
29,355
5,711
7,399
91,563
26,546
8,700
35,246
646,081
35,376
264,121
945,578
$ 1,072,387
76 CENTERRA GOLD INC.
2011_Centerra_Page 75-76.indd 76
Mar/31/2012 1:31 PM
Consolidated Statements of Earnings
and Comprehensive Income
For the years ended December 31,
(Expressed in Thousands of United States Dollars,
except per share amounts)
Revenue from Gold Sales
Cost of sales
Mine standby costs
Regional offi ce administration
Earnings from mine operations
Revenue-based taxes
Other operating expenses
Exploration and business development
Corporate administration
Earnings from operations
Other (income) and expenses
Finance costs
Gain on sale of REN property
Earnings before income taxes
Income tax expense
Net earnings and comprehensive income
Basic and diluted earnings per common share
The accompanying notes form an integral part of these consolidated fi nancial statements.
NOTES
2011
2010
17
18
14(a)
19
20
21
22
23
24
14(b)
25
$ 1,020,344
382,295
213
21,322
616,514
131,750
15,471
42,894
44,902
381,497
(1,056)
3,545
–
379,008
8,130
$ 849,753
342,190
1,280
21,074
485,209
98,597
7,987
32,446
52,270
293,909
590
1,467
(34,866)
326,718
4,427
$ 370,878
$
1.57
$ 322,291
$
1.37
59420_Centerra_Financials.indd 77
27/03/12 8:21 AM
2011 ANNUAL REPORT 77
Consolidated Statements of Cash Flows
For the years ended December 31,
(Expressed in Thousands of United States Dollars)
NOTES
2011
2010
Operating activities
Net earnings
Items not requiring (providing) cash:
Depreciation, depletion and amortization
Finance costs
Loss on disposal of plant and equipment
Gain on disposal of REN property
Stock-based compensation expense
Change in long-term inventory
Income tax expense
Other operating items
Change in operating working capital
Income tax paid
Cash provided by operations
Investing activities
Net increase (decrease) in restricted cash
Additions to property, plant and equipment
Net (purchase) redemption of short-term investments
Long-term other assets
Proceeds from disposition of REN property
Proceeds from disposition of fi xed assets
Cash used in investing
Financing activities
Dividends paid
Payment of transaction costs related to borrowing
Proceeds from common shares issued for cash
Cash used in fi nancing
Increase (decrease) in cash and cash equivalents during the year
Cash and cash equivalents at beginning of the year
14(b)
30
30
$ 370,878
$ 322,291
98,840
3,545
1,305
–
1,759
703
8,130
(2,430)
482,730
(44,150)
(3,657)
434,923
(616)
(175,155)
(290,389)
(7,375)
–
19
(473,516)
(99,322)
(630)
3,347
(96,605)
(135,198)
330,737
76,087
1,467
1,964
(34,866)
1,107
10,243
4,427
(1,622)
381,098
(79,778)
(20,279)
281,041
795
(208,224)
63,693
(10,745)
34,866
44
(119,571)
(13,620)
(458)
6,441
(7,637)
153,833
176,904
Cash and cash equivalents at end of the year
$
195,539
$ 330,737
Cash and cash equivalents consist of:
Cash
Cash equivalents
The accompanying notes form an integral part of these consolidated fi nancial statements.
$
$
75,193
120,346
195,539
$
81,314
249,423
$ 330,737
78 CENTERRA GOLD INC.
2011_Centerra_Page 78-79.indd 78
Mar/31/2012 1:33 PM
Consolidated Statements of Shareholders’ Equity
(Expressed in Thousands of United States Dollars,
except share information)
Balance at January 1, 2010
Shares issued on exercise of stock options
Stock-based compensation expense
Dividends declared
Net earnings
Balance at December 31, 2010
Shares issued on exercise of stock options
Stock-based compensation expense
Dividends declared
Net earnings
Number of
Common
Shares
234,857,228
1,012,169
–
–
–
235,869,397
469,644
–
–
–
Amount
$ 646,081
9,097
–
–
–
$ 655,178
4,939
–
–
–
Contributed
Surplus
Retained
Earnings
$
$
35,376
(2,656)
1,107
–
–
33,827
(1,592)
1,759
–
–
$ 264,121
–
–
(13,620)
322,291
$ 572,792
–
–
(99,322)
370,878
Total
$ 945,578
6,441
1,107
(13,620)
322,291
$ 1,261,797
3,347
1,759
(99,322)
370,878
Balance at December 31, 2011
236,339,041
$ 660,117
$
33,994
$ 844,348
$ 1,538,459
The accompanying notes are an integral part of the consolidated fi nancial statements.
2011_Centerra_Page 78-79.indd 79
Mar/31/2012 1:33 PM
2011 ANNUAL REPORT 79
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, and December 31, 2010
(Expressed in thousands of United States Dollars)
1. GENERAL BUSINESS DESCRIPTION
Centerra Gold Inc. (“Centerra” or the “Company”) was incorporated under the Canada Business Corporations
Act on November 7, 2002. Centerra has common shares listed on the Toronto Stock Exchange (“TSX”). The
Company is domiciled in Canada and the registered offi ce is 1 University Avenue, Suite 1500, Toronto, Ontario,
M5J 2P1. The Company is engaged in the production of gold and related activities including exploration,
development, mining and processing in the Kyrgyz Republic, Mongolia, Turkey, China, the Russian Federation
and the United States of America.
2. BASIS OF PRESENTATION
a. Statement of Compliance
These consolidated fi nancial statements represent the fi rst annual fi nancial statements of the Company and its
subsidiaries prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the
International Accounting Standards Board (“IASB”). The Company adopted IFRS in accordance with IFRS 1,
First-time Adoption of International Financial Reporting Standards. As these fi nancial statements are the Company’s
fi rst annual fi nancial statements prepared using IFRS, these fi nancial statements should be read in conjunction
with the IFRS transition disclosures included in note 33 to these fi nancial statements which contains reconciliations
and descriptions of the effect of the transition from Canadian Generally Accepted Accounting Principles (“CGAAP”)
to IFRS on equity, earnings and comprehensive income, along with line-by-line reconciliations of the consolidated
statements of fi nancial position as at December 31, 2010 and January 1, 2010, and the consolidated statements of
earnings and comprehensive income for the year ended December 31, 2010. The fi rst date at which IFRS was
applied was January 1, 2010.
These fi nancial statements were authorized for issuance by the Board of Directors of the Company on
February 23, 2012.
b. Basis of measurement
These fi nancial statements were prepared under the historical cost basis, except for available for sale fi nancial
assets and derivative fi nancial instruments, which are measured at fair value, liabilities for cash settled share-
based compensation, which are measured at fair value and inventories which are measured at the lower of cost
and net realizable value.
These fi nancial statements are presented in U.S. dollars with all amounts rounded to the nearest thousand,
except for share and per share data, or as otherwise noted.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The signifi cant accounting policies summarized below have been applied consistently to all periods presented in
these consolidated fi nancial statements, including preparation of the opening IFRS statement of fi nancial position
at January 1, 2010, for the purposes of the transition to IFRS.
a. Consolidation principles
These consolidated fi nancial statements include the accounts of Centerra, its operating subsidiaries, and its
proportionate ownership of jointly-controlled entities. Subsidiaries are entities over which the Company has control,
where control is defi ned as the power to govern fi nancial and operating policies. Subsidiaries are fully consolidated
from the date control is transferred to the Company, and are de-consolidated from the date control ceases.
80 CENTERRA GOLD INC.
59420_Centerra_Financials.indd 80
27/03/12 8:21 AM
Inter-company transactions between subsidiaries are eliminated on consolidation.
Joint ventures are entities over whose activities the Company has joint control under a contractual agreement.
These consolidated fi nancial statements include the Company’s proportionate share of the entity’s assets,
liabilities, revenues and expenses with items of a similar nature on a line-by-line basis, from the date that joint
control commences until the date that joint control ceases.
The Company’s signifi cant subsidiaries and jointly-controlled entities include its wholly-owned Kumtor
Gold Company (“KGC” operating as “Kumtor”), Boroo Gold LLC (“BGC” operating as “Boroo”), Centerra Gold
Mongolia LLC (“CGM”) (owner of the Gatsuurt property and ATO property), fi fty percent interest in the Kara
Beldyr Russian joint venture and fi fty percent interest in the Öksüt Turkish joint venture.
b. Foreign currency
The functional currency of the Company and each of its subsidiaries is the U.S. dollar, which is also the presentation
currency of the consolidated fi nancial statements.
Foreign currency transactions are translated into the entity’s functional currency using the exchange rate
prevailing on the dates of the transactions. Foreign exchange gains and losses resulting from the settlement
of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognized in the income statement. Non-monetary assets and liabilities,
arising from transactions denominated in foreign currencies, are translated at the historical exchange rates
prevailing at each transaction date. Translation differences on fi nancial assets and liabilities carried at fair value
are recognized in foreign exchange gain (loss) in the Statements of Earnings and Comprehensive Income.
c. Cash and cash equivalents
Cash and cash equivalents comprise cash balances and short-term investments with original maturities of 90 days
or less. Bank overdrafts that are repayable on demand and form an integral part of Centerra’s cash management
are included as a component of cash and cash equivalents for the purpose of the statement of cash fl ows. Cash
and cash equivalents are classifi ed as fi nancial instruments carried at fair value through profi t or loss.
d. Restricted Cash
Cash which is subject to legal or contractual restrictions on use is classifi ed separately as restricted cash.
e. Short-term investments
Short-term investments consist of marketable securities with maturities of more than 90 days, but no longer
than 12 months, from the date of purchase. Short-term investments consist mostly of U.S. federal and Canadian
federal and provincial government treasury bills and notes, agency notes, foreign sovereign issues, term deposits,
bankers’ acceptances, bearer deposit notes, and highly-rated, highly-liquid corporate direct credit. Short-term
investments are classifi ed as fi nancial instruments carried at fair value through profi t or loss.
f. Inventories
Inventories of stockpiled ore, heap leach ore, in-circuit gold, heap leach in-circuit and gold doré are valued at the
lower of average production cost and net realizable value, based on contained ounces of gold. The production cost
of inventories is determined on a weighted-average basis and includes direct materials, direct labour, mine-site
overhead expenses and depreciation, depletion and amortization of mining interests.
Stockpiled ore and heap leach ore are ore that has been extracted from the mine and is available for further
processing. Costs are added to stockpiles based on the current mining cost per ounce mined and removed at the
average cost per ounce mined. Costs are added to ore on the heap leach pads based on current mining costs and
removed from the heap leach pads as ounces are recovered, based on the average cost per recoverable ounce
of gold on the leach pad. Ore in stockpiles not expected to be processed in the next twelve months is classifi ed
as long-term.
59420_Centerra_Financials.indd 81
27/03/12 8:21 AM
2011 ANNUAL REPORT 81
In-circuit inventories and gold doré represent materials that are in the process of being converted to a
saleable product. Variances between actual and estimated quantities resulting from changes in assumptions and
estimates that do not result in write downs to net realizable value (“NRV”) are accounted for on a prospective
basis. The ultimate recovery of gold inventories from the in-circuit and gold doré will not be known until the fi nal
refi ning process has concluded.
When inventories are sold, the carrying amount is recognized as an expense in the period in which the related
revenue is recognized. Any write-down of inventories to NRV or reversals of previous write-downs are recognized
in income in the period the write-down or reversal occurs. Net realizable value is the estimated selling price in the
ordinary course of business, less estimated costs of completion and estimated costs necessary to make the sale.
Consumable supplies and spare parts are valued at the lower of weighted-average cost and NRV, which is the
approximate replacement cost. Replacement cost includes expenditures incurred to acquire the inventories and
bring them to their existing location and condition. Any provision for obsolescence is determined by reference to
specifi c stock items identifi ed as obsolete. A regular and ongoing review is undertaken to establish the extent of
surplus items and a provision is made for any potential loss on their disposal.
g. Property, plant and equipment
i. General
Property, plant and equipment are recorded at cost less accumulated depreciation, depletion and impairment
charges. Where an item of plant and equipment comprises major components with different useful lives,
the components are depreciated separately but are grouped for disclosure purposes as plant and equipment.
Major overhaul expenditures and the cost of replacement of a component of plant and mobile equipment
are capitalized and amortized over the average expected life between major overhauls. All other replacement
spares and other costs relating to maintenance of mobile equipment are charged to the cost of production
if it is not probable that signifi cant future economic benefi ts generated by the item overhauled will fl ow to
the Company.
Directly attributable costs incurred for major capital projects and site preparation are capitalized until
the asset is in a location and condition necessary for the operation intended by management. These costs
include dismantling and site restoration costs to the extent these are recognized as a provision.
Management annually reviews the estimated useful lives, residual values and depreciation methods of
the Company’s property, plant and equipment and also when events and circumstances indicate that such a
review should be made. Changes to estimated useful lives, residual values or depreciation methods resulting
from such review are accounted for prospectively.
All direct costs related to the acquisition of mineral property interests are capitalized at their cost at the
date of acquisition.
An item of property, plant and equipment is derecognized upon disposal or when no further future
economic benefi ts are expected from its use or disposal. Any gain or loss arising on derecognition of the
asset (calculated as the difference between the proceeds and the carrying amount of the asset) is included
in profi t or loss in the year the asset is derecognized.
ii. Exploration, evaluation and pre-development expenditure
All exploration and evaluation expenditures of the Company within an area of interest are expensed until
management concludes that the technical feasibility and commercial viability of extracting a mineral
resource are demonstrable and that future economic benefi ts are probable. In making this determination,
the extent of exploration, as well as the degree of confi dence in the mineral resource is considered. Once
a project has been established as commercially viable and technically feasible, further expenditure is
capitalized as pre-development costs.
Exploration and evaluation assets acquired in a business combination are initially recognized at fair value
as exploration rights within tangible assets.
Pre-development assets are tested for impairment when there is an indicator of impairment.
82 CENTERRA GOLD INC.
2011_Centerra_Page 82.indd 82
02/04/12 7:11 AM
iii. Development properties (underground and open pit)
A property, either open pit or underground, is classifi ed as a development property when a mine plan has
been prepared and a decision is made to commercially develop the property. Development expenditure is
accumulated separately for each area of interest for which economically recoverable mineral reserves and
resources have been identifi ed and are reasonably assured.
All expenditure incurred prior to the commencement of commercial levels of production from each
development property is capitalized. In addition, capitalized costs are assessed for impairment when there
is an indicator of impairment.
No amortization is provided in respect of development properties until they are reclassifi ed as mine
property assets following the achievement of commercial levels of production.
iv. Mine properties
After a mine property has been brought into commercial production, costs of any additional mining, drilling
and related work on that property are expensed as incurred. Mine development costs incurred to expand
operating capacity, develop new ore bodies or develop mine areas in advance of current production,
including the stripping of waste material, are deferred and then amortized on a unit-of-production basis.
v. Deferred Stripping costs
Stripping costs incurred in the production phase of a mining operation are accounted for as production
costs and are included in the costs of inventory produced, unless the stripping activity can be shown to be
a betterment of the mineral property, in which case the stripping costs are capitalized. Betterment occurs
when stripping activity increases future output of the mine by providing access to additional reserves.
Capitalized stripping costs are amortized on a unit-of-production basis over the economically recoverable
proven and probable reserve ounces of gold to which they relate.
h. Goodwill
Goodwill represents the difference between the sum of the cost of a business acquisition and the fair value of the
identifi able net assets acquired and is not amortized, subsequently goodwill is measured at cost less accumulated
impairment loss. For non wholly-owned subsidiaries, the Company has a choice for each business acquisition
to record non-controlling interests at either fair value or at the non-controlling interest’s proportion of the fair
values of the identifi able net assets recognized at acquisition.
Goodwill, upon acquisition, is allocated to the cash-generating unit (“CGU”) expected to benefi t from the
related business combination for the purposes of impairment testing. A CGU, in accordance with IAS 36,
Impairment of Assets, is identifi ed as the smallest identifi able group of assets that generates cash infl ows,
which are largely independent of the cash infl ows from other assets.
The Company evaluates, on at least an annual basis, the carrying amount of a CGU, which has goodwill
allocated, for potential impairment. To accomplish this, the Company compares the recoverable amount (which
is the greater of value-in-use and fair value less costs to sell) of a CGU, to which goodwill was allocated, to its
carrying amount. If the carrying amount of a CGU was to exceed its recoverable amount, the Company would
fi rst apply the difference to reduce goodwill and then any further excess is applied to the CGU’s other long-lived
assets. Assumptions, such as gold price, discount rate, and expenditures underlying the fair value estimates are
subject to risks and uncertainties.
When an impairment review is undertaken, the recoverable amount is assessed by reference to the higher of
a “value-in-use” (being the net present value of expected future cash fl ows of the relevant CGU) and “fair value
less costs to sell”. The best evidence of fair value is the value obtained from an active market or binding sale
agreement. Where neither exists, fair value is based on the best information available to refl ect the amount the
Company could receive for the CGU in an arm’s length transaction. This is often estimated using discounted
cash fl ow techniques.
Where the recoverable amount is assessed using discounted cash fl ow techniques, the resulting estimates are
based on detailed mine and/or production plans.
59420_Centerra_Financials.indd 83
27/03/12 8:21 AM
2011 ANNUAL REPORT 83
For value-in-use, recent cost levels are considered together with expected changes in costs that are compatible
with the current condition of the business. The cash fl ow forecasts are based on best estimates of expected future
revenues and costs, including the future cash costs of production, sustaining capital expenditure, closure, restoration
and environmental clean-up.
Expected future cash fl ows refl ect long term mine plans, which are based on detailed research, analysis and
iterative modeling to optimize the level of return from investment, output and sequence of extraction.
The mine plan takes account of all relevant characteristics of the ore body, including waste to ore ratios, ore
grades, haul distances, chemical and metallurgical properties of the ore impacting on process recoveries and
capacities of processing equipment that can be used. The mine plan is therefore the basis for forecasting production
output in each future year and for forecasting production costs.
The Company’s cash fl ow forecasts are based on estimates of future commodity prices which are derived from
the general consensus gathered from third-party fi nancial analysts’ expectations. These assessments can differ
from current price levels and are updated periodically.
The discount rates applied to the future cash fl ow forecasts represent an estimate of the rate the market would
apply having regard to the time value of money and the risks specifi c to the asset for which the future cash fl ow
estimates have not been adjusted. The Company’s weighted-average cost of capital is used as a starting point for
determining the discount rates, with appropriate adjustments for the risk profi le of the countries in which the
individual CGUs operate.
i. Impairment
Long term assets are reviewed for impairment if there is any indication that the carrying amount may be impaired.
