We’re
Centerra Gold.
The Leading
Western-based
Gold Producer
in Central Asia.
Centerra Gold Inc. 2012 Annual Report
Corporate Profile
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 2012, Centerra produced 387,076 ounces of gold at an operating
cash cost of $663 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.
All dollar amounts are expressed in U.S. dollars in this report, except as otherwise indicated.
All information is given as of december 31, 2012 unless otherwise indicated.
reserves and resources are as of december 31, 2012, please refer to the management’s discussion and Analysis (mdA) included in this
Annual report, page 20.
Cautionary Note Regarding Forward-looking Statements
information contained in this Annual report 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 statements include statements
related to the successful resolution of matters in the Kyrgyz republic relating to the State Commission report, including discussions with
the government working group formed to open negotiations on the project agreement governing the Kumtor project (the “Kumtor project
Agreements”), actions taken by the parliament and government as a result of the Kyrgyz republic parliamentary decree dated February 21,
2013, the Kyrgyz parliament and government not taking any unilateral actions that are inconsistent with the Kyrgyz republic’s obligations
under the Kumtor project Agreements, the successful resolution of environmental claims for the aggregate amount of approximately
$467 million in the Kyrgyz republic, forecasted gold production and unit costs for 2013, expected 2013 capital expenditures, 2013 mining
and exploration plans and forecasted expenditures on community investments, continued operations in mongolia, including the ability to
develop the gatsuurt project and our plans for the Öksüt property. 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.
mineral resources are not mineral reserves and do not have demonstrated economic viability. inferred mineral resources have a greater
amount of uncertainty 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. There is no certainty that mineral resources of any category can be upgraded to mineral reserves through
continued exploration.
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 28, 2013. 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.
Contents
2 Highlights
4 president’s message
6 leadership Team
14 Kumtor
15 Boroo
16 Corporate responsibility
17 management’s discussion and Analysis
81 report of management’s Accountability
82 independent Auditors’ report
83 Consolidated Financial Statements
87 notes to the Consolidated Financial Statements
126 definitions
128 Corporate information
4 CenTerrA gOld inC.
11.1
Proven and probable
reserves of
11.1 million contained
ounces.
We have over 20-years
experience in one of the
world’s most promising
and underdeveloped
gold regions.
As the leading Western-based gold producer in Central
Asia, we have developed an expertise of operating in the
region. The Kumtor mine, in the Kyrgyz Republic, has
been in production for 16 years and has a further 13 years
of operating life left based on its current reserves. The
Boroo mine, in Mongolia, has been in production for
10 years and conceivably the mill could run for another
decade or more as we develop other opportunities in the
region. Our successful exploration continues to add to
our reserve and resource base as we expand into new areas
and create new opportunities for potential production
platforms going forward. We have a seasoned management
team with proven operating, development and exploration
experience, which is always looking for ways to maximize
the full potential of our current operations and to further
enhance shareholder value by searching for new properties
and opportunities with immediate potential.
2012 ANNUAL REPORT 1
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Highlights
Selected Annual Information
2012
2011
2010
Revenue – millions
Adjusted net earnings (loss) – millions (1)
Adjusted net earnings (loss) per share – $ per share (1)
Loss on de-recognition of underground assets – millions
Net earnings (loss) – millions
Net earnings (loss) 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
Operating cash cost – $ per oz produced (2)
All-in cash cost (pre-tax) – $ per oz produced (3)
Average realized price – $ per oz
$661
$(3)
$(0.01)
$181
$(184)
$(0.78)
$135
$0.57
$382
$1,554
387,076
$663
$1,882
$1,692
$1,020
$371
$1.57
–
$371
$1.57
$435
$1.84
$568
$1,689
642,380
$502
$929
$1,569
$850
$322
$1.37
–
$322
$1.37
$281
$1.19
$413
$1,400
678,941
$440
$838
$1,236
(1) Adjusted net earnings (loss) excludes an accounting charge of $180.7 million relating to the de-recognition of the underground assets at Kumtor.
(2) Operating cash cost is comprised of mine operating costs such as mining, processing, regional offi ce administration, royalties and production taxes (except at Kumtor where
revenue-based taxes are excluded), but excludes depreciation, depletion and amortization, reclamation costs, capital investments, community investments, exploration expenses
and corporate general and administration expenses. Operating cash cost per ounce produced is a non-GAAP measure and is discussed under “Non-GAAP Measures” in the MDA.
(3) All-in cash cost (pre-tax) per ounce produced includes operating cash costs, sustaining and growth capital, corporate general and administrative expenses, global exploration expenses,
and community investments, but excludes revenue-based taxes at Kumtor and income taxes. All-in cash cost (pre-tax) per ounce produced is a non-GAAP measure
and is discussed under “Non-GAAP Measures” in the MDA.
2 CENTERRA GOLD INC.
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Reserves
(as at December 31)
(millions of contained ounces)
Gold Production
(thousands of ounces)
11.1
676
679
642
Cash Flow from Operations
($ millions)
435
8.2
8.1
7.3
387
281
246
135
2009 2010 2011 2012
2009 2010 2011 2012
2009 2010 2011 2012
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2012 ANNUAL REPORT 3
Understanding the
market place in which
we work is key.
President’s Message
2012 was a challenging year for the Company,
with the unexpected ice and waste movement
at Kumtor resulting in the revised mining plan
and the increased public profi le of Kumtor
associated with the Kyrgyz parliamentary
and state commission reviews of our Kumtor
operation. In addition we had lower than
expected production at Kumtor in the fourth
quarter because of the lower than expected
mill throughput and recovery, as well as lower
than expected mill head grades encountered
when mining the newly discovered portion
of the orebody. However, we had a number
of accomplishments in the year, with a very
signifi cant increase in reserves at Kumtor,
acquiring 100% interest in the exciting Öksüt
property in Turkey and in Mongolia we were
successful in converting the ATO exploration
license to a mining license and we received
the necessary permits to restart the heap
leach operation at Boroo.
Centerra had another strong year in exploration,
replacing reserves mined at Kumtor, with the expansion
of the open pit and the new KS-13 mine plan, extending
Kumtor’s mine life by an additional fi ve years to 2026.
The Company’s proven and probable reserves now total
11.1 million contained ounces of gold, the highest in the
Company’s history. In addition to our reserves we have
1.9 million contained ounces of high-grade underground
inferred resources at Kumtor and indicated and inferred
resources outlined on our ATO and Öksüt properties.
4 CENTERRA GOLD INC.
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In December, we announced our plans to acquire the
remaining 30% interest in the Öksüt project and completed
that transaction in January this year to hold 100% of the
Öksüt property. Additionally, we announced our initial
resource estimate at the Öksüt property of 682,000 contained
ounces of indicated resources and 477,000 contained ounces
of inferred resources. We are planning on advancing this
project to a decision point as quickly as possible.
In 2012, our production was signifi cantly lower than
2011 with consolidated gold production of 387,076 ounces.
Gold production at Kumtor was 315,238 ounces due to the
unexpected acceleration of ice and waste into the Central
Pit which created unsafe mining conditions and the need to
revise the mining plan. The resulting rescheduling of mining
activities to the southwest end of the SB Zone delayed
access to the ore zone and resulted in a 46% decrease in
production at Kumtor year over year. At Boroo, 71,838
ounces of gold were produced as the site restarted the heap
leach operation in the fourth quarter, recovering 7,486
ounces of gold from the heap leach in the fourth quarter.
Our operating cash costs for 2012 came in at $663 per
ounce produced. Centerra, like many of our peers, has
moved to reporting “all-in cash costs”. While this is a
non-GAAP measure we believe this measure more fully
refl ects the actual cost of producing an ounce of gold than
the Gold Institute cash cost measure. For 2012, our all-in
cash cost (pre-tax) was $1,882 per ounce produced, which
is high due to the reduced production at Kumtor in 2012.
The all-in cash cost measure includes all operating cash
costs, sustaining and growth capital (including capitalized
stripping), corporate general and administrative expenses,
global exploration expenses, and community investments,
but excludes revenue-based taxes at Kumtor and income
taxes. The measure is more fully discussed under “Non-
GAAP Measures” in the Management’s Discussion and
Analysis accompanying this annual report.
On the fi nancial front in 2012, Centerra recorded a
net loss of $184 million or $0.78 per share refl ecting
the $180.7 million charge for the de-recognition of the
underground assets at Kumtor as well as the lower
production at Kumtor. Also during the year, we generated
approximately $135 million in cash from operations.
At the end of the year the Company had $382 million of
cash and short-term investments, as well as $74 million
undrawn on our $150 million credit facility. We also
invested $411 million for the future of our operations
and $38 million in exploration. We remain unhedged,
allowing us to participate in all of the upside of any
increases in the gold price.
For 2012, our revenues decreased to $661 million, due
to the lower production and sales volumes which was
offset partially by our higher average realized gold price
of $1,692 per ounce, up from $1,569 per ounce in 2011.
Looking forward in 2013, we are forecasting
consolidated gold production to be in the range of 605,000
to 660,000 ounces with consolidated all-in cash costs
(pre-tax) between $1,067 and $1,164 per ounce, as Kumtor
returns to more normal production levels.
In 2013, the Kumtor mine is expected to produce between
550,000 and 600,000 ounces, with approximately 50% of the
gold production expected to occur in the fourth quarter.
According to the KS-13 mine plan, 2013 is expected to be
the last year with a signifi cant back-end loaded production
profi le as the mine continues to build stockpiles, which will
allow for more consistent production on a quarterly basis
going forward.
At the Boroo mine, gold production is forecast to be
approximately 55,000 to 60,000 ounces, which includes
about 24,000 ounces from heap leaching and 36,000 ounces
from processing mill stockpiles. The Boroo mill is expected
to process ore stockpiles during the year with an average
grade of 0.82 g/t. The 2013 forecast assumes no mining
activities at Boroo and Gatsuurt, and no gold production
from Gatsuurt.
In 2013, we will continue to invest in our properties.
Total capital expenditures excluding capitalized stripping
are estimated to be $107 million, which includes $75 million
of sustaining capital and $32 million of growth capital.
Capitalized stripping costs related to the development of
the open pit at Kumtor are expected to be $212 million.
We will continue our strong commitment to exploration
investing $45 million in 2013, an increase from the
$38 million spent in 2012. Exploration and business
development programs will focus on Central Asia, Turkey,
Russia and China, and expand into new regions to meet
the longer term growth targets of Centerra.
We are committed to resolving the issues surrounding
Kumtor through constructive dialogue to develop
a mutually benefi cial solution which is fair to all
Centerra shareholders.
I would like to congratulate our employees on their
continued commitment to maintaining the high safety,
health, and environmental standards at our mines. We
continue to meet and exceed international standards on
a consistent basis. The safety and environmental record
at both of our mines is signifi cantly better than the North
American averages and our employees have every reason
to be very proud of that fact.
Ian Atkinson
President and Chief Executive Offi cer
2012 ANNUAL REPORT 5
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Our leadership team
has strong operating,
development and
exploration experience.
Management
Team
Ian Atkinson
President and
Chief Executive Offi cer
Jeffrey S. Parr
Vice President and
Chief Financial Offi cer
Gordon D. Reid
Vice President and
Chief Operating Offi cer
David A. Groves
Vice President, Global Exploration
Frank H. Herbert
General Counsel
and Corporate Secretary
Anthony J. Meade
Vice President, Human Resources
and Administration
Dennis C. Kwong
Vice President, Business
Development
6 CENTERRA GOLD INC.
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8%
With the rising gold price in 2012
Centerra’s average realized gold price
increased 8% over the prior year.
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2012 ANNUAL REPORT 7
We’re experts at getting
gold out of the ground,
we also know where to
look for more.
Öksüt Exploration
On January 24, 2013, the Company completed the
purchase of the remaining 30% interest in the Öksüt
Gold Project to own 100% of the project. The Öksüt
property is located in the Kayseri region of central Turkey,
approximately 50 kilometres south of the city of Kayseri
and 10 kilometres south of the town of Develi.
During 2012, exploration work focused on the Ortaçam
North deposit and included both step-out and infi ll
drilling. Our initial indicated and inferred resource
estimate for Öksüt, includes only oxide mineralization
and is based upon 52 drill holes in the Ortaçam North
Zone and 21 drill holes in the Ortaçam Zone. The gold
mineralization on the property is contained within an
oxidized, high-sulphidation epithermal system.
At December 31, 2012, the Öksüt project has an
indicated resource of 682,000 ounces of contained gold
and an inferred resource of 477,000 ounces of contained
gold on a 100% basis. The resource estimate is contained
in two zones; the Ortaçam North Zone which has an
indicated resource of 682,000 ounces of contained gold
and an inferred resource of 353,000 ounces of contained
gold and the Ortaçam Zone which has an inferred resource
of 124,000 ounces of contained gold. The resource estimate
is contained within a preliminary whittle shell using a
cut-off grade of 0.2 g/t and raw assays were top-cut to
15 g/t before compositing.
Preliminary metallurgical test work, comprising bottle
roll tests on core samples of oxidized and partially oxidized
material from the Ortaçam North deposit indicates the
ore is potentially amenable to heap leaching. Further
metallurgical test work, consisting of heap leach column
tests, is currently underway.
The mineralized zone at Ortaçam North remains open
to the east, south and at depth and there are other targets
to be tested on the property. In 2013 exploration spending
will increase to approximately $8 million as work focuses
on expanding and upgrading the Öksüt gold deposit
resource, advancing ongoing metallurgical testwork and
initiating detailed environmental, social and technical
project studies.
52
682
8
The number of
drill holes in the Ortaçam
North Zone.
682,000 contained
ounces in the Ortaçam
North Zone of indicated
resources.
2013 planned
exploration spending
$8 million
8 CENTERRA GOLD INC.
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Öksüt Project, Turkey
Ortaçam North Zone
2012 ANNUAL REPORT 9
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We have a plan that will
lead to a signifi cant
increase in production.
Kumtor KS-13 Plan
In November 2012 the Company announced the new
KS-13 life-of-mine plan for the Kumtor deposit based on
the positive results of the detailed technical and fi nancial
study carried out during the year. Proven and probable
reserves increased by 58% or 3.6 million contained
ounces and at December 31, 2012, Kumtor’s proven and
probable reserves total 9.5 million contained ounces of
gold. The expanded open pit mine plan incorporates into
reserves 1.2 million contained ounces that were previously
classifi ed as high-grade inferred underground resources
and also captures an additional 2.2 million contained
ounces of resources representing material between the
cut-off grade for the open pit and the cut-off grade for the
underground resource estimation. The new reserves and
resources and the new mine plan includes a much larger
open pit and extends the mine life of Kumtor by a further
fi ve years to 2026.
The opportunity to expand the open pit was created
by successful exploration drilling of the SB Zone between
2006 and September 2012 that more than doubled the
strike length of the SB Zone and extended the SB Zone
resource down dip, which resulted in an expansion of
resources. This expansion of resources, in conjunction
with the decision made in March of 2012 to mitigate the
impact of the high-movement areas by offl oading the ice
and waste in the upper portion of the southeast section
of the Central Pit, created the opportunity to expand
the Central Pit with the resulting signifi cant increase in
reserves, extension of the mine life and increase in the
project net present value.
The new KS-13 mine plan is expected to provide a
more consistent quarterly production profi le after 2013
with consistent annual gold production averaging
650,000 ounces for the fi rst 10 years of the mine plan
and is based only on open-pit mineral reserves. The new
mine plan also includes plans to expand mill throughput
by 18% to 6.7 million tonnes per annum in 2016.
The expanded open pit consumes a signifi cant amount
of the existing underground development infrastructure.
As a result, the Company de-recognized the capitalized
cost of the underground development and underground
equipment and recorded a charge of $180.7 million in the
fourth quarter of 2012. An opportunity for underground
mining still exists, with 1.9 million contained ounces of
inferred high-grade underground resources identifi ed
beneath the new KS-13 planned pit bottom. Exploration
will continue to test the down dip extension of the
SB Zone. The Company will assess the opportunity to
develop both the Stockwork and SB Zones underground
once mining of the SB Zone is fi nished in the open pit
and detailed technical studies are completed.
58%
18%
9.5
The new KS-13 mine
plan increased reserves
by 58%.
Planned mill
throughput increase
in 2016.
Total reserves at Kumtor
as at December 31, 2012,
9.5 million contained
ounces of gold.
10 CENTERRA GOLD INC.
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We have a 20-year
history of success at
our Kumtor mine.
20 The Kumtor Project is going to celebrate its 20th
anniversary this year. It is the fi rst and largest investment
project ever launched in the mining sector of the Kyrgyz
Republic. The mine is considered to be the locomotive
engine of the mining business and contributes signifi cantly
to the economy of the Kyrgyz Republic, accounting for up
to 12% of GDP, more than 25% of industrial output and
about 50% of Kyrgyzstan’s exports.
3,034 people, the number of personnel employed by
the Company and contract organizations. They provide for
the operation of the mine, one of the world’s highest gold
deposits located in Jety-Oguz district, Issy Kul province
of the Kyrgyz Republic.
1993 February 16, 1993, the date when the Company's
predecessor company was created. Within four years, it
was able to prepare the deposit for development and build
the necessary infrastructure for production. In 1997,
commercial production of gold began.
240 kilometres of road, of which 90 kilometres pass
through mountains, is the distance separating the Kumtor
deposit from the nearest rail facilities. That is why all
the equipment and supplies are taken to an altitude of
4,000 metres above sea level by motor transport.
150 thousand tonnes of various goods are annually
handled by the Company’s marshaling yard located at
Balykchy. 821 suppliers from 37 countries from around
the world and 708 national companies provide for
uninterrupted operation at the Kumtor mine.
16 thousand tonnes of ore is the daily throughput of the
gold mill at Kumtor. The production cycle is fully automated
and uses advanced technologies. Operation of the mill is
maintained by only 16 employees per shift.
42 quality parameters for treated effl uents at Kumtor are
controlled by the Company’s and Government’s environ-
mental experts. The Company is tirelessly monitoring
the state of the environment and strictly adheres to the
environmental and industrial safety standards effective
in the Kyrgyz Republic and Canada, as well as, those
recognized by the World Bank.
136 pieces of heavy-duty mining equipment, which is
unprecedented in Kyrgyzstan, are what support developing
and operating the Kumtor deposit. A heavy-duty equipment
overhaul and expansion program is implemented by the
Company on a regular basis. The giant trucks and other
equipment are assembled and maintained in the mine’s fl eet
shops, which employ about 450 people.
26 stations at Kumtor are monitoring the quality of surface
water and air. Support is provided to biodiversity programs
and observations for many years show that the wildlife
population is on the increase in the nearby territories.
1,700 people can be accommodated in Kumtor’s camp
facilities, which consists of 30 residential blocks. After work,
adequate rest is guaranteed to the employees while they stay
in the camp. The camp has a canteen, gym, library, billiard
and ping pong tables, as well as an internet café.
210 controllers are installed in the body of the tailings
dam at Kumtor which enables the Company’s engineers
to monitor its condition, stability, temperature and the
groundwater levels. The dam is 34 metres high but its height
will need to be raised.
4,020 metres is the altitude of one of Central Asia’s most
advanced gold mills which is located at Kumtor. An ISA mill,
an ultrafi ne grinding mill, has become the latest among
the Company’s high-tech acquisitions. This mill is capable
of grinding ore to 20-micron particles, which are 5 times
thinner than a human hair.
8.7 million ounces of gold have been poured at Kumtor
since the mill was commissioned in May, 1997. Kyrgyzaltyn
JSC is the purchaser of all gold and silver produced at the
mine. Moreover, Kyrgyzaltyn is the largest shareholder of
Centerra Gold Inc.
2012 ANNUAL REPORT 11
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Our knowledge of
Central Asia gives us
a strong advantage
in the marketplace.
Turkey
Ankara
Altunhisar JV
Kyrgyz Republic
Bishkek
*
Öksüt
Deposit
Kumtor Mine
12 CENTERRA GOLD INC.
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Mongolia
Boroo Mine
Kara Beldyr JV
Laogouxi JV
Ulaanbaatar
*
Gatsuurt
Deposit
Dvoinoy JV
Umlekan JV
ATO
Deposit
2011 Gold Production
Kumtor – 583,156 oz
Boroo – 59,224 oz
2012 Gold Production
Kumtor – 315,238 oz
Boroo – 71,838 oz
2013 Estimated Gold Production
Kumtor – 550,000 – 600,000 oz
Boroo – 55,000 - 60,000 oz
2012 ANNUAL REPORT 13
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Kumtor
Centerra owns 100% 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 8.7 million ounces of gold between 1997
and the end of 2012.
Production
2012
2011
2010
(1)
Ore mined (thousands of tonnes)
Ore milled (thousands of tonnes)
Average mill head grade (grams/tonne)
Recovery (%)
Gold produced (thousands of ounces)
Operating Cash Cost (1)
Per tonne milled – ($)
Per ounce produced – ($)
4,955
4,756
2.8
75.6
315
6,020
5,815
3.8
80.8
583
5,765
5,594
4.0
79.5
568
43.41
655
48.38
482
41.50(2)
409(2)
All-in cash cost (pre-tax) per ounce produced (3) – ($)
1,808
768
731
Notes:
Operating cash cost is comprised of 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 depreciation,
depletion and amortization, reclamation costs, capital
investments, community investments, exploration expenses
and corporate general and administration expenses.