In addition, capitalized exploration and evaluation costs are assessed for impairment upon demonstrating
technical feasibility and commercial viability of a project. Impairment is assessed for an individual asset unless
the asset does not generate cash infl ows that are independent of those generated from other assets or groups
of assets, in which case, the individual assets are grouped together into CGUs for impairment testing purposes.
An impairment loss is recognized for any excess of carrying amount over the recoverable amount.
j. Income taxes
Tax expense for the period comprises current and deferred taxes. Tax is recognized in the income statement,
except to the extent that it relates to items recognized in other comprehensive income or directly in equity.
In that case, the related tax impact is also recognized in other comprehensive income, or directly in equity,
respectively.
Deferred income tax is recognized in the consolidated fi nancial statements, using the liability method, on
temporary differences arising between the tax bases of assets and liabilities, and their carrying amounts. However,
deferred income tax is not recognized if it arises from the initial recognition of an asset or liability in a transaction
other than a business combination that at the time of the transaction affects neither accounting, nor taxable profi t
or loss.
Deferred income tax is determined using tax rates, and laws, that have been enacted, or substantively enacted,
by the balance sheet date, and with rates that are expected to apply at the time when the related deferred income
tax asset is realized, or the deferred income tax liability is settled.
Deferred income tax assets are recognized only to the extent that it is probable that taxable profi t will be
available against which the temporary differences can be utilized.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries and joint
venture interests, except where the timing of the reversal of the temporary difference is controlled in the group,
and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current
tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income
taxes levied by the same tax authority on either the same taxable entity or in different taxable entities, and, where
there is the intent to settle the balance on a net basis.
84 CENTERRA GOLD INC.
59420_Centerra_Financials.indd 84
27/03/12 8:21 AM
k. Provisions
Provisions are recorded when a legal or constructive obligation exists as a result of past events where it is
probable that an outfl ow of resources embodying economic benefi ts will be required to settle the obligation, and
a reliable estimate of the amount of the obligation can be made. The amount recognized as a provision is the best
estimate of the consideration required to settle the present obligation estimated at the end of each reporting
period, taking into account the risks and uncertainties surrounding the obligation. A provision is measured using
the present value of cash fl ows estimated to settle the present obligation.
l. Environmental protection and reclamation costs
Closure and restoration costs include the dismantling and demolition of infrastructure and the removal of
residual materials and remediation of disturbed areas. Estimated closure and restoration costs are provided in
the accounting period when the obligation arising from the related disturbance occurs based on the net present
value of estimated future costs.
The amount of any provision recognized is estimated based on the risk-adjusted costs required to settle
present obligations, discounted using a pre-tax risk-free discount rate consistent with the time period of expected
cash fl ows.
When the liability is initially recorded, a corresponding asset is recognized. At each reporting date the
restoration and rehabilitation provisions are remeasured in line with changes in discount rates and timing or
amounts of the costs to be incurred.
Changes in the liability relating to mine rehabilitation and restoration obligations, which are not the result of
current production of inventory, are added to or deducted from the related asset. The unwinding of the discount
is recognized as a fi nance cost in the Statements of Earnings and Comprehensive Income.
m. Depreciation and depletion
Mine buildings, plant and equipment used in production and mineral properties are depreciated or depleted
according to the unit-of-production method over proven and probable ore reserves, or if their estimated useful
lives are shorter, on a straight-line basis over the useful lives of the particular assets. Under this process,
depreciation commences when the ore is extracted from the ground. The depreciation charge is allocated to
inventory throughout the production process from the point at which ore is extracted from the pit until the ore
is processed into its fi nal form, gold doré. Where a change in estimated recoverable gold ounces contained in
proven and probable ore reserves is made, adjustments to depreciation are accounted for prospectively.
Mobile equipment and other assets, such as offsite roads, buildings, offi ce furniture and equipment are
depreciated according to the straight-line method based on estimated useful lives which range from two years
to seven years, but do not exceed the related estimated mine life based on proven and probable ore reserves.
n. Earnings per share
Basic earnings per share is calculated by dividing net earnings by the weighted-average number of common
shares outstanding during the year. The calculation of diluted earnings per share uses the treasury stock method
which adjusts the weighted-average number of shares for the dilutive effect of common share equivalents, such as
stock options, performance share units and restricted share units.
o. Revenue recognition
Revenue associated with the sale of gold is recognized when all signifi cant risks and rewards of ownership
are transferred to the customer. Usually the transfer of risks and rewards associated with ownership occurs
when the customer has taken delivery and the revenue received, or to be received, in respect of the sale can be
reliably measured.
59420_Centerra_Financials.indd 85
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2011 ANNUAL REPORT 85
p. Other operating expenses and income
Other operating items of income and expense that are material and require separate disclosure are classifi ed
as other operating expenses or income on the face of the income statement. Other operating items of expenses
and income that are not recurring and that relate to the underlying performance of the business are classifi ed
as “other operating expenses (income)” and are presented below earnings (loss) from mine operations on the
statements of earnings and comprehensive income. Other non-operating items of expenses and income that do
not relate to normal operations are classifi ed as non-operating “other (income) and expenses” and are presented
below earnings (loss) from operations on the statements of earnings and comprehensive income.
q. Share-based compensation
The Company has fi ve share-based compensation plans: the Share Option Plan, Performance Share Units Plan,
Annual Performance Share Units Plan, Deferred Share Units Plan, and Restricted Share Unit Plan, which are all
described in note 25.
Stock Option Plan
Stock options are equity-settled share-based compensation awards. The fair value of stock options at the grant date
is estimated using the Black-Scholes option pricing model. Compensation expense is recognized over the stock
option vesting period based on the number of units estimated to vest. This expense is recognized as share-based
compensation expense with a corresponding increase in equity. When options are exercised, the proceeds received
by the Company, together with the fair value amount in contributed surplus, are credited to common shares.
Performance Share Units Plan and Annual Performance Share Units Plan
Under these two plans, performance share units granted by Centerra for eligible employees that are intended to
be settled in cash are accounted for under the liability method using the Monte Carlo simulated option pricing
model. Under this method, the fair value of the performance share units is determined, at each reporting period,
based on the pro-rated number of days the eligible employees are in the employment of the Company as compared
to the vesting period of each series granted. The consideration paid to employees on exercise of these performance
share units is recorded as a reduction of the accrued obligation.
Deferred Share Units Plan
Deferred share units granted to eligible members of the Board of Directors are settled in cash and are therefore
accounted for under the liability method. The deferred share units vest immediately upon granting. A liability is
recorded at grant date equal to the fair value of the deferred share units. The liability is adjusted to fair value at
each reporting period and any resulting adjustment to the accrued obligation is recognized as an expense or, if
negative, a recovery. The cash paid to eligible members of the Board of Directors on exercise of these deferred
share units is recorded as a reduction of the accrued obligation.
Restricted Share Units Plan
Restricted share units (“RSU”) granted to eligible members of the Board of Directors and designated offi cers and
employees of Centerra can be settled in cash or equity at the option of the holder. The restricted share units vest
immediately upon grant and are redeemed on a date chosen by the participant (subject to certain restrictions as
set out in the plan). The units granted are accounted for under the liability method whereby a liability is recorded
at grant date equal to the fair value of the RSU. The liability is adjusted to fair value at each reporting period and
any resulting adjustment to the accrued obligation is recognized as an expense or, if negative, a recovery. The cash
paid on exercise of these restricted share units is recorded as a reduction of the accrued obligation.
r. Financial Instruments
Financial assets are classifi ed as either fi nancial assets at fair value through profi t or loss, loans and receivables,
held-to-maturity investments, or available-for-sale fi nancial assets, as appropriate. The Company determines
the classifi cation of its fi nancial assets at initial recognition. Where, as a result of a change in intention or ability,
it is no longer appropriate to classify an investment as held-to-maturity, the investment is reclassifi ed into the
available-for-sale category. All fi nancial liabilities are initially recognized at their fair value and designated upon
inception as fi nancial liabilities measured at fair value through profi t or loss or other fi nancial liabilities.
86 CENTERRA GOLD INC.
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Transaction costs associated with fair value through profi t or loss fi nancial assets and fi nancial liabilities
are expensed as incurred, while transaction costs associated with all other fi nancial assets and other fi nancial
liabilities are included in the initial carrying amount of the asset or the liability.
Contracts that were entered into and continue to be held for the purpose of the receipt or delivery of a
non-fi nancial item in accordance with the Company’s expected purchase, sale or usage requirements fall within
the exemption available in IFRS, which is known as the ‘normal purchase or sale exemption’. The contracts
qualifying for normal purchase or sale exemption and the host part of the contracts containing embedded
derivatives are accounted for as executory contracts. The Company recognizes such contracts in its statement
of fi nancial position only when one of the parties meets its obligation under the contract to deliver either cash
or a non-fi nancial asset.
i. Financial assets
Financial assets at fair value through profi t or loss
Financial assets classifi ed as held-for-trading are included in the category fi nancial assets at fair value
through profi t or loss. Financial assets are classifi ed as held-for-trading if they are acquired for the purpose
of selling in the near term. Gains or losses on these items are recognized in profi t or loss.
The Company’s cash and cash equivalents, restricted cash, reclamation trust fund and short-term
investments are classifi ed as fi nancial assets measured at fair value through profi t or loss.
Loans and receivables
Loans and receivables are non-derivative fi nancial assets with fi xed or determinable payments that are
not quoted in an active market, do not qualify as trading assets and have not been designated as either
fair value through profi t or loss or available-for-sale. Such assets are carried at amortized cost using the
effective interest method. Gains and losses are recognized in profi t or loss when the loans and receivables
are derecognized or impaired, as well as through the amortization process.
The Company’s amounts receivable and long-term receivables are classifi ed as loans and receivables.
A provision is made where the estimated recoverable amount is lower than the carrying amount. The
Company believes the carrying values of short- and long-term investments and restricted investments
approximate their fair values.
ii. Financial liabilities
Financial liabilities at fair value through profi t or loss
Financial liabilities classifi ed as fair value through profi t or loss includes fi nancial liabilities held-for-
trading and fi nancial liabilities designated upon initial recognition as a fair value through profi t or loss
fi nancial liability. Derivatives, including separable embedded derivatives are also classifi ed as held for
trading unless they are designated as effective hedging instruments. Fair value changes on fi nancial
liabilities classifi ed as fair value through profi t or loss are recognized in profi t or loss.
The Company utilizes forward foreign exchange contracts to economically hedge certain anticipated
cash fl ows. Furthermore, the Company enters into “good until cancelled” contract to sell gold at a specifi c
price; these are short-term contracts that are closed before the end of the reporting date. These contracts
are classifi ed and accounted for as instruments “held for trading” because they do not qualify as hedges,
or are not designated as hedges and are classifi ed as fair value through profi t and loss. The contracts are
recorded at fair value at the reporting date with the resulting gain or loss recognized in the Statements
of Earnings and Comprehensive Income.
The Company’s contracts are classifi ed as fi nancial liabilities at fair value through profi t and loss.
Other fi nancial liabilities
Borrowings and other fi nancial liabilities, excluding derivative liabilities, are recognized initially at fair
value, net of transaction costs incurred and are subsequently stated at amortized cost. Any difference
between the amounts originally received net of transaction costs and the redemption value is recognized in
profi t or loss, or capitalized if directly attributable to a qualifying asset, over the period to maturity using
the effective interest method.
2011 ANNUAL REPORT 87
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Borrowings and other fi nancial liabilities are classifi ed as current liabilities unless the Company has
an unconditional right to defer settlement of the liability for at least twelve months after the consolidated
statement of fi nancial position date.
The Company’s trade and other payables are classifi ed as other fi nancial liabilities.
4. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
The preparation of consolidated fi nancial statements in accordance with the requirements of IFRS requires
management to make judgments, estimates and assumptions that affect the application of the Company’s
accounting policies, which are described in note 3. Actual results may differ from these estimates.
Management’s estimates and underlying assumptions are reviewed on an ongoing basis. Any changes or
revisions to estimates and underlying assumptions are recognized in the period in which the estimates are
revised and in any future periods affected.
The signifi cant estimates and judgments used in the preparation of these consolidated fi nancial statements
include but are not limited to:
i. Share-based Compensation
Share based compensation costs recognized for the share-based compensation plans are subject to the
estimate of what the ultimate payout will be using the Black-Scholes option pricing model, Monte Carlo
simulation model, which are based on signifi cant assumptions such as volatility, expected life, expected
dividends, risk-free interest rate and expected forfeiture rates.
ii. Asset retirement obligation
Amounts recorded for asset retirement obligations and the related accretion expense require the use of
estimates of the future costs the Company will incur to complete the reclamation and remediation work
required to comply with existing laws and regulations at each mine site. The Company assesses and revises
its asset retirement obligations on an annual basis or when new material information become available.
Actual costs incurred may differ from those amounts estimated. Also, future changes to environmental laws
and regulations could increase the extent of reclamation and remediation work required to be performed
by the Company. Increases in future costs could materially impact the amounts charged to operations for
reclamation and remediation. The provision represents management’s best estimate of the present value
of the future reclamation and remediation obligation. The actual future expenditures may differ from the
amounts currently provided.
iii. Reserves
Certain assumptions are dependent upon reserves, which represent the estimated amount of ore that
can be economically and legally extracted from the Company’s properties. In order to estimate reserves,
assumptions are required about a range of geological, technical and economic factors, including quantities,
grades, production techniques, recovery rates, production costs, transportation costs, commodity demand,
commodity prices and exchange rates. Estimating the quantity and/or grade of reserves requires the size,
shape and depth of ore bodies to be determined by analyzing geological data such as drilling samples.
This process may require complex and diffi cult geological judgments to interpret the data. Economic
assumptions used to estimate reserves could change from period to period and as additional geological
data is generated during the course of operations, estimates of reserves may change from period to period.
Changes in reported reserves may affect the Company’s fi nancial results and fi nancial position.
iv. Depreciation, depletion and amortization period for property plant and equipment
The Corporation makes estimates about the expected useful lives of property plant and equipment and the
expected residual values of the assets based on the estimated current fair value of the assets, the Company’s
mine plan and the cash fl ows they generate. Changes to these estimates, which can be signifi cant, could
be caused by a variety of factors, including future production differing from current forecasts of future
production, expansion of mineral reserves through exploration activities, differences between estimated
and actual costs of mining and differences in gold price used in the estimation of mineral reserves.
88 CENTERRA GOLD INC.
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Signifi cant judgment is involved in the determination of useful life and residual values for the computation
of depreciation, depletion and amortization and no assurance can be given that actual useful lives and
residual values will not differ signifi cantly from current assumptions.
v. Impairment of long-term assets
An impairment test is performed by comparing the carrying amount of the asset or CGU to their recoverable
amount, which is calculated as the higher of an asset’s or CGU’s fair value less costs to sell. Fair value less
costs to sell is calculated based upon a discounted cash fl ow analysis, which requires management to make
a number of signifi cant assumptions including assumptions relating to future operating plans, gold prices,
discount rates, exchange rates and future growth rates. Please see note 11 for additional information.
vi. Deferred income taxes
The Company operates in a number of tax jurisdictions and is, therefore, required to estimate its income
taxes in each of these tax jurisdictions in preparing its fi nancial statements. In calculating the income taxes,
consideration is given to factors such as tax rates in the different jurisdictions, non-deductible expenses,
valuation allowances, and changes in tax law and management’s expectations of future results. The Company
estimates deferred income taxes based on temporary differences between the income and losses reported
in its fi nancial statements and its taxable income and losses as determined under the applicable tax laws.
The tax effect of these temporary differences is recorded as deferred tax assets or liabilities in the fi nancial
statements. The calculation of income taxes requires the use of judgment and estimates. If these judgments
and estimates prove to be inaccurate, future earnings may be materially impacted.
vii. Inventories of stockpiles ore, in-circuit and Gold doré
In determining mine operating costs recognized in the Consolidated Statements of Earnings and
Comprehensive income, the Company’s management makes estimates of quantities of ore stacked on
heap leach pads and in process and the recoverable gold in this material to determine the average costs of
fi nished goods sold during the period. Changes in these estimates can result in a change in mine operating
costs of future periods and carrying amounts of inventories.
5. FUTURE CHANGES IN ACCOUNTING POLICIES
Recently issued but not adopted accounting guidance are as follows:
IFRS 7 Financial Instruments – Disclosures (“IFRS 7”) was amended by the IASB in October 2010 and provides
guidance on identifying transfers of fi nancial assets and continuing involvement in transferred assets for
disclosure purposes. The amendments introduce new disclosure requirements for transfers of fi nancial assets
including disclosures for fi nancial assets that are not derecognized in their entirety, and for fi nancial assets that
are derecognized in their entirety but for which continuing involvement is retained. The Company intends to
adopt IFRS 7 in its fi nancial statements for the annual period beginning on January 1, 2013. The Company does
not expect IFRS 7 to have a material impact on its fi nancial statements.
The IASB has issued IFRS 9 Financial Instruments (“IFRS 9”) which proposes to replace IAS 39 Financial
Instruments Recognition and Measurement. The replacement standard has the following signifi cant
components: establishes two primary measurement categories for fi nancial assets — amortized cost and fair
value; establishes criteria for classifi cation of fi nancial assets within the measurement category based on
business model and cash fl ow characteristics; and eliminates existing held to maturity, available-for-sale and
loans and receivable categories.
This standard is effective for the Company’s annual year end beginning January 1, 2015 (as amended from
January 1, 2013 by the IASB in December 2011). The Company will evaluate the impact of the change to its
consolidated fi nancial statements based on the characteristics of its fi nancial instruments at the time of adoption.
IFRS 10 Consolidated Financial Statements (“IFRS 10”), which replaces parts of IAS 27, Consolidated and
Separate Financial Statements (“IAS 27”) and all of SIC-12 Consolidation – Special Purpose Entities, changes the
defi nition of control which is the determining factor in whether an entity should be consolidated. Under IFRS 10,
an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with
2011 ANNUAL REPORT 89
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the investee and has the ability to affect those returns through its power over the investee. The Company intends
to adopt IFRS 10 in its fi nancial statements for the annual period beginning on January 1, 2013. The Company
does not expect IFRS 10 to have a material impact on its fi nancial statements.
IFRS 11 Joint Arrangements (“IFRS 11”), which replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly
Controlled Entities – Non-monetary Contributions by Venturers, requires a venturer to classify its interest in a joint
arrangement as either a joint operation or a joint venture. For a joint operation, the joint operator will recognize
its assets, liabilities, revenue and expenses, and/or its relative share thereof. For a joint venture, the joint venturer
will account for its interest in the venture’s net assets using the equity method of accounting. The choice to
proportionally consolidate joint ventures is prohibited. This new standard is applicable for accounting periods
beginning January 1, 2013. The Company is assessing the impact of IFRS 11 on its results of operations and
fi nancial position and will adopt IFRS 11 in its fi nancial statements effective from January 1, 2013.