Operating cash cost per ounce produced is a non-GAAP
measure and is discussed under “Non-GAAP Measures” in
the Management’s Discussion and Analysis accompanying
this annual report.
(2) Restated to exclude community investments costs.
(3)
All-in cash cost (pre-tax) per ounce produced includes
operating cash costs, sustaining and growth capital,
corporate general and administrative expenses, global
exploration expenses, and community investments, but
excludes revenue-based taxes at Kumtor. All-in cash cost
(pre-tax) per ounce produced is a non-GAAP measure and is
discussed under “Non-GAAP Measures” in the Management’s
Discussion and Analysis accompanying this annual report.
Mining the Central Pit
During 2012, Kumtor produced 315,238 ounces of gold from the SB Zone in the Central Pit at an operating cash cost of
$655 per ounce produced. The all-in cash cost (pre-tax), which includes capitalized stripping, sustaining and growth capital,
but excludes the revenue-based tax, was $1,808 per ounce produced for the year.
Production results during the year were impacted, starting in March, by accelerated movement of the ice and waste
above the SB Zone which required a change in mine plan, and, later by an irregular till/bedrock contact encountered while
transitioning from waste rock to ore in the southwest area of the pit in the fourth quarter and lower than expected mill
throughput, mill feed grade, and recovery, encountered when mining a newly discovered portion of the orebody. However,
as outlined in the December 20, 2012 Kumtor technical report, the resource block model has proven to be a reliable indicator
of mineral reserves relative to gold production and that trend is expected to continue as mining transitions back to better
understood areas of the orebody. In 2013, approximately 75% of the production is expected to come from the SB Zone which
has had a number of years of historical production.
In 2013, approximately 50% of Kumtor’s gold production is expected to occur in the fourth quarter. Gold production
from the mine is expected to be between 550,000 and 600,000 ounces in 2013. Ore production in the fourth quarter of 2013
will come from the high-grade SB Zone for which there has been several years of production history. The high-grade ore will
be available for mining at the end of the third quarter when it is exposed by cut-back 15.
According to the KS-13 mine plan, 2013 is expected to be the last year with a signifi cant back-end loaded production profi le
as the mine continues to build stockpiles, which will allow for more consistent production on a quarterly basis going forward.
Replacing reserves
In 2012, Kumtor more than replaced the reserves it mined in the Central Pit as a result of additional drilling and the KS-13
open pit expansion announced in November 2012. Kumtor’s proven and probable reserves (as of December 31, 2012)
increased by 58% or 3.6 million contained ounces of gold compared to 6.3 million ounces of gold as of December 31, 2011
and now total 9.5 million contained ounces of gold.
In addition to the open pit reserves at Kumtor, there is still 1.9 million contained ounces of high-grade underground
inferred resources in the SB and Stockwork Zones below the expanded KS-13 pit bottom. The inferred resources in the
high-grade underground SB Zone totals 1.2 million contained ounces of gold with an average grade of 11.2 g/t. In addition,
the high-grade underground Stockwork Zone inferred resource totals 705,000 ounces of contained gold with an average
grade of 11.0 g/t.
Exploration will continue to test the down dip extension of the SB Zone and other targets on the mining concession.
The Company will assess the opportunities to develop both the Stockwork and SB Zones underground once mining of the
SB Zone is completed in the open pit and further technical studies are completed.
14 CENTERRA GOLD INC.
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Boroo
Centerra owns a 100% interest in the Boroo mine which is located 110 kilometres northwest of Ulaanbaatar, Mongolia’s
capital. 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 1.66 million ounces of gold through the end of 2012.
Production
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)
Operating Cash Cost (2)
Per tonne milled – ($)
Per ounce produced – ($)
All-in cash cost (pre-tax) per ounce produced (3) – ($)
2012
2011
2010
143
–
1,694
907
2,382
1.3
64.0
72
21.07
699
820
–
2,340
1.1
68.9
59
17.54
694
800
2,399
2,466
1.9
71.8
111
27.08(4)
601(4)
672
Notes:
(1) Excludes heap leach ore.
(2)
Operating cash cost is comprised of mine operating costs
such as mining, processing, regional offi ce administration,
royalties and production taxes, but excludes depreciation,
depletion and amortization, reclamation costs, capital
investments, community investments, exploration expenses
and corporate general and administration expenses.
Operating cash cost per ounce produced is a non-GAAP
measure and is discussed under “Non-GAAP Measures” in
the Management’s Discussion and Analysis accompanying
this annual report.
All-in cash cost (pre-tax) per ounce produced includes
operating cash costs, sustaining and growth capital,
corporate general and administrative expenses, global
exploration expenses, and community investments, but
excludes income taxes. All-in cash cost (pre-tax) per ounce
produced is a non-GAAP measure and is discussed under
“Non-GAAP Measures” in the Management’s Discussion
and Analysis accompanying this annual report.
(4) Restated to exclude community investment costs.
(3)
2012 Performance
During 2012, the Boroo mine produced 71,838 ounces of gold compared to 59,224 ounces in the prior year. The 21% increase
in gold production in 2012 was the result of higher mill throughput and higher grades, which were partially offset by lower
recoveries, and the restart of the heap leach operation which contributed 7,486 ounces of gold in the fourth quarter. The
higher operating cash costs in 2012 were the result of increased mining costs due to the resumption of mining activities,
higher milling and site administration costs which were partially offset by the 21% increase in produced ounces.
Mining operations resumed at Boroo in January 2012 to mine the remaining ore in Pit 6 and was completed in September
2012. In mid-September 2012 Boroo received regulatory approval for its mine plan for the heap leach facility and shortly
thereafter resumed heap leach operations with gold recovery commencing in mid-October. During the second half of 2012
the Boroo mill blended Pit 6 ore and existing stockpiled material achieving higher head grades but with lower recoveries
than material processed in the same period of 2011.
The nearby Gatsuurt project remained under care and maintenance in 2012 due to continued delays in permitting
resulting from the Mongolian Water and Forest Law which prohibits mining and exploration activities in water basins and
forested areas but provides an exemption for “strategic deposits”. Further development of the project is subject to resolving
matters with respect to the Water and Forest Law, and receiving all required approvals and regulatory commissioning from
the Mongolian Government, which would allow the Gatsuurt project to move forward.
At Boroo, 2013 gold production is forecast to be 55,000 to 60,000 ounces, which includes approximately 24,000 ounces
from heap leaching and 36,000 ounces from processing mill stockpiles. The Boroo mill is expected to process ore stockpiles
during the year with an average grade of 0.82 g/t. The 2013 forecast assumes no mining activities at Boroo and Gatsuurt,
and no gold production from Gatsuurt.
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2012 ANNUAL REPORT 15
Corporate
Responsibility
Facts
& Figures
(cid:129) Financed the
construction of
a new 150-bed
Maternity Hospital
in Ulaanbaatar,
Mongolia.
(cid:129) Investment by
the Company
$7.5 million.
(cid:129) January 2013,
hospital opens.
At Centerra we are open about our
mining activities and we approach our
corporate responsibility seriously by
engaging stakeholders who infl uence
or are infl uenced by our activities.
Our key stakeholders include employees, contractors,
vendors, communities, shareholders, local and national
governments, investors and non-governmental organiza-
tions. As an international company, we respect the different
needs and values of people and their cultures and operate
with transparency to ensure stakeholder confi dence.
Putting our corporate responsibility principles into practice
means being transparent about our activities and mining
in a way that protects the environment.
We are continually improving the management of
our operations so that we can respond to the economic,
environmental and social expectations of our stakeholders.
We want to generate a sustainable stream of benefi ts for
the countries in which we operate and make investments
in the communities that outlive the life of the mine. Just a
few examples of these are the $7.5 million invested in the
construction of a new maternity hospital in Mongolia,
$10 million for the construction and repair of 27 schools
throughout the Kyrgyz Republic and a $21 million
contribution to a national micro-credit fi nancing program
in the Kyrgyz Republic.
We strive for continuous improvement without
compromising safety or the environment, while aligning
our activities with international best practices.
16 CENTERRA GOLD INC.
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MD&A
Management’s Discussion
and Analysis
For the Fiscal Year Ended December 31, 2012
18 Centerra’s Business
19 Gold Industry
20 Growth Strategy
20 Reserves and Resources
24 Developments in 2012 Affecting Operations
26 Consolidated Financial and Operating Highlights
27 Results of Operations
2012 Compared to 2011
Fourth Quarter Results – 2012 compared to 2011
Quarterly Results – Last Eight Quarters
42 Balance Sheet
43 Contractual Obligations
44 Non-GAAP Measures
53 Critical Accounting Estimates
55 Changes in Accounting Policies
56 Disclosure Controls and Procedures and
Internal Control Over Financial Reporting
56 Sustainable Development
56 2013 Outlook
61 Qualified Person & QA/QC
62 Risk Factors
78 Caution Regarding Forward-Looking Information
Centerra_Financials.indd 17
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2012 ANNUAL REPORT 17
Management’s Discussion and Analysis
The following discussion has been prepared as of February 20, 2013, and is intended to provide a review of the fi nancial
position and results of operations of Centerra Gold Inc. (“Centerra” or the “Company”) as at and for the fi nancial year
ended December 31, 2012 in comparison with those as at and for the fi nancial year ended December 31, 2011. This
discussion should be read in conjunction with the Company’s audited fi nancial statements and notes thereto for the
year ended December 31, 2012 prepared in accordance with International Financial Reporting Standards. In addition, this
discussion contains certain forward-looking information regarding Centerra’s businesses and operations. Such forward-
looking statements involve risks, uncertainties and other factors that could cause actual results to differ materially from
those expressed or implied by such forward-looking statements. 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, 2012, 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.
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 around the world. Centerra’s principal
operations are located in the Kyrgyz Republic and Mongolia and are subject to political and regulatory risks. See
“Other Corporate Developments” and “Risk Factors”.
Centerra’s common shares are listed for trading on the Toronto Stock Exchange. As of February 20, 2013, being
the date of this Management’s Discussion and Analysis (“MD&A”), there are 236,376,011 common shares issued
and outstanding.
As of December 31, 2012, Centerra’s signifi cant subsidiaries and jointly-controlled entities include its wholly-owned
Kumtor Gold Company and Kumtor Operating Company in the Kyrgyz Republic, Boroo Gold LLC and Centerra Gold
Mongolia LLC (owner of the Gatsuurt property and the Altan Tsagaan Ovoo (“ATO”) property) in Mongolia, its 70%
interest in the Kara Beldyr Russian joint venture and 70% interest in the Öksüt Turkish joint venture (subsequently
increased to a wholly-owned operation in January 2013). Additionally, the Company is earning an interest in
other joint venture exploration properties located in Russia, Turkey and China. 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.
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 or under a master sale agreement with Auramet Trading LLC.
The average spot price for gold in 2012 based on the London PM fi x was $1,669 per ounce, an increase of 6% over
the average in 2011. This follows year-over-year increases of 28% in 2011 and 26% in 2010. The average realized price
of gold received by Centerra in 2012 was $1,692 per ounce.
The Company’s costs are comprised primarily of the cost of producing gold from its two mines, exploration
expenses relating to its own projects and 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 include labour, diesel fuel and
equipment maintenance.
18 CENTERRA GOLD INC.
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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 also 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 (primarily depreciation, depletion and amortization (“DD&A”)) 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 accrue 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. At Boroo, 50% of the upcoming year’s annual
reclamation budget is deposited by Boroo into a government account and such funds are recovered by Boroo
when the annual reclamation commitments are completed.
GOLD INDUSTRY
The two principal uses of gold are bullion investment and product fabrication. 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.
The gold price fell during the fourth quarter of 2012 from US$1,776 per ounce to US$1,657 per ounce, a 6.7%
decrease. The 2012 performance remained positive with an overall gain of 8.3% for the year.
In 2013, the global gold production is anticipated to have modest growth with producers refocusing to ensure
that mines under development and current operating mines are profi table and achieve acceptable return on
investments. The increasing cost of gold production pressures along with the higher than anticipated capital
expenditures which were experienced in 2012 are expected to continue. This has led to several planned projects
being deferred in the global gold industry.
In addition to supply factors internal to the industry, described above, external factors also impact the gold price.
The underlying U.S. economic performance indicators have shown some early signs of recovery from the global
fi nancial crisis though not consistently demonstrating economic recovery has been achieved, likely as a result of the
volatility of the U.S. dollar and the gold price. It is unlikely in the near term that the U.S. monetary policy regulators
will tighten monetary policies to impact the trade-weighted U.S. dollar exchange rate and the same remains true in
other developed countries such as Europe and Japan. Central banks of the developed countries and in recent years,
countries with emerging economies, are also now driving investment demand for gold by diversifying their reserves
from traditional holdings of paper currencies. Emerging-market central banks, which own on average 4.6% of foreign
reserves in gold, hold considerably lower gold reserves than the 22% allocation of the developed-market country
counterparts.
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.
Centerra_Financials.indd 19
Apr/01/2013 1:28 PM
2012 ANNUAL REPORT 19
The following table shows the average afternoon gold price fi xing, by quarter, on the London Bullion Market for
2011, and 2012:
Quarter
2011 Q1
2011 Q2
2011 Q3
2011 Q4
2012 Q1
2012 Q2
2012 Q3
2012 Q4
LIQUIDITY
Average Gold Price ($)
1,386
1,506
1,702
1,688
1,721
1,597
1,667
1,711
Financial liquidity provides the Company with the ability to fund future operating activities and investments. Centerra
has two operating mines, located in the Kyrgyz Republic and Mongolia. Centerra generated $134.7 million in cash
from operations in 2012 and has a balance of cash and short-term investments of $382.1 million at December 31, 2012
after drawing $76 million from its revolving line of credit. 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.
Continued uncertainty in global fi nancial markets has constrained the ability of many companies to access
capital markets fi nancing. Financial 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 working capital and future
growth initiatives. The Company has $76 million outstanding on this facility, currently repayable in August 2013,
however, at the Company’s direction, this amount can be rolled over to a future period. It is expected that all
planned capital and operating expenditures can be funded out of cash fl ow for 2013. See “Caution Regarding
Forward-Looking Information”.
GROWTH 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;
• advancing late-stage exploration properties, including properties owned by joint ventures where the
Company’s interests were earned by funding the costs of exploration drilling and feasibility studies; and
• pursuing selective acquisitions in Asia, the former Soviet Union and other emerging markets worldwide.
Centerra’s growth strategy could be impacted by the risk factors described on page 62.
RESERVES AND RESOURCES
During 2012, 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 7, 2013, the Company released the results
of the updated reserve and resource estimates for the Kumtor and Boroo mines and updated resource profi les for its
advanced projects providing estimates of the Company’s reserves and resources as of December 31, 2012.
20 CENTERRA GOLD INC.
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Apr/01/2013 1:28 PM
Reserves:
During 2012, Centerra’s proven and probable gold reserves increased by 3.6 million contained ounces (before
accounting for 2012 production) to 11.1 million ounces of contained gold, compared to 8.1 million ounces as of
December 31, 2011. This represents an increase of 45% before accounting for 534,000 contained ounces processed
at Kumtor and Boroo during 2012. The total reserve increase is the result of the signifi cant expansion of the Kumtor
Central Pit and is described in detail in a new National Instrument 43-101 technical report fi led on SEDAR in
December 2012. All 2012 year-end reserves were estimated using a gold price of $1,350 per ounce compared to
$1,200 per ounce at December 31, 2011.
For the 2012 Kumtor year-end reserve statement, the KS-13 model has been updated from the reserve estimate
completed and published at the end of September 2012 by the addition of 17 diamond drill holes and accounting
for the gold production and mine reconciliation completed during the last quarter of 2012.
In Mongolia, at the Boroo mine, proven and probable reserves total 178,000 contained ounces of gold after
accounting for approximately 110,000 contained ounces being processed through the mill or loaded on the heap
leach pad in 2012. The remaining reserves are now entirely within existing ore stockpiles on surface. At the current
reserve gold price assumption, the Boroo operation can continue to feed the mill for approximately two more years
and operate and recover gold from the heap leach pad into 2014. At the Gatsuurt project, proven and probable
reserves remain unchanged at 1.5 million ounces of contained gold.
Resources:
As of December 31, 2012, Centerra’s measured and indicated resources decreased by 23% or 1.5 million ounces over
the December 31, 2011 fi gures to a total of 5.1 million ounces of contained gold, compared to 6.6 million contained
ounces as of December 31, 2011. The majority of this decrease is a result of the conversion of Kumtor’s Central Pit
measured and indicated open pit resources into mineral reserves as a result of the KS-13 Pit expansion. This conversion
of resources to reserves has been offset by increased resources at Kumtor and the addition of 682,000 contained
ounces of new resources at the Öksüt project.
As of December 31, 2012, Centerra’s inferred resources increased by 22,000 contained ounces over the December 31,
2011 fi gures to a total of 4.1 million ounces of contained gold. The conversion of Kumtor underground resources into
reserves within the KS-13 expanded pit was offset by new high grade resources outlined below the KS-13 pit design
and the addition of 477,000 contained ounces of new resources at the Öksüt project.
At the Öksüt project in Turkey, Centerra calculated its initial resource estimate based on the successful 2012
drilling program. As of December 31, 2012, the Öksüt project has an indicated resource of 682,000 ounces of
contained gold and an inferred resource of 477,000 ounces of contained gold.
At the ATO project in Mongolia, measured and indicated contained gold, resources have decreased by 53,000
contained ounces of gold from 2011 year-end, to a total of 0.8 million contained ounces of gold at December 31,
2012. Extensive metallurgical test work completed in 2012 has resulted in revised lower process recovery and net
smelter return assumptions for the sulphide mineralization which has lowered the contained gold resources. This
has also decreased the corresponding contained silver, lead and zinc resources. Some of the decrease has been offset
by increased recovery assumptions for the oxide mineralization and the addition of 50 new exploration drill holes
completed in 2012.
Inferred resources at ATO have also decreased by 18,000 contained ounces of gold from 2011 year-end, to a total
of 8,000 contained ounces of gold at December 31, 2012 as a result of the same factors outlined above.
The 2012 year-end resource estimates on the Boroo, Gatsuurt, Ulan Bulag properties in Mongolia and Kara Beldyr
property in Russia remain unchanged from those outlined at the end of 2011.
Inferred resources have a great amount of uncertainty as to whether they will be mined economically. It cannot be
assumed that all or part of the inferred resources will be upgraded to a higher category.
Centerra_Financials.indd 21
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2012 ANNUAL REPORT 21
2012 YEAR-END GOLD RESERVE AND RESOURCE SUMMARY
(as of December 31, 2012)
Gold Mineral Reserves (1) (3) (13) (14)
(tonnes and ounces in thousands)
Property (3)
Tonnes
Kumtor (5)
Boroo (7)
Gatsuurt (8) (16)
Total
3,149
7,196
–
10,345
Proven
Grade
(g/t)
1.9
0.8
–
1.1
Probable
Total Proven and Probable
Contained
Gold (oz)
196
178
–
374
Tonnes
88,371
–
16,349
104,720
Grade
(g/t)
Contained
Gold (oz)
3.3
–
2.8
3.2
9,270
–
1,489
10,759
Tonnes
91,520
7,196
16,349
115,065
Grade
(g/t)
Contained
Gold (oz)
3.2
0.8
2.8
3.0
9,466
178
1,489
11,133
Gold Measured and Indicated Mineral Resources(2) (3) (13) (14)
(tonnes and ounces in thousands)
Measured
Indicated
Total Measured and Indicated
Property (3)
Tonnes
Grade
(g/t)
Contained
Gold (oz)
Tonnes
Grade
(g/t)
Contained
Gold (oz)
Tonnes
Grade
(g/t)
Contained
Gold (oz)
Kumtor Open Pit (4) (5)
Kumtor Stockwork
Underground (6)
Boroo (4) (7)
Gatsuurt (4) (8) (16)
Ulaan Bulag (9)
ATO (10)
Kara Beldyr (11)
Öksüt (12)
Total
21,975
–
452
–
–
9,663
–
–
32,090
2.3
–
2.2
–
–
1.5
–
–
2.1
1,631
12,113
2.3
898
34,088
2.3
–
32
–
–
465
–
–
2,128
351
4,464
5,533
1,555
8,920
3,790
15,404
52,130
10.7
1.5
2.4
1.5
1.1
2.4
1.4
1.8
121
210
426
73
306
289
682
3,005
351
4,916
5,533
1,555
18,583
3,790
15,404
84,220
10.7
1.5
2.4
1.5
1.3
2.4
1.4
1.9
2,529
121
242
426
73
771
289
682
5,133
Gold Inferred Mineral Resources(2) (3) (13) (14) (15)
(tonnes and ounces in thousands)
Property (3)
Kumtor Open Pit (4) (5)
Kumtor Stockwork Underground (6)
Kumtor SB Zone UG (6)
Boroo (4) (7)
Gatsuurt (4) (8) (16)
Ulaan Bulag (9)
ATO (10)
Kara Beldyr (11)
Öksüt (12)
Total
Tonnes
9,339
2,002
3,413
7,323
5,926
315
386
3,354
14,009
46,067
Grade (g/t)
Contained Gold (oz)
2.4
11.0
11.2
1.0
2.6
1.3
0.7
2.0
1.1
2.8
712
705
1,229
235
491
13
8
211
477
4,081
(1) The mineral reserves have been estimated based on a gold price of $1,350 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%, Öksüt 100% (including the acquisition of the
remaining interest in January 2013) and Kara Beldyr 70%. 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 $1,350 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) The open pit resources at Öksüt are estimated based on a 0.2 gram of gold per tonne cut-off grade
(13) A conversion factor of 31.10348 grams per ounce of gold is used in the reserve and resource estimates.