IFRS 12 Disclosure of Interests in Other Entities is a new and comprehensive standard on disclosure
requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose
vehicles and other off-balance sheet vehicles. The required disclosures aim to provide information in order to
enable users to evaluate the nature of, and the risks associated with, an entity’s interest in other entities, and the
effects of those interests on the entity’s fi nancial position, fi nancial performance and cash fl ows. The Company
intends to adopt IFRS 12 in its fi nancial statements for the annual period beginning on January 1, 2013. The
Company does not expect IFRS 12 to have a material impact on its fi nancial statements except additional
disclosure requirements.
IFRS 13 Fair Value Measurement replaces the fair value measurement guidance contained in individual IFRSs
with a single source of fair value measurement guidance. It defi nes fair value as the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date, i.e. an exit price. The standard also establishes a framework for measuring fair value and sets
out disclosure requirements for fair value measurements to provide information that enables fi nancial statement
users to assess the methods and inputs used to develop fair value measurements and, for recurring fair value
measurements that use signifi cant unobservable inputs (Level 3), the effect of the measurements on profi t or loss
or other comprehensive income. The Company intends to adopt IFRS 13 in its fi nancial statements for the annual
period beginning on January 1, 2013. The Company does not expect IFRS 13 to have a material impact on its
fi nancial statements.
IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine sets out the accounting for overburden
waste removal (stripping) costs in the production phase of a mine. The new interpretation clarifi es when
production stripping should lead to the recognition of an asset and how that asset should be measured, both
initially and in subsequent periods. It considers when and how to account separately for benefi ts arising from
the stripping activity and how to measure these benefi ts both initially and subsequently. The benefi ts include
usable ore that can be used to produce inventory and improved access to further quantities of material that will
be mined in future periods. It prescribes that the costs of stripping activity be accounted for in accordance with
the principles of IAS 2 Inventories to the extent that the benefi t from the stripping activity is realized in the form
of inventory produced. On the other hand, the costs of stripping activity which provides a benefi t in the form of
improved access to ore is recognized as a non-current ‘stripping activity asset’ when specifi ed criteria are met.
The Company intends to adopt IFRS 13 in its fi nancial statements for the annual period beginning on January 1,
2013. The Company does not expect IFRIC 20 to have a material impact on its fi nancial statements.
6. RESTRICTED CASH
Restricted cash of $0.2 million (December 31, 2010–$0.8 million) consists of cash deposited by Boroo in an escrow
bank account, created in compliance with a memorandum of understanding agreed with the Ministry of Health of
Mongolia. The cash deposited are expected to be used to fund the design and construction of a maternity hospital
in Ulaanbaatar. Further funding and release of the funds is pursuant to the terms of a Defi nitive Agreement signed
April 22, 2011 between Boroo, CGM and the Ministry of Health of Mongolia.
90 CENTERRA GOLD INC.
59420_Centerra_Financials.indd 90
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7. AMOUNTS RECEIVABLE
(Thousands of US$)
Gold sales receivable from related party (note 27)
Gold sales receivable from third party
Other receivables
December 31 December 31
2010
2011
January 1
2010
$
$
47,366
–
9,383
56,749
$
88,997
3,760
7,805
$ 100,562
$
$
37,861
823
5,597
44,281
The aging of gross amounts receivable at each reporting date was as follows:
(Thousands of US$)
Less than 1 month
1 to 3 months
Over 3 months
December 31 December 31
2010
2011
$
$
49,817
5,642
1,290
56,749
$
94,203
5,086
1,273
$ 100,562
January 1
2010
$ 40,650
3,631
–
44,281
$
The Company has not recorded any allowance for credit losses for the periods presented above.
8. INVENTORIES
(Thousands of US$)
Stockpiles (a)
Gold in-circuit
Heap leach in-circuit
Gold doré
Total inventory of stockpiles and metal
Supplies (net of provision for obsolescence)
Less: Long-term inventory (heap leach stockpiles)
Total Inventories – current portion
December 31 December 31
2010
2011
January 1
2010
$ 105,635
16,343
3,359
10,645
135,982
156,136
292,118
(12,174)
$ 279,944
$
$
64,523
6,881
3,687
6,023
81,114
113,396
194,510
(12,877)
181,633
$
$
50,234
5,045
4,908
8,818
69,005
105,937
174,942
(23,120)
151,822
(a) During the fi rst half of 2011, the Company recorded an adjustment of $6.5 million to reverse the write down previously incurred on sub-grade ore stockpiles at Kumtor, as the
market and operational conditions causing the write down had improved. The reversal of the write down increased inventory and decreased cost of sales. As at December 31,
2011, $5.2 million of the reversed amount remained in inventory of stockpiled ore.
The amount of the provision for obsolescence of mine operating supplies compared to net realizable value, as
presented in the table below, increased by $0.9 million for the year ended December 31, 2011 (December 31, 2010
– $0.5 million and January 1, 2010 – $0.7 million).
Movements in the provision for obsolescence are recognized as expense. This expense is included in cost of
sales which is disclosed in note 17.
(Thousands of US$)
Total inventories
Less: provision for obsolescence
Total Inventories
December 31 December 31
2010
2011
January 1
2010
$ 282,145
(2,201)
$ 279,944
$
$
182,937
(1,304)
181,633
$ 152,620
(798)
151,822
$
59420_Centerra_Financials.indd 91
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2011 ANNUAL REPORT 91
9. PROPERTY, PLANT AND EQUIPMENT
The following is a summary of the carrying value of property, plant and equipment:
(Thousands of US$)
Cost
Balance Jan 1, 2010
Additions
Disposals
Reclassifi cation
Balance Dec 31, 2010
Additions
Disposals
Reclassifi cation
Balance Dec 31, 2011
Accumulated depreciation
Balance Jan 1, 2010
Charge for the year
Disposals
Reclassifi cation
Balance Dec 31, 2010
Charge for the year
Disposals
Reclassifi cation
Balance Dec 31, 2011
Net book value
Balance Jan 1, 2010
Balance Dec 31, 2010
Balance Dec 31, 2011
Mine
buildings
Plant and
equipment
Mineral
properties
Capitalized
stripping
costs
Mobile
Equipment
Construction
in progress
(“CIP”)
$ 47,318
6,240
–
357
53,915
310
(389)
–
$ 53,836
$ 28,372
3,543
–
340
32,255
2,367
(384)
–
$ 34,238
$ 295,187
15,071
(990)
1,651
310,919
11,979
(1,049)
926
$ 322,775
$ 184,513
17,557
(185)
(5,059)
196,826
12,331
(701)
–
$ 208,456
$ 160,645
10,425
(898)
(985)
169,187
18,512
–
(265)
$ 187,434
$ 108,081
9,034
(897)
139
116,357
7,556
(3)
–
$ 123,910
$ 56,700
–
–
14,651
71,351
44,847
–
–
$ 116,198
$ 31,066
9,206
–
–
40,272
35,475
–
–
$ 75,747
$ 168,220
103,252
(18,924)
12,238
264,786
102,426
(20,588)
303
$ 346,927
$ 81,794
46,888
(18,349)
4,580
114,913
78,304
(20,008)
–
$ 173,209
$ 88,006
90,017
(627)
(27,912)
149,484
30,415
(394)
(964)
$ 178,541
$
$
–
–
–
–
–
–
–
–
–
Total
$ 816,076
225,005
(21,439)
–
1,019,642
208,489
(22,420)
–
$ 1,205,711
$ 433,826
86,228
(19,431)
–
500,623
136,033
(21,096)
–
$ 615,560
$ 18,946
21,660
$ 19,598
$ 110,674
114,093
$ 114,319
$ 52,564
52,830
$ 63,524
$ 25,634
31,079
$ 40,451
$ 86,426
149,873
$ 173,718
$ 88,006
149,484
$ 178,541
$ 382,250
519,019
$ 590,151
10. JOINTLY-CONTROLLED INTERESTS
The Company proportionately consolidates its fi fty percent interest in the Kara Beldyr Russian joint venture and
fi fty percent interest in the Öksüt Turkish joint venture which it jointly controls. Included in the consolidated
fi nancial statements are the following items that represent the Company’s interests in the assets and liabilities
and expenses of these joint ventures:
(Thousands of US$)
January 1, 2010
December 31, 2010
December 31, 2011
Current Non-current
assets
assets
Current
liabilities
Expenses
$
$
$
–
192
151
$
$
$
–
136
246
$
$
$
–
(4)
(129)
$
$
$
–
206
1,470
92 CENTERRA GOLD INC.
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11. GOODWILL
The Company has two cash-generating units (“CGU”), one in the Kyrgyz Republic and one in Mongolia, of
which only the Kyrgyz CGU carries goodwill. The carrying value of goodwill for the Kyrgyz Republic remained
unchanged at $129.7 million over the reporting periods ended December 31, 2011, December 31, 2010 and
January 1, 2010.
Annual Test as at September 1, 2011:
The Company performed its annual test for goodwill impairment as at September 1, 2011 in accordance with its
policy described in note 3.
In the absence of an active sales market for the Kyrgyz operations, the Company has applied the fair value less
cost to sell methodology to determine the recoverable amount of the Kyrgyz CGU in testing for impairment. The
net asset value (“NAV”) of the Kyrgyz CGU is determined based on a discounted cash fl ow analysis, with the
associated recoverable amount determined using a market multiple of the NAV as public gold companies typically
trade at a market capitalization that is based on a multiple of their underlying NAV. As an industry participant
would include the future use, including any expansion projects over the life-of-mine (LOM) in determining
fair value, the Company has included future conversion of resources into production and the associated capital
and development expenditure in the discounted cash fl ow estimates. As part of the Company’s annual reserve
estimation process, each CGU updates its LOM plan which optimizes the production of its proven and probable
reserves. The LOM is enhanced with the inclusion of resource conversion based on management’s best estimate
of convertibility. The resulting valuation model summarizes the cash fl ows which management expects to
generate over the mine’s life, using various business and economic assumptions.
Key assumptions used in building this cash fl ow model and for calculating the Kyrgyz CGU present value used
in this impairment test were as follows:
i. For the September 1, 2011 impairment test, gold price per ounce used was $1,700 per ounce for the balance
of 2011, $1,545 per ounce for 2012, $1,450 per ounce for 2013, $1,300 per ounce for 2014 and $1,100 per
ounce for 2015 onwards. Management determined gold prices based on the most recent market commodity
price forecasts consensus up to September 1, 2011 from a number of recognized fi nancial analysts.
For the September 1, 2010 impairment test, gold price per ounce used was $1,181 per ounce for the
balance of 2010, $1,206 per ounce for 2011, $1,157 per ounce for 2012 and $1,027 per ounce for 2013,
$1,018 per ounce for 2014, $1,003 per ounce for 2015 and $950 per ounce for 2016.
ii. Total production over the life of the Kumtor mine of 6.9 million ounces (2010 – 6.7 million ounces) used in
the cash fl ow model as at the date of the evaluation (September 1, 2011), includes 2.4 million ounces (2010
– 2.6 million ounces) of converted resources. Management expect that the Kyrgyz CGU to continue mining
and processing ore (including converted resources) through 2024. Management determined its planned
production profi le and total life of mine production based on its development activity to date and its
current mine and processing plans.
iii. The real after tax discount rate of 11.5% (2010 – 11.6%) based on the Company’s estimated weighted-
average cost of capital (as confi rmed with third party) giving consideration to risks associated with the
Kyrgyz cash fl ows.
Impact of changes to key assumptions
The fair value of the Kyrgyz CGU was well in excess of its carrying value. Based on sensitivity analysis, no
reasonable change in assumptions would cause the carrying amount of the CGU to exceed its recoverable amount.
As a result, management concluded that current circumstances did not indicate that the carrying value of the
Kyrgyz reporting unit exceeded its fair value and thus no impairment of its goodwill was required at this time.
59420_Centerra_Financials.indd 93
27/03/12 8:21 AM
2011 ANNUAL REPORT 93
12. LONG-TERM RECEIVABLES AND OTHER
(Thousands of US$)
Reclamation trust fund (note 16)
Other long term receivables
Deferred fi nancing fees (note 15)
Other assets (a)
Total
December 31 December 31
2010
2011
January 1
2010
$
$
9,081
4
2,474
13,115
24,674
$ 7,448
46
3,100
6,705
$ 17,299
$
$
6,443
111
–
–
6,554
(a) Includes $12.9 million (December 31, 2010–$4.3 million) of cash deposited for the purchase of mobile equipment.
13. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
(Thousands of US$)
Trade creditors and accruals
Liability for share-based compensation
Amount payable to related parties
Total
December 31 December 31
2010
2011
$
$
34,411
41,974
–
76,385
$
$
29,428
41,481
–
70,909
January 1
2010
$
$
31,420
17,503
175
49,098
14. TAXES
a. Revenue-Based Taxes – Kumtor
Revenue-based taxes are payable to the Kyrgyz Government under the Restated Investment Agreement which
received the approval of the Kyrgyz parliament on April 30, 2009.
Under the Restated Investment Agreement, taxes are imposed at a rate of 13% of gross revenue. In addition,
effective January 1, 2009, a contribution of 1% of gross revenue is made to the Issyk-Kul Oblast Development Fund.
During the period ended December 31, 2011, the 13% revenue-based tax expense recorded by Kumtor was
$122.3 million ($91.6 million in 2010), while the Issyk-Kul Oblast Development Fund of 1% of gross revenue totalled
$9.4 million ($7.0 million in 2010).
As at December 31, 2011, $15.2 million revenue-based tax is payable to the Kyrgyz Government (December 31,
2010 – $25.5 million and January 1, 2010 – $29.4 million).
At the request of the Kyrgyz Government, Kumtor provided an advance of taxes of $2 million at December 31,
2011, which will be applied against the revenue-based taxes otherwise payable in January 2012. Taxes were also
advanced at the request of the Kyrgyz Government in the third quarter of 2010 totalling $11 million. This advance
was outstanding as at December 31, 2010 and was fully applied against Kumtor’s 2010 revenue-based tax obligation
in January 2011.
b. Income Tax Expense
(Thousands of US$)
Current income tax
Deferred income tax
Total income tax expense
2011
2,856
5,274
8,130
$
$
2010
16,398
(11,971)
4,427
$
$
No entities, other than those in the Mongolian segment, recorded an income tax expense during the years ended
December 31, 2011 and December 31, 2010.
94 CENTERRA GOLD INC.
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The provision for income tax differs from the amount that would arise using the weighted average tax rate
applicable to profi ts of the consolidated entities as follows:
(Thousands of US$)
Profi t before income tax
Income tax calculated at domestic tax rates applicable to profi ts in the respective countries
Income tax effects of:
Difference between Canadian rate and rates applicable to subsidiaries in other countries
Change in unrecognized deductible temporary differences
Impact of foreign currency movements
Non-deductible employee costs
Non-deductible inter-company dividend
Other non-deductible expenses or non-taxable items
Income Tax Expense
2011
2010
$ 379,008
107,070
$ 326,718
101,283
(121,621)
11,555
2,032
1,200
–
7,894
8,130
$
(93,955)
(5,782)
(11,575)
1,639
6,512
6,305
4,427
$
c. Deferred Income Tax
The signifi cant components of deferred income tax assets and liabilities are as follows:
(Thousands of US$)
Deferred income tax assets:
Inventory
Provisions – asset retirement obligation
Total deferred tax assets
Deferred income tax liabilities:
Cash and cash equivalents
Short-term investments
Property plant and equipment
Other
Total deferred tax liabilities
December 31 December 31
2010
2011
January 1
2010
$
2,487
2,682
5,169
$
1,452
2,089
3,541
$
696
2,599
3,295
(685)
(930)
(5,229)
(222)
(7,066)
–
–
(174)
–
(174)
(2,509)
(5,825)
(3,568)
(31)
(11,933)
Net deferred income tax assets/(liabilities)
$
(1,897)
$
3,367
$
(8,638)
The company had the following positions in respect of which no deferred income tax asset has been recognized:
(Thousands of US$)
December 31, 2011
Expiring within one to
fi ve years
Expiring after fi ve years
No expiry date
(Thousands of US$)
December 31, 2010
Expiring within one to
fi ve years
Expiring after fi ve years
No expiry date
Tax losses-
income
Tax losses-
Capital
Non
Deductibles
Reserves
Exploration
$
15,889
142,499
386
$ 158,774
$
$
–
–
31,629
31,629
$
$
–
–
23,433
23,433
$
–
–
43,443
$ 43,443
Tax losses-
income
Tax losses-
Capital
Exploration
Non
Deductibles
Reserves
$
14,805
106,574
523
121,902
$
$
$
–
–
31,994
31,994
$
$
–
–
19,693
19,693
$
$
–
–
37,276
37,276
Other
Total
–
–
6,854
6,854
$
15,889
142,499
105,745
$ 264,133
Other
Total
–
–
8,927
8,927
$
14,805
106,574
98,413
$ 219,792
$
$
$
$
2011 ANNUAL REPORT 95
59420_Centerra_Financials.indd 95
27/03/12 8:21 AM
(Thousands of US$)
January 1, 2010
Expiring within one to
fi ve years
Expiring after fi ve years
No expiry date
Tax losses-
income
Tax losses-
Capital
Exploration
Non
Deductibles
Reserves
Other
Total
$
1,311
118,044
428
119,783
$
$
$
–
–
30,405
30,405
$
$
–
–
64,189
64,189
$
$
–
–
–
–
$
$
–
–
4,414
4,414
$
1,311
118,044
99,436
$ 218,791
No deferred tax liabilities have been recognized in respect of the aggregate amount of $1,319 million ($999 million
as at December 31, 2010) of taxable temporary differences associated with investments in subsidiaries and
interests in joint ventures, as the Company controls the timing and circumstances of the reversal of these
differences, the occurrence of which is not anticipated to reverse in the foreseeable future.
15. BORROWINGS
On November 16, 2010 the Company entered into a three-year $150 million revolving credit facility (the “Facility”)
with the European Bank for Reconstruction and Development (“EBRD”) as sole lender. On April 15, 2011, the
Company, completed and satisfi ed all the conditions precedent related to the Facility.
The Facility is for general corporate purposes, permitted acquisitions, working capital, capital expenditures
and intercompany loans and/or capital contributions to fi nance the development of the Company’s existing
properties in the Kyrgyz Republic and Mongolia, and for future investments in other countries where EBRD
operates.