(14) Numbers may not add up due to rounding.
(15) 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.
(16) 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”.
22 CENTERRA GOLD INC.
Centerra_Financials.indd 22
Apr/01/2013 1:28 PM
Polymetallic Mineral Resources as of December 31, 2012
ATO Project (17) (18) (19) (20) (21) (23) (24)
Category
Tonnes
(000’s)
Gold
Grade
(g/t)
Measured Resources
Indicated Resources
Measured and Indicated
Inferred Resources (19)
3,677
3,294
6,971
87
Measured Resources
Indicated Resources
Measured and Indicated
Inferred Resources (19)
5,986
5,626
11,612
299
1.3
0.7
1.0
0.8
1.7
1.3
1.5
0.6
Contained
Silver
Gold (22) Grade
(g/t)
(oz 000’s)
Contained
Silver
(oz 000’s)
Lead
Grade
(%)
Contained
Zinc
Lead Grade
(%)
(lb 000’s)
Contained
Zinc
(lb 000’s)
Oxide Mineral Resources
(> $6.50 NSR cut-off Grade)
148
78
226
2
8.5
7.2
7.9
4.9
1,010
758
1,768
14
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Sulphide Mineral Resources
(> $25.50 NSR cut-off Grade)
318
228
545
6
8.02
8.52
8.26
5.78
1,543
1,541
3,085
56
0.979
0.803
0.894
1.025
129,197
99,598
228,795
6,757
1.704
1.447
1.579
2.306
224,874
179,474
404,349
15,201
(17) Mineral resources have been estimated on the following metal prices (gold $1,350 per ounce), (silver $20 per ounce), (lead $ 0.87 per lb), (zinc $0.87 per lb).
(18) Mineral resources do not have demonstrated economic viability.
(19) 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.
(20) Centerra’s equity interest in the ATO project is 100%.
(21) Numbers may not add up due to rounding.
(22) The contained gold resources have also been included in Centerra’s 2012 Year-end Gold Reserve and Resource Summary
(23) 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.
(24) Variables used to calculate NSR values include;
Oxide total recovery of gold=69.8%
Oxide total recovery of Silver=56.7%
Sulphide Net Smelter Return total recovery of gold=59.9%
Sulphide Net Smelter Return total recovery of silver=48.5%
Sulphide Net Smelter Return total recovery of lead=42.6%
Sulphide Net Smelter Return total recovery of zinc=27.7%
Payable royalty on total recovered gold=10.0%
Payable royalty on total recovered silver=6.75%
Payable royalty on total recovered lead=6.75%
Centerra_Financials.indd 23
Apr/01/2013 1:28 PM
2012 ANNUAL REPORT 23
Reconciliation of Gold Reserves and Resources
(in thousands of ounces of contained gold) (8) (9)
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)
Kumtor Stockwork Underground (4)
Boroo (4)
Gatsuurt (4) (7) (11)
Ulaan Bulag (4)
ATO (4)
Kara Beldyr (4)
Öksüt (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)
Öksüt (4)
Total Inferred Resources
December 31
2012
2012 Addition
December 31
2011 (1)
Throughput (2)
(Deletion) (3)
2012
6,278
298
1,489
8,065
4,799
0
242
426
73
824
289
0
6,653
694
629
1,760
235
491
13
26
211
0
4,059
424
110
0
534
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
3,612
(10)
0
3,602
(2,270)
121
0
0
0
(53)
0
682
9,466
178
1,489
11,133
2,529
121
242
426
73
771
289
682
(1,520)
5,133
18
76
(531)
0
0
0
(18)
0
477
22
712
705
1,229
235
491
13
8
211
477
4,081
(1) Reserves and resources as reported in Centerra’s Annual Information Form fi led in March 2012.
(2) Corresponds to mill feed at Kumtor and mill feed or stacked ore on heap leach pad at 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%, Öksüt 100% (including the
acquisition of the remaining interest in January 2013) and Kara Beldyr 70%. 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. Mineral resources do not
have demonstrated economic viability.
(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”.
DEVELOPMENTS IN 2012 AFFECTING OPERATIONS
Kumtor operations:
• Production at Kumtor for 2012 was signifi cantly impacted by the accelerated ice movement in the SB zone in
the fi rst quarter which required a change in the mine plan for the year. As a result, production planned for 2012
in cut-backs 12B and14A of the SB zone had to be postponed to allow for the unloading of ice and waste to
mitigate the accelerated ice movements (announced on March 27, 2012). The Company was able to partially
mitigate the delay in reaching ore from cut-backs 12B and 14A by accelerating mining in the southwest portion
of the Kumtor pit (cut-back 14B) such that ore from that area was reached in September 2012. Processing of ore
obtained from cut-back 14B commenced on September 18, 2012. The mining costs to remove the ice and waste
material in the high movement area and unload zone were recorded as abnormal as the activity was unrelated
to production under the revised mine plan for 2012.
24 CENTERRA GOLD INC.
Centerra_Financials.indd 24
Apr/01/2013 1:28 PM
• Due to the delayed release of ore, Kumtor depleted its low grade stockpiled material on July 23, 2012 and
consequently shut down its mill until September 18, 2012. During the seven week shutdown, planned and
unplanned maintenance was performed across all sections of the mill.
• The Company announced on May 1, 2012 that it was conducting a technical and fi nancial study considering
the potential for expanding the limits of the ultimate pit.
• On August 10, 2012, Kumtor suspended the development work on the underground project and placed the
project on care and maintenance pending completion of a detailed technical and fi nancial study on the
potential for expanding the limits of the ultimate pit.
• Based on the positive results of the technical and fi nancial study, the Board of Directors approved on November 7,
2012 the new reserves and resources and the new mine plan for Kumtor that included a much larger open pit
and extended the mine life of Kumtor by 5 years (to 2026). The opportunity to expand the pit was created by
exploration drilling between 2006 and September 2012 that more than doubled the strike length of the SB zone,
the increase in the reserve gold price over the period which allowed a lower cut-off grade and the decision made
on March 27, 2012 to mitigate the impact of the high movement areas by offl oading the ice and waste in the
upper portion of the southeast section of the pit wall thereby reducing the stripping ratio of an expanded pit.
• The expanded open pit mine plan incorporates 1.2 million contained ounces that were previously classifi ed
as inferred underground resources and also captures into reserves an additional 2.2 million contained ounces
representing material between the cut-off grade for the open pit and the cut-off grade for the underground
resource estimation.
• The expanded pit consumes a signifi cant amount of the existing underground development infrastructure. As
a result, the Company de-recognized the capitalized cost of the underground development and underground
equipment and recorded a charge of $180.7 million in the fourth quarter of 2012.
• Kumtor’s gold production was further negatively impacted in the fourth quarter when the operations
encountered an irregular till/bedrock contact while transitioning from waste to ore. This situation is not
expected to occur again in the current mine plan (KS-13). Final production results at Kumtor were also
impacted in the fourth quarter by lower than expected mill throughput and recovery as well as lower than
expected mill head grades when processing ore from the newly discovered portion of the orebody.
• By the end of 2012, the Company received and commissioned twenty-fi ve new CAT 789 haul trucks, four Hitachi
shovels and four large capacity drills it had previously ordered to meet its production needs. An additional ten
new CAT 789 haul trucks and one Hitachi shovel were placed on order at the end of 2012 to meet the life of
mine equipment requirements. The equipment on order is scheduled to arrive during the fi rst quarter of 2013.
• The arrival of the new mining equipment has allowed the planned high wall unloading of the waste and ice
to remain on schedule. The success of the unloading effort has had the desired effect of reducing the ice and
waste in the high movement areas and slowing the historical advance rates. The colder seasonal weather has
also contributed to the decreasing advance rates.
• In December 2012, a new two year collective bargaining agreement was signed at the Kumtor mine.
Boroo and Gatsuurt operations:
• Mining operations at Boroo resumed in January 2012 with stripping activities in Pit 6. At the end of the second
quarter of 2012 ore was exposed at the bottom of Pit 6 and capitalization of the stripping costs ceased. During
the last half of 2012 the Boroo mill blended Pit 6 ore and existing stockpiled material thereby achieving higher
head grades but with lower recoveries than material processed in the same period of 2011. Pit 6 ores are more
refractory in nature than other Boroo ores historically mined resulting in the lower recovery.
• Mining activities in Pit 6 were completed in September 2012 while milling of Pit 6 ore extended to January 2013.
• On September 19, 2012 Boroo received regulatory approval for its mine plan for the heap leach facility and
shortly thereafter resumed heap leach operations. The operation achieved breakthrough of solution in mid-
October and by the end of 2012 produced 7,486 ounces of gold from the heap leach facility.
• The Gatsuurt project remained under care and maintenance in 2012 due to continued delays in permitting
resulting from the Water and Forest Law which prohibits mining and exploration activities in water basin and
forested areas but provides an exemption for “strategic deposits”. Further development of the project is subject
to resolving matters with respect to the Water and Forest Law, and receiving all required approvals and regulatory
commissioning from the Mongolian Government, which would allow the Gatsuurt project to move forward.
See “Other Corporate Developments – Mongolia” and “Risk Factors”.
2012 ANNUAL REPORT 25
Centerra_Financials.indd 25
Apr/01/2013 1:28 PM
Acquisition of Remaining Öksüt Interest:
On January 24, 2013, the Company completed the purchase of the remaining 30% interest in the Öksüt Gold Project,
located in the Kayseri region of central Turkey, from, Stratex International Plc. Closing of the transaction was
conditional on the conversion of six exploration licenses to two operation licenses and other customary conditions.
The two operation licenses were received on January 16, 2013. With the closing, the Company became the sole owner
of the Öksüt Gold Project and assumed operatorship and day to day management of the project. Consideration for
Stratex’s interest in the project consisted of $20 million paid at closing and a 1% Net Smelter Return royalty on the
project, subject to a maximum of $20 million.
CONSOLIDATED FINANCIAL AND OPERATING HIGHLIGHTS
The consolidated fi nancial statements of Centerra are prepared in accordance with International Financial Reporting
Standards, as issued by the International Accounting Standards Board and have been measured and expressed in
United States dollars. Some of the information discussed below are non-GAAP measures. See “Non-GAAP Measures”.
Financial Summary ($ millions, except as noted)
Year Ended December 31
Revenue
Cost of sales
Abnormal mining costs
Mine standby costs
Regional offi ce administration
Earnings from mine operations
Revenue-based taxes
Other operating expenses
Loss on de-recognition of underground assets
Exploration and business development
Corporate administration
Earnings (loss) from operations
Other (income) and expenses
Finance costs
Gain on sale of exploration project
Earnings (loss) before income taxes
Income tax expense
Net earnings (loss)
Earnings (loss) per common share (basic and diluted) – $/share
Weighted average common shares outstanding – basic (thousands)
Weighted average common shares outstanding – diluted (thousands)
2012
2011
2010
$
661
387
61
5
21
187
75
35
181
38
27
(169)
–
4
–
(173)
12
$
(184)
$
(0.78)
236,369
236,369
$
1,020
$
382
–
–
21
617
132
15
–
43
45
382
(1)
4
–
379
8
371
1.57
$
$
$
$
850
342
–
1
21
485
99
8
–
32
52
294
1
2
(35)
327
4
322
1.37
236,088
236,354
235,488
235,862
Total assets
Long-term provision for reclamation, dividends payable and deferred income taxes
$
$
1,554
58
$
$
1,689
56
$
$
1,400
31
Operating Summary
Gold produced – ounces poured
Gold sold – ounces sold
Average realized price – $ per ounce sold
Average gold spot market price – $ per ounce (1)
Cost of sales – $ per ounce sold (2)
Operating cash costs – $ per ounce produced (2)
Total production costs – $ per ounce produced (2)
All-in cash costs (pre-tax) – $ per ounce produced (2) (3)
387,076
390,533
1,692
1,669
992
663
1,143
1,882
$
$
$
$
$
$
642,380
650,258
678,941
687,706
$
$
$
$
$
$
1,569
1,572
588
502
687
929
$
$
$
$
$
$
1,236
1,225
498
440
555
838
(1) Average for the period as reported by the London Bullion Market Association (US dollar Gold P.M. Fix Rate).
(2) Operating cash costs is comprised of 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 depreciation, depletion and amortization, reclamation costs, capital investments, community investments,
exploration expenses and corporate general and administration expenses. Operating cash costs, total production costs and all-in cash costs (pre-tax) per ounce
produced, as well as cost of sales per ounce sold, are non-GAAP measures and are discussed under “Non-GAAP Measures”.
(3) All-in cash costs (pre-tax) per ounce produced includes operating cash costs, sustaining and growth capital, corporate general and administrative expenses, global
exploration expenses and community investments, but excludes revenue-based taxes at Kumtor and income taxes.
26 CENTERRA GOLD INC.
Centerra_Financials.indd 26
Apr/01/2013 1:28 PM
RESULTS OF OPERATIONS
2012 Compared to 2011
For the year ended December 31, 2012, the Company recorded a net loss of $184.0 million or $0.78 per share,
compared to net earnings of $370.9 million or $1.57 per share in 2011. The 2012 results refl ect a charge for the
de-recognition of the underground assets at Kumtor of $180.7 million and the negative impact on production of the
acceleration of ice and waste in the high movement area above the SB zone which delayed the release of ore and
required a re-design of the production plan for 2012 early in the year (see March 27, 2012 new release). The lower
earnings at Kumtor for 2012 were partially offset by higher production and sales at Boroo, in part due to the
resumption of activities of the heap leach operation in the fourth quarter. The earnings in 2012 were affected by
46% lower ounces produced and sold at Kumtor and higher spending on major sustainable community projects,
partially offset by increased production and sales at Boroo and an 8% increase in the realized gold price.
Production:
Gold production for 2012 totaled 387,076 ounces compared to 642,380 ounces in the prior year. The decrease in
ounces poured was mainly due to the revised mine plan at Kumtor, as a result of the accelerated ice and waste
movements in the SB zone, which led to a 46% decrease in production at Kumtor year over year, partially offset by
a 21% increase in production at Boroo, which was positively impacted by the start-up of the heap leach operation
in November 2012.
Revenue:
Revenue for 2 012 decreased to $660.7 million compared to $1,020.3 million in the same period of 2011 due to a 40%
decrease in ounces sold partially offset by an 8% increase in the realized gold price. Gold sold was 390,533 ounces
in 2012 compared to the 650,258 ounces reported in 2011. This reduction refl ects lower gold production at Kumtor
(-46%) mostly due to lower volumes as a result of the revised mine plan, as well as lower grades and lower recoveries
from the blending of stockpiled ore and in-pit ore processed through the mill. Milling activities at Kumtor were
temporarily suspended on July 23, 2012 upon depletion of the low grade stockpiles being processed while awaiting
the release of ore from the pit. The mill resumed operation on September 28, 2012 with the release of ore from
cut-back 14B. At Boroo, ounce production in 2012 was 21% higher, benefi ting from the resumption of heap leach
operations in November and from the higher throughput of higher grade Pit 6 material through the mill. The mill at
Boroo operated in 2011 by processing stockpiled material from the pit along with higher grade material from the
heap leach stockpiles. The average realized gold price for 2012 was $1,692 per ounce compared to $1,569 per ounce
in the same period of 2011 refl ecting higher spot prices for gold throughout the year.
Cost of sales:
Cost of sales was $387.5 million in 2012 compared to $382.3 million in 2011, refl ecting the processing of lower grade,
higher cost stockpiled material at Kumtor for the period to September 2012, higher operating costs for labour,
diesel and other consumables and increased DD&A of $43.8 million. Cost of sales in 2012 also includes a charge of
$7.2 million representing a metal reconciliation variance between the gold content estimated in the stockpiles and
the gold actually recovered through processing at Kumtor. The comparative period of 2011 costs of sales included a
charge of $5.8 million for the settlement resulting from an audit by the Kyrgyz Social Fund, relating to the calculation
of the premium for work conducted at high altitude at the Kumtor project.
Depreciation, depletion, and amortization associated with production increased by 44% to $142.6 million in 2012
from $99.3 million in 2011 as a result of higher depreciation for the expanded mobile fl eet at Kumtor and higher
amortization of deferred stripping costs at both sites, partially offset by lower volumes.
Centerra_Financials.indd 27
Apr/01/2013 1:28 PM
2012 ANNUAL REPORT 27
Abnormal mining costs:
Abnormal mining costs of $60.9 million were recorded by Kumtor in 2012 (nil for 2011) representing $24.8 million
for the cost of the ice and waste removal from the high movement unload zone and $36.1 million of stripping costs.
This stripping activity, when ore release had been deferred as a result of the revised mine plan, has resulted in a
signifi cant amount of mining costs which did not relate to the production of inventory in the period and were
expensed immediately as abnormal mining costs.
Other operating expenses:
Other operating expenses for 2012 totaled $34.3 million compared to $15.5 million in 2011. The 2012 amount
includes $26.2 million spent on corporate social responsibility (“CSR”) programs and $7.8 million for closure costs
of the underground project at Kumtor. In 2012, CSR spending in the Kyrgyz Republic totaled $24 million, of which
$21 million was a contribution to a national micro-credit fi nancing program, and CSR spending in Mongolia totaled
$2.2 million including a continuing contribution by Boroo to the Ulaanbaatar maternity hospital of $1.1 million.
In 2011, $11.5 million was spent on CSR programs in the Kyrgyz Republic, including a $10 million contribution for
the school reconstruction program, and $1.1 million was spent in Mongolia on various CSR projects.
Loss on de-recognition of underground assets:
The Company recorded a charge of $180.7 million in the fourth quarter of 2012 for the de-recognition of the
underground assets at Kumtor following the decision to expand the open pit, as announced on November 7, 2012.
The larger open pit will partially consume the declines rendering them unusable for future mining activities.
Exploration and business development:
Exploration and business development expenditures in 2012 totaled $38.5 million, of which exploration spending
was $37.9 million (2011 total $42.9 million, including $39.6 million of exploration). Exploration expenditures in 2012
decreased slightly from 2011 due to the suspension of regional exploration programs in Kyrgyzstan and the closure
of the Reno offi ce and cessation of the U.S. exploration program in mid-2012.
Exploration expenditures at Kumtor in 2012 totaled $11.3 million ($12.7 million in 2011), and included programs
of surface drilling from the Central Pit and underground drilling from Declines 1 and 2. The Central Pit drilling
program was directed toward infi lling and expanding the upper portions of the SB Zone below the KS-12 pit. This
drilling will continue in 2013 when platforms are available for drilling in the Central Pit. In the underground, a
program of infi ll and exploration drilling was completed in the Stockwork Zone, upgrading a portion of the deposit
to measured and indicated resources and expanding the inferred resource. Exploration drilling from Declines 1
and 2 was directed at infi lling portions of the southwest extension of the SB Zone and exploring portions of the
SB Zone inaccessible from platforms in the Central Pit. Other work on the Kumtor mine concession included
several exploration holes at the Sarytor deposit. Plans for continued exploration on the Karasay and Koendy
exploration license were curtailed following a decision by the Agency for Subsoil and Natural Resources to not
renew either license.
In Mongolia, 2012 exploration expenditures totaled $10 million compared to $11.4 million in 2011. The Mineral
Resource Authority of Mongolia (“MRAM”) accepted a Reserves and Resources report for the ATO deposit in June
2012, and a mining license was granted in late August 2012. Exploration activity at ATO included step-out drilling
around the deposit in the second half of 2012 and testing of nearby prospects. Drilling results closed off portions of
the pipe-like bodies at ATO and identifi ed several new zones on the eastern fl anks of the system. The drilling results,
together with results from metallurgical test work, were used to update the ATO resource. Elsewhere in Mongolia,
drilling was also conducted on the Uul Bayan license south of ATO and on the Ulaan Bulag mining license in the
Boroo mining district.
28 CENTERRA GOLD INC.
Centerra_Financials.indd 28
Apr/01/2013 1:28 PM
Expenditures in Russia were $5.9 million in 2012 ($5.1 million in 2011) and included drilling programs on the
Kara Beldyr and Dvoinoy Joint Ventures. At Kara Beldyr, drilling focused on expanding and infi lling the Camp Zone,
a 600 metre-long zone of auriferous, dike-fi lled structures, and testing other exploration targets on the license. At the
Dvoinoy Joint Venture in the Amur region, two drilling campaigns were completed testing several gold targets on
the property. Initial results from one of the targets are positive and will be the subject of additional drilling in 2013.
In Turkey, $6.4 million was spent on exploration in 2012 ($4.3 million in 2011). Exploration spending increased
in 2012 as drilling accelerated on the Öksüt Joint Venture project. Work at Öksüt included both step-out and infi ll
drilling at the Ortaçam North deposit, a deeply-oxidized high-sulphidation gold system discovered in 2011. Centerra
increased its ownership in Öksüt to 70% in October and, in December, signed an agreement with Stratex to purchase
the remaining 30% not held by Centerra for $20 million and a 1% royalty capped at $20 million. The purchase of the
remaining 30% closed in January 2013. Results from the 2012 drilling campaign were used to calculate an initial
oxide resource for Öksüt.
Elsewhere, the Company initiated exploration on the Laogouxi Joint Venture in Heilongjiang Province, China
and received a two-year renewal on the exploration license. The Company also fi nalized an agreement covering the
Umlekan license in the Amur region, Russia. Umlekan adjoins the Dvoinoy Joint Venture and includes several drill
ready gold and gold-copper targets. Generative exploration programs continued in Russia, Central Asia, Europe
and China.
Corporate administration:
Corporate administration costs in 2012 were $27 million, a reduction of $17.9 million from the same period in 2011,
refl ecting a lower charge for share-based compensation primarily as a result of the lower price of Centerra’s shares.
Taxes:
Centerra reported $74.7 million in 2012 for revenue-based taxes at Kumtor compared to $131.8 million in 2011, and
$11.7 million in 2012 for income taxes at Boroo compared to $8.1 million in 2011.
The decrease in the revenue-based tax expense refl ects the lower volumes sold in 2012 at Kumtor. The increase
of $3.6 million in Boroo’s income tax expense is a result of the higher volumes and higher earnings achieved in 2012.
Revenue-based tax is governed by the Restated Investment Agreement signed with the Kyrgyz Government on
June 6, 2009. The agreement assessed tax on Kumtor at a rate of 13% of gross revenue, plus a monthly contribution
of 1% of gross revenue to the Issyk-Kul Oblast Development Fund. Income tax expense at Boroo is calculated based
on a Stability Agreement with the Government of Mongolia where an income tax rate of 25% is assessed on taxable
income over 3 billion Mongolian Tugriks (MNT) (approximately $2.2 million at the 2012 year-end exchange rate) and
a tax rate of 10% applicable to taxable income up to that amount.
Losses incurred by Centerra’s entities in the North American segment have not been tax effected and as a result
no deferred tax asset has been recognized.
Net Loss:
The net loss for 2012 was $184.0 million or $0.78 per share compared to net earnings of $370.9 million or $1.57 per
share in 2011, refl ecting the de-recognition of Kumtor’s underground assets and lower earnings at Kumtor from the
revised mining plan.
Unit Operating Costs:
i) Cost of sales per ounce sold:
Cost of sales per ounce sold in 2012, which includes the impact of DD&A, increased to $992 per ounce sold compared
to $588 per ounce sold in 2011. The majority of the gold production in 2012 was from low-grade ore stockpiles
resulting in lower production, reduced sales and an increased cost per ounce sold. Due to the delay in accessing ore,
Kumtor also processed higher cost material from stockpiles for the fi rst nine months of 2012. Cost of sales per ounce
sold is discussed under “Non-GAAP Measures”.
Centerra_Financials.indd 29
Apr/01/2013 1:28 PM
2012 ANNUAL REPORT 29
ii) Operating cash costs per ounce produced:
Operating cash cost per ounce produced for 2012 increased to $663 compared to $502 per ounce in 2011 (operating
cash cost per ounce produced is a non-GAAP measure and is discussed under “Non-GAAP Measures”). The increase
in 2012 refl ects the impact of lower production levels due to lower grades and recoveries from the processing of
stockpiled materials at Kumtor and higher operating costs at Kumtor and at Boroo.
iii) All-in cash costs per ounce produced:
All-in cash costs – Consolidated (1)
$ millions, unless otherwise specifi ed (unaudited)
Year Ended December 31
Operating cash costs
Capitalized stripping and ice unload – cash (1)
Operating cash costs and capitalized stripping
Sustaining capital (cash) (1)
Growth capital (cash) (1)
Operating cash costs including capital
Corporate and other cash costs (1) (2)
All-in Cash Costs (pre-tax) (1)
Ounces poured
All-in Cash Costs (pre-tax) – per ounce produced
2012
256.6
152.7
409.3
43.5
177.2
630.0
98.5
728.5
2011
322.4
39.4
361.8
34.6
99.9
496.3
100.4
596.7
387,076
642,380
1,882
929
(1) All-in cash costs (pre-tax), capitalized stripping and ice unload – cash, sustaining and growth capital (excluding stripping) and corporate and other cash costs are
non-GAAP Measures and are discussed under “Non-GAAP Measures”.
(2) Corporate and other cash costs include corporate general and administrative expenses, global exploration expenses, and community investments.
Centerra’s all-in cash costs (pre-tax) per ounce produced for 2012 was $1,882, and includes all cash costs related
to gold production, except for revenue-based taxes in the Kyrgyz Republic. This compares to pre-tax all-in cash
costs of $929 per ounce produced in 2011. The increase is due to a combination of higher operating costs and lower
production at Kumtor in 2012. The cash costs for capitalized stripping and ice and waste unloading costs incurred
in 2012 amounted to $152.7 million or $394 per ounce compared to $39.4 million of capitalized stripping cash costs
($61 per ounce) incurred in 2011. In addition, the capital expenditures excluding capitalized stripping cash costs
increased from $134.5 million ($209 per ounce) to $220.7 million ($570 per ounce) as the Kumtor mine expanded
its mining fl eet during 2012. All-in cash cost per ounce produced is a non-GAAP measure and is discussed under
“Non-GAAP Measures”.
Cash generation and Capital Investments
$ millions
Year ended December 31
Cash provided by (used in) operating activities
Cash provided by (used in) investing activities
Cash provided by (used in) fi nancing activities
Increase (decrease) in cash
Capital spent & accrued (Kumtor)
Capital spent & accrued (Boroo & Gatsuurt)
Capital spent & accrued (Consolidated)
30 CENTERRA GOLD INC.
2012
134.7
(48.6)
52.5
138.6
399.9
10.2
410.6
2011
434.9
(473.5)
(96.6)
(135.2)
180.7
6.6
187.9
Centerra_Financials.indd 30
Apr/01/2013 1:28 PM
Cash Flow:
Cash provided from operations for 2012 totaled $134.7 million compared to $434.9 million in 2011, primarily as a
result of signifi cantly lower earnings at Kumtor in 2012 and the prepayment of $30 million of revenue based taxes
in the Kyrgyz Republic in 2012.
Working capital, which consists of amounts receivable, gold inventory, supplies inventory, prepaid expenses net
of accounts payable and accrued liabilities, decreased in 2012 by $2 million compared to an increase of $44 million
in 2011.
Cash used in investing activities totaled $48.6 million in 2012 compared to $473.5 million in the prior year.
Investing activities in 2012 primarily include investments in capital projects, offset by proceeds from the sale of
short-term investments. In 2011, cash was used for investment in capital projects and the purchase of short-term
investments. Investments in capital projects were $366.4 million in 2012 compared to $175.1 million in 2011,
represents higher spending on growth projects mainly for capitalized stripping at both operations and for the
additions to the fl eet at Kumtor. Spending for sustaining capital was also higher at both operations. Investments in
growth capital for 2012 totaled $322.9 million ($140.5 million in 2011), while $43.5 million was invested in sustaining
capital ($34.6 million in 2011). A net amount of $324.7 million in short-term fi nancial instruments were sold in 2012,
whereas a net amount of $290.4 million of short-term investments were purchased in 2011.
Cash provided from fi nancing activities in 2012 was $52.5 million (cash used of $96.6 million in 2011), including
the borrowing of $76 million from Centerra’s credit facility and proceeds from shares issued on the exercise of stock
options, partially offset by a lower dividend payment of $22.2 million (dividends of $99.3 million in 2011 included a
special dividend of $74.5 million) and the payment of fees related to the new borrowing.
Net cash and short-term investments at December 31, 2012 decreased to $382.1 million from $568.2 million at the
prior year end.
Capital:
Capital expenditures (spent and accrued) in 2012 were $410.6 million as compared to $187.9 million in the prior
year. Sustaining capital in 2012 was $43.5 million (including $40.8 million at Kumtor and $2.1 million at Boroo),
compared to $34.6 million in 2011 (including $32.2 million at Kumtor and $1.8 million at Boroo). Growth capital
was $367.1 million in 2012, compared to $153.3 million the prior year, primarily refl ecting $359.0 million of spending
at Kumtor mainly on fl eet expansion ($117 million), the stripping of cut-back 14B and 14A ($179.8 million) and on
underground development of phase I and II ($30.0 million) and spending at Boroo of $7.7 million in 2012 mainly to
strip Pit 6 prior to reaching ore.
Credit and Liquidity:
On August 8, 2012, the Company drew $76 million under its $150 million revolving credit facility with the European
Bank for Reconstruction and Development (EBRD), leaving a balance of $74 million undrawn at December 31, 2012.
The drawn amount is due to be repaid on August 8, 2013, or at the Company’s discretion repayment of the loaned
funds could be extended until February 2014.
Foreign Exchange:
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 2012, the Company
incurred combined costs (including capital) totaling roughly $908 million. Approximately $367 million of this (40%)
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: 39% in Kyrgyz soms, 27% in Canadian dollars, 17% in Mongolian tugriks, 12% in Euros, and
approximately 5% in Russian Rubles, Australian dollars, Turkish Lira, British pounds, Chinese Yuan, Japanese Yen
and Swiss Franc combined. In 2012, the average value of the currencies of the Kyrgyz Republic, and the Japanese Yen
appreciated against the U.S. dollar by approximately 1.6%, and 3.8% respectively, from their value at December 31, 2011.
Centerra_Financials.indd 31
Apr/01/2013 1:28 PM
2012 ANNUAL REPORT 31
The Mongolian Tugrik, British Pound, Canadian dollar, Australian dollar, Turkish Lira and the Russian Ruble
increased in value against the U.S. dollar by 2.5%, 1.9%, 2.1%, 1.4%, 4.8% and 3.4%, respectively. On average, the
value of the Euro, Chinese Yuan, and the Swiss Franc remained virtually fl at compared to their value at December 31,
2011 with appreciation of 0.8%, 0.2%, and a decline of 0.1%, respectively, against the U.S. dollar. The net impact of
these movements in 2012, after taking into account currencies held at the beginning of the year, was to increase
annual costs by $0.8 million (increase of $6.2 million in 2011).
Gol d Hedging and Off-Balance Sheet Arrangements:
The Company had no gold hedges in place as of December 31, 2012. Centerra currently intends that its future 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.
RESULTS OF OPERATING SEGMENTS
Kumtor Mine
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 in production since 1997 and has produced over 8.7 million ounces of gold
to December 31, 2012. Kumtor experienced six recordable injuries and one level II environmental incident in 2012.
Kumtor Operating Results
Year Ended December 31
Tonnes mined – 000s
Tonnes ore mined – 000s
Average mining grade – g/t (1)
Tonnes milled – 000s
Average mill head grade – g/t (1)
Recovery – %
Gold produced – ounces
(1) g/t means grams per tonne.
2012
2011
Change
% Change
147,610
4,955
2.95
4,756
2.79
75.6
315,238
150,605
6,020
3.49
5,815
3.79
80.8
(2,995)
(1,065)
(0.54)
(1,059)
(1.00)
(5.2)
583,156
(267,918)
(2%)
(18%)
(15%)
(18%)
(26%)
(6%)
(46%)
Overview of Operating Results – 2012 Versus 2011
Due to the accelerated ice movements and resulting revised mine plan, Kumtor mined very little ore and processed
material from historical low grade stockpiles during the fi rst nine months of 2012, until it reached ore in September
in cut-back 14B.
Total tonnes mined for 2012 were 147.6 million tonnes compared to 150.6 million tonnes in the comparative
period of 2011, a decrease of 2% due to the increased mining of lower density ice and a ten day work stoppage in
February 2012 with subsequent delays in re-starting the equipment due to the extremely cold weather. The bank
cubic meters (BCM’s) of all ore, waste and ice moved in 2012 increased by 15% due to the increased capacity of the
expanded fl eet compared to the same period of 2011.
Kumtor produced 315,238 ounces of gold in 2012 compared to 583,156 ounces of gold in 2011. The company
processed ore from low grade stockpiles for the fi rst nine months of the year resulting in signifi cantly lower ounces
produced in 2012. In comparison, in 2011 Kumtor processed the higher grade benches of cut-back 12A and the then
newly accessed cut-back 12B. The comparative period of 2011 was positively impacted by higher throughput, higher
consistent feed grades and higher recovery. The mill head grades averaged 2.79 g/t with a recovery of 75.6% in 2012
versus 3.79 g/t and a recovery of 80.8% in 2011. Tonnes processed through the mill in 2012 were 4.76 million, 18%
lower than the comparative year as a result of lower mill operating time due to both the seven week shutdown of
the processing plant and the labour dispute and related ten day work stoppage that occurred during the fi rst quarter
of 2012.
32 CENTERRA GOLD INC.
Centerra_Financials.indd 32
Apr/01/2013 1:28 PM
Kumtor Cost Performance
Year Ended December 31
Operating cash costs ($ millions):
Mining – including capitalized stripping and abnormal mining costs
Mining – excluding capitalized stripping and abnormal mining costs (1)
Milling
Site support
Bishkek administration
Mine stand-by costs
Management fees and other
Refi ning fees
By-product credits
Operating cash costs
Non-cash DD&A costs
Total production costs
Unit operating costs
Mining costs ($/t mined material)
Milling cost ($/t milled material)
Operating cash costs ($/t milled material)
Operating cash costs ($ per ounce produced) (2)
Total production costs ($ per ounce produced) (2)
All-in cash costs – pre-tax ($ per ounce produced) (2) (3)
2012
2011
Change
% Change
222.4
75.5
58.2
53.3
15.5
4.6
0.4
1.9
(2.9)
206.5
164.1
370.5
1.51
12.24
43.41
655
1,175
1,808
197.3
157.8
63.5
47.3
15.4
–
0.6
2.9
(6.2)
281.3
110.9
392.2
1.31
10.92
48.38
482
673
768
25.1
(82.3)
(5.3)
6.0
0.1
4.6
(0.2)
(1.0)
3.3
(74.8)
53.2
(21.7)
0
1
(5)
173
503
1,040
13%
(52%)
(8%)
13%
1%
100%
(47%)
(36%)
(54%)
(27%)
48%
(6%)
15%
12%
(10%)
36%
75%
135%
(1) Mining costs charged to operations reduced by amounts charged to capital for stripping and amounts accounted for as abnormal mining costs.
(2) Operating cash costs, total production costs and all-in cash costs (pre-tax) per ounce produced are non-GAAP Measures and are discussed under
“Non-GAAP Measures”.
(3) All-in cash costs (pre-tax) per ounce produced is calculated and discussed on page 35.
Operating cash costs at Kumtor (see “Non-GAAP Measures”) in 2012 decreased by $74.8 million to $206.5 million,
excluding the capitalization of stripping activities and the expensing of unloading activities (increased by
$32.6 million including capitalization and unloading expense), compared to $281.3 million in 2011.
The movements in the major components of operating cash costs (mining, milling and site support) are explained
as follows:
Mining Costs – Kumtor, including capitalized stripping and abnormal mining costs (2012 compared to 2011):
197.3
13.0
5.5
4.3
2.4
0.1
222.4
s
n
o
i
l
l
i
M
$
250.0
200.0
150.0
100.0
2011
Diesel
Tires
Labour
Explosives
Other
2012
The increased cost of mining activities is primarily related to the increased consumption requirements of the
expanded CAT 789 fl eet for consumables such as diesel, tires and increased maintenance work. Diesel costs
increased by $13.0 million, which also included an increase in fuel prices (increased from US$0.76 per litre to
US$0.81 per litre). Labour costs were higher due to increases in the social fund payments related to the high altitude
coeffi cient as well as infl ation adjustments. Explosives and blasting accessories increased due to increased mining
volumes and higher prices for ammonium nitrate.
Centerra_Financials.indd 33
Apr/01/2013 1:28 PM
2012 ANNUAL REPORT 33
Milling Costs – Kumtor (2012 compared to 2011):
63.5
2.6
2.3
s
n
o
i
l
l
i
M
$
65.0
55.0
0.9
0.5
58.2
2011
Electricity
Sodium cyanide
Grinding
Other
2012
Milling costs were lower in 2012 due to the lower amount of material processed as a result of the illegal ten day work
stoppage in February and the seven week shutdown from July 23 to September 18 due to the mill running out of
stockpiled ore to process. This resulted in a lower consumption of sodium cyanide, electricity and grinding balls
saving approximately $5.8 million. This was partially offset by increases in other costs including national labour and
higher maintenance costs during the mill shutdown period.
Site support costs – Kumtor (2012 compared to 2011):
2.2
0.6
0.5
0.1
53.3
s
n
o
i
l
l
i
M
$
55.0
45.0
2.8
47.3
2011
Labour
Insurance
Consultants
Scrap handling
Other
2012
Site support costs increased due primarily to higher national labour costs predominantly from higher social fund
payments for the high altitude coeffi cient ($2.8 million) and increased insurance costs ($2.2 million).
Kumtor Unit operating costs
Operating cash cost per ounce – Kumtor:
For 2012, operating cash cost per ounce produced was $655 per ounce compared to $482 per ounce in 2011, as
a result of 46% lower production due to the seven week mill shutdown and lower grades and recovery from the
stockpiled material processed in 2012. This was partially offset by decreased operating costs resulting from a higher
allocation of mining costs to capitalized stripping and abnormal ice unloading activities as the mining equipment
was deployed to address the ice movement and to expedite stripping of ore under the new mine plan. Operating
cash cost per ounce produced is a non-GAAP measure and is discussed under “Non-GAAP Measures”.
34 CENTERRA GOLD INC.
Centerra_Financials.indd 34
Apr/01/2013 1:28 PM
All-in cash costs – Kumtor:
Year Ended December 31 (unaudited)
All-in Cash Costs – pre-tax (1):
Operating cash costs
Capitalized stripping and ice unload – cash (1)
Operating cash costs and capitalized stripping
Sustaining capital (cash)
Growth capital (cash)
Operating cash costs including capital (1)
Corporate and other cash costs (2)
All-in Cash Costs – pre-tax (1)
2012
2011
$ millions
($ per ounce
produced)
($ per ounce
$ millions
produced)
206.5
146.4
352.9
40.8
176.4
570.1
–
$
$
$
$
$
$
655
464
1,119
129
560
1,808
–
281.3
39.4
320.7
32.2
95.0
447.9
–
$
$
$
$
$
$
482
68
550
55
163
768
–
570.1
$
1,808
447.9
$
768
(1) All in cash costs, capitalized stripping – cash, sustaining and growth capital (excluding stripping) and corporate and other cash costs are non-GAAP Measures and are
discussed under “Non-GAAP Measures”.
(2) Corporate and other cash costs include corporate general and administrative expenses, global exploration expenses and community investments.
Kumtor’s all-in cash cost per ounce produced for 2012 is $1,808 and includes all cash costs related to gold
production, except for revenue-based taxes in the Kyrgyz Republic. The same all-in cash cost measure for 2011 was
$768 per ounce produced. The increase in all-in cash costs is due to a combination of higher capital and operating
costs and the 46% decrease in production at Kumtor year-over-year. The cash costs for capitalized stripping and ice
unload activities incurred in 2012 amounted to $146.4 million or $464 per ounce produced compared to $39.4 million
of capitalized stripping cash costs ($68 per ounce produced) incurred in 2011. In addition, the capital expenditures
excluding capitalized stripping cash costs increased from $127.2 million ($218 per ounce produced) to $217.2 million
($689 per ounce produced) as the Kumtor mine expanded its mining fl eet during 2012, including the purchase and
commissioning of twenty fi ve CAT 789 haul trucks.
Boroo and Gatsuurt
The Boroo open pit mine, located in Mongolia, was the fi rst hard rock gold mine in Mongolia. It has produced
approximately 1.66 million ounces of gold since it began operation in 2004. Boroo had no recordable injuries and
no reportable environmental incidents in 2012.
Boroo Mine
Boroo Operating Results
Year Ended December 31
Total tonnes mined – 000s
Average mining grade (non heap leach material) – g/t (2)
Tonnes mined heap leach – 000s
Tonnes ore mined direct mill feed – 000s
Tonnes ore milled – 000s
Average mill head grade – g/t (1) (2)
Recovery – % (1)
Gold produced – mill (ounces)
Gold produced – heap leach (ounces)
Total gold produced (ounces)
(1) Excludes heap leach ore.
(2) g/t means grams per tonne.
2012
2011
Change
% Change
6,338
2.00
143
907
2,382
1.32
64.0%
64,352
7,486
71,838
–
–
–
–
2,340
1.11
68.9%
57,778
1,446
6,338
2.00
143
907
42
0.21
(5%)
6,574
6,040
59,224
12,614
100%
100%
100%
100%
2%
19%
(7%)
11%
418%
21%
2012 ANNUAL REPORT 35
Centerra_Financials.indd 35
Apr/01/2013 1:28 PM
Overview of Operating Results – 2012 Versus 2011
Boroo produced 71,838 ounces of gold in 2012 as compared to 59,224 ounces of gold in 2011. During 2012, the
milling operation achieved higher throughput and processed higher ore grades mainly from Pit 6. The higher
throughput and higher grades were partially offset by lower recoveries. The ore grade averaged 1.32 g/t with a
recovery of 64% in 2012, compared to 1.11 g/t with a recovery of 68.9% in 2011.