The terms of the Facility require the Company to pledge certain mobile equipment at Kumtor as security and
maintain compliance with specifi ed covenants including fi nancial covenants. The Company was in compliance
with the covenants for the year ended December 31, 2011 and for the period from November 16, 2010 through the
remainder of 2010.
Amounts drawn on the Facility bear interest at LIBOR plus 2.9%, payable in arrears at the end of each interest
period of either three or six months. A commitment (standby) fee is also payable, semi-annually in arrears, on the
undrawn amount of the Facility. A fee of 0.75% is applied to the undrawn portion of the Facility where less than
50% of the facility amount is drawn, or 0.50% where at least 50% of the facility amount is drawn.
For the year ended December 31, 2011, the Company expensed commitment fees of $0.9 million. As at
December 31, 2011, the Facility remained undrawn.
16. PROVISIONS
Asset Retirement Obligations
(Thousands of US$)
Kumtor gold mine
Boroo gold mine
Less: current portion
Total long-term provisions
96 CENTERRA GOLD INC.
December 31 December 31
2010
2011
January 1
2010
$
$
30,378
25,247
55,625
(1,848)
53,777
$
$
22,088
18,345
40,433
(9,553)
30,880
$
$
17,927
16,018
33,945
(7,399)
26,546
59420_Centerra_Financials.indd 96
27/03/12 8:21 AM
Centerra’s estimates of future asset retirement obligations are based on reclamation standards that meet
regulatory requirements. Elements of uncertainty in estimating these amounts include potential changes in
regulatory requirements, reclamation plans and cost estimates, discount rates and timing of expected
expenditures.
The Company estimates its total undiscounted future decommissioning and reclamation costs at December 31,
2011 to be $62.9 million (December 31, 2010 – $48.5 million and January 1, 2010 – $42.8 million). The following is
a summary of the key assumptions on which the carrying amount of the asset retirement obligations is based:
a. Expected timing of payment of the cash fl ows is based on the LOM plans.
b.
Ongoing reclamation spending continues at Boroo, while at Kumtor reclamation is expected to start at the
end of the mine life in 2021.
Risk-free discount rates of 2% at Kumtor and 0.6% at Boroo at December 31, 2011 (December 31, 2010
– 3.18% at Kumtor and 2.0% at Boroo and January 1, 2010 – 3.85% at Kumtor and 3.39% at Boroo).
c.
The following is a reconciliation of the total discounted liability for asset retirement obligations:
(Thousands of US$)
Balance at January 1
Liabilities paid
Revisions in estimated timing and amount of cash fl ows
Impact of revisions in estimated timing and amount of cash fl ows recorded in earnings
Gain on liabilities incurred
Accretion expense
Less: current portion
Balance at December 31
2011
$ 40,433
(2,446)
15,942
494
–
1,202
55,625
(1,848)
53,777
$
2010
33,945
(1,626)
7,070
234
(423)
1,233
40,433
(9,553)
30,880
$
$
In 1998, a Reclamation Trust Fund was established to cover the future costs of reclamation at the Kumtor gold
mine, net of salvage values. This restricted cash is funded on the units of production method, annually in arrears,
over the life of the mine and on December 31, 2011 was $9.1 million (December 31, 2010 – $7.5 million and
January 1, 2010 – $6.4 million) (note 12).
In December 2011, the Company revised the closure plan at Boroo with effect of deferring the reclamation
spending at the site from 2015 to 2018 and updated the closure cost plans for Kumtor and Boroo. As a result of
deferring the reclamation spending, decrease in discount rate and an update to the closure cost plan, the present
value of the obligation at Boroo increased by $8.9 million with an offsetting increase in reclamation asset. A similar
update to Kumtor’s closure cost plan and decrease in discount rate resulted in an increase to the obligation of
$7.5 million, with $0.5 million of the increase charged to earnings and $7.0 million recorded as an increase in the
reclamation asset, included as part of property plant and equipment.
In December 2010, the Company revised the estimated mine life at Kumtor with the effect of deferring the
reclamation spending at the site, and updated the discount rate and the closure cost plans for Kumtor and Boroo.
As a result of the increase in estimated mine life, decrease in discount rate and update to closure plan the present
value of the obligation at Kumtor was increased by $3.4 million, with $0.2 million of the increase charged to
earnings and $3.2 million recorded as an increase in the reclamation asset, included as part of property plant and
equipment. A similar update to Boroo’s closure cost plan resulted in an increase to the obligation of $3.9 million
with an offsetting increase in the reclamation asset.
59420_Centerra_Financials.indd 97
27/03/12 8:21 AM
2011 ANNUAL REPORT 97
17. COST OF SALES
(Thousands of US$)
Operating costs:
Salaries and benefi ts (a)
Share-based compensation
Consumables
Third party services
Other operating costs
Royalties, levies & production taxes
Changes in inventories and impairment
Inventories obsolescence (note 8)
Depreciation, depletion and amortization
2011
2010
$
78,588
1,932
212,240
5,055
16,221
4,321
(35,336)
283,021
897
98,377
$ 382,295
$
48,191
6,466
194,490
5,660
14,377
7,579
(10,670)
266,093
506
75,591
$ 342,190
(a) Included in the amounts shown for the year ended December 31, 2011, is $14.1 million recorded for the settlement of the Kyrgyz Social Fund assessment between Kumtor and the
Kyrgyz Government, in respect of the base wages of Kumtor’s national employees, for the fi rst nine months of 2011 and the full year of 2010. In late 2010, the Social Fund notifi ed
the Company of its position that the Company should pay contributions to the Social Fund not only in respect of base wages but also in respect of the premium compensation that
the Company is required to pay employees for work at high-altitude. As a result of the revised basis for calculation of the Company’s social fund contributions including the high
altitude premium, an additional $2.3 million was paid in the fourth quarter of 2011 as the Company contributions to the Social Fund.
18. MINE STANDBY COSTS
Over a period of 11 days ended May 28, 2011, the Company’s SAG mill plant at Boroo was temporarily shutdown
due to a failure in the SAG mill exciter. The milling and production processes were stopped during the shutdown.
The Company incurred and expensed $0.2 million in labour, maintenance and mine support costs directly as a
result of the shutdown at Boroo for the year ended December 31, 2011.
Over a period of 10 days ended October 10, 2010 the Company’s mining operations at Kumtor were temporarily
suspended due to a labour dispute initiated by unionized workers of the Kumtor Operating Company. The Company
incurred and expensed $1.3 million in labour, maintenance and mine support costs directly as a result of the
labour dispute at Kumtor for the year ended December 31, 2010.
19. OTHER OPERATING EXPENSES
(Thousands of US$)
Social development contributions (a)
Claim settlement (b)
Net Alluvial production (income) expenses (c)
Project care and maintenance (d)
2011
12,641
2,587
(129)
372
15,471
$
$
$
$
2010
8,713
–
(726)
–
7,987
(a) During the year ended December 31, 2011, the Company, through its subsidiary Kumtor, contributed $10 million to be used for the refurbishment of schools through the
subsidiary’s Community Development and Initiatives program in the Kyrgyz Republic. During the year ended December 31, 2010, the Company recorded $6.4 million
representing the estimated amount to settle a constructive obligation for the construction and equipping of a maternity hospital in Ulaanbaatar through the Boroo Community
Development and Initiatives program in Mongolia.
(b) The Company through its wholly-owned subsidiary, Boroo Gold LLC, which owns the Boroo project, accrued $2.6 million relating to the settlement of a claim for compensation
that it received from the Mongolian General Department of Specialized Inspection (“SSIA”) in October 2009 following the June 2009 inspection at the Boroo project. The claim
related to certain mineral reserves, including state alluvial reserves covered by the Boroo project licenses that are recorded in the Mongolian state reserves registry, but for which
there are no or incomplete records or reports of mining activity.
(c) Beginning in 2009, the Company engaged a third party to mine and process an alluvial deposit located on the Boroo mining concession. During 2011, $0.1 million (2010 –
$0.7 million) was received as the Company’s share of the net income from the mining, processing and sale of gold doré from the alluvial deposit.
(d) Care and maintenance costs of $0.4 million were recorded in 2011 to maintain the site at the Gatsuurt development project. See note 26 for further details.
98 CENTERRA GOLD INC.
59420_Centerra_Financials.indd 98
27/03/12 8:21 AM
20. EXPLORATION AND BUSINESS DEVELOPMENT COSTS
(Thousands of US$)
Exploration:
Mine sites exploration
Advanced projects
Generative exploration and other projects
Exploration administration
Total exploration
Business development
Total
21. CORPORATE ADMINISTRATION
(Thousands of US$)
Administration and offi ce (a)
Professional fees
Salaries and benefi ts
Share-based compensation (b)
Depreciation and amortization
Total
2011
2010
$
12,715
12,889
10,595
3,399
39,598
3,296
$ 42,894
2011
$
7,876
4,835
14,396
17,333
462
$ 44,902
$
$
$
$
11,505
7,442
10,188
2,161
31,296
1,150
32,446
2010
4,164
7,043
11,881
28,686
496
52,270
(a) Includes administrative and offi ce costs for the Toronto corporate offi ce and other corporate entities (holding companies).
(b) Share-based compensation includes a non-cash item for stock option amortization expenses, of $1.8 million and $1.1 million for the years ended December 31, 2011 and 2010,
respectively.
22. OTHER (INCOME) AND EXPENSES
(Thousands of US$)
Interest income
Loss on disposal of assets
Bank charges
Foreign exchange gain
Other (income)/expenses
Net
23. FINANCE COSTS
(Thousands of US$)
Revolving credit facility:
Amortization of deferred costs
Commitment fees
Other revolving credit facility costs
Accretion expense and impact of revisions on provision for reclamation (note 16)
2011
(1,175)
484
71
(92)
(344)
(1,056)
$
$
2010
(721)
1,127
86
(171)
269
590
2011
2010
772
900
177
1,696
3,545
$
$
–
–
–
1,467
1,467
$
$
$
$
24. DISPOSAL OF INTEREST IN REN PROPERTY
On July 2, 2010, the Company closed the sale of its interest in the REN exploration project to Homestake Mining
Company of California (a subsidiary of Barrick Gold Corporation) for gross cash proceeds of $35.2 million
resulting in a net gain of $34.9 million.
59420_Centerra_Financials.indd 99
27/03/12 8:21 AM
2011 ANNUAL REPORT 99
25. SHAREHOLDERS’ EQUITY
a. Share Capital
Centerra is authorized to issue an unlimited number of common shares, class A non-voting shares and preference
shares with no par value.
b. Earnings per Share
Basic net earnings per share is computed by dividing the net earnings applicable to common shares by the
weighted average number of common shares outstanding during the year.
Diluted net earnings per share is computed by dividing the net earnings applicable to common shares by the
weighted average number of common shares outstanding during the year, plus the effects of dilutive common
share equivalents such as stock options, performance share units and restricted share units. Diluted net earnings
per share is calculated using the treasury method, where the exercise of stock options, performance share units
and restricted share units are assumed to be at the beginning of the period, and the proceeds from the exercise
of stock options, performance share units and restricted share units and the amount of compensation expense
measured but not yet recognized in income are assumed to be used to purchase common shares of the Company
at the average market price during the period. The incremental number of common shares (the difference
between the number of shares assumed issued and the number of shares assumed purchased) is included in the
denominator of the diluted earnings per share computation.
Common share equivalents are not included in the computation of diluted net earnings per share in years
when net losses are recorded or if the assumed conversion effect of the common share equivalents results in the
increase in earnings per share above the basic level, given that they are anti-dilutive.
Basic and diluted earnings per share computation:
(Thousands of US$)
Net earnings attributable to shareholders’
Weighted average number of common shares outstanding (thousands)
Effect of potential dilutive securities:
Stock options (thousands)
Restricted share units (thousands)
Diluted weighted average common shares outstanding (thousands)
Basic and diluted earnings per common share
2011
2010
$ 370,878
236,088
$ 322,291
235,488
248
18
236,354
374
–
235,862
$
1.57
$
1.37
Excluded from the 2011 calculation of diluted earnings per share were 215,107 outstanding options (2010 – 197,763)
where the exercise prices of the options were greater than the average market price of the Company’s ordinary
shares for the year. In 2011 1,671,008 performance share units (2010 – 1,957,935) were excluded from the
calculation of diluted earnings per share as the effect of the assumed potential conversion of the units to equity
would have increased the earnings per share amount.
c. Dividends
Dividends are declared in Canadian dollars and paid in Canadian dollars. The details of dividends distribution in
2011 and 2010 are as follows:
Paid dividends recorded in U.S. dollars (Thousands of US$)
Dividends declared (Canadian Dollar per share amount)
Special Dividends declared (Canadian Dollar per share amount)
2011
99,322
0.10
0.30
0.40
$
$
2010
13,620
0.06
–
0.06
$
$
100 CENTERRA GOLD INC.
59420_Centerra_Financials.indd 100
27/03/12 8:21 AM
d. Share-Based Compensation
The impact of Stock-Based Compensation is summarized as follows:
Number
outstanding
Expense/(Income)
Liability
(Millions of US$ except as indicated)
Dec 31/11
Dec 31/11
Dec 31/10
Dec 31/11
Dec 31/10
Jan 1/10
(i) Centerra stock options
(ii) Centerra – PSU (1)
(iii) Centerra annual – PSU (2)
(iv) Deferred share units
(v) Restricted share units
(vi) Cameco stock options
752,448
1,314,134
77,013
354,516
49,659
–
$
1.8
15.2
1.9
(0.7)
0.9
–
$ 19.1
$
1.1
23.2
6.5
4.4
–
–
$ 35.2
$
–
33.0
1.9
6.2
0.9
–
$ 42.0
$
–
28.4
6.2
6.9
–
–
$ 41.5
$
–
6.1
6.3
3.8
–
1.3 (3)
$ 17.5
(1) Centerra performance share units
(2) Centerra Annual performance share units
(3) Amount paid in 2010 on exercise of options. The Cameco stock option plan no longer applies to Company employees.
(i) Stock Options
Centerra has established a stock option plan under which options to purchase common shares may be
granted to offi cers and employees of the Company. Options granted under the plan have an exercise price
of not less than the weighted average trading price of the common shares where they are listed for the
fi ve trading days prior to the date of the grant. The options issued prior to 2006 vest over fi ve years while
options issued in or after 2006 vest over 3 years, except for the 2010 grant which vests 50% on the fi rst
anniversary and the remaining 50% on the second anniversary. All issued options expire after eight years
from the date granted. Options may be granted with a related share appreciation right. In these circumstances,
the participant can either elect to receive shares by exercising the stock option or to receive payment in
cash equal to the equivalent gain in the stock price. Centerra, at its discretion, can require any holder who
has exercised a share appreciation right to exercise their option instead, or can elect to satisfy the cash
amount owing upon exercise of a share appreciation right with common shares. There are currently no
stock option grants with a share appreciation right outstanding.
A maximum of 18,000,000 common shares are available for issuance upon the exercise of options
granted under the plan. Certain restrictions on grants will apply, including that the maximum number
of shares that may be granted to any individual within a 12-month period will not exceed 5% of the
outstanding common shares.
Average exercise award price for options granted in the year (Cdn $/share)
Weighted exercise average price on outstanding options (Cdn $/share)
Centerra’s stock options transactions during the year were as follows:
December 31 December 31
2010
2011
$
$
18.42
12.31
$
$
14.37
7.45
Balance, January 1,
Granted
Exercised
Balance, December 31,
2011
2010
Number of
Options
903,986
318,106
(469,644)
752,448
Weighted
Average
exercise
Price – Cdn$
$ 7.45
18.42
(7.09)
12.31
Weighted
Average
Number of
Options
1,816,155
100,000
(1,012,169)
903,986
Exercise
Price – Cdn$
6.58
14.37
(6.58)
7.45
59420_Centerra_Financials.indd 101
27/03/12 8:21 AM
2011 ANNUAL REPORT 101
The Black-Scholes model was developed for use in estimating the fair value of stock options that have
no vesting restrictions. The model requires the use of subjective assumptions, including expected stock-
price volatility; historical data has been considered in setting the assumptions. In determining the fair
value of these employee stock options, the following weighted average assumptions were used for the
series issued in 2011:
•
On March 7, 2011, Centerra granted 308,999 stock options at a strike price of Cdn $18.31 per share.
The fair value of the stock options was determined using the Black-Scholes valuation model, assuming
a weighted average expected life of 3-years, 75.66% historical Company’s volatility, dividend yield of
0.35% and a risk-free rate of return of 2.09%. The resulting weighted average fair value per option
granted was Cdn $8.70. The estimated fair value of the options is expensed over the graded vesting
period for each tranche, which range from 1 year to 3 years.
On September 14, 2011, Centerra granted 9,107 stock options at a strike price of Cdn $22.28 per share.
The fair value of the stock options was determined using the Black-Scholes valuation model, assuming
a weighted average expected life of 3-years, 60.87% volatility, dividend yield of 0.30% and a risk-free
rate of return of 1.19%. The resulting weighted average fair value per option granted was Cdn $8.87.
The estimated fair value of the options is expensed over the graded vesting period for each tranche,
which range from 1 year to 3 years.
The estimated fair value of the options is expensed over the graded vesting period for each tranche,
which range from 1 year to 3 years. The resulting fair value of the options granted in 2011 was
$2.7 million (2010 – $0.5 million).
•
•
The terms of the options outstanding at December 31, 2011 are as follows:
Award Date
2008
2009
2010
2011
2011
Award Price
$14.29 (Cdn)
$4.81 (Cdn)
$14.37 (Cdn)
$18.31 (Cdn)
$22.28 (Cdn)
Expiry Date
March 7, 2016
February 17, 2017
August 19, 2018 (1)
March 6, 2019
September 13, 2019
Number options
outstanding
Number options
vested
38,030
296,312
100,000
308,999
9,107
752,448
38,030
94,703
50,000
–
–
182,733
(1) The 2010 grant carries a different vesting schedule whereby 50% vests on the fi rst anniversary and the remaining 50% vest on the second anniversary.
In 2011, $1.8 million of compensation expense was recorded on this plan ($1.1 million in 2010).
(ii) Performance share unit plan
Centerra has established a performance share unit plan for employees and offi cers of the Company. A
performance share unit represents the right to receive the cash equivalent of a common share or, at the
Company’s option, a common share purchased on the market. Performance share units issued before 2010
vest two years after December 31 of the year in which they were granted. Performance share units granted
in 2010 and thereafter vest 50% at the end of the year after grant and the remaining 50% the following
year. The number of units which will vest is determined based on Centerra’s total return performance
(based on the preceding sixty-one trading days weighted average share price) relative to the S&P/TSX
Global Gold Index Total Return Index Value during the applicable period. The number of units that vest
is determined by multiplying the number of units granted to the participant by the adjustment factor,
which can be up to 1.5 for units granted before 2010 or up to 2.0 for units granted in 2010 and onwards
or potentially result in no payout. Therefore, the number of units that will vest and are paid out may be
higher or lower than the number of units originally granted to a participant.
Also in 2010 “special” performance share units were granted in lieu of stock options. Distinguishing
these “special” units from the regularly issued PSU series is the fact that the “special” units vest one third
at the end of each year of their three-year term and carry an adjustment factor of 1.0.
102 CENTERRA GOLD INC.
59420_Centerra_Financials.indd 102
27/03/12 8:21 AM
If dividends are paid, each participant will be allocated additional performance share units equal in
value to the dividend paid on the number of common shares equal to the number of performance share
units held by the participant, based on the share price on the date of the dividend.
Centerra’s performance share unit plan transactions during the year were as follows:
Number of Units
Balance, January 1
Granted
Exercised
Cancelled
Balance, December 31
2011
2010
1,528,209
219,211
(421,964)
(11,322)
1,314,134
1,201,677
539,546
(99,434)
(113,580)
1,528,209
The Monte Carlo simulated option pricing model was used in estimating the fair value of a performance
share unit that is not vested as at year end. The model requires the use of subjective assumptions, including
expected stock-price volatility, risk-free rate of return and forfeiture rate. Historical data has been considered
in setting the assumptions. In determining the fair value of these units, the principal assumptions used in
applying the Monte Carlo simulated option pricing model were as follows:
Share price
S&P/TSX Global Gold Index
Expected life (years)
Expected volatility – Share price
Expected volatility – Gold Index
Risk-free rate of return
Expected dividends
Forfeiture rate
December 31 December 31
2010
2011
$
$
20.37
429.16
1.29
54.1%
33.4%
1.5%
0.35%
2.8%
$
$
19.89
449.74
1.25
50.3%
29.9%
1.6%
0.06%
1.4%
For the units that are fully vested as at year end, the fair value of the unit was determined using the
calculated sixty-one trading days weighted average share price multiplied by the adjustment factor.
In determining the fair value of the vested units, the principal assumptions used were as follows:
Share price
Weighted adjustment factor
December 31 December 31
2010
2011
$
20.37
1.53
$
19.33
1.26
The vested numbers of units outstanding as at December 31, 2011 are 892,262 (December 31, 2010 –
421,964 and January 1, 2010 – 423,746). The intrinsic value of the vested units at December 31, 2011 is
$27.8 million (December 31, 2010 – $10.3 million and January 1, 2010 – $1.1 million).
At December 31, 2011, the total number of units outstanding (vested and unvested) was 1,314,134, with
a related liability of $33.0 million (December 31, 2010 – 1,528,209 and $28.4 million liability and January 1,
2010 – 1,201,677, and $6.1 million liability). In 2011, compensation cost expense of $15.2 million was
recorded on this plan ($23.2 million in 2010).
(iii) Annual performance share unit plan
Centerra has established an annual performance share unit plan for eligible employees at its mine sites.
A performance share unit represents the right to receive the cash equivalent of a common share or, at the
Company’s option, a common share purchased on the market. At the start of a year, an eligible employee
receives a number of performance share units based on Centerra’s preceding sixty-one trading days
weighted average share price. The number of units which will vest at the end of the same year is determined
based on Centerra’s total return performance (based on the preceding sixty-one trading days weighted
average share price) relative to the S&P/TSX Global Gold Index Total Return Index Value during the
2011 ANNUAL REPORT 103
59420_Centerra_Financials.indd 103
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applicable period. The number of units that vest is determined by multiplying the number of units granted
to the participant by the adjustment factor, which can be as high as a factor of 2.0 or potentially result in no
payout. The annual performance share units cannot be converted to shares at the option of the unit holder.
If dividends are paid, each participant will be allocated additional performance share units equal in
value to the dividend paid on the number of common shares equal to the number of performance share
units held by the participant, based on the share price on the date of the dividend.
Centerra’s annual performance share unit plan transactions during the year were as follows:
Number of Units
Balance, January 1
Granted
Exercised
Cancelled
Balance, December 31
2011
2010
156,571
96,059
(159,497)
(16,120)
77,013
420,870
179,155
(425,877)
(17,577)
156,571
At December 31, 2011, the number of units outstanding and fully vested was 77,013 with a related liability
of $1.9 million (December 31, 2010 – 156,571 and $6.2 million liability and January 1, 2010 – 420,870 and
$6.3 million liability). In 2011, compensation cost expense of $1.9 million was recorded on this plan
($6.5 million in 2010).
For the unit that is fully vested as at year end, the fair value of the unit was determined using the
calculated sixty-one trading days weighted average share price multiplying by the adjustment factor.
In determining the fair value of the vested units, the principal assumptions used were as follows:
Share price
Weighted adjustment factor
(iv) Deferred share unit plan
December 31 December 31
2010
2011
$
20.37
1.17
$
19.33
2
Centerra has established a deferred share unit plan for Directors of the Company to receive all or a portion
of their annual retainer as deferred share units. A similar plan was established to provide compensation in
the form of deferred share units to the Company’s Vice Chair (the “Vice Chair Deferred Unit Plan”) for the
duration of the Vice Chair tenure.
Deferred share units are paid in full to a Director and to the Vice Chair no later than December 31 of
the calendar year immediately following the calendar year of termination of service. A deferred share
unit represents the right to receive the cash equivalent of a common share or, at the Company’s option, a
common share purchased on the market. Deferred share units vest immediately upon grant. If dividends
are paid, each Director and the Vice Chair will be allocated additional deferred share units equal in value
to the dividend paid on the number of common shares equal to the number of deferred share units held.
The deferred share units cannot be converted to shares at the option of the unit holder.
Centerra’s deferred share unit plan transactions during the year were as follows:
Number of Units
Balance, January 1
Granted
Exercised
Cancelled
Balance, December 31
2011
2010
344,728
9,788
–
–
354,516
375,216
58,443
(88,931)
–
344,728
At December 31, 2011, the number of units outstanding was 354,516 with a related liability of $6.2 million
(December 31, 2010 – 344,728 and $6.9 million liability and January 1, 2010 – 375,216 and $3.8 million
liability). In 2011, compensation cost recovery of $0.7 million was recorded on this plan (expense of
$4.4 million in 2010).
104 CENTERRA GOLD INC.
59420_Centerra_Financials.indd 104
27/03/12 8:21 AM
(v) Restricted share unit plans
Effective as of January 7, 2011, Centerra established a restricted share unit plan for non-executive Directors
and designated employees of the Company to receive all or a portion of their annual retainer and salaries
as restricted units.
The restricted share units vest immediately upon grant and are redeemed on a date chosen by the
participant (subject to certain restrictions as set out in the plan). A restricted share unit represents the
right to receive the cash equivalent of a common share or, at the holder’s option, a common share issued
from the Company’s treasury. The plans reserves 1,000,000 shares for issuance. If dividends are paid, each
participant will be allocated additional restricted share units equal in value to the dividend paid on the
number of common shares equal to the number of restricted share units held.
Centerra’s restricted share unit plan transactions during the year were as follows:
Number of Units
Balance, January 1
Granted
Exercised
Cancelled
Balance, December 31
2011
2010
–
55,422
(5,763)
–
49,659
–
–
–
–
–
All units granted in 2011 were assumed to be settled in cash and therefore accounted under the liability
method. At December 31, 2011, the number of units outstanding was 49,659 with a related liability and
expense of $0.9 million.
26. COMMITMENTS AND CONTINGENCIES
Commitments
As at December 31, 2011, the Company had entered into contracts to purchase capital equipment and operational
supplies totalling $142.9 million (Kumtor $142.7 million and Boroo $0.2 million). These commitments are
expected to be settled over the next twelve months.
Leases
The Company enters into operating leases in the ordinary course of business, primarily for its various offi ces and
facilities around the world. Payments under these leases represent contractual obligations as scheduled in each
agreement. The main signifi cant operating lease payments, including operating costs, are for its corporate offi ces
in Toronto and in the current year 2011 were $0.7 million (2010 – $0.6 million). The future aggregate minimum
lease payments under the Toronto Corporate offi ces non-cancellable operating lease are as follows:
(Thousands of US$)
2011
2012
2013
2014
2015
2016 and thereafter
2011
–
398
401
438
478
478
2,193
$
$
2010
401
398
401
438
478
478
2,594
$
$
2011 ANNUAL REPORT 105
59420_Centerra_Financials.indd 105
27/03/12 8:21 AM
Contingencies
Kyrgyz Republic
As previously disclosed, Kumtor Operating Company (“KOC”), the Company’s Kyrgyz Republic operating
subsidiary was in a dispute with the Kyrgyz Republic Social Fund (the “Social Fund”) regarding whether Social
Fund contributions were required to be paid with respect to a high-altitude premium payable to KOC employees.
This dispute began in 2010 and eventually led to KOC fi ling a claim in September 2011 to invalidate an assessment
issued by the Social Fund requiring KOC to pay approximately $6.7 million in contributions owing for the 2010
operating year. The matter was resolved in the third quarter of 2011 when KOC and the Social Fund reached an
agreement whereby Kumtor would voluntarily pay to the Social Fund $14.1 million, covering the 2010 operating
year ($6.7 million) and the fi rst nine months of 2011 ($7.4 million), without any penalties, fi nes and fi nancial
sanctions and agreed to apply the Social Fund contribution to the high altitude premium in the future. Going
forward, KOC will pay the employer’s portion of the Social Fund deduction for the high altitude premium and
the employees will be responsible for the employee portion of such deduction.
Mongolia
In the fourth quarter of 2011, Centerra’s wholly owned subsidiary, Boroo Gold LLC, which owns the Boroo
project, resolved the previously disclosed very signifi cant claim for compensation that it received from the
Mongolian General Department of Specialized Inspection (“SSIA”) in October 2009 following the June 2009
inspection at the Boroo project. The claim related to certain mineral reserves, including state alluvial reserves,
covered by the Boroo project licenses, that are recorded in the Mongolian state reserves registry, but for which
there are no or incomplete records or reports of mining activity. Pursuant to the resolution, Boroo Gold LLC
accrued approximately $2.6 million in the 2011 year-end results and subsequently paid the amount in January
2012. While this claim has been resolved, other regulatory issues remain outstanding in Mongolia, including the
issuance of a fi nal heap leach permit. The Company continues to have discussions with regulatory offi cials
regarding the issuance of the permit.
As previously disclosed, the Mongolian Parliament enacted the Law to Prohibit Mineral Exploration And
Mining Operations At River Headwaters, Protected Zones Of Water Reservoirs And Forested Areas (the “Water and
Forest Law”) in 2009. Under the Water and Forest Law, mineral prospecting, exploration and mining in water
basins and forestry areas in Mongolia would be prohibited, and the affected licenses would be revoked. The
legislation provides a specifi c exemption for “mineral deposits of strategic importance”, which would exempt the
Boroo mining licenses from the application of the legislation. Centerra’s Gatsuurt licenses and its other exploration
license holdings in Mongolia however, are currently not exempt. Under the Minerals law of Mongolia, Parliament
on its own initiative or, on the recommendation of the Government, may designate a mineral deposit as strategic.
Such designation could result in Mongolia receiving up to a 34% interest in the deposit.
In 2010, the Company received correspondence from the Minerals Resource Authority of Mongolia (“MRAM”)
stating that certain of its mining and exploration licenses, including the Gatsuurt mining licenses, could be
revoked under the Water and Forest Law. In 2010, the Company was also informed by the Ministry of Mineral
Resources and Energy (“MMRE”) that since the Gatsuurt licenses were within the area designated, on a
preliminary basis, as land where mineral mining is prohibited under the Water and Forest Law, and that the
MMRE would communicate further with the Company on negotiations with respect to an investment agreement
for the Gatsuurt project once the MMRE received additional clarity on the impact of the Water and Forest Law
on the Gatsuurt project. In November 2010, the Company also received a letter from the MMRE indicating that
operations at the Gatsuurt project cannot be commenced while the implementation of the Water and Forest Law
is being resolved. Accordingly, it is anticipated that further approvals and regulatory commissioning of Gatsuurt
will be delayed as a result of the Water and Forest Law.
106 CENTERRA GOLD INC.
59420_Centerra_Financials.indd 106
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In November 2010, the Mongolian cabinet announced its intention to initiate the revocation of 1,782 mineral
licenses under the Water and Forest Law on a staged basis, beginning with the revocation of 254 alluvial gold
mining licenses, the list of which was fi nalized by the Mongolian Parliament in 2011. The Company has three
licenses on the list of alluvial gold mining license that may be revoked. None of these licenses are material to the
Company. In particular, the Company’s principal Gatsuurt hardrock mining licenses are not on the list of alluvial
licenses to be revoked. In accordance with the Water and Forest Law, the Company submitted in February 2011
a formal request for compensation for the three licenses to be revoked, which requests were updated again in
January 2012 as a result of the fi nalization of the list.
The Mongolian Government announced in 2010 that it is considering taking the following actions as the next
stages of its implementation of the Water and Forest Law:
• preparing and submitting to the cabinet a proposal to designate as “strategic” those deposits, the
development of which would contribute to regional social and economic development and, at the same
time, require signifi cant amounts of compensation;
• revoking all licenses for non-gold mining operations which utilize surface water;
• revoking all 460 gold exploration licenses and providing compensation;
• revoking all 931 non-gold exploration licenses and providing compensation;
• revoking and providing compensation to all remaining affected mining licenses.
Of the Company’s 55 mineral licenses, 36 licenses (including the Gatsuurt hard rock licenses) are included in the
1,782 licenses referred to in the cabinet announcement as subject to staged revocation.
The Company understands that Mongolia’s cabinet expects that the Water and Forest Law will take until
approximately November 2012 to fully implement. According to statements by offi cials, the Mongolian
Government estimates that the total compensation due to mining companies for the revocation of their licenses
will amount to approximately US$4 billion, which is about 65% of the Mongolia’s annual gross domestic product
for 2010.
The Water and Forest Law has attracted opposition from Mongolia’s alluvial miners, the Mongolian National
Mining Association and other groups. A group of parliamentarians proposed amendments to the Water and Forest
Law in 2011 to reduce its impact on environmentally-sound mining operations. The Company understands that as
drafted, such amendments would allow the Gatsuurt project to proceed. Such amendments were discussed by a
Mongolian parliamentary committee in 2011 which then referred it to Parliament for further discussion. The
Parliament did not discuss the amendment during the 2011 but the Company understands that the amendments
may be tabled for discussion in 2012.
Centerra is reasonably confi dent that the economic and development benefi ts resulting from its exploration
and development activities will ultimately result in the Water and Forests Law having a limited impact on the
Company’s Mongolian activities. There can be no assurance, however, that this will be the case. Unless the
Water and Forest Law is repealed or amended such that the law no longer applies to the project or Gatsuurt is
designated as a “mineral deposit of strategic importance” that is exempt from the Water and Forest Law, mineral
reserves at Gatsuurt may have to be reclassifi ed as mineral resources or eliminated entirely and the Company may
be required to write-off the associated investment in Gatsuurt and Boroo. As at December 31, 2011, the Company
had net assets recorded amounting to approximately $36 million related to the investment in Gatsuurt and
approximately $25million remaining capitalized for the Boroo mill facility and other surface structures which
are expected to be utilized for the processing of ore from Gatsuurt. Although the Company expects to exploit
the Gatsuurt deposit, should this not be the case, the Company would be required to write-off these amounts.
A revocation of the Company’s mineral licenses, including the Gatsuurt mineral license, or the reclassifi cation of
mineral reserves or the write-off of assets could have an adverse impact on Centerra’s future cash fl ows, earnings,
results of operations and fi nancial condition.
59420_Centerra_Financials.indd 107
27/03/12 8:21 AM
2011 ANNUAL REPORT 107
In November 2010, the Mongolian Parliament passed amendments to its Minerals Law that modifi ed the
existing royalty structure on mineral projects. Pursuant to the amended royalty structure, the royalty rate is no
longer a fi xed percentage but is graduated and dependent upon the commodity price in U.S. dollars. In the case
of gold, there is a basic 5% royalty fee that applies while gold is less than $900 per ounce. For any increase of $100
to the price of gold, there is a corresponding 1% increase to the royalty fee. Accordingly, at $900 per ounce, the
royalty fee increases to 6% which continues until the gold price reaches $1,000 per ounce at which point, the
royalty increases to 7%, at $1,100 per ounce, the royalty increases to 8%, and at $1,200 per ounce, the royalty
increases to 9%. The highest royalty fee rate is reached at 10% when gold is $1,300 per ounce and above. The
graduated royalty became effective as of January 1, 2011 for all mining projects in Mongolia. On January 19, 2011,
the Standing Committee of the State Great Hural of Mongolia issued a resolution to the Mongolian Government
which, among other things, resolved to direct the Government to enter into negotiations to have the graduated
royalty structure apply to business entities that have already entered into a stability agreement and/or an
investment agreement. This would include the Company’s Boroo project which is currently operating pursuant
to a stability agreement entered with the Mongolian Government. The Company is of the opinion that the Boroo
stability agreement provides, among other things, legislative stabilization for its Boroo operations and accordingly
the graduated royalty fee is not applicable to Boroo’s remaining operations. As of the date of this Annual MD&A,
the Company is not aware of any response or activity by the Mongolian Government on this State Great Hural of
Mongolia resolution.
Despite this, the Company cannot provide any assurances that Boroo will not be made subject to the graduated
royalty fee. If the graduated royalty fee does apply to Boroo, it may have an adverse impact on Centerra’s future
cash fl ows, earnings, results of operations or fi nancial condition. Regardless of whether the graduated royalty fee
applies to the Boroo operations, it will apply to gold produced from the Gatsuurt project, when developed.
Corporate Matters
In March 2011, Centerra was served by a Turkish company, Sistem Muhenkislik Insaat Sanayi Ticaret SA (“Sistem”),
with a notice of enforcement to seize any shares and dividends in Centerra held in the name of the Kyrgyz Republic,
followed by a notice of garnishment in April 2011 for any debts owed by Centerra to the Kyrgyz Republic (the
“Republic”). These notices were served by Sistem through the Sheriff in Toronto as part of the enforcement
proceedings brought by Sistem in the Ontario Superior Court to collect approximately US$11 million with
additional interest, owed to Sistem by the Republic in accordance with a judgment of the Ontario Superior Court
enforcing an international arbitration award against the Republic. In these Ontario proceedings, Sistem alleges
that the shares in Centerra owned by Kyrgyzaltyn JSC, and any dividends paid in respect of those shares, are in
fact legally and benefi cially owned by the Republic and are therefore subject to execution to pay the judgment.