Boroo Cost Performance
Year Ended December 31
Operating cash costs ($ millions):
Mining – including capitalized stripping
Mining – excluding capitalized stripping
Milling
Leaching
Site support
Ulaanbaatar administration
Mine stand-by costs
Production taxes and royalties
Refi ning fees
By-product credits
Other
Operating cash costs
Non-cash DD&A costs
Total production costs
Unit operating costs
Mining costs ($/t mined material)
Milling costs ($/t milled material)
Operating cash costs ($/t milled material)
Operating cash costs ($ per ounce produced) (1)
Total production costs ($ per ounce produced) (1)
All-in cash costs – pre-tax ($ per ounce produced) (1) (2)
2012
2011
Change
% Change
12.1
5.8
22.4
2.1
8.3
5.5
0.0
6.1
0.3
(0.4)
0.1
50.2
21.6
71.8
1.96
9.39
21.07
699
999
820
2.1
2.1
21.0
0.3
7.7
6.0
0.2
3.9
0.2
(0.3)
(0.0)
41.1
8.0
49.0
–
8.99
17.54
694
828
800
10.0
3.7
1.4
1.8
0.6
(0.5)
(0.2)
2.2
0.1
(0.1)
0.1
9.1
13.7
22.8
1.96
0.40
3.52
5
171
20
486%
182%
6%
697%
8%
(8%)
(100%)
55%
8%
46%
100%
22%
172%
46%
100%
4%
20%
1%
21%
3%
(1) Operating cash costs, total production costs and all-in cash costs (pre-tax) per ounce produced are non-GAAP Measures and are discussed under “Non-GAAP
Measures”.
(2) All-in cash costs (pre-tax) per ounce produced is calculated and discussed on page 38.
Operating cash costs at Boroo (see “Non-GAAP Measures”) increased by $9.1 million in 2012 excluding the
capitalization of stripping costs at Pit 6 ($15.4 million including capitalization) compared to 2011.
The movements in the major components of operating cash costs (mining, milling and site support) are explained
as follows:
Mining Costs – Boroo including capitalized stripping (2012 compared to 2011):
3.4
12.1
1.7
1.6
10.0
s
n
o
i
l
l
i
M
$
0.0
3.3
2.1
2011
Diesel
Maintenance
Labour
Other
2012
36 CENTERRA GOLD INC.
Centerra_Financials.indd 36
Apr/01/2013 1:28 PM
Mining costs for 2012 including capitalized stripping costs were $12.1 million, $10.0 million higher than the prior year.
Boroo capitalized $6.3 million of mining costs to stripping costs for Pit 6 in 2012. The increase in mining costs is a result
of the resumption of Pit 6 mining operations beginning in January 2012 and ending in September 2012. Diesel
costs and equipment maintenance costs increased by $3.3 million and $1.7 million respectively, and refl ect higher
consumption of fuel and maintenance materials. Labour costs were $1.6 million higher due to the temporary re-hire of
mining personnel in 2012 for Pit 6 mining. Other mining cost increases include higher costs for consumables, drilling,
and tires. The mining costs incurred during 2011 represented ongoing activities for site supervision, road maintenance
work and maintenance on equipment used on the tailings dam construction and in reclamation activities.
Milling costs – Boroo (2012 compared to 2011):
0.4
0.8
0.3
22.4
s
n
o
i
l
l
i
M
$
20.0
21.0
0.1
2011
Labour
Electricity
Consumables
Other
2012
Milling costs for 2012 were higher than in 2011 due to 2% increase in the mill throughput and higher unit costs
incurred for major consumables such as grinding media and electricity. In addition, there was a higher consumption
of reagents, grinding media and electricity in 2012 as the mill was available throughout the year, compared to the
prior year when equipment problems led to mill downtime in May 2011.
Site support costs – Boroo (2012 compared to 2011):
7.7
0.3
0.1
0.2
8.3
s
n
o
i
l
l
i
M
$
9.0
7.0
5.0
2011
Labour
Permits & Fees
Other
2012
Site administration costs for 2012 increased due mainly to higher payroll related costs and camp catering costs
incurred as a result of the resumption of mining activities in Pit 6 in 2012.
Boroo regional administration costs in 2012 were $5.5 million, $0.5 million or 8% lower than in 2011. This is mainly
due to lower payroll related costs.
Other operating costs:
Heap leach
Costs for heap leaching activities in 2012 were $2.1 million as Boroo resumed the heap leaching operation in October
2012. There were no heap leaching activities in 2011.
Royalties
Production taxes and royalties increased in 2012 to $6.1 million compared to $3.9 million in 2011 primarily due
higher revenues.
2012 ANNUAL REPORT 37
Centerra_Financials.indd 37
Apr/01/2013 1:28 PM
Boroo Unit operating costs
Operating cash costs per ounce – Boroo:
Operating cash costs per ounce produced in 2012 was $699 compared to $694 per ounce for 2011. The increase in
the unit cash cost of $5 per ounce is a result of higher operating costs partially offset by a 21% increase in the ounce
production. Total operating cash costs per ounce produced is a non-GAAP measure and is discussed under
“Non-GAAP Measures”.
All-in cash costs – Boroo
Year Ended December 31 (unaudited)
All-in Cash Costs – pre-tax (1):
Operating cash costs
Capitalized stripping – cash (1)
Operating cash costs and capitalized stripping
Sustaining capital (cash) (1)
Growth capital (cash) (1)
Operating cash costs including capital
Corporate and other cash costs (2)
All-in Cash Costs – pre-tax (1)
2012
2011
$ millions
($ per ounce
produced)
($ per ounce
$ millions
produced)
50.2
6.3
56.5
2.1
0.3
58.9
–
$
$
$
$
$
$
699
87
786
30
4
820
–
41.1
0.0
41.1
1.8
4.5
47.4
–
$
$
$
$
$
$
694
0
694
30
76
800.4
–
58.9
$
820
47.4
$
800
(1) All-in cash costs, capitalized stripping – cash and sustaining and growth capital (excluding stripping) are non-GAAP Measures and are discussed under “Non-GAAP
Measures”.
(2) Other cash costs include corporate general and administrative expenses, global exploration expenses and community investments.
Boroo’s all-in cash costs (pre-tax) per ounce produced for 2012 was $820 and includes all cash costs related to gold
production except for income tax paid in Mongolia. The same all-in cash costs (pre-tax) measure for 2011 was
$800 per ounce produced. The increase in all-in cash costs is due to higher costs partially offset by the 21% increase
in production at Boroo year-over-year. The costs for capitalized stripping incurred in 2012 amounted to $6.3 million
or $87 per ounce produced compared to no capitalized stripping costs in 2011. The increase in operating and stripping
cash costs was partially offset by lower capital expenditures, which decreased from $6.3 million ($106 per ounce
produced) in 2011 to $2.4 million ($34 per ounce produced) as the Boroo mine is nearing the end of its mine life.
Gatsuurt Project
As at December 31, 2012, proven and probable reserves for the Gatsuurt Project remain unchanged 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.
38 CENTERRA GOLD INC.
Centerra_Financials.indd 38
Apr/01/2013 1:28 PM
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, $33.3 million has been expended on pre-production site construction and initial
engineering of the proposed fl otation and bio-oxidation facility. The Gatsuurt Project site infrastructure and basic
engineering for the fl otation and bio-oxidation facility are substantially complete. Completed site infrastructure
includes a 55 kilometres haul road to the Boroo mill, a services and administration building, a construction camp,
pads for ore and waste stockpiles, and a fueling station. Going forward, all detailed engineering development and
construction activities at Gatsuurt have been suspended pending clarifi cation of the impact of the Water and Forest
Law on the Gatsuurt Project and until fi nal approvals and regulatory commissioning to commence mining are
received. See “Other Corporate Developments – Mongolia”.
The Gatsuurt deposit is described in the Company’s most recently fi led AIF and a technical report dated May 9,
2006 prepared in accordance with NI 43-101, which are available on SEDAR at www.sedar.com. The technical report
describes the exploration history, geology and style of gold mineralization at the Gatsuurt deposit. Sample preparation,
analytical techniques, laboratories used and quality assurance-quality control protocols used during the drilling
programs at the Gatsuurt site are the same as, or similar to, those described in the technical report.
The development of Gatsuurt is subject to certain risks and uncertainties. See “Other Corporate Developments
– Mongolia” and “Risk Factors”.
Change
% Change
FOURTH QU ARTER RESULTS – 2012 COMPARED TO 2011
Financial Summary ($ millions, except as noted) – Unaudited
Three Months Ended December 31
Revenue
Cost of sales
Abnormal mining costs
Regional offi ce administration
Earnings from mine operations
Revenue-based taxes
Other operating expenses
Loss on de-recognition of underground assets
Exploration and business development
Corporate administration
Earnings (loss) from operations
Other (income) and expenses
Finance costs
Earnings (loss) before income taxes
Income tax expense
Net earnings (loss)
Operating Summary
Gold produced – ounces poured
Gold sold – ounces sold
Average realized price – $ per ounce sold
Average gold spot market price – $ per ounce (1)
Cost of sales – $ per ounce sold (2)
Operating cash costs – $ per ounce produced (2)
Total production costs – $ per ounce produced (2)
All-in cash costs (pre-tax) – $ per ounce produced (2) (3)
2012
368.5
165.2
8.9
5.6
188.8
44.5
4.8
180.7
11.5
8.8
(61.5)
(0.1)
1.3
(62.7)
5.2
(68.0)
$
$
2011
248.0
104.1
–
5.8
138.1
33.6
3.6
–
11.1
10.3
79.5
(1.3)
0.5
80.3
0.9
79.4
$
$
$
120.5
61.1
8.9
(0.2)
50.7
10.9
1.2
180.7
0.4
(1.5)
(141.0)
1.2
0.8
(143.0)
4.3
$
(147.4)
219,316
215,361
1,711
1,721
$
$
$
$
$
$
767
360
998
839
151,562
146,704
67,754
68,657
$
$
$
$
$
$
1,690
1,688
709
603
820
934
21
33
58
(243)
178
(95)
49%
59%
100%
-3%
37%
33%
33%
100%
4%
-14%
-177%
-96%
142%
-178%
486%
-186%
45%
47%
1%
2%
8%
-40%
22%
-10%
(1) Average for the period as reported by the London Bullion Market Association (US dollar Gold P.M. Fix Rate).
(2) Operating cash costs is comprised of 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 depreciation, depletion and, amortization, reclamation costs, capital investments, community investments,
exploration expenses and corporate general and administration expenses. Operating cash costs, total production costs and all-in cash costs (pre-tax) per ounce
produced, as well as cost of sales per ounce sold, are non-GAAP measures and are discussed under “Non-GAAP Measures”.
(3) All-in cash costs (pre-tax) per ounce produced includes operating cash costs, sustaining and growth capital, corporate general and administrative expenses, global
exploration expenses and community investments, but excludes revenue-based taxes at Kumtor and income taxes.
2012 ANNUAL REPORT 39
Centerra_Financials.indd 39
Apr/01/2013 1:28 PM
Overview
In the fourth quarter of 2012, the Company recorded a net loss of $68.0 million ($0.29 loss per common share) after
the charge for the underground de-recognition. This compares to net earnings of $79.4 million ($0.34 per common
share) over the same period of 2011. The Company recorded a charge of $180.7 million in the fourth quarter of 2012
for the de-recognition of its underground assets at Kumtor.
• Gold production for the fourth quarter of 2012 was 219,316 ounces compared to 151,562 ounces in the same
quarter of 2011. The increased gold production in the current quarter refl ects 37% higher production at Kumtor
as higher throughput was achieved in the mine and mill in the fourth quarter at Kumtor, processing higher
grades with lower recoveries following the exposing of ore in cut-back 14B at the end of September. Boroo
achieved signifi cantly higher production (+132%) in the fourth quarter of 2012 compared to the same period
of 2011, processing higher grades with slightly lower recoveries through the mill and pouring gold from its heap
leach operations which resumed activities in October 2012 after receiving all required permits.
• Revenues in the fourth quarter of 2012 increased by $120.5 million to $368.5 million from $248 million in the
same period last year mainly as a result of 47% higher ounces sold. Ounces sold for the fourth quarter of 2012
totaled 215,361 compared to 146,704 in the fourth quarter of 2011, refl ecting the increased production at both
sites. The average gold price realized in the fourth quarter of 2012 was $1,711 per ounce, an increase from
$1,690 per ounce realized in the same quarter of 2011.
• Cost of sales for the fourth quarter of 2012 was $165.2 million compared to $104.1 million in the same quarter
of 2011. The increase refl ects the higher ounces sold at both sites and higher operating costs due to price
increases for diesel, volume increases due to the increased use of consumables for the expanded fl eet at
Kumtor and the start-up of the heap leach operation at Boroo.
• DD&A included in costs of sales for the fourth quarter of 2012 of $91.2 million increased by $60.7 million
compared to the same period last year, due in part to the processing and sale of signifi cantly higher ounces
in the fourth quarter of 2012. In addition, depreciation expense for the fourth quarter of 2012 was higher than
the comparative quarter refl ecting the increased depreciation from the expanded mining fl eet and achieving
higher throughput mining cut-back 14B in the last quarter of 2012 compared to the same quarter of 2011 where
lower volumes were mined in cut-back 14A.
• Abnormal mining costs at Kumtor of $8.9 million were recorded in the fourth quarter of 2012 representing
the ice and waste removal from the high movement unload zone. The expansion of the open pit at Kumtor,
announced in early November 2012, was made possible in part by the work undertaken to unload ice and
waste from the high movement area. As a result, from the date of the announcement the continuing cost to
unload the high movement area is now capitalized and will be amortized as additional cost of the ore produced
from the area. Stripping activity in cut-back 14B ceased to be classifi ed as abnormal once ore was exposed in
August 2012. Thereafter the stripping costs were recorded as normal course inventory and cost of production.
• Other operating expenses for the fourth quarter of 2012 totaled $4.8 million compared to $3.6 million in the
same quarter of 2011. Costs in the current quarter of 2012 include $2.9 million for the closure of the
underground development project at Kumtor and $1.9 million for ongoing sustainable development projects
in both countries where we operate.
A charge of $180.7 million was recorded in the fourth quarter of 2012 to refl ect the de-recognition of the
underground assets at Kumtor. This results from the decision in early November to expand the open pit at
Kumtor and as a result consume a major portion of the underground infrastructure.
•
• Exploration expenditures for the fourth quarter of 2012 were $11.5 million compared to $11.7 million in the
same quarter of 2011 mainly refl ecting increased drilling activity at the ATO property and the Dvoinoy Joint
Venture in Russia during the current period. Exploration activity at Kumtor focused on drilling of the SB Zone
from the Central Pit and underground exploration drilling of the Southwest Extension and SB Zones from
Declines #1 and #2. Underground drilling ceased in late November of 2012 following the Company’s decision
to expand the Kumtor Central Pit and terminate the planned underground development program.
40 CENTERRA GOLD INC.
Centerra_Financials.indd 40
Apr/01/2013 1:28 PM
• Corporate administration costs for the fourth quarter of 2012 were $8.8 million, a reduction of $1.5 million
from the same period in 2011, refl ecting a lower charge for share-based compensation primarily as a result
of the lower market price of Centerra’s common shares.
• Cash provided by operations was $208.2 million in the fourth quarter of 2012 compared to $60.3 million in the
same period of 2011. The increase over 2011 refl ects higher earnings from higher production and ounces sold,
higher realized prices and a reduction in working capital levels, partially offset by higher operating costs.
• Investing activities in the fourth quarter of 2012 totaled $126 million, including the purchase of $46 million
of short-term investments in government securities and commercial paper and investments of $83 million in
sustaining and growth capital spent at Centerra’s operations. The comparative in 2011 of $137 million includes
the purchase of $107 million in short-term investments in government securities and commercial paper and
investments of $30 million of sustaining and growth capital at Centerra’s operations. Cash used in fi nancing
activities in the fourth quarter of 2012 includes a dividend payment of $6.6 million.
• Capital expenditures (spent and accrued) in the fourth quarter of 2012 were $85.0 million as compared to
$30 million in the same period of 2011. Sustaining capital in the fourth quarter of 2012 of $11.1 million
(including $10.5 million at Kumtor and $0.4 million at Boroo), compared to $9 million in 2011 (including
$7.8 million at Kumtor and $0.9 million at Boroo). Growth capital of $73.9 million in the fourth quarter of 2012
($30 million in the same quarter of 2011), refl ects $73.4 million of spending at Kumtor mainly on fl eet expansion
($23.1 million) and the stripping of cut-back 14A ($36.8 million) and spending at Boroo of $0.3 million.
• Cost of sales per ounce sold for the fourth quarter of 2012, which includes the impact of DD&A, increased to
$767 per ounce compared to $709 per ounce for the same period in 2011. The increase on a per ounce basis
refl ects higher depreciation from the expanded mining fl eet at Kumtor and higher operating costs partially
offset by higher production achieved from higher throughput at Kumtor, the higher grades at both sites and
the start-up of the heap leach operation at Boroo.
• Operating cash costs per ounce produced was $360 in the fourth quarter of 2012 compared to $603 in
the comparative quarter of 2011. The decrease in the 2012 period results mainly from signifi cantly higher
production at both sites, partially offset by higher operating costs. Operating cash costs per ounce produced
is a non-GAAP measure and is discussed under “Non-GAAP Measures”.
• All-in cash costs per ounce produced were $839 in the fourth quarter of 2012 compared to $934 in the same
quarter of 2011. The decrease refl ects the higher production at both sites in the 2012 quarter, partially offset
by increased costs associated with the larger truck fl eet. All-in cash costs per ounce produced is a non-GAAP
measure and is discussed under “Non-GAAP Measures”.
QUARTERLY RESULTS – LAST EIGHT QUARTERS
Over the last eight quarters, Centerra’s results refl ect the impact of rising gold prices as well as increasing costs.
Of note, production and sales in 2012 have been impacted by the accelerated ice movement at Kumtor which
necessitated a change in the mine plan and a delay in the release of gold from the pit. Non-cash costs have also
progressively increased over 2011 and into 2012 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 totaling $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.
Other operating charges in the second quarter of 2012 for social development programs include $21 million spent
by Kumtor on a national micro-credit fi nancing program and $1.1 million accrued by Boroo to increase its funding
of a maternity hospital in Ulaanbaatar. Similarly Kumtor spent in the third quarter of 2011 $10 million for special
funding of a school improvement program in the Kyrgyz Republic and Boroo committed to funding and accrued
Centerra_Financials.indd 41
Apr/01/2013 1:28 PM
2012 ANNUAL REPORT 41
for the construction of a maternity hospital totaling $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 by the Mongolian authorities in relation to
the sterilization of alluvial reserves at the Boroo property. The quarterly fi nancial results for the last eight quarters
are shown below:
Key results by quarter
$ millions, except per share data
Quarterly Data Unaudited
Revenue
Net earnings (loss)
Earnings (loss) per share
2012
Q4
368
(68)
Q3
69
(47)
Q2
90
(55)
Q1
134
(15)
Q4
248
79
2011
Q3
278
84
Q2
244
71
Q1
250
137
(basic and diluted)
(0.29)
(0.20)
(0.23)
(0.06)
0.34
0.35
0.30
0.58
BALANCE SHEET
Inventory
Total inventory at December 31, 2012 of $299 million ($292 million at December 31, 2011) includes gold inventory
of $124 million ($136 million in 2011) and supplies inventory of $175 million ($156 million in 2011). The increase in
2012 refl ects the higher parts requirements from the expanded capital fl eet at Kumtor and lower gold inventory due
to timing of shipments.
Property, Plant and Equipment
The aggregate book value of property, plant and equipment at December 31, 2012 of $589 million, compares to
$590 million at the end of 2011 and is allocated as follows: Kyrgyz $482 million, Mongolia $106 million and corporate
entities $1 million. The small consolidated net increase in 2012 includes additions of $356 million from the major
growth projects at Kumtor (fl eet expansion of $146 million and capitalized stripping of $210 million), maintenance
capital spending at both sites, offset by the depreciation and amortization charges of $242 million and the
de-recognition of Kumtor’s underground equipment of $167 million.
Goodwill
During the year ended December 31, 2012, the Company undertook its normal annual review of the $129.7 million
of 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.
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 $54.6 million as
at December 31, 2012 (December 31, 2011 – $55.6 million). These payments are expected to commence over the next
1 to 15 years. The Company used a risk-free rate of 2.0% at Kumtor and 1.3% at Boroo to calculate the present value
of the asset retirement obligations.
42 CENTERRA GOLD INC.
Centerra_Financials.indd 42
Apr/01/2013 1:28 PM
There were no new updates to the closure costs estimates at either site in 2012. The next regular update to the
closure costs estimates at Kumtor is scheduled later in 2013, at which time the asset retirement obligation for
Kumtor will be updated for the new closure cost estimates and for the extension in its mine life resulting from the
recently announced open pit expansion. The last closure cost update at Boroo was completed in 2011 and its asset
retirement obligation was updated at that time.
The Company’s future undiscounted decommissioning and reclamation costs have been estimated to be
$61.6 million before salvage value.
Share capital
As of February 20, 2013, Centerra had 236,376,011 shares outstanding and options to acquire 1,674,194 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 2020.
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, 2012.
$ millions
Kumtor
Reclamation trust deed (1)
Capital equipment (2)
Operational supplies
Lease of premises
Boroo
Capital projects & operational supplies
Lease of premises
Corporate
Loan repayment (principal & interest)
Lease of premises (3)
$
Total
25.7
28.8
69.1
0.4
0.4
0.4
77.4
1.8
Due in
Less than
One year
Due in
1 to 3
Years
Due in
4 to 5
Years
Due
After 5
Years
$
2.2
28.8
69.1
0.1
0.4
0.1
77.4
0.4
$
7.4
$
5.0
$
11.1
–
–
0.3
0.3
0.9
8.9
–
–
–
–
–
–
0.5
5.5
$
$
11.1
Total contractual obligations
$
204.0
$
178.5
$
(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 ($25.7 million). This restricted cash is
funded by sales revenue, annually in arrears and on December 31, 2012 the balance in the fund was $11.3 million (2011 – $9.1 million), with the remaining
$25.76 million to be funded over the life of the mine.
(2) Agreements as at December 31, 2012 to purchase capital equipment.
(3) Lease of corporate offi ce premises expiring in November 2016.
Centerra_Financials.indd 43
Apr/01/2013 1:28 PM
2012 ANNUAL REPORT 43
NON-GAAP MEASURES
This MD&A presents information about operating cash costs of production of an ounce of gold produced, total
production costs per ounce produced, all-in cash costs per ounce produced and cost of sales per ounce sold for
the operating properties of Centerra. Operating cash costs per ounce produced is calculated by dividing operating
cash costs by gold ounces produced for the relevant period. Total production costs per ounce produced include
operating cash costs plus depreciation, depletion and amortization attributable to production divided by gold
ounces produced for the relevant period. All-in cash costs per ounce produced includes operating cash costs,
plus capitalized stripping, plus capital spent and accrued (sustaining and growth capital) divided by gold ounces
produced for the relevant period. Cost of sales per ounce sold is calculated by dividing cost of sales by gold ounces
sold for the relevant period. Operating cash costs, total production costs and all-in cash costs per ounce produced,
as well as cost of sales per ounce sold are non-GAAP measures.
Operating cash costs include mine operating costs such as mining, processing, site and regional offi ce
administration, royalties and operating taxes (except at Kumtor where revenue-based taxes are excluded), but
exclude depreciation, depletion and amortization, reclamation costs, capital investments and exploration expenses.
Certain amounts of stock-based compensation at the corporate level have been excluded. Total production costs
includes total operating cash cost plus depreciation, depletion and amortization attributable to production.
All-in cash costs includes operating cash costs, plus capitalized stripping and total sustaining and growth capital
spent and accrued.
Operating cash costs per ounce produced, total production costs per ounce produced, all-in cash costs per ounce
produced and cost of sales per ounce sold 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 operating cash cost per ounce produced, total production cost per ounce produced,
all-in cash costs per ounce produced and cost of sales per ounce sold may enable investors to better understand
year-over-year changes in production costs, which in turn affect profi tability and cash fl ow.
Reporting measure going forward
Centerra has initiated an “all-in cash cost” reporting methodology for its gold production. Having fi rst reported
along these lines with the announcement of the revised life-of-mine plan for Kumtor in November 2012, the
Company believes an all-in cash cost measure more fully refl ects the actual cash cost of producing gold than the
former Gold Institute total cash cost measure. The new measure does have limitations as an analytical tool as it may
be distorted in periods where signifi cant capital investments are being made to expand for future growth or where
signifi cant cash mining costs are being expended on stripping to benefi t future periods. This new measure should
therefore not be considered in isolation, or as a substitute for, analysis of our results as reported under GAAP.
It should also be noted that the mining industry is in early stages of defi ning an industry-wide standard on the
reporting of “all-in cash costs” hence, the defi nition adopted by the mining industry may differ from the Company’s
current defi nition. The Company may modify the calculation of its “all-in cash cost” to conform to the industry’s
standard once it is known.
Management uses all-in cash cost per ounce produced to evaluate current operating performance and for
planning and forecasting of future periods. Management believes that the presentation of this new measure is useful
for the investor because it allows investors to view results in a manner similar to the method used by management.
44 CENTERRA GOLD INC.
Centerra_Financials.indd 44
Apr/01/2013 1:28 PM
Operating Cash Cost per Ounce Produced and Total Production Cost per Ounce Produced can be
reconciled as follows:
(unaudited)
($ millions, unless otherwise specifi ed)
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
Operating cash cost
Depreciation, depletion, amortization and accretion
Inventory movement – non-cash
Total production cost
Ounces poured (000)
Operating 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
Operating cash cost
Depreciation, depletion, amortization and accretion
Inventory movement – non-cash
Total production cost
Ounces poured (000)
Operating 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
Operating cash cost
Depreciation, depletion, amortization and accretion
Inventory movement – non-cash
Total production cost
Ounces poured (000)
Operating cash cost per ounce produced
Total production cost per ounce produced
Year ended
December 31,
Fourth Quarter ended
December 31,
2012
2011
2012
2011
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
387.5
142.2
245.3
(1.2)
21.0
4.6
32.6
(45.7)
256.7
142.6
43.0
442.3
387.1
663
1,143
311.1
121.1
190.0
(1.0)
15.5
4.6
32.6
(35.2)
206.5
121.4
42.6
370.5
315.2
655
960
76.4
21.1
55.3
(0.2)
5.5
–
–
(10.5)
50.2
21.2
0.4
71.8
71.8
699
1,033
$
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
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
165.2
91.1
74.1
(0.7)
5.6
–
15.2
(15.3)
78.9
91.2
48.7
218.8
219.3
360
998
137.3
80.1
57.2
(0.6)
4.2
–
15.2
(11.4)
64.6
80.1
48.8
193.5
189.4
341
491
27.9
11.0
16.9
(0.1)
1.5
–
–
(4.0)
14.3
11.1
(0.1)
25.3
29.9
479
793
$
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
7.2
1.1
6.1
–
1.8
–
–
3.0
10.9
1.3
–
12.2
12.9
849
951
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2012 ANNUAL REPORT 45
Centerra_Financials.indd 45
Apr/01/2013 1:28 PM
Total capital and capitalized stripping presented in the All-in cash cost calculation can be
reconciled as follows:
Year – 2012
($ millions, unaudited)
Capitalized stripping – cash
Sustaining capital – cash
Growth capital – cash
Net increase in accruals included in additions to PP&E
Total – Additions to PP&E
Year – 2011
($ millions, unaudited)
Capitalized stripping – cash
Sustaining capital – cash
Growth capital – cash
Net increase in accruals included in additions to PP&E
Total – Additions to PP&E
Fourth Quarter – 2012
($ millions, unaudited)
Capitalized stripping – cash
Sustaining capital – cash
Growth capital – cash
Net increase in accruals included in additions to PP&E
Total – Additions to PP&E
Fourth Quarter – 2011
($ millions, unaudited)
Capitalized stripping – cash
Sustaining capital – cash
Growth capital – cash
Net increase in accruals included in additions to PP&E
Total – Additions to PP&E
Kumtor
Boroo
All other Consolidated
129.3
40.8
176.4
10.1
356.6
6.3
2.1
0.3
–
8.7
–
0.6
0.5
–
1.1
135.6
43.5
177.2
10.1
366.4(1)
Kumtor
Boroo
All other Consolidated
39.4
32.2
95.0
1.3
167.9
–
1.8
4.5
–
6.3
–
0.6
0.4
–
1.0
39.4
34.6
99.9
1.3
175.2(1)
Kumtor
Boroo
All other Consolidated
26.1
10.5
36.6
9.1
82.3
–
0.4
0.3
–
0.7
–
0.2
0.2
–
0.4
26.1
11.1
37.1
9.1
83.4(1)
Kumtor
Boroo
All other Consolidated
6.0
7.8
12.4
2.1
28.3
–
0.9
0.3
–
1.2
–
0.3
–
–
0.3
6.0
9.0
12.7
2.1
29.8(1)
(1) As reported in the Company’s Consolidated Statement of Cash Flows as “Investing Activities – Additions to property, plant & equipment”.
Corporate and other cash costs presented in the All-in cash cost calculation can be reconciled as follows:
Fourth Quarter
Year
($ millions) (unaudited)
Other operating expenses
Exploration and business development
Corporate administration
Subtotal (1)
Adjust for:
Non-operating charge – claim settlement and other
Depreciation and amortization
Total Corporate and other cash costs
2012
4.8
11.6
8.8
25.2
–
(0.6)
24.6
$
$
$
$
$
2011
3.7
11.1
10.3
25.1
(2.5)
(0.1)
2012
34.3
38.5
27.0
99.8
$
$
$
2011
15.5
42.9
44.9
$
103.3
$
22.5
$
0.1
(1.4)
98.5
(2.5)
(0.4)
$
100.4
(1) As reported in the Consolidated Statements of Earnings (Loss) and Comprehensive Income (Loss) for the reported periods.
46 CENTERRA GOLD INC.
Centerra_Financials.indd 46
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RELATED PARTY TRANSACTIONS
Kyrgyzaltyn JSC
Revenues from the Kumtor gold mine are subject to a management fee of $1.00 per ounce based on sales
volumes, payable to Kyrgyzaltyn JSC (“Kyrgyzaltyn”), a shareholder of the Company and a state-owned entity
of the Kyrgyz Republic.
The table below summarizes the management fees and concession payments paid and accrued by Kumtor Gold
Company (“KGC”), a subsidiary of the Company, to Kyrgyzaltyn and the amounts paid and accrued by Kyrgyzaltyn
to KGC according to the terms of a Restated Gold and Silver Sales Agreement between KGC, Kyrgyzaltyn and the
Government of the Kyrgyz Republic dated June 6, 2009.
Year ended December 31 ($ 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
2012
2011
315
535,437
(1,883)
533,554
599
944,020
(2,947)
941,073
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. Amounts receivable from Kyrgyzaltyn arise
from the sale of gold to Kyrgyzaltyn. 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. Based on movements in Centerra’s share price, and the value of individual or unsettled gold shipments
over the course of 2012, 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 approximately $56.7 million, compared to $44.8 million
in 2011.
As at December 31, 2012, $48.3 million was outstanding under the Sales Agreement (December 31, 2011 –
$47.4 million).
Related party balances
The assets and liabilities of the Company include the following amounts due from and to Kyrgyzaltyn:
(Thousands of US$)
Prepaid expenses
Amounts receivable
Total related party assets
Dividend payable (net of withholding taxes)
Total related party liabilities
Dividend
(Thousands of US$)
Dividends declared to Kyrgyzaltyn
December 31 December 31
2011
2012
$
–
48,325
$ 48,325
5,949
$
5,949
$
$
143
47,366
$ 47,509
$
$
–
–
2012
2011
$
5,949
$ 29,412
Dividend payable and restricted cash held in trust
Pursuant to an Ontario court decision dated September 5, 2012, Kyrgyzaltyn’s portion of the Centerra dividend
declared on August 1, 2012 and November 7, 2012 of $6.2 million net of withholding taxes of $0.3 million
($5.9 million net) is held in trust to the credit of the Sistem court proceedings.
Centerra_Financials.indd 47
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2012 ANNUAL REPORT 47
OTHER CORPORATE DEVELOPMENTS
The following is a summary of corporate developments with respect to matters affecting the Company and its
subsidiaries in the Kyrgyz Republic, Mongolia and Canada:
Kyrgyz Republic
Since the Company’s most recent quarterly news release dated November 7, 2012, there have been several
developments with respect to the state commission established by the Kyrgyz Government for the purpose of
inspecting and reviewing Kumtor’s compliance with Kyrgyz operational and environmental laws and regulations
and community standards (the “State Commission”). In particular, the following developments have occurred,
each of which will be discussed below in greater detail: (a) The State Commission released its fi nal report (the “State
Commission Report”) on December 25, 2012; (b) Kumtor received fi ve claims from the State Inspectorate Offi ce for
Environmental and Technical Safety under the Government of the Kyrgyz Republic (“SIETS”) for an aggregate of
$152 million for alleged environmental violations, which was previously disclosed in a news release of the Company
on December 14, 2012; (c) The Kyrgyz Republic Government received the State Commission Report on January 24,
2013 and created a working group to hold discussions with Centerra on revising the terms under which the Kumtor
Project operates; and (d) the Kyrgyz Republic Parliament received the State Commission Report on February 20, 2013
and is considering a draft Parliamentary resolution. Such draft Parliamentary resolution calls on the Government
to hold negotiations with Centerra with a view to revising the Kumtor Project Agreements (as defi ned below) in
the interest of the Kyrgyz Republic and recommends that, if mutually advantageous terms cannot be agreed, the
Government take a number of steps including, without limitation, the repeal of the 2009 laws approving the Kumtor
Project Agreements and the termination of the Kumtor Project Agreements; and (e) the Kyrgyz Republic Social Fund
(the “Social Fund”) has appealed to the Supreme Court a lower court ruling that dismissed the Social Fund’s request
to invalidate documentary acts (assessments) of the Social Fund against Kumtor for the years 2004 to 2009.
The Company addresses each of the developments below in detail. Reference should also be made to the
historical information contained in the Company’s news release dated November 7, 2012 regarding the State
Commission and the related Parliamentary Commission which was formed in early 2012. The Company believes
that the agreements entered into in 2009 governing the Kumtor Project (the “Kumtor Project Agreements”) are legal,
valid and enforceable obligations. The Kumtor Project Agreements were reviewed and approved by the Kyrgyz
Republic Government and the Kyrgyz Republic Parliament, and were the subject of a positive decision of the Kyrgyz
Republic Constitutional Court and a legal opinion by the Kyrgyz Republic Ministry of Justice. The Company
continues to be in discussions with the Government regarding the State Commission Report, with the objective
of resolving these outstanding concerns through constructive dialogue. However, there can be no assurances that
the Company will be able to successfully resolve any or all of these matters currently affecting the Kumtor Project.
There can also be no assurance that the Kyrgyz Republic Government and/or Parliament will not take actions that
are inconsistent with the Kyrgyz Republic’s obligations under the Kumtor Project Agreements or cancel government
decrees, orders or licenses under which Kumtor currently operates. Any such actions could have a material adverse
impact on the Company’s future cash fl ows, earnings, results of operations and fi nancial condition. See “Material
Assumptions & Risks” and “Cautionary Note Regarding Forward-looking Information” below. For further information
on risk factors relevant to Centerra and its operations, please see “Risk Factors” in the most recently fi led MD&A and
in the Company’s most recently fi led Annual Information Form.
State Commission Activities
(A) State Commission Report
In December 2012, the State Commission issued its fi nal report (the “State Commission Report”), following fi ve
months of study and several visits to the Kumtor mine site, and over 120 written requests for information on a wide
variety of matters going back to 1993 when the original agreement regarding the Kumtor Project was executed. The
State Commission was comprised of three working groups with responsibility for environmental and technical
matters, legal matters (including a review of all prior and current agreements relating to the Kumtor Project), and
social-economic matters (including a review of fi nancial, taxation, procurement and employment-related matters).
48 CENTERRA GOLD INC.
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The State Commission Report includes a large number of allegations in regard to prior transactions relating to the
Kumtor Project and the Kumtor Project’s operations and management, including the following:
(i) that the Kumtor Project violated Kyrgyz Republic legislation relating to corporate, environment, and subsoil
legislation at various times since project activities began in 1993, including allegations relating to the tender
process for the deposit in 1993, the approval process for the initial development of the Kumtor Project, the
placing of waste rock on glaciers, and causing environmental damage to water and land resources in the area
of the Kumtor Project;
(ii) that the Kumtor management is ineffective;
(iii) that incorrect valuation of assets occurred during the 2003/2004 restructuring process, which purportedly led
to signifi cant losses sustained by the Kyrgyz Republic;
(iv) that the Kumtor Project Agreements adopted in 2009 were improperly approved and violate the Kyrgyz
Republic constitution.
The State Commission Report recommends that the Kyrgyz Government open negotiations under which the Kumtor
Project is governed, including requiring Kumtor to accept the current tax regime and pay higher environmental
charges; changes in the management of Kumtor and Centerra including greater representation by Kyrgyzaltyn on the
Centerra board of directors and greater representation of Kyrgyz citizens in management of the Kumtor Project; and
recommendations for additional charges and fees to be paid by the Kumtor Project including for land use, and for
those items raised by SIETS (see disclosure below regarding environmental claims received by Kumtor Project). The
State Commission Report also recommends various actions to be taken by Kyrgyzaltyn, by the Kyrgyz Government,
including revisions to Kyrgyz law, and the Kyrgyz Republic General Prosecutor’s Offi ce with respect to investigating
the personal liability of parties who were involved in negotiating previous agreements governing the Kumtor Project
for violations of Kyrgyz legislation and for infl icting losses to the Kyrgyz Republic’s interests. The State Commission
recommended the establishment of a working group to give effect to the recommendations, in particular the
opening of negotiations with Centerra and Kumtor.
The Company received the fi nal copy of the State Commission Report on January 18, 2013. The Company
believes that the conclusions and claims in the State Commission Report are exaggerated or without merit.
While the Company has responded in detail in writing to such conclusions and claims, it also makes the following
general responses:
(i) The Company operates in accordance with Kyrgyz and international standards, and this has been proven
over the years in systematic audits by Kyrgyz and international experts. In particular, in August 2012, the
Safety, Health and Environment Committee of the Board of Directors of Centerra engaged an independent
internationally recognized consultant to carry out a due diligence review of Kumtor’s performance on safety,
health and environmental matters. The report issued in October 2012 concluded that “no major or materially
signifi cant environmental issues were identifi ed”.
(ii) The Kumtor Project Agreements provide for a full regime of all payments to the Kyrgyz Government including
a comprehensive revenue-based tax and specifi ed fees and payments for other matters including environmental
charges. The Kumtor Project Agreements were negotiated at arm’s length, and reviewed and approved by the
Kyrgyz Government and its Parliament. The agreements were the subject of a positive decision by the Kyrgyz
Constitutional Court and a legal opinion of the Kyrgyz Republic Ministry of Justice. The Company believes
these agreements are legal, valid and enforceable obligations of the parties.
(iii) Centerra, Kumtor and the Kyrgyz Government, among other parties, entered into a release agreement (the
Release Agreement) on June 6, 2009, as part of Kumtor Project Agreements. The Release Agreement provides
that parties agreed to release each other from any claims, including any legal, tax and fi scal matters, in
respect of any matter arising or existing prior to June 6, 2009, whether such matters were known or unknown
as of June 6, 2009, subject to certain exemptions which are not applicable in the circumstances. Accordingly,
the conclusions and recommendations relating to alleged wrong doings prior to June 6, 2009, including
matters relating to the 1993 Master Agreement and the 2003 Restructuring Agreement, have been released
by all parties.
Centerra_Financials.indd 49
Apr/01/2013 1:28 PM
2012 ANNUAL REPORT 49
(B) Kumtor Has Received Claims from Kyrgyz Authorities for Alleged Environmental Violations
As previously disclosed, Kumtor received in mid-December 2012, fi ve claims from the SIETS for alleged environmental
violations. The claims are for an aggregate amount of approximately $152 million, including (i) a claim for
approximately $142 million for alleged damages in relation to the placement on waste dumps of waste rock
(unprocessed rock) from mining operations for the period from 2000 to 2011; (ii) a claim for approximately
$4 million for use of water resources from Petrov Lake for the period of 2000 to 2011; and (iii) a claim for
approximately $2.3 million for alleged damages caused to land resources, including in some cases from the time
of initial construction of the Kumtor facilities in 1995. One Claim for $2.8 million for waste placed in the tailings
management facilities and for emissions for 2009-2011 was withdrawn after discussions with the applicable Kyrgyz
regulatory authorities, although there are no assurances that further claims will not be issued on this matter. The
claims reference the review of the Kumtor Project carried out by the environmental and technical working group
of the State Commission. Kumtor disagrees with these claims and has responded to them in detail in writing to
the relevant authority. While the Company believes that such claims are exaggerated or without merit, there can
be no assurances that these claims will be successfully resolved in favour of the Company or that further claims
will not be issued.
(C) Government Decree #34
The Kyrgyz Government received the State Commission Report on January 24, 2013 and issued a decree, Decree
of the Kyrgyz Government dated January 24, 2013, #34 (“Decree #34”), accepting the State Commission Report and
sending it to the Kyrgyz Parliament. Pursuant to Decree #34, the Kyrgyz Government also established a working
group to hold discussions on the revisions of terms governing the Kumtor Project, particularly on revisions to the tax
regime and other matters identifi ed in the State Commission Report.
The Company intends to meet with the working group and other Kyrgyz Government offi cials, with the objective
of resolving matters through constructive dialogue. However, there can also be no assurance that such discussions
will result in a successful outcome for the Company, or that the Kyrgyz Government will not take actions that are
inconsistent with its obligations under the Kumtor Project Agreements or cancel government decrees, orders or
licenses under which the Kumtor Project currently operates. Any such actions could have a material adverse impact
on the Company’s future cash fl ows, earnings, results of operations and fi nancial conditions.
(D) Parliamentary Review and Draft Resolution
On February 20, 2013, the Parliament of the Kyrgyz Republic debated the State Commission Report and discussed a
draft resolution (the “Draft Resolution”) that endorses the Report and calls on the Government to hold negotiations
with Centerra with a view to revising the Kumtor Project Agreements in the interests of the Kyrgyz Republic. The
Company understands that the Draft Resolution further recommends that if mutually advantageous terms cannot
be agreed the Government should take a number of steps including the following:
(i) annul the legislation enacted by Parliament in 2009 approving the Kumtor Project Agreements;
(ii) terminate the Kumtor Project Agreements, including the Restated Investment Agreement and Restated
Concession Agreement dated June 6, 2009;
(iii) initiate legal proceedings with a view to implementing a Government decree of July 5, 2012 “On Cancellation
of the Government’s Decree on granting land plots to Kumtor Gold Company CJSC dated as of March 25, 2010.