Based on legal advice received, Centerra disputes those allegations and maintains that Kyrgyzaltyn JSC alone is
the legal and benefi cial owner of the shares and any dividends in respect of those shares, based on the applicable
legal principles and the binding agreements with Kyrgyzaltyn JSC. As a result and notwithstanding such notices
of enforcement and garnishment, Centerra paid its May 18, 2011 dividend (as discussed above) in the total amount
of approximately Cdn$31 million to Kyrgyzaltyn JSC. Sistem is continuing with its claim regarding the Centerra
shares owned by Kyrgyzaltyn JSC. If this claim is successful in the Ontario court proceedings, Sistem may have a
right to execute its judgment against those shares and may assert a claim against Centerra in respect of the
payment of the dividends to Kyrgyzaltyn JSC. However, Centerra believes it has a strong defence to that claim
based on the facts and the law. At a motion in September 2011, Kyrgyzaltyn JSC was formally added as a party to
the proceeding.
Kyrgyzaltyn has brought a motion to be heard by the Ontario Superior Court (to be heard in April 2012) to set
aside the Ontario judgment enforcing the arbitration award on the basis that the court did not have jurisdiction
to entertain the application or in the alternative that there is a foreign court which is a more convenient forum
to hear and decide the issues of legal and benefi cial ownership of the shares as between Kyrgyzaltyn and the
Kyrgyz Republic.
108 CENTERRA GOLD INC.
59420_Centerra_Financials.indd 108
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27. RELATED PARTY TRANSACTIONS
a. Kyrgyzaltyn JSC
Revenues from the Kumtor gold mine are subject to a management fee of $1.00 per ounce based on sales volumes,
payable to Kyrgyzaltyn JSC (“Kyrgyzaltyn”), a shareholder of the Company and a state-owned entity of the
Kyrgyz Republic.
The table below summarizes 100% of the management fees and concession payments paid and accrued by
Kumtor Gold Company to Kyrgyzaltyn and the amounts paid and receivable by Kyrgyzaltyn to Kumtor according
to the terms of a Gold and Silver Sale Agreement between Kumtor Operating Company (“KOC”), Kyrgyzaltyn and
the Government of the Kyrgyz Republic.
The breakdown of the sales transactions and expenses with the related parties are as follows:
Related parties in the Kyrgyz Republic
(Thousands of US$)
Management fees paid to Kyrgyzaltyn
Gross gold and silver sales to Kyrgyzaltyn
Deduct: refi nery and fi nancing charges
Net sales revenue received from Kyrgyzaltyn
2011
2010
$
599
$ 944,020
(2,947)
$ 941,073
$
568
$ 706,823
(2,558)
$ 704,265
Gold produced by the Kumtor mine is purchased at the mine site by Kyrgyzaltyn for processing at its refi nery
in the Kyrgyz Republic pursuant to Gold and Silver Sale Agreement discussed above.
Dividend
(Thousands of US$)
Dividends paid to Kyrgyzaltyn
2011
2010
$
29,412
$
4,412
Related party balances
The assets and liabilities of the Company include the following amounts due from and to Kyrgyzaltyn:
(Thousands of US$)
Prepaid expenses
Amounts receivable
Total related party assets
Amounts payable
Total related party liabilities
December 31 December 31
2010
2011
January 1
2010
$
$
$
$
143
47,366
47,509
–
–
$
$
$
$
12
88,997
89,009
–
–
$
$
$
$
–
37,861
37,861
175
175
Amounts receivable from Kyrgyzaltyn arise from the sale of gold to Kyrgyzaltyn. Pursuant to the Agreement
on New Terms, entered into in April 2009, the Gold and Silver Sale Agreement was amended and restated in
June 2009 with new terms. Kyrgyzaltyn is required to pay for gold delivered within 12 days from the date of
shipment. Default interest is accrued on any unpaid balance after the permitted payment period of 12 days.
The obligations of Kyrgyzaltyn are partially secured by a pledge of 2,850,000 shares of Centerra owned
by Kyrgyzaltyn.
b. Transactions with Directors and Key Management
The Company transacts with key individuals from management and with its directors who have authority and
responsibility to plan, direct and control the activities of the Company. The nature of these dealings were in
the form of payments for services rendered in their capacity as director (director fees, including stock-based
payments) and as employees of the Company (salaries, benefi ts and share-based payments).
59420_Centerra_Financials.indd 109
27/03/12 8:21 AM
2011 ANNUAL REPORT 109
Key management personnel are defi ned as the executive offi cers of the Company including the President and
Chief Executive Offi cer, Vice President and Chief Financial Offi cer, Vice President and Chief Operating Offi cer,
Senior Vice President Global Exploration, General Counsel and Corporate Secretary, Vice President Business
Development and Vice President Human Resources.
During 2011 and 2010, remuneration to directors and key management personnel were as follows:
Compensation of Directors
Compensation of the directors comprised:
(Thousands of US$)
Fees earned and other compensation
Share-based compensation:
Earned during the year
Appreciation during the year from previous grants
2011
$
1,055
$
1,151
(607)
1,599
$
$
2010
945
855
3,563
5,363
Fees earned and other compensations
These amounts represent fees paid to the non-executive chairman and the non-executive directors during the
fi nancial year.
Share-based compensation
A portion of the directors’ compensation is settled with the Company’s share-based plans (Deferred Share Unit
plan and Restricted Share Unit plan) according to the election of the directors.
The Deferred Share Unit and Restricted Share Unit amounts granted to directors represent the intended value
to settle the compensation obligations owed by the Company in satisfaction of the directors’ election. The Deferred
Share Unit and Restricted Share Unit plans in which the directors participate are discussed in note 25.
Compensation of Key Management Personnel
Compensation of key management personnel comprised:
(Thousands of US$)
Salaries and benefi ts
Share-based compensation:
Earned during the year
Appreciation during the year from previous grants
2011
$
5,462
$
8,280
941
14,683
$
$
2010
5,461
6,546
4,788
16,795
Salaries and benefi ts
These amounts represent salary, supplementary executive retirement plan contribution, and benefi ts earned
during the year, plus cash bonuses awarded for the year.
Share-based compensations
This is the recognized cost to the Company of senior management’s participation in share-based payment plans,
as measured by the fair value of options and performance share units granted, accounted for in accordance with
IFRS 2 ‘Share-based Payments’. The main plans in which senior management have participated are the stock
options plan and PSU plan. For details of these plans refer to note 25.
110 CENTERRA GOLD INC.
59420_Centerra_Financials.indd 110
27/03/12 8:21 AM
28. CAPITAL MANAGEMENT
The Company’s primary objective with respect to its capital management is to ensure that it has suffi cient
cash resources to maintain its ongoing operations, to provide returns for shareholders and benefi ts for other
stakeholders and to pursue growth opportunities. To secure additional capital to pursue these plans, the
Company may attempt to raise additional funds through borrowing and/or the issuance of equity or debt.
The Company’s capital structure consists of short-term debt (net of cash and cash equivalents and short-term
investments) and shareholders’ equity, comprising issued common shares, contributed surplus and retained
earnings.
(Thousands of US$)
Short-term debt
Cash and cash equivalents
Short-term investments
Net debt
Shareholders’ equity
Total capital
December 31 December 31
2010
2011
January 1
2010
$
–
(195,539)
(372,667)
(568,206)
1,538,459
$ 970,253
$
–
(330,737)
(82,278)
(413,015)
1,261,797
$ 848,782
$
–
(176,904)
(145,971)
(322,875)
945,578
$ 622,703
The Company is bound by certain covenants stipulated in the revolving credit facility. These covenants place
restrictions on total debt, dividend payments, and set threshold parameters for certain fi nancial ratios. As at
December 31, 2011 the Company is in compliance with these requirements.
29. FINANCIAL INSTRUMENTS
The Company has various fi nancial instruments comprised of cash and cash equivalents, short-term investments,
restricted cash, receivables, a reclamation trust fund, borrowings, accounts payable and accrued liabilities.
The estimated fair values of certain fi nancial instruments have been determined using available market
information or other valuation methodologies that require considerable judgment in interpreting market data
and developing estimates. Cash and cash equivalents, short-term investments, restricted cash and reclamation
trust fund are classifi ed as fi nancial instruments carried at fair value through profi t or loss and amounts receivable
are classifi ed in the “Loans and Receivables” category, which is measured at amortized cost.
Cash and cash equivalents consist of cash on hand, with fi nancial institutions, invested in term deposits,
treasury bills, banker’s acceptances and corporate direct credit with original maturities of three months or less.
Fair values of the cash equivalents and short-term investments are determined directly by reference to published
price quotations in an active market at the reporting date.
Short-term investments consist of investments in term deposits, treasury bills, banker’s acceptances, bearer’s
deposit notes, and corporate direct credit with original maturities of more than three months but less than twelve
months. Fair values of the cash equivalents and short-term investments are determined directly by reference to
published price quotations in an active market at the reporting date.
The fair value of amounts receivable is determined by the amount of cash anticipated to be produced in the
normal course of business from the fi nancial asset, net of any direct costs of the conversion into cash.
There were no borrowings by the Company incurred in 2011 or outstanding at December 31, 2011. The Company
has a credit facility available with the EBRD whereby borrowings bear interest at a fi xed premium over the variable
London Interbank Offered Rate (“LIBOR”). The fair value of borrowings under this facility would approximate
their carrying amount given the fl oating component of the interest rate.
2011_Centerra_Page 111-112.indd 111
Mar/31/2012 1:37 PM
2011 ANNUAL REPORT 111
Classifi cation of the fi nancial assets and liabilities in the statement of fi nancial position were as follows:
December 31, 2011
(Thousands of US$)
Financial Assets:
Cash and cash equivalents
Short-term investments
Restricted cash
Amounts receivable
Reclamation trust fund
Long-term receivables and other assets
Financial Liabilities
Accounts payables and accrued liabilities
December 31, 2010
(Thousands of US$)
Financial Assets:
Cash and cash equivalents
Short-term investments
Restricted cash
Amounts receivable
Reclamation trust fund
Long-term receivables and other assets
Financial Liabilities
Accounts payables and accrued liabilities
January 1, 2010
(Thousands of US$)
Financial Assets:
Cash and cash equivalents
Short-term investments
Restricted cash
Amounts receivable
Reclamation trust fund
Long-term receivables and other assets
Financial Liabilities
Accounts payables and accrued liabilities
Loans and
receivables
Other financial
liabilities
Asset/liabilities
at fair value
through earnings
$
–
–
–
56,749
–
13,119
$ 69,868
$
$
–
–
$
$
$
$
–
–
–
–
–
–
–
76,385
76,385
$ 195,539
372,667
179
–
9,081
–
$ 577,466
$
$
–
–
Loans and
receivables
Other fi nancial
liabilities
Asset/liabilities
at fair value
through earnings
$
–
–
–
100,562
–
6,751
107,313
$
$
$
–
–
$
$
$
$
–
–
–
–
–
–
–
70,909
70,909
$ 330,737
82,278
795
–
7,448
–
$ 421,258
$
$
–
–
Loans and
receivables
Other fi nancial
liabilities
Asset/liabilities
at fair value
through earnings
$
–
–
–
44,281
–
111
$ 44,392
$
$
–
–
$
–
–
–
–
–
–
–
$
$
49,098
49,098
$ 176,904
145,971
–
–
6,443
–
$ 329,318
$
$
–
–
IFRS 7 Financial Instruments – Disclosures, requires that an explanation be provided about how fair value is
determined for assets and liabilities measured in the fi nancial statements at fair value and establish a hierarchy
for which these assets and liabilities must be grouped based on whether the inputs to those valuation techniques
112 CENTERRA GOLD INC.
2011_Centerra_Page 111-112.indd 112
Mar/31/2012 1:37 PM
are observable or unobservable. Observable inputs refl ect market data obtained from independent sources,
while unobservable inputs refl ect the Company’s assumptions. The two types of inputs create the following fair
value hierarchy:
Level 1: observable inputs such as quoted prices in active markets;
Level 2: inputs, other than the quoted market prices in active markets, which are observable, either directly
and/or indirectly; and
Level 3: unobservable inputs for the asset or liability in which little or no market data exists, therefore require
an entity to develop its own assumptions.
The following table summarizes the fair value measurement by level at December 31, 2011, December 31, 2010 and
January 1, 2010 for assets and liabilities measured at fair value on a recurring basis:
(Thousands of US$)
Financial Assets
Cash and cash equivalents
Short-term investments
Restricted cash
Reclamation trust fund
Financial liabilities
Cash settled share-based
compensation liabilities
December 31, 2011
Level 1
Level 2
December 31, 2010
Level 2
Level 1
January 1, 2010
Level 1
Level 2
$ 195,539
372,667
179
9,081
$ 577,466
$
$
–
–
–
–
–
$ 330,737
82,278
795
7,448
$ 421,258
$
$
–
–
–
–
–
$ 176,904
145,971
–
6,443
$ 329,318
$
$
–
–
–
–
–
$
$
–
–
$ 41,974
$ 41,974
$
$
–
–
$ 41,665
$ 41,665
$
$
–
–
$ 16,930
$ 16,930
30. FINANCIAL RISK EXPOSURE AND RISK MANAGEMENT
The Company is exposed in varying degrees to certain fi nancial instruments and related risks by virtue of its
activities. The overall fi nancial risk management program focuses on preservation of capital, and protecting
current and future Company assets and cash fl ows by reducing exposure to risks posed by the uncertainties
and volatilities of fi nancial markets.
The Board of Directors has a responsibility to ensure that an adequate fi nancial risk management policy is
established and to approve the policy. Financial risk management is carried out by the Company’s Treasury
department under a policy approved by the Board of Directors. The Treasury department identifi es and evaluates
fi nancial risks, establishes controls and procedures to ensure fi nancial risks are mitigated in accordance with the
approved policy and programs, and risk management activities comply thereto.
The Company’s Audit Committee oversees management’s compliance with the Company’s fi nancial risk
management policy, approves fi nancial risk management programs, and receives and reviews reports on
management compliance with the policy and programs. The Internal Audit department assists the Audit
Committee in undertaking its oversight of fi nancial risk management controls and procedures, the results
of which are reported to the Audit Committee.
The types of risk exposure and the way in which such exposures are managed are as follows:
a. Currency Risk
As the Company operates in an international environment, some of the Company’s fi nancial instruments and
transactions are denominated in currencies other than the U.S. dollar. The results of the Company’s operations
are subject to currency transaction risk and currency translation risk. The operating results and fi nancial position
of the Company are reported in U.S. dollars in the Company’s consolidated fi nancial statements.
The fl uctuation of the U.S. dollar in relation to other currencies will consequently have an impact upon
the profi tability of the Company and may also affect the value of the Company’s assets and the amount of
shareholders’ equity.
59420_Centerra_Financials.indd 113
27/03/12 8:21 AM
2011 ANNUAL REPORT 113
As required, the Company either makes purchases at the prevailing spot price to fund corporate activities
or enters into short-term forward contracts to purchase Canadian Dollars or Euro. During the year ended
December 31, 2011, Cdn $111.7 million and Euro 8.0 million of such forward contracts were executed (December 31,
2010 – Cdn $6.7 million and Euro 16.0 million; and January 1, 2010 – Cdn $6.3 million and nil Euro). There were
no outstanding Cdn forward contracts and Euro 2 million contracts outstanding at December 31, 2011
(December 31, 2010 – nil and January 1, 2010 – nil).
The exposure of the Company’s fi nancial assets and liabilities to currency risk is as follows:
December 31, 2011
(Thousands of US$)
Financial Assets
Cash and cash equivalents
Short-term investments
Restricted cash
Amounts receivable
Financial Liabilities
Accounts payable and
accrued liabilities
December 31, 2010
(Thousands of US$)
Financial Assets
Cash and cash equivalents
Short-term investments
Restricted cash
Amounts receivable
Other long term assets
Financial Liabilities
Accounts payable and
accrued liabilities
Kyrgyz Mongolian Canadian
Dollar
Tugrik
Som
Russian European
Euro
Ruble
Turkish Australian
Dollar
Lira
$
$
650
–
–
132
782
$
684
–
179
2,093
$ 2,956
$ 32,572
4,758
–
616
$ 37,946
$ 10,077
$ 10,077
$ 7,862
$ 7,862
$
$
251
251
$
$
$
$
50
–
–
125
175
$ 6,313
–
–
173
$ 6,486
254
254
$
$
843
843
$
$
$
$
15
–
–
29
44
16
16
$
$
$
$
–
–
–
–
–
–
–
Kyrgyz Mongolian Canadian
Dollar
Tugrik
Som
Russian European
Euro
Ruble
Turkish Australian
Dollar
Lira
$
$
436
–
–
81
149
666
$ 1,642
–
795
2,833
–
$ 5,270
$ 14,877
–
–
356
202
$ 15,435
$ 4,616
$ 4,616
$ 13,148
$ 13,148
$ 40,238
$ 40,238
$
$
$
$
84
–
–
83
–
167
$ 4,878
–
–
127
–
$ 5,005
–
–
$
$
1,211
1,211
$
$
$
$
–
–
–
–
–
–
–
–
$
$
$
$
–
–
–
–
–
–
292
292
A strengthening of the U.S. dollar by 10% against the Canadian Dollar, the Kyrgyz Som, the Turkish Lira, the
Russian Ruble, European Euro and the Mongolian Tugrik at December 31, 2011, with all other variables held
constant would have led to additional before tax net income of $2.9 million (2010 – $3.6 million) as a result of
a change in value of the fi nancial assets and liabilities denominated in those currencies.
b. Interest Rate Risk
Interest rate risk is the risk borne by an interest-bearing asset or liability as a result of fl uctuations in interest rates.
Financial assets and fi nancial liabilities with variable interest rates expose the Company to cash fl ow interest
rate risk. The Company’s cash and cash equivalents and short-term investments include highly liquid investments
that earn interest at market rates. As of December 31, 2011, the majority of $568.2 million in cash and cash
equivalents and short-term investments (December 31, 2010 – $413.0 million and January 1, 2010 – $322.8 million)
were comprised of interest-bearing assets. Based on amounts as at December 31, 2011, a 100 basis point change in
interest rates would change annual interest income by approximately $4.4 million (2010 – $2.7 million).
114 CENTERRA GOLD INC.
59420_Centerra_Financials.indd 114
27/03/12 8:21 AM
In addition, the interest on the undrawn $150 million revolving credit facility includes a variable rate component
pegged to the London Interbank Offer Rate, or LIBOR.
Although the Company endeavours to maximize the interest income earned on excess funds, the Company’s
policy focuses on cash preservation, while maintaining the liquidity necessary to conduct operations on a day-to-
day basis. The Company’s policy limits the investing of excess funds to liquid term deposits, treasury bills, banker’s
acceptances, bearer’s deposit notes and corporate direct credit having a single “A” rating or greater.
c. Concentration of Credit Risk
Credit risk is the risk of a fi nancial loss to the Company if a gold sales customer or counterparty to a fi nancial
instrument fails to meet its contractual obligation. Credit risk arises principally from the Company’s receivables
from customers, deposits and short-term investments.
The Company’s exposure to credit risk, in respect of gold sales, is infl uenced mainly by the individual
characteristics of each customer. The Company’s revenues are directly attributable to sales transactions with
three customers. Boroo sells the gold and silver content of its doré to Auramet Trading, LLC or Johnson Matthey
Limited. The sales of gold and silver are governed by a Master Purchase Contract with Auramet Trading, LLC,
and a Gold Doré Refi ning Agreement with Johnson Matthey Limited’s North American precious metals division.
Kyrgyzaltyn LLC, a state-owned company that operates a refi nery in the Kyrgyz Republic, is Kumtor’s sole
customer and is a shareholder of Centerra. To partially mitigate exposure to potential credit risk related to
Kumtor sales, the Company has an agreement in place whereby Kyrgyzaltyn has pledged 2,850,000 of Centerra
common shares it owns as security against unsettled gold shipments, in the event of default on payment (note 25).
Based on movements of Centerra’s share price, and the value of individual or unsettled gold shipments, over
the course of 2011, the maximum exposure during the year, refl ecting the shortfall in the value of the security as
compared to the value of any unsettled shipments, was approximately $44.8 million.
The Company manages counterparty credit risk, in respect of short-term investments, by maintaining bank
accounts with highly-rated U.S. and Canadian banks and investing only in highly-rated Canadian and U.S.
Government bills, term deposits or banker’s acceptances with highly-rated fi nancial institutions and corporate
direct credit issues that can be promptly liquidated.
At December 31, 2011 21% of cash and equivalents were held with Bank of Nova Scotia, and 9% with Royal
Bank of Canada. Another 16% was held with various other U.S. and foreign banks. This 46% of liquid assets held
includes not only cash in operating bank accounts, but also term deposits and other investments where the bank
is the counterparty. The remainder of the assets were held in government and agency securities, and highly-rated
corporate direct credit issues.
d. Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its fi nancial obligations as they fall due.
The Company’s Financial Risk Management Policy requires that surplus cash only be invested in highly-rated
and highly-liquid instruments to ensure risk to the Company’s assets is minimized.
The Company manages its liquidity risk by ensuring that there is suffi cient capital to meet short- and long-
term business requirements, after taking into account cash fl ows from operations and the Company’s holdings
of cash and cash equivalents and short-term investments. In addition, there is an undrawn credit fi nancing
facility of $150 million. The Company believes that these sources will be suffi cient to cover its likely short-
and long-term cash requirements. Senior management is also actively involved in the review and approval
of planned expenditures by regularly monitoring cash fl ows from operations and anticipated investing and
fi nancing activities.
59420_Centerra_Financials.indd 115
27/03/12 8:21 AM
2011 ANNUAL REPORT 115
At December 31, 2011, the Company had cash and cash equivalents and short-term investments of $568.2 million
which represents 56% of 2011 operating revenues. A maturity analysis of the Company’s fi nancial liabilities,
contractual obligations, other fi xed operating commitments and capital commitments is set out below:
(Millions of US$)
Accounts payable and accrued liabilities
Reclamation trust deed
Capital equipment
Operational supplies
Conservation fund
Lease of premises
Total contractual obligations
Total
76.4
27.9
98.4
44.5
0.1
2.1
249.4
$
$
Due in
Less than
One year
Due in
1 to 3
Years
Due in
4 to 5
Years
Due
After 5
Years
76.4
4.1
98.4
44.5
0.1
0.4
223.9
$
$
$
–
8.2
–
–
–
0.8
9.0
$
$
–
7.7
–
–
–
0.9
8.6
$
$
–
7.9
–
–
–
–
7.9
The Company has suffi cient cash and cash equivalents and short-term investments to meet its current obligations.
e. Commodity Price Risk
The value of the Company’s revenues and mineral resource properties is related to the price of gold, and the
outlook for this mineral. Adverse changes in the price of certain raw materials can also signifi cantly impair the
Company’s cash fl ows.
Gold prices historically have fl uctuated widely and are affected by numerous factors outside of the Company’s
control, including, but not limited to, industrial and retail demand, central bank reserves management, forward
sales by producers and speculators, levels of worldwide production, short-term changes in supply and demand
due to speculative hedging activities, macro-economic variables, and certain other factors related specifi cally to
gold.
The profi tability of the Company’s operations is highly correlated to the market price of gold. To the extent
that the price of gold increases over time, asset value increases and cash fl ows improve; conversely, declines in
the price of gold directly impact asset value and cash fl ows. A protracted period of depressed prices could impair
the Company’s operations and development opportunities, and signifi cantly erode shareholder value.
To the extent there are adverse changes to the price of certain raw materials (e.g. diesel fuel), the value of the
Company’s reserves may be impacted.
If the world market price of gold was to drop and the prices realized by the Company on gold sales were to
decrease by 10%, based on the number of ounces in inventory as at December 31, 2011, the Company’s profi tability
and cash fl ow, after adjusting for any remaining conversion costs not yet incurred, would be negatively affected
by an additional before tax net loss of $52.2 million (2010 – $64.1 million).
31. SUPPLEMENTAL CASH FLOW DISCLOSURE
a. Changes in operating working capital
(Thousands of US$)
2011
(Increase) decrease in amounts receivable
(Increase) decrease in inventory – ore and metal
(Increase) decrease in inventory – supplies
Increase in prepaid expenses
Increase (decrease) in accounts payable and accrued liabilities
Increase (decrease) in Revenue-based tax payable
Reduction (increase) in depreciation and amortization included in inventory
Reduction (increase) in accruals included in additions to PP&E
$
43,813
(55,521)
(42,790)
(4,615)
5,475
(10,311)
18,563
1,235
(44,150)
$
2010
(56,281)
(22,352)
(7,459)
(10,503)
21,810
(3,866)
(856)
(272)
(79,778)
$
$
116 CENTERRA GOLD INC.
59420_Centerra_Financials.indd 116
27/03/12 8:21 AM
b. Investment in property, plant and equipment (PP&E)
(Thousands of US$)
Additions to PP&E during the year ended December 31,
Impact of revision to asset retirement obligation included in PP&E
Depreciation and amortization included in additions to PP&E
Reduction (increase) in accruals included in additions to PP&E
Cash investment in PP&E
2011
2010
$ (208,489)
15,942
18,627
(1,235)
$ (175,155)
$ (225,434)
7,070
9,867
272
$ (208,224)
32. SEGMENTED INFORMATION
In accordance with IFRS 8, Operating Segments, the Company’s operations are segmented on a regional basis and
are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker
(“CODM”). The Chief Executive Offi cer has authority for resource allocation and assessment of the Company’s
performance and is therefore the CODM.
The Kyrgyz Republic segment involves the operations of the Kumtor Gold Project and local exploration
activities, and the Mongolian segment involves the operations of the Boroo Gold Project, activities related to the
Gatsuurt project and local exploration activities. The Corporate and other segment involves the head offi ce
located in Toronto and exploration activities in North American and other international projects. The segments’
accounting policies are the same as those described in the summary of signifi cant accounting policies (note 3)
except that inter-company loan interest income and expenses, which eliminate on consolidation, are presented
in the individual operating segments where they are generated when determining earnings or loss.
Geographic Segmentation of Revenue
The Company’s only product is gold doré, produced from mines located in the Kyrgyz Republic and Mongolia.
All production from the Kumtor Gold Project is sold to the Kyrgyzaltyn refi nery in the Kyrgyz Republic while
production from the Boroo Gold project is sold to Auramet Trading, LLC or Johnson Matthey Limited; the latter
also refi nes the gold for Boroo at its refi nery located in Ontario, Canada.
The following table reconciles segment operating profi t per the reportable segment information to operating
profi t per the consolidated income statement.
Year ended December 31, 2011
(Millions of U.S. dollars)
Revenue from Gold Sales
Cost of sales
Mine standby costs
Regional offi ce administration
Earnings from mine operations
Revenue-based taxes
Other operating expenses
Exploration and business development
Corporate administration
Earnings from operations
Other (income) and expenses
Finance costs
Earnings (loss) before income taxes
Income tax expense
Net earnings and comprehensive income
Capital expenditure for the year
Goodwill
Assets (excluding Goodwill)
Kyrgyz
Republic
Mongolia
Corporate
and other
$
$
941.1
332.6
–
15.3
593.2
131.8
11.5
13.6
2.1
434.2
(0.7)
1.3
433.6
79.2
49.7
0.2
6.0
23.3
–
3.9
11.4
0.4
7.6
0.6
0.4
6.6
$
–
–
–
–
–
–
–
17.9
42.4
(60.3)
(0.9)
1.8
(61.2)
Total
$ 1,020.3
382.3
0.2
21.3
616.5
131.8
15.4
42.9
44.9
381.5
(1.0)
3.5
379.0
8.1
370.9
$
$
$
$
180.7
129.7
1,016.6
$
$
$
6.6
–
319.4
$
$
$
0.6
–
222.9
187.9
$
$
129.7
$ 1,558.9
2011 ANNUAL REPORT 117
59420_Centerra_Financials.indd 117
27/03/12 8:21 AM
Year ended December 31, 2010
(Millions of U.S. dollars)
Revenue from Gold Sales
Cost of sales
Mine standby costs
Regional offi ce administration
Earnings from mine operations
Revenue-based taxes
Other operating expenses
Exploration and business development
Corporate administration
Earnings from operations
Other (income) and expenses
Finance costs
Gain on sale of REN property
Earnings (loss) before income taxes
Income tax expense
Net earnings and comprehensive income
Capital expenditure for the year
Goodwill
Assets (excluding Goodwill)
Kyrgyz
Republic
Mongolia
Corporate
and other
$
704.3
272.4
1.3
14.3
416.3
98.6
1.2
11.9
2.0
302.6
1.1
0.9
–
300.6
$
145.5
69.8
–
6.8
68.9
–
6.8
8.2
0.4
53.5
1.1
0.6
–
51.8
–
–
–
–
–
–
–
12.3
49.9
(62.2)
(1.6)
–
(34.9)
(25.7)
$
$
$
186.5
129.7
713.6
$
$
$
25.2
–
277.6
$
$
$
0.3
–
279.6
Total
849.8
342.2
1.3
21.1
485.2
98.6
8.0
32.4
52.3
293.9
0.6
1.5
(34.9)
326.7
4.4
322.3
212.0
129.7
1,270.8
$
$
$
$
$
33. FIRST TIME ADOPTION OF IFRS
a. Transition to IFRS
The Company has adopted IFRS effective January 1, 2011 with a transition date of January 1, 2010. Prior to the
adoption of IFRS the Company prepared its fi nancial statements in accordance with Canadian GAAP.
The comparative information presented in these fi nancial statements for the year ended December 31, 2010
and the opening fi nancial position as at January 1, 2010 (the “Transition Date”) has been prepared in accordance
with the accounting policies referenced in note 3 and IFRS 1, First-Time Adoption of International Financial
Reporting Standards (“IFRS 1”).
b. Initial elections upon adoption
The Company adopted IFRS in accordance with IFRS 1, First-time Adoption of International Financial Reporting
Standards. The IFRS 1 exemptions and exceptions applied in the conversion from Canadian GAAP to IFRS by the
Company are explained as follows:
IFRS Exemption Options
i. Business combinations
The Company elected under IFRS 1 not to restate previous business combinations prior to the transition date.
Consequently, any goodwill arising on such business combinations before the Transition Date has not been
adjusted from the carrying value previously determined under Canadian GAAP as a result of applying this
exemption.
118 CENTERRA GOLD INC.
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ii. Share-based payments
The Company elected under IFRS 1 not to apply IFRS 2, Share-Based Payments, to all equity instruments of
share-based payments that had vested at the transition date. Further, the Company elected not to apply IFRS 2
for all cash-settled share-based payments that were settled before the transition date.
iii. Borrowing costs
The Company elected to expense borrowing costs prior to January 1, 2010, which is consistent with the
Company’s accounting policy for such costs under Canadian GAAP.
iv. Asset retirement obligation
The Company applied the requirements of IFRIC 1, Changes in Existing Decommissioning, Restoration and
Similar Liabilities, which retrospectively requires specifi ed changes, in decommissioning, restoration or
similar liabilities to be added to or deducted from the cost of the asset to which it relates and the adjusted
depreciable amount of the asset to then be depreciated prospectively over its remaining useful life.
v. Assets and liabilities of subsidiaries
The Company adopted IFRS later than its subsidiaries. As a result the Company, in its consolidated fi nancial
statements, measured the assets and liabilities of the subsidiaries at the same carrying amounts as in the
fi nancial statements of the subsidiary, after adjusting for consolidation adjustments and for the effects of the
business combination in which the Company acquired the subsidiary.
IFRS mandatory exception
i. Estimates
Hindsight is not used to create or revise estimates. The estimates previously made by the Company under
Canadian GAAP were not revised for application of IFRS except where necessary to refl ect any difference
in accounting policies.
c. Reconciliation between Canadian GAAP and IFRS
In preparing the Company’s opening IFRS statement of fi nancial position, the Company has adjusted amounts
reported previously in its consolidated fi nancial statements prepared in accordance with previous Canadian
GAAP. An explanation of how the transition from previous Canadian GAAP to IFRS has affected the Company’s
fi nancial position and equity is set out in the following tables in note 32(d) and the notes that accompany the
tables in note 32(f ).
IFRS 1 requires reconciliation disclosures that explain how the transition from Canadian GAAP to IFRS has
affected the Company’s previously reported consolidated fi nancial statements prepared in accordance with
previous Canadian GAAP for the year ended December 31, 2010. An explanation of how the transition from
previous Canadian GAAP to IFRSs has affected the Company’s fi nancial position, equity, statement of earnings
and comprehensive income and material adjustments to cash fl ows and equity is set out in the following tables
in note 32(e) and the notes that accompany the tables in note 32(f ).
59420_Centerra_Financials.indd 119
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2011 ANNUAL REPORT 119
d. Reconciliation between Canadian GAAP and IFRS
Below is the Company’s consolidated statement of fi nancial position as at the transition date of January 1, 2010
under IFRS.
As at January 1, 2010 (date of Transition)
(Thousands of US$)
Assets
Current assets
Cash and cash equivalents
Short-term investments
Amounts receivable
Current portion of future income tax asset
Inventories
Prepaid expenses
Property, plant and equipment
Goodwill
Long-term receivables and other
Long-term inventories
Deferred income tax asset
Total assets
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable and accrued liabilities
Taxes payable
Current portion of provision for reclamation
Current portion of future income tax liability
Provision for reclamation
Deferred income tax liability
Shareholders’ equity
Share capital
Contributed surplus
Retained earnings
Total liabilities and shareholders’ equity
notes
Previous
Canadian
GAAP
Effect of
transition
to IFRS
IFRS opening
Financial
Position
(iv)
(ii)
(iv)
(iii)
(i)
(iv)
(i)
(iv)
(iii)
$ 176,904
145,971
44,281
1,555
151,822
11,718
532,251
380,979
129,705
6,554
23,120
1,418
541,776
$ 1,074,027
$
49,178
35,066
8,169
7,662
100,075
21,533
–
21,533
646,081
34,298
272,040
952,419
$ 1,074,027
–
–
–
(1,555)
–
–
(1,555)
1,271
–
–
–
(1,356)
(85)
(1,640)
(80)
–
(770)
(7,662)
(8,512)
5,013
8,700
13,713
–
1,078
(7,919)
(6,841)
(1,640)
$ 176,904
145,971
44,281
–
151,822
11,718
530,696
382,250
129,705
6,554
23,120
62
541,691
$ 1,072,387
$
49,098
35,066
7,399
–
91,563
26,546
8,700
35,246
646,081
35,376
264,121
945,578
$ 1,072,387
Below is the reconciliation of the Company’s consolidated statement of opening equity as at the transition date
of January 1, 2010.
As at January 1, 2010 (date of Transition)
(Thousands of US$)
Total equity previously reported under Canadian GAAP
Provision for reclamation
Cash settled share-based compensations
Income taxes recoverable
Total equity under IFRS at Transition
notes
(i)
(iii)
(iv)
Previous
Canadian
GAAP
$ 952,419
–
–
–
$ 952,419
Effect of
transition
to IFRS
IFRS opening
Financial
Position
–
(2,973)
80
(3,948)
(6,841)
$ 952,419
(2,973)
80
(3,948)
$ 945,578
120 CENTERRA GOLD INC.
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e. Reconciliation between Canadian GAAP and IFRS as at December 31, 2010
Reconciliation of fi nancial position between Canadian GAAP and IFRS
As at December 31, 2010
(Thousands of US$)
Assets
Current assets
Cash and cash equivalents
Short-term investments
Restricted cash
Amounts receivable
Current portion of Deferred income tax asset
Inventories
Prepaid expenses
Property, plant and equipment
Goodwill
Long-term receivables and other
Long-term inventories
Deferred income tax asset
Total assets
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable and accrued liabilities
Taxes payable
Current portion of provision for reclamation
Provision for reclamation
Shareholders’ equity
Share capital
Contributed surplus
Retained earnings
Total liabilities and shareholders’ equity
notes
Previous
Canadian
GAAP
Effect of
transition
to IFRS
(iv)
(ii)
(iv)
(iii)
(i)
(i)
$ 330,737
82,278
795
97,281
1,601
183,207
22,221
718,120
515,949
129,705
17,299
12,877
2,722
678,552
$ 1,396,672
$
65,221
27,354
9,728
102,303
24,891
655,178
33,240
581,060
1,269,478
$ 1,396,672
–
–
–
3,281
(1,601)
(1,574)
–
106
3,070
–
–
–
645
3,715
3,821
5,688
–
(175)
5,513
5,989
–
587
(8,268)
(7,681)
3,821
Reconciliation of Consolidated statement of earnings and comprehensive income
For the year ended December 31, 2010
(Thousands of US$)
Comprehensive income under Canadian GAAP
Provision for reclamation
Depreciation
Share-based compensation
Exchange difference on deferred income taxes
Deferred income taxes
Provision for constructive obligation
Net revenue from sales of gold
Comprehensive income under IFRS
notes
(i)
(ii)
(iii)
(iv)
(iv)
(v)
(vi)
Previous
Canadian
GAAP
$ 322,640
–
–
–
–
–
–
–
$ 322,640
Effect of
transition
to IFRS
–
444
(183)
1,087
(194)
3,188
(6,365)
1,674
(349)
IFRS
$ 330,737
82,278
795
100,562
–
181,633
22,221
718,226
519,019
129,705
17,299
12,877
3,367
682,267
$ 1,400,493
$
70,909
27,354
9,553
107,816
30,880
655,178
33,827
572,792
1,261,797
$ 1,400,493
IFRS
$ 322,640
444
(183)
1,087
(194)
3,188
(6,365)
1,674
$ 322,291
59420_Centerra_Financials.indd 121
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2011 ANNUAL REPORT 121
f. Changes in accounting policies
The following paragraphs explain the signifi cant differences between Canadian GAAP and the IFRS accounting
policies applied by the Company. These differences result in the adjustments in the prior tables. The descriptive
caption next to each numbered item below corresponds to the same numbered and descriptive caption in the
tables in (32(d) and (e)).
i. Provision for reclamation and rehabilitation (Decommissioning Liabilities)
Under IFRS, a liability must be recognized at the time when the entity becomes legally or constructively
obliged to rehabilitate a disturbance resulting from mining activities, while under Canadian GAAP, a liability
is only recognized when the entity is legally bound. Discount rates used should refl ect the risks specifi c to
the decommissioning provision. Unlike IFRSs, under Canadian GAAP discount rates for asset retirement
obligations are based on the entity’s credit-adjusted risk-free rate. IFRS requires re-measurement of the
liability at each reporting date whereas Canadian GAAP requires re-measurement of the liability in the event
of changes in the amount or timing of cash fl ows required to settle the obligation. Over and above this, IAS 37,
Provisions, Contingent Liabilities and Contingent Assets, requires the re-measurement of the provision for
reclamation and rehabilitation if there is a change in the current market-based discount rate. However under
Canadian GAAP HB 3110 Asset Retirement Obligations, the provision for reclamation and rehabilitation is not
adjusted for changes in the discount rate.