(Such March 25, 2010 decree granted Kumtor certain surface rights in relation to the project. See Centerra’s
news release dated July 6, 2012.);
(iv) review Government decisions issued between 1992 and 2012 which granted areas for carrying out exploration,
mining operations and construction of facilities for the Kumtor Project; and
(v) develop and submit amendments to laws on biosphere territories and prevention of damage to glaciers.
In addition, the Draft Resolution advises the Government to:
(i) ensure that the Kumtor mine remains in continuous operation;
(ii) require Kumtor to develop additional designs for reclamation and determine relevant fi nancial resources
required to implement such designs; and
(iii) ensure that the recommendations of the State Commission (the Report) and Draft Resolution are fulfi lled.
The Draft Resolution also recommends that the Government review allegations that Kumtor has understated
reserves of silver, tellurium and other elements.
50 CENTERRA GOLD INC.
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The Draft Resolution calls for the Government to report on the fulfi llment of the recommendations contained in
the State Commission Report and the Parliamentary resolution by June 1, 2013. While it is not certain that Parliament
will pass the Draft Resolution in its current form, Centerra is reviewing the provisions of the Draft Resolution and
will respond to any fi nal Parliamentary resolution accordingly. However, as already stated in the news release,
Centerra continues to be confi dent in the continued validity of the Kumtor Project Agreements, which provide
for disputes concerning the project to be resolved by international arbitration.
Kyrgyz Republic Social Fund Dispute
As previously disclosed, the Social Fund commenced a claim in the Kyrgyz courts to invalidate documentary acts
(assessments) issued by the Social Fund for the years 2004-2009. Preliminary motions regarding jurisdictional
matters were argued on August 28, 2012 and subsequently determined in favour of Kumtor. Such decision was
appealed by the Social Fund to the Bishkek City Court, which dismissed the appeal of the Social Fund on November 28,
2012. In early February 2013, the Social Fund appealed this decision of the Bishkek City Court to the Kyrgyz Republic
Supreme Court.
For a further discussion regarding the Social Fund claim and the dispute for the 2010 taxation year regarding the
payment of Social Fund contributions on the high altitude coeffi cient, please see the Company’s Annual Information
Form for 2011. There are no assurances that the Company and Kumtor will be able to resolve the outstanding
matters relating to the Social Fund without any material impact on the Company’s future cash fl ows, earnings,
results of operations and fi nancial condition.
Other
The Company is aware of certain statements made by the Kyrgyz Minister of Health and published on the Ministry’s
website indicating that Centerra has committed to certain donations related to the improvement of cardiology,
cardiac surgery and hemodialysis care in the Kyrgyz Republic. While the Company is reviewing the appropriateness
of this donation along with other possible donations in the Kyrgyz Republic, the Company has not yet made a
determination thereon.
Mongolia
Gatsuurt and the Impact of the Mongolian Water and Forest Law
Further to information disclosed in Centerra’s MD&A for the third quarter 2009 and Centerra’s Annual Information
Form for 2011, the Mongolian Parliament enacted in July 2009 the Mongolian Law to Prohibit Mineral Exploration
and Mining Operations at River Headwaters, Protected Zones of Water Reservoirs and Forested Areas (the “Water
and Forest Law”) which prohibits mineral prospecting, exploration and mining in water basins and forestry areas in
Mongolia. The law provides for a specifi c exemption for “mineral deposits of strategic importance”, which exempts
the Boroo hard rock deposit from the application of the law. Centerra’s Gatsuurt licenses are currently not exempt.
Under the Mineral Laws of Mongolia, Parliament on its own initiative or, on the recommendation of the Mongolian
Government, may designate a mineral deposit as strategic. Such designation could result in Mongolia receiving up
to a 34% interest in the applicable project.
Centerra is currently in discussions with the Mongolian Government regarding the development of the Gatsuurt
property. 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 Forest Law having a limited impact
on the Gatsuurt property, in particular, and other Company’s Mongolian activities including ATO. 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 Gatsuurt 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.
Centerra_Financials.indd 51
Apr/01/2013 1:28 PM
2012 ANNUAL REPORT 51
As at December 31, 2012, the Company had net assets recorded amounting to approximately $37 million related
to the investment in Gatsuurt and approximately $28 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 or fi nancial condition. For a further discussion relating to the Water and
Forest Law, please see the Company’s Annual Information Form for 2011.
The Boroo Heap Leach
Boroo received regulatory approval for the mine plan for the heap leach facility in September 2012. As a result, Boroo
recommenced heap leach operations in the fourth quarter of 2012.
Corporate
Enforcement Notice by Sistem:
As previously disclosed, 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. These notices were served by Sistem 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
Kyrgyz Republic in accordance with a judgment of the Ontario Superior Court enforcing an international arbitration
award against the Kyrgyz Republic. In these Ontario proceedings, Sistem alleges that the shares in Centerra owned
by Kyrgyzaltyn and any dividends paid in respect of those shares, are in fact legally and benefi cially owned by the
Kyrgyz Republic and are therefore subject to execution to pay the judgment.
Based on legal advice received, Centerra disputes those allegations and paid to Kyrgyzaltyn its portion of Centerra
dividends payable on May 18, 2011 (approximately C$31 million) and on May 31, 2012 (approximately C$3 million).
Sistem is continuing with its claim regarding the Centerra shares owned by Kyrgyzaltyn. 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. However, Centerra believes it has
a strong defense to that claim based on the facts and the law.
Preliminary motions regarding jurisdictional matters have been heard in the Ontario Superior Court over the
course of 2012, with the objective of setting aside the Ontario judgment enforcing the arbitration award. The lower
court decision found in favour of Sistem and dismissed the motion. Kyrgyzaltyn appealed such decision to the Court
of Appeal where it was not successful. At this point, the matter can either be appealed further by Kyrgyzaltyn or the
trial on the substantive issue will commence.
Pursuant to a Ontario court decision dated September 5, 2012 (the “Court Order”), Centerra is required to hold in
trust to the credit of the Sistem court proceeding, Kyrgyzaltyn’s portion of dividends payable on shares of Centerra,
up to a maximum of C$11.2 million. The Court Order has been put in place until the resolution of the court
proceedings. To date, Centerra is holding in trust for the credit of the Sistem court proceedings, an amount equal
to $5.9 million. The Court Order also places certain restrictions on 4 million of the Centerra shares held by
Kyrgyzaltyn, including restrictions on the transfer or encumbrance of such shares. The Centerra shares pledged
by Kyrgyzaltyn to Kumtor Gold Company and Kumtor Operating Company as security for payments due from
Kyrgyzaltyn under the Restated Gold and Silver Sale Agreement dated as of June 6, 2009 are not subject to the Court
Order restrictions.
For a full discussion of risk factors that can have a material effect on the profi tability, future cash fl ow, earnings,
results of operations, stated mineral reserves and fi nancial condition of the Company, please see “Caution Regarding
Forward-looking Information”. For information regarding risk factors relevant to Centerra and its operations, please
see “Risk Factors” in this document and the Company’s most recently fi led Annual Information Form.
52 CENTERRA GOLD INC.
Centerra_Financials.indd 52
Apr/01/2013 1:28 PM
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 based on estimates
of what the ultimate payout will be, using the Black-Scholes option pricing model or 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 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. Ore reserve estimation
The Company estimates its ore reserves and mineral resources based on information compiled by qualifi ed
persons as defi ned in accordance with the Canadian Securities Administrators’ National Instrument 43-101
Standards of Disclosure for Mineral Projects requirements. 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 Company 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.
2012 ANNUAL REPORT 53
Centerra_Financials.indd 53
Apr/01/2013 1:28 PM
v.
Impairment of long-term assets
The Company reviews and tests the carrying amounts of long-term assets and intangible assets with defi nite
lives when an indicator of impairment is considered to exist. The Company considers both external and
internal sources of information in assessing whether there are any indications that long-term assets
and goodwill are impaired. When an indicator of impairment is identifi ed or for goodwill annually at
the anniversary date, an impairment test is performed by comparing the carrying amount of the asset or
cash-generating unit (“CGU”) to their recoverable amount, which is calculated as the higher of an asset’s
or cash-generating unit’s value-in-use or fair value less costs to sell. The estimated recoverable amount is
calculated normally 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. While management believes that estimates of
future cash fl ows are reasonable, different assumptions regarding such cash fl ows could materially affect
the recoverable value of the long-term asset or CGU. Changes in these estimates which decrease the
estimated recoverable value of the asset or CGU could affect the carrying amounts of assets and result
in an impairment charge.
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, 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. If it is not more likely than not that the deferred tax assets will be utilized, a valuation allowance
is provided for. 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
Management makes estimates of recoverable quantities of gold in stockpiled ore, ore stacked on heap leach
pads and in process to determine the average costs of fi nished goods sold during the period and the value of
the inventoried asset in the Company’s Statements of Financial Position. Costs that are incurred in or benefi t
the mine and mill production process are accumulated as stockpiles of ore, ore on leach pads, heap leach in
circuit and gold-in circuit. Net realizable value tests are performed at least annually based on the estimated
future sales price of the gold doré, based on prevailing and long-term gold prices, less estimated costs to
complete production and bring the gold to selling condition.
The recoverable quantity of ore on stockpiles is estimated based on tonnage added and removed from the
stockpiles, the amount of contained gold ounces based on assay data, and the estimated recovery percentage
based on the historical recoveries obtained in the expected processing method. Stockpiled ore tonnage is
verifi ed by periodic surveys. Changes in these estimates can result in a change in mine operating costs of
future periods and carrying amounts of inventories.
viii. Litigation and contingency
On an ongoing basis the Company is subject to various claims and other legal disputes, the outcomes
of which cannot be assessed with a high degree of certainty. A liability is recognized where, based on the
Company’s legal views and advice, it is considered probable that an outfl ow of resources will be required
to settle a present obligation that can be measured reliably.
By their nature, these contingencies will only be resolved when one or more future events occur or fail
to occur. The assessment of such contingencies inherently involves the exercise of signifi cant judgment
of the potential outcome of future events.
54 CENTERRA GOLD INC.
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CHANGES IN ACCOUNTING POLICIES
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 de-recognized in their entirety, and for fi nancial assets that are de-recognized
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.
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. This is a change from the
existing standards, under which the Company chose to proportionally consolidate joint ventures. The Company
intends to adopt this standard effective January 1, 2013. The impact of these changes on the Company’s fi nancial
statements is currently under review in preparation for the fi rst quarter 2013 fi nancial reporting.
IFRS 12 Disclosure of Interests in Other Entities (“IFRS 12”) 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 (“IFRS 13”) 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.
2012 ANNUAL REPORT 55
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IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine (“IFRIC 20”) 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. It prescribes that the costs of the
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
the stripping activity which provides a benefi t in the form of improved access to ore in future periods is recognized
as a non-current stripping activity asset when specifi ed criteria are met. The Company intends to adopt IFRIC 20
in its fi nancial statements for the annual period beginning on January 1, 2013. The impact of these changes on the
Company’s fi nancial statements is currently under review in preparation for the fi rst quarter 2013 fi nancial reporting.
DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING
As of December 31, 2012, 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.
The Company’s fi rst Corporate Responsibility Report for its 2010 reporting year is available on the Company’s
website at www.centerragold.com.
2013 OUTLOOK
Centerra’s 2013 gold production and unit costs are forecast as follows:
Kumtor
Boroo
Consolidated
2013 Production Forecast
(ounces of gold)
550,000 – 600,000
55,000 – 60,000
605,000 – 660,000
2013 Operating Cash Costs (1)
($ per ounce produced)
2013 All-in Cash Costs (Pre-tax) (2)
($ per ounce produced)
$342 – 373
$ 1,055 – 1,151
$ 406 – 443
$ 853 – 931
$ 1,225 – 1,336
$ 1,067 – 1,164
(1) Operating cash costs per ounce produced 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 depreciation, depletion and amortization, reclamation costs,
fi nancing costs, capital investments, community investments, exploration expenses and corporate general and administration expenses.
(2) All-in cash cost per (pre-tax) ounce produced is a non-GAAP measure and includes cash operating cost, sustaining and growth capital, corporate general and
administrative expenses, global exploration expenses, and community investments, but excludes revenue-based taxes at Kumtor and income taxes.
2013 Production:
Centerra’s 2013 consolidated gold production is forecast to be in the 605,000 to 660,000 ounce range.
In 2013, approximately 50% of Kumtor’s gold production is expected to occur in the fourth quarter creating a
potential variability to Kumtor’s 2013 production guidance. Centerra estimates that the Kumtor mine will produce
between 550,000 and 600,000 ounces in 2013. Ore production in the fourth quarter is planned to come from the
high-grade SB Zone ore that has several years of production history. The high-grade ore from the SB Zone is only
available for mining at the end of the third quarter when it is exposed by Cut Back 15.
56 CENTERRA GOLD INC.
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At the Boroo mine, gold production is forecast to be approximately 55,000 to 60,000 ounces, which includes about
24,000 ounces from heap leaching and 36,000 ounces from processing mill stockpiles. The Boroo mill is expected
to process ore stockpiles during the year with an average grade of 0.82 g/t. The 2013 forecast assumes no mining
activities at Boroo and Gatsuurt, and no gold production from Gatsuurt.
All-in Unit Cash Costs:
Centerra’s 2013 all-in unit cash production costs per ounce are forecast as follows:
Operating cash costs (1)
Capitalized stripping costs – cash
Operating cash and stripping costs
Sustaining capital (cash)
Growth capital (cash)
Operating cash costs including capital
Corporate and other cash costs (2)
All-in cash costs – (pre-tax) (1)
Revenue-based tax and income tax
Total All-in cash costs including taxes (1)
Kumtor
Boroo
Consolidated
($ per ounce produced)
($ per ounce produced)
($ per ounce produced)
$
$
$
$
$
342 – 373
354 – 386
696 – 759
105 – 115
52 – 57
853 – 931
–
853 – 931
234 – 255
$ 1,087 – 1,186
$ 1,055 – 1,151
–
$ 1,055 – 1,151
170 – 185
–
$ 1,225 – 1,336
–
$ 1,225 – 1,336
130 – 142
$
$ 1,355 – 1,478
$
$
$
406 – 443
322 – 351
728 – 794
113 – 124
49 – 53
890 – 971
177 – 193
$ 1,067 – 1,164
224 – 245
$
$ 1,291 – 1,409
(1) Operating cash costs, all-in cash costs (pre-tax) and total all-in cash costs including taxes per ounce produced are non-GAAP measures and are discussed under
“Non-GAAP Measures”.
(2) Corporate and other cash costs per ounce produced include corporate general and administrative expenses, global exploration expenses, and community investments.
2013 Exploration Expenditures:
Exploration expenditures of $45 million are planned for 2013, which is unchanged from the budgeted expenditures
for 2012. The 2013 program will continue the successful exploration work below and west of the Central Pit at the
Kumtor mine and includes drilling on the adjacent Sarytor and Northeast satellite deposits. Planned exploration
expenditures on the Kumtor concession are expected to be about $13.5 million.
In Mongolia, approximately $7 million is allocated for exploration programs that will focus on expanding the
mineral resource at the Altan Tsagaan Ovoo (“ATO”) project and evaluating targets in the greater ATO district.
Exploration spending in Turkey will increase to approximately $8 million as work focuses on expanding and
upgrading the Öksüt gold deposit resource, advancing on-going metallurgical test work and initiating detailed
environmental and technical project studies.
In 2013, drilling programs will continue in Russia on the Kara Beldyr and Dvoinoy Joint Ventures and commence
on the new Umlekan Joint Venture adjoining Dvoinoy. Expenditures for the projects in Russia are expected to be, in
the aggregate, approximately $6 million.
The China 2013 exploration program of $2 million includes the drilling of targets developed on the Laogouxi Joint
Venture project and generating new projects in several prospective areas. Generative programs will continue in
Central Asia, Russia, China, Turkey and several new regions to increase the pipeline of projects that the Company
is developing to meet the longer term growth targets of Centerra.
2013 Capital Expenditures
Centerra’s capital expenditures for 2013, excluding capitalized stripping, are estimated to be $107 million, including
$75 million of sustaining capital and $32 million of growth capital.
Capital expenditures (excluding capitalized stripping) include:
Projects
(millions of dollars)
Kumtor mine
Mongolia
Corporate
Consolidated Total
2013 Growth Capital
2013 Sustaining Capital
$ 31
$ 1
–
$ 32
$ 64
$ 10
$ 1
$ 75
2012 ANNUAL REPORT 57
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Apr/01/2013 1:28 PM
Kumtor
At Kumtor, 2013 total capital expenditures, excluding capitalized stripping, are forecast to be $95 million including
$64 million of sustaining capital. The largest sustaining capital spending will be the major overhaul maintenance
of the heavy duty mine equipment ($29 million), purchase of new mining equipment ($17 million), tailings dam
construction raise ($5 million) and other items ($13 million).
Growth capital investment at Kumtor for 2013 is forecast at $31 million, which includes the relocation of certain
infrastructure at Kumtor related to the KS-13 life-of-mine expansion ($26 million) and other items ($5 million).
Capitalized stripping costs related to the development of the open pit are expected to be $212 million (cash)
in 2013.
Mongolia (Boroo and Gatsuurt)
At Boroo, 2013 sustaining capital expenditures are expected to be $10 million primarily for raising the tailings dam
at Boroo ($6 million) and maintenance rebuilds and overhauls.
Growth capital for the Gatsuurt deposit is forecast at $1 million, related to environmental studies.
2013 Corporate Administration and Community Investment
Corporate and administration expenses for 2013 are forecast at $45 million, which includes $7 million for business
development activities.
Total community investments for 2013 are forecast at $27.5 million, which include $7.5 million for donations
and sustainable development projects in the various communities in which Centerra operates and $20 million for
strategic community investment projects. Note that these costs are not included in operating cash costs.
2013 Depreciation, Depletion and Amortization
Depreciation, depletion and amortization expenses included in costs of sales expense for 2013 are forecast to be
approximately $218 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 2012 Audited Financial Statements note 10 for further details on the related
capital assets.
(In millions)
Kumtor
Mine equipment
Less DD&A capitalized to stripping costs (1)
Capital stripping costs amortized
Other mining assets
Mill assets
Administration assets and other
Inventory movement (non-cash depreciation)
Subtotal for Kumtor
Boroo
Mine equipment
Less DD&A capitalized to stripping costs
Capital stripping costs amortized
Mine development and other mining assets
Mill assets
Administration assets and other
Inventory movement (non-cash depreciation)
Subtotal for Boroo
Consolidated Total
2013
DD&A
Forecast
(Unaudited)
2012
DD&A
Actual
2011
DD&A
Actual
$
$
$
$
$
$
95
(77)
291
1
6
12
(127)
201
1
–
2
1
6
6
1
$
$
17
218
$
$
87
(59)
117
1
4
3
(32)
121
1
(1)
9
1
4
8
(1)
21
142
$
$
$
$
$
69
(14)
32
5
8
10
(22)
88
2
–
–
1
1
3
3
10
98
(1) Use of the Company’s mining fl eet for stripping activities results in a portion of the depreciation related to the mine fl eet to be allocated to capitalized stripping costs.
The amount for 2012 includes $2 million of depreciation expensed as mine standby costs, $6 million of depreciation expensed as abnormal ice unload costs, and
$51 million of depreciation allocated to capitalized stripping costs.
58 CENTERRA GOLD INC.
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Kumtor
At Kumtor, the forecast for 2013 DD&A expensed as part of costs of sales is $201 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 increased stripping of waste required to access the deposit. The amortization of capitalized stripping
costs is the largest component of depreciation expense in 2013 totaling $291 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 stripping costs ($77 million forecasted to be capitalized
as stripping costs in 2013).
During 2013 Kumtor will be mining the remaining ore from cut-backs 14A and 14B and begin stripping campaigns
on cut-backs 15, 16 and 17. The costs to remove waste and ice 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 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 2013, ore from cut-backs 14A, 14B and 15 will be mined
resulting in the amortization through cost of sales of $291 million in capitalized stripping costs. As Kumtor completes
mining of the ore from cut-backs 14A and 14B, it will amortize the remaining unamortized capitalized stripping
costs of $101 million related to those cut-backs. The forecast assumes that the stripping campaign for cut-back 15 is
completed in the third quarter of 2013 providing access to the ore in the third and fourth quarters. As the ore in
cut-back 15 is mined in the third and fourth quarters, the amortization expense for 2013 for the capitalized stripping
costs related to cut-back 15 is forecast at $190 million.
Boroo
At Boroo, the forecast for 2013 DD&A expensed as part of costs of sales is $17 million, compared to $21 million in
2012 and $10 million in 2011. The decrease in 2013 refl ects the completion of mining activities in Pit 6 in 2012. The
largest components of depreciation expense are related to depreciation of the mill, the administration buildings and
other assets forecasted at $6 million.
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 $2.2 million at the 2012 year-end foreign exchange rate) with a tax rate of 10%
for taxable income up to that amount. These tax rates will continue to apply until the expiry of the Boroo Stability
Agreement in July 2013, after which Boroo’s operations will be subject to a prevailing income tax rate of 25%. Royalty
fees will increase from 5% under Boroo’s Stability Agreement to the current graduated royalty fee structure which
would charge the maximum of 10% based on current gold prices.
Centerra_Financials.indd 59
Apr/01/2013 1:28 PM
2012 ANNUAL REPORT 59
Sensitivities:
Centerra’s revenues, earnings and cash fl ows for 2013 are sensitive to changes in certain variables and the Company
has estimated their impact on revenues, net earnings and cash from operations.
Impact on
Earnings before
($ millions)
Gold Price
Diesel Fuel (1)
Kyrgyz som (2)
Mongolian tugrik (2)
Canadian dollar (2)
Change
Costs
Revenues
Cash fl ow
income tax
$ 50 per ounce
10%
1 som
25 tugrik
10 cents
5.1
8.2
2.8
1.3
3.2
32.5
–
–
–
–
27.4
8.2
2.8
1.3
3.2
27.4
8.2
2.8
1.3
3.2
(1) a 10% change in diesel fuel price equals $13 per ounce produced
(2) appreciation of currency will result in higher costs and lower cash fl ow and earnings, depreciation of currency results in decreased costs and increased cash fl ow
and earnings
Material Assumptions & Risks:
Material assumptions or factors used to forecast production and costs for 2013 include the following:
• a gold price of $1,700 per ounce,
• exchange rates:
g $1USD:$0.99 CAD
g $1USD:47.0 Kyrgyz som
g $1USD:1,375 Mongolian tugriks
g $1USD:0.78 Euro
• diesel fuel price assumption:
g $0.80/litre at Kumtor
g $1.18/litre at Boroo
The assumed diesel price of $0.80/litre at Kumtor assumes that no Russian export duty will be paid on the fuel
exports from Russia to the Kyrgyz Republic. Diesel fuel is sourced from separate Russian suppliers for both sites and
only loosely correlates with world oil prices. The diesel fuel price assumptions were made when the price of oil was
approximately $87 per barrel.
Other material assumptions include the following:
• any recurrence of political or civil unrest in the Kyrgyz Republic will not impact operations, including
movement of people, supplies and gold shipments to and from the Kumtor mine. No assurances can be
given by the Company in this regard,
• the activities of the State Commission, referred to under the heading “Other Corporate Developments –
Kyrgyz Republic – State Commission Activities” do not have an impact on operations or fi nancial results.
No assurances can be given by the Company in this regard,
• the Government and the Parliament of the Kyrgyz Republic taking no action in connection with the matters
referred to under the heading “Other Corporate Developments – Kyrgyz Republic State Commission Activities”
that has an impact on operations or fi nancial results. This includes the Parliament adopting the Draft
Resolution referred to therein, and the Government (or a working group formed by the Government) seeking
to negotiate the Kumtor Project Agreements, and taking the steps referred to in the Parliamentary Draft
Resolution if such negotiations are not successful, including repealing laws passed in 2009 approving the
Kumtor Project Agreements and terminating the Kumtor Project Agreements. No assurances can be given
by the Company in this regard,
• the previously disclosed environmental claims received from the Kyrgyz regulatory authorities in the amount
of $152 million, in aggregate, and any further claims that may result from the State Commission, are resolved
without material impact on Centerra’s operations or fi nancial results. No assurances can be given by the
Company in this regard,
• grades and recoveries at Kumtor will remain consistent with the life-of-mine plan to achieve the forecast
gold production,
60 CENTERRA GOLD INC.
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• the Company is able to manage the risks associated with the increased height of the pit walls at Kumtor over
the life-of-mine,
• the design of the new and expanded waste dumps (contemplated by the new KS-13 life-of-mine plan) at
Kumtor adequately address the risks associated with size and stability,
• the dewatering program at Kumtor continues to produce the expected results and the water management
system works as planned,
• the Company is able to satisfactorily manage the ice movement and to unload the ice and waste in the
southeast portion of the Kumtor pit,
• prices of key consumables are not signifi cantly higher than prices assumed in planning,
• no unplanned delays in or interruption of scheduled production from our mines, including due to civil unrest,
natural phenomena, regulatory or political disputes, equipment breakdown or other developmental and
operational risks,
• the Mongolian legislation which prohibits mineral prospecting, exploration and mining in water basins and
forest areas in Mongolia (the “Water and Forest Law”) will be amended or repealed to allow Gatsuurt to
proceed as planned, (see Company’s most recently fi led AIF),
• the royalty paid by Boroo increases to 10% after the Boroo stability agreement expires in July 2013 and the
current 25% income tax rate remains unchanged, 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 and the market price of Centerra’s shares
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, results of operations or cash fl ows and the market price of Centerra’s shares. See the
section entitled “Risk Factors” in this discussion and also the Risk Factors listed in the Company’s most recently fi led
Annual Information Form (the “2011 Annual Information Form”), available on SEDAR at www.sedar.com and see
also the discussion below under the heading “Caution Regarding Forward-looking Information”.
QUALIFIED PERSON & QA/QC
All exploration information and related scientifi c and technical information in this MD&A 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 prepared, reviewed, verifi ed
and compiled by Centerra’s geological and mining staff under the supervision of David Groves, Certifi ed Professional
Geologist, Centerra’s 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 fi led on December 20,
2012, with an effective date of September 30, 2012 (the “Kumtor Technical Report”).
All reserve and resource estimates, production information and other related scientifi c and technical information
in this MD&A were prepared in accordance with the standards of the Canadian Institute of Mining, Metallurgy and
Petroleum and NI 43-101 and were prepared, reviewed, verifi ed and compiled by Centerra’s geological and mining
staff under the supervision of Dan Redmond, Ontario Professional Geoscientist, Centerra’s Director, Technical
Services – Mining, 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 December 20,
2012 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.
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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.
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.
RISK FACTORS
Below are the 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.
Political and Regulatory
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 certifi cate of temporary land use in relation to its concession area around the Kumtor
project, which was issued in 2010 and then purported to have been cancelled in 2012, 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.
The Company does not currently have political risk insurance covering its investments in the Kyrgyz Republic
nor in Mongolia. The political risk insurance policy that covered the Company’s investments in the Kyrgyz Republic
expired in November, 2012. From time-to-time, Centerra assesses the costs and benefi ts of maintaining such
insurance. Recent increases in the political risk in the Kyrgyz Republic combined with adverse insurance market
conditions for political risk insurance for this region resulted in conditions whereby continuing political risk
insurance coverage was not feasible. There can be no assurance that political risk 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 any insurance that it may obtain in the future. Any such 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.
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Resource nationalism could adversely impact Centerra’s business
As governments continue to struggle with defi cits and concerns over the effects of depressed economies, the
continuing strength in commodity prices has resulted in companies in the mining and metals sector being targeted to
raise government revenue. Governments are continually assessing the fi scal terms of the economic rent for mining
companies to exploit resources in their countries. Numerous countries, including the Kyrgyz Republic and Mongolia,
have in the past introduced changes to their respective mining regimes that refl ect increased government control
or participation in the mining sector, including, but not limited to, changes of law affecting foreign ownership,
mandatory government participation, taxation and royalties, working conditions, exchange rates, exchange controls,
exploration licensing, export and import duties, repatriation of income or return of capital, environmental protection,
as well as requirements for employment of local staff or contractors or other benefi ts to be provided to local residents.
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
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.
The Kumtor project has, in the past year, been threatened with nationalization. During 2012, a Parliamentary
Commission proposed to the Kyrgyz Parliament a Draft Decree which called for the cancellation of the current
Kumtor project agreements and the creation of a new state-owned Kyrgyz Republic entity to assume control over
Kumtor. If the Draft Decree had been approved and given full effect by the Kyrgyz Government, it would have, in
substance, resulted in the nationalization of Kumtor. In late June 2012, the Kyrgyz Parliament met to consider the
Parliamentary Report from the Parliamentary Commission, but voted against the Draft Decree and instead adopted
an alternative resolution (2117-V). See below for further discussion on Resolution 2117-V. Although the Draft Decree
was not adopted by the Kyrgyz Parliament, there can be no assurance that subsequent resolutions will be brought
before, or adopted by, the Kyrgyz Parliament to nationalize Kumtor.
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
and its ability to achieve operating and development targets.
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The Kyrgyz Government and Parliament may take actions in connection with the State Commission Report
On February 15, 2012, the Kyrgyz Parliament established an interim Parliamentary Commission to inspect and
review: (i) Kumtor’s compliance with Kyrgyz operational and environmental laws, as well as community standards,
and (ii) state regulation over the Kumtor project’s activities.
The Parliamentary Commission issued a Parliamentary Report on June 18, 2012 and made a number of assertions
regarding the operation of the Kumtor project, including:
• challenging the legal validity of the project agreements that govern the Kumtor project (the “Kumtor Project
Agreements”);
• alleging non-compliance by Kumtor with Kyrgyz environmental and other laws, particularly at Kumtor’s tailings
facility, the Davidov glacier and the Sarychat-Ertash State Reserve which is in the vicinity of the Kumtor project.
The Parliamentary Commission alleges that the violations have resulted in substantial monetary damages; and
• alleging ineffi cient or improper management of Kumtor, particularly with respect to customs practices, tax and
Social Fund payments, operational decisions, procurement practices and mill effi ciencies (gold recoveries), the
latter of which is alleged by the Parliamentary Commission to result in very substantial losses.
The Kyrgyz Parliament met in late June 2012 to consider the Parliamentary Report and adopted Resolution 2117-V,
which took note of the Parliamentary Report and declared the current Kumtor Project Agreements to be contrary
to the interests of the Kyrgyz Republic. Resolution 2117-V also: (i) called for the formation of a state commission
to “assess the environmental, industrial and social damage” caused by the Kumtor project and to initiate the
renegotiation of the current Kumtor Project Agreements “in order to protect economic and environmental interests”;
(ii) called for the cancellation of various government decrees and orders, including Government Decree #168
dated March 25, 2010 which provided land use rights over the surface of the Kumtor concession area; and
(iii) recommended that the State Agency for Geology and Mineral Resources cancel certain licenses granted to
Kumtor, including the exploration license for the Koendy licensed area.
In response to Resolution 2117-V, the Kyrgyz Government established a state commission (the State Commission)
for the purpose of reviewing the Parliamentary Report as well as inspecting and reviewing Kumtor’s compliance with
Kyrgyz operational and environmental laws and community standards. The State Commission is comprised of three
working groups with responsibility for environmental and mining matters, legal matters (including a review of all
prior and current agreements relating to the Kumtor project) and socio-economic matters (including a review of
fi nancial, taxation, procurement and employment related issues). Since its formation on July 3, 2012, the State
Commission’s working groups have visited the Kumtor mine site and made numerous requests for information on a
wide variety of matters. The State Commission was provided with an extension until mid-November 2012 to complete
its review and produce a report.
In December 2012, the State Commission issued its fi nal report (the “State Commission Report”), which included
a large number of allegations in regard to prior transactions relating to the Kumtor Project and the Kumtor Project’s
operations and management, including
(i) that the Kumtor Project violated Kyrgyz Republic legislation relating to corporate, environment, and subsoil
legislation at various times since project activities began in 1993, including allegations relating to the tender
process for the deposit in 1993, the approval process for the initial development of the Kumtor Project, the
placing of waste rock on glaciers, and causing environmental damage to water and land resources in the area
of the Kumtor Project;
(ii) that the Kumtor management is ineffective;
(iii) that incorrect valuation of assets occurred during the 2003/2004 restructuring process, which purportedly led
to signifi cant losses sustained by the Kyrgyz Republic; and
(iv) that the Kumtor Project Agreements adopted in 2009 were improperly approved and violate the Kyrgyz
Republic constitution.
The State Commission Report recommends that the Kyrgyz Government open negotiations under which the Kumtor
Project is governed, including requiring Kumtor to accept the current tax regime and pay higher environmental
charges; changes in the management of Kumtor and Centerra including greater representation by Kyrgyzaltyn on the
Centerra board of directors and greater representation of Kyrgyz citizens in management of the Kumtor Project; and
recommendations for additional charges and fees to be paid by the Kumtor Project including for land use, and for
those items raised by SIETS. See “Other Corporate Developments – Kyrgyz Republic – State Commission Activities –
Kumtor Has Received Claims from Kyrgyz Authorities for Alleged Environmental Violations”.
64 CENTERRA GOLD INC.
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The Kyrgyz Government received the State Commission Report and issued a decree dated January 24, 2013, #34
(“Decree #34”), accepting the State Commission Report and sending it to the Kyrgyz Parliament. Pursuant to Decree
#34, the Kyrgyz Government also established a working group to hold discussions on the revisions of terms
governing the Kumtor Project, particularly on revisions to the tax regime and other matters identifi ed in the State
Commission Report.
On February 20, 2013, the Parliament of the Kyrgyz Republic debated the State Commission Report and discussed
a draft resolution (the “Draft Resolution”) that endorses the State Commission Report and calls on the Government
to hold negotiations with Centerra with a view to revising the Kumtor Project Agreements in the interests of the
Kyrgyz Republic. The Company understands that the Draft Resolution further recommends that if mutually
advantageous terms cannot be agreed, the Government should take a number of steps including the following:
(i) annul the legislation enacted by Parliament in 2009 approving the Kumtor Project Agreements;
(ii) terminate the Kumtor Project Agreements, including the Restated Investment Agreement and Restated
Concession Agreement dated June 6, 2009;
(iii) initiate legal proceedings with a view to implementing a Government decree of July 5, 2012 “On Cancellation
of the Government’s Decree on granting land plots to Kumtor Gold Company CJSC dated as of March 25, 2010.
(Such March 25, 2010 decree granted Kumtor certain surface rights in relation to the project. See Centerra’s
news release dated July 6, 2012.);
(iv) review Government decisions issued between 1992 and 2012 which granted areas for carrying out
exploration, mining operations and construction of facilities for the Kumtor Project; and
(v) develop and submit amendments to laws on biosphere territories and prevention of damage to glaciers.
The Draft Resolution also recommends that the Government review allegations that Kumtor has understated
reserves of silver, tellurium and other elements.
The Draft Resolution calls for the Government to report on the fulfi llment of the recommendations contained
in the State Commission Report and the Parliamentary resolution by June 1, 2013. While it is not certain that
Parliament will pass the Draft Resolution in its current form, Centerra is reviewing the provisions of the Draft
Resolution and will respond to any fi nal Parliamentary resolution accordingly.
While Centerra believes that the fi ndings of the State Commission Report are without merit and that the Kumtor
Project Agreements between Centerra and the Kyrgyz Republic are legal, valid and enforceable obligations, there can
be no assurance that the Company will be able to successfully resolve any or all of these matters currently affecting
the Kumtor Project. There can also be no assurances that the Kyrgyz Republic Government and/or Parliament will
not take actions that are inconsistent with the Kyrgyz Republic obligations under the Kumtor Project Agreements or
cancel government decrees, orders or licenses under which Kumtor currently operates. Any such actions could have
a material adverse impact on the Company’s future cash fl ows, earnings, results of operations and fi nancial condition.
See “Other Corporate Developments – Kyrgyz Republic – State Commission Activities” for additional information
regarding the State Commission.
The purported cancellation of Kumtor’s land use rights could adversely impact the Kumtor operations
As contemplated in Resolution 2117-V, on July 5, 2012 the Kyrgyz Government cancelled Government Decree #168,
which provided Kumtor with land use rights over the surface of the Kumtor concession area for the duration of the
Restated Concession Agreement. A related land use certifi cate issued by the local land offi ce was also cancelled.
In the third quarter of 2012, Kumtor requested the issuance of a new land use certifi cate pursuant to the
Restated Investment Agreement dated June 6, 2009 between Centerra and the Kyrgyz Republic. Under the Restated
Investment Agreement, the Kumtor project is guaranteed all necessary access to the Kumtor concession area,
including all surface lands as is necessary or desirable for the operation of the Kumtor project. The Restated
Investment Agreement also provides that the Kyrgyz Government shall use its best efforts to reserve or cancel any
action that confl icts with the Company’s rights under that agreement.
Although Centerra believes, based on advice from Kyrgyz legal counsel, that the purported cancellation of
Kumtor’s land rights is in violation of the Kyrgyz Republic Land Code and the Restated Investment Agreement,
there can be no assurance that cancellation of Kumtor’s land rights will not be upheld and enforced by the Kyrgyz
Government. If Kumtor’s land rights are cancelled, it could have an adverse impact on Centerra’s future cash fl ows,
earnings, results of operations and fi nancial condition.
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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 including the ARO licenses are currently not so exempt.
The revocation of the Company’s mining or exploration licenses in Mongolia under the Water and Forest Law
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 government of Mongolia has the right to take up to a 51% interest in certain mineral deposits
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 51% 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.
The designation of any of the Company’s mineral deposits in Mongolia as deposits of strategic importance under
the Minerals Law and a decision by the Mongolian Government to take an interest in any of Centerra’s deposits
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 royalty payment for Centerra’s Mongolian operations may increase signifi cantly
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 US 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 (until July 2013), but Centerra’s Gatsuurt project and its ATO
deposit do not have any such benefi ts.
Centerra was previously 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. However, 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 if
the Water and Forest Law matters were 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.
66 CENTERRA GOLD INC.
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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 Company’s operations at the Boroo project have been subject to 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 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 January 2012, these issues were resolved and Centerra paid a settlement of approximately $2.6 million
in response to claims for compensation received by the SSIA.
The SSIA inspections in 2009 also 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. Mongolian regulatory approval for the mine plan for Boroo’s heap leach facility was
not granted until September 19, 2012, at which time heap leach operations resumed at Boroo.
Although issues arising from the SSIA inspections in 2009 have been resolved and Mongolian regulatory approvals
have been received for Boroo’s heap leach facility, there can be no assurance that future scrutiny from Mongolian
regulatory authorities, or delay in permitting or licensing aspects of the Boroo project, will not occur. Such
developments could have an adverse impact on Centerra’s future cash fl ows, earnings, results of operations, stated
mineral reserves and fi nancial condition.
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. Local regulatory
regimes in the Kyrgyz Republic and Mongolia may be infl uenced by increased local community concern in respect
of the environmental footprint of mining operations as well as concerns over the management of water resources.
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.
See “Other Corporate Developments – Kyrgyz Republic – State Commission Activities” for recent environmental
claims in respect of the Kumtor Project.
Centerra may not be able to successfully negotiate an investment agreement for 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.
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Centerra may not be able to obtain all necessary permits and commissions for Gatsuurt
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.
OPERATIONAL
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
Continued movement of waste and ice from the Southeast Ice Wall into the Kumtor Central pit above the high
grade SB Zone section requires the mining of ice and waste to maintain Centerra’s planned production of ore. While
management has developed a plan to manage this movement (which plans have seen positive results in 2011 and
in 2012), there is no guarantee that these efforts will avert further negative impact on the Company’s expected
production, costs and earnings.
During 2012, a substantial acceleration of ice and waste movement, which was exacerbated by a 10-day illegal
strike which occurred in early February 2012, required Centerra to revise its mine plan to maintain safe access to the
Kumtor Central pit. Under the new mine plan, mining of cut-back 12B, where ore for the second quarter of 2012 was
to be released, was stopped to permit stripping of ice and waste in the southwest portion of the pit (cut-back 14B)
and unloading of ice and waste material from the High Movement Area to provide access to the southeast section of
the Kumtor Central pit. The changes to the mine plan and the delayed release of ore from cut-back 12B resulted in a
seven week shutdown of the Kumtor mill and required Centerra to revise its 2012 production and
cost guidance.
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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 and surrounding infrastructure 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.
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.
Gold mining is subject to a number of operational 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;
• supply chain disruptions;
• electrical power interruptions;
• mechanical and electrical equipment failure;
• changes in the regulatory environment;
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2012 ANNUAL REPORT 69
• 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.
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.
Centerra may not be adequately insured for certain risks
Although Centerra maintains insurance to cover some of the operational risks and hazards in amounts it believes to
be reasonable, 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 may experience mechanical breakdowns
Centerra’s gold production operations at Kumtor and Boroo use expensive, large mining and processing equipment
that requires a long time to procure, build and install. Although Centerra conducts extensive maintenance programs
at Kumtor and Boroo, there can be no assurance that it will not experience mechanical breakdowns of mining and
processing equipment.
In the past, Centerra has experienced such mechanical breakdowns. 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 shutdown 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.
In May 2011, Boroo experienced a failure of the SAG mill exciter that resulted in interruption to production for
a period of nine days and reduced production for a further three weeks. Equipment specialists were brought in to
assist in repairs, and spare components were purchased. In December 2012, Boroo experienced a failure of the SAG
mill motor resulting in a two-day interruption to production before a plan to bypass the SAG mill was implemented.
Boroo is continuing to work on risk prevention and mitigation actions in this regard.
Any extended breakdown in mining or processing equipment could have an adverse impact on Centerra’s future
cash fl ows, earnings, results of operations and fi nancial conditions.
There is currently a capacity shortfall of the tailings management facility at Kumtor
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 93 million tonnes of ore to be processed in the current life-of-mine plan. The capacity shortfall
of approximately 50 million tonnes of ore or 33 million cubic metres of tailings will require further raising of the
existing tailings dam beyond the 3,670.5 metres elevation, or the construction of an additional tailings facility to
be completed prior to 2020.
70 CENTERRA GOLD INC.
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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.
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’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 2023, with milling operations concluding in 2026. At Boroo, mining
ceased as of the end of November 2010, and at the current reserve gold price assumption of US$1,350 per ounce,
the Boroo