The use of the current discount rate for all changes in estimates combined with the requirement to
re-measure the liability at each reporting date under IFRS signifi cantly simplifi es the process required to
measure any restoration liabilities as there will no longer be a need to record and account for separate layers
of the original liability and each subsequent upward revision in estimated cash fl ows. As a result, the provision
for reclamation and rehabilitation under IFRS has been re-measured using the risk-free discount rate in effect
at January 1, 2010 of 3.85% at Kumtor and 3.39% at Boroo, resulting in an adjustment of $4.2 million recorded
as an increase to the provision for reclamation with corresponding offset of $2.9 million to equity and
$1.3 million to property, plant and equipment.
As at December 31, 2010, the ARO liability under IFRS has been re-measured using the risk-free discount
rate in effect at December 31, 2010 of 3.18% at Kumtor and 2.0% at Boroo, resulting in an adjustment of
$2.5 million recorded as an increase to the provision for reclamation with an offsetting increase of $0.5 million
to accretion expense (fi nance cost) and $2.0 million increase to ARO asset.
ii. Property, Plant and Equipment
IFRIC 1, Changes in Decommissioning, Restoration and Similar Liabilities, contains guidance on accounting
for changes in decommissioning, restoration and similar liabilities due to timing in the revision of estimated
outfl ows and revisions to the risk-free discount rate. Where changes occur, these changes are required to be
capitalized as part of the cost of the underlying assets and depreciated prospectively over the remaining life
of the asset to which they relate.
Due to the adjustments to the provision for reclamation discussed in (i) above, the book value of the property,
plant and equipment at January 1, 2010 increased by $1.3 million and additional $2.0 million increase at
December 31, 2010.
Additional depreciation expense of $0.2 million for the year ended December 31, 2010 relating to depreciation
on the ARO asset recognized, as noted above, was recorded.
iii. Share-based payments
IFRS 1 requires the Company to apply IFRS 2, Share-Based Payments, to all equity instruments of share-based
payments that have not vested at the transition date. IFRS requires that cash-settled share based payments be
accounted for using a fair value method, as opposed to an intrinsic value under Canadian GAAP.
IFRS 2 was applied for applicable unvested stock options granted prior to the Transition Date at January 1,
2010. Consequently, as a result of the difference in measurement of the equity-settled share-based compensation
at January 1, 2010 on which IFRS require different measurement for stock options that have graded vesting
features compared with Canadian GAAP that value the stock options as a single grant, an adjustment of
$1.1 million was recorded to decrease opening retained earnings with offset to contributed surplus.
122 CENTERRA GOLD INC.
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IFRS 2 was applied to liabilities arising from cash-settled share-based payment transactions that existed at
January 1, 2010. Consequently, as a result of the difference in measurement, as noted in note 3(o), outstanding
liability related to the Company’s cash-settled share-based compensation was reduced by $0.1 million with
offset to retained earnings.
During the year ended December 31, 2010 share-based compensation expense recorded under Canadian
GAAP was decreased by $1.1 million.
iv. Taxes
IAS 12, Taxes, contains different guidance related to the recognition and measurement of deferred income
taxes. It requires the recognition of deferred income taxes in situations not required under Canadian GAAP.
Specifi cally, a deferred tax liability (asset) is recognized for exchange gains and losses relating to foreign
non-monetary assets and liabilities that are re-measured into the functional currency using historical exchange
rates. Temporary differences are also recognized for the difference in tax bases between jurisdictions as
a result of the intra-group transfer of assets. Furthermore, Canadian GAAP requires that the current and
long-term portions of deferred income tax assets, and deferred income tax liabilities, be shown separately
on the fi nancial statements, whereas IFRS does not.
As a result of differences in recognition and measurement under IFRS and Canadian GAAP, as at the
Transition Date of January 1, 2010, a decrease in the amount of $2.9 million in the deferred income tax asset
was refl ected and adjusted to opening retained earnings. In addition, $1.04 million of deferred income tax
liability was recognized as the deferred income tax effect on differences between Canadian GAAP and IFRS,
described in 32 (f ) (i) to (iii) above. These adjustments are associated with the Mongolian segment.
Furthermore, for the year ended December 31, 2010 the reported Canadian GAAP results were adjusted
to refl ect deferred income tax recoveries of $3.2 million resulting from the IFRS method of determination
of temporary differences related to the Mongolian segment.
v. Provision for constructive obligation
On transition to IFRS on January 1, 2010, there was no constructive obligation to recognize by the Company.
However, as at December 31, 2010, the Company recorded $6.4 million representing the estimated amount to
potentially settle a constructive obligation through the Company’s Community Development and Initiatives
program. The Company’s subsidiary Boroo Gold LLC may have created an expectation that it would collaborate
with the Government of Mongolia to build a maternity hospital in the capital city of Ulaanbaatar even though
the expectation was not legally enforceable. Under IFRS, the expectation that the Company may be required
to fund its share of the maternity hospital resulted in the Company recording a provision under IFRS.
vi. Revenue recognition
Under Canadian GAAP, revenues from the sale of gold and silver are recognized by the Company when risks
and rewards of ownership have substantially passed (interpreted to mean title transfer), delivery is effected
and when the Company has reasonable assurance with respect to measurement and collectability. Under IFRS,
revenues from the sale of gold and silver are recognized when risks and rewards of ownership are transferred,
which is defi ned by the Company to be at the point when the customer has taken delivery and pricing has been
determined. Revenue is measured at the fair value of the consideration received or receivable, provided it is
probable that economic benefi t will fl ow to the Company and the revenue and costs, if applicable, can be
measured reliably.
There is no adjustment as at the Transition Date relating to the differences in revenue recognition.
For the year ended December 31, 2010 net revenue from sales of gold under IFRS increased by $1.7 million
($3.3 million increase in revenue, $2.7 million increase to cost of sales and $1.1 million decrease to depreciation,
depletion and amortization).
g. Statement of Cash Flows
The IFRS transition adjustments noted above did not have a material impact on the presentation of the Company’s
statement of cash fl ows.
2011 ANNUAL REPORT 123
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Defi nitions
MINERAL RESERVE
A mineral reserve is the economically mineable part of a measured or indicated mineral resource demonstrated
by at least a preliminary feasibility study. This study must include adequate information on mining, processing,
metallurgical, economic, and other relevant factors that demonstrate at the time of reporting, that economic
extraction can be justifi ed. A mineral reserve includes diluting materials and allowances for losses that may
occur when the material is mined.
PROVEN MINERAL RESERVE
A proven mineral reserve is the economically mineable part of a measured mineral resource demonstrated by
at least a preliminary feasibility study. This study must include adequate information on mining, processing,
metallurgical, economic and other relevant factors that demonstrate at the time of reporting that economic
extraction is justifi ed.
PROBABLE MINERAL RESERVE
A probable mineral reserve is the economically mineable part of an indicated, and in some circumstances a
measured mineral resource demonstrated by at least a preliminary feasibility study. This study must include
adequate information on mining, processing, metallurgical, economic, and other relevant factors that demonstrate
at the time of reporting that economic extraction can be justifi ed.
MINERAL RESOURCE
A mineral resource is a concentration or occurrence of natural, solid, inorganic or fossilized organic material in
or on the earth’s crust in such form and quantity and of such a grade or quality that has reasonable prospects for
economic extraction. The location, quantity, grade, geological characteristics and continuity of a mineral resource
are known, estimated or interpreted from specifi c geological evidence and knowledge.
MEASURED MINERAL RESOURCE
A measured mineral resource is that part of a mineral resource for which quantity, grade or quality, density, shape
and physical characteristics are so well established that they can be estimated with confi dence suffi cient to allow
the appropriate application of technical and economic parameters, to support production planning and evaluation
of the economic viability of the deposit. The estimate is based on detailed and reliable exploration, sampling and
testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits,
workings and drill holes that are spaced closely enough to confi rm both geological and grade continuity.
INDICATED MINERAL RESOURCE
An indicated mineral resource is that part of a mineral resource for which quantity, grade or quality, density,
shape and physical characteristics can be estimated with a level of confi dence suffi cient to allow the appropriate
application of technical and economic parameters, to support mine planning and evaluation of the economic
viability of the deposit. The estimate is based on detailed and reliable exploration and testing information
gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes
that are spaced closely enough for geological and grade continuity to be reasonably assumed.
124 CENTERRA GOLD INC.
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INFERRED MINERAL RESOURCE
An inferred mineral resource is that part of a mineral resource for which quantity and grade or quality can be
estimated on the basis of geological evidence and limited sampling and reasonably assumed but not verifi ed
geological and grade continuity. The estimate is based on limited information and sampling gathered through
appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes.
In this mineral reserves and resources statement Centerra uses a defi nition of classes of mineralization taking
into account a maximum number of parameters of various natures. These parameters are:
• the precision of the estimate;
• the economic feasibility of the project which relates not only to grades but to the volume of the reserves,
the location, the chemistry of the expected ore, the price of the product, etc; and
• the legal status of the project and its possible evolution in the very near future.
Centerra’s mineral reserves include allowances for dilution, and mining and/or metallurgical recovery.
No allowances have been applied to mineral resources. Stated mineral reserves and resources have been reported
based on estimated quantities of mineralized material recoverable by established mining methods. This includes
only deposits with mineral values in excess of cut-off grades used in normal mining operations. Centerra’s mineral
reserves include material in place and on stockpiles. Only mineral reserves have demonstrated economic viability.
There are numerous uncertainties inherent in estimating mineral reserves and resources. The accuracy of any
reserve and resource estimation is the function of the quality of available data and of engineering and geological
interpretation and judgement. Results from drilling, testing and production, as well as material changes in gold
prices, subsequent to the date of the estimate, may justify revision of such estimates.
Centerra’s classifi cation of mineral reserves and resources and the subcategories of each conforms to the
defi nitions adopted by the CIM Council on August 20, 2000, which are incorporated by reference into NI 43-101,
issued by the Canadian Securities Administrators. Centerra reports reserves and resources separately. The amount
of reported resources does not include those amounts identifi ed as reserves. Mineral resources which are not
mineral reserves do not have demonstrated economic viability.
2011_Centerra_Page 125-126.indd 125
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2011 ANNUAL REPORT 125
Corporate Information
Exploration Offi ces
Centerra Gold Inc.
Ulaanbaatar, Mongolia
Bodi Tower
11th Floor,
Sukhbaatar Square
Ulaanbaatar, Mongolia
210646
Centerra Gold Inc.
Cankaya, Ankara
Buyukesat Mahallesi
Cayhane Sokak No: 47/9
06700 Gaziosmanpasa
Cankaya, Ankara, Turkey
Centerra Gold Inc.
Beijing Representative Offi ce
Beijing, China
1606 Full Tower
9 Dong San Huan Zhong Lu
Chaoyang District
Beijing, China
100020
Operations Offi ces
Kumtor Operating Company
Bishkek, Kyrgyz Republic
24 Ibraimov Street,
Bishkek, Kyrgyz Republic
720031
Boroo Gold LLC
Ulaanbaatar, Mongolia
P.O. Box 223,
Bodi Tower, 11th Floor
Sukhbaatar Square
Ulaanbaatar, Mongolia
210648
Transfer Agent
For information on common
share holdings, lost share
certifi cates and address
changes, contact:
CIBC Mellon Trust Company
c/o Canadian Stock
Transfer Company Inc.
320 Bay Street
P.O. Box 1
Toronto, Ontario
Canada M5H 4A6
North America
phone toll free:
1.800.387.0825 or
416.643.5500
www.cibcmellon.com
Auditors
KPMG LLP
333 Bay Street
Suite 4600
Toronto, Ontario
Canada M5H 2S5
Stock Exchange Listing
Toronto Stock Exchange
Symbol: CG
Investor Relations Contact
John W. Pearson
Vice President Investor Relations
Corporate Headquarters
Suite 1500
1 University Avenue
Toronto, Ontario
Canada M5J 2P1
T 416.204.1953
F 416.204.1954
www.centerragold.com
Directors
Patrick M. James (1), (2), (7)
Niyazbek B. Aldashev (1), (3), (6)
Ian G. Austin (1), (3)
Raphael A. Girard (2), (5), (6)
Karybek Ibraev (4), (5), (6)
Stephen A. Lang
John W. Lill (4), (6)
Amangeldy Muraliev (2), (4)
Sheryl K. Pressler (1), (2)
Terry V. Rogers (3), (5), (6)
Bruce V. Walter (4), (5), (8)
Anthony J. Webb (2), (3)
(1) Member of the Audit Committee
(2) Member of the Nominating and Corporate
Governance Committee
(3) Member of the Human Resources
and Compensation Committee
(4) Member of the Safety, Health and Environmental
Committee
(5) Member of the Reserves Committee
(6) Member of Corporate Social Responsibility Committee
(7) Mr. James is Chair of the Board of Directors
(8) Mr. Walter is Vice-Chair of the Board of Directors
Offi cers and Management
Stephen A. Lang
President and Chief Executive Offi cer
Jeffrey S. Parr
Vice President and Chief Financial Offi cer
Ronald H. Colquhoun
Vice President and Chief Operating Offi cer
Ian Atkinson
Senior Vice President, Global Exploration
Frank H. Herbert
General Counsel and Corporate Secretary
Dennis C. Kwong
Vice President, Business Development
John A. Ross
Vice President, Human Resources
Matthew D. Bliss
Vice President, Environment and Sustainability
David A. Groves
Vice President, Exploration
John W. Pearson
Vice President, Investor Relations
Gordon D. Reid
Vice President, Operations
John M. Kazakoff
President, Boroo Gold Company
Michael Fischer
President, Kumtor Operating Company
Andrew A. Sazanov
President, Kumtor Gold Company
126 CENTERRA GOLD INC.
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Mar/31/2012 1:39 PM
Corporate Profi le
Centerra is a Canadian-based gold mining company engaged in operating, developing, acquiring and
exploring gold properties primarily in Asia, the former Soviet Union and other emerging markets
worldwide. The Company is the largest Western-based gold producer in Central Asia with two operating
gold mines located in the Kyrgyz Republic and Mongolia. In 2011, Centerra produced 642,380 ounces
of gold at a total cash cost of $502 per ounce produced.
Centerra’s objective is to establish annual gold production of 1.5 million ounces and build shareholder
value by maximizing the potential of its current properties, expanding its portfolio of gold mining
operations, continuing to increase its reserves and resources and add additional exploration properties.
Centerra’s shares trade on the Toronto Stock Exchange (TSX) under the symbol CG. The Company is
headquartered in Toronto, Ontario, Canada.
Contents
2 Financial Highlights
4 President’s Message
6 Reserves
8 Platform for Growth
11 2011 Year-end Gold Reserve and Resource Summary
12 Kumtor
14 Boroo
16 Corporate Responsibility
17 Management’s Discussion and Analysis
74 Report of Management’s Accountability
75 Independent Auditors’ Report
76 Consolidated Financial Statements
80 Notes to the Consolidated Financial Statements
124 Definitions
126 Corporate Information
All dollar amounts are expressed in U.S. dollars in this report, except as otherwise indicated.
Cautionary Note Regarding Forward-looking Statements
Certain information contained or incorporated by reference herein which are not historical facts are
“forward-looking statements” within the meaning of certain securities laws, including the Securities
Act (Ontario). Such forward-looking statements include forecasted gold production and cash costs for
2012, expected 2012 capital expenditures, 2012 mining and exploration plans and forecasted expenditures
on community investments. Such forward-looking statements involve risks, uncertainties and other factors
that could cause actual results, performance, prospects and opportunities to differ materially from those
expressed or implied by such forward-looking statements. For a detailed discussion of such risks and other
factors, see the Management’s Discussion and Analysis included in this Annual Report and the Company’s
most recent Annual Information Form which is available on SEDAR.
Although Centerra believes that the assumptions inherent in these forward-looking statements are
reasonable, the reader should not place undue reliance on these statements. Forward-looking information
is as of March 27, 2012. For a detailed discussion of the key assumptions and risk factors, please refer to the
Management’s Discussion and Analysis included in this Annual Report. Centerra disclaims any intention
or obligation to update or revise any forward-looking statements whether as a result of new information,
future events or otherwise, except to the extent required by applicable laws.
Printed in Canada using VOC-free inks.
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Solid. Gold.
Centerra Gold Inc. 2011 Annual Report
Suite 1500
1 University Avenue
Toronto, Ontario
Canada M5J 2P1
T 416.204.1953
F 416.204.1954
www.centerragold.com
Centerra Cover.indd 1
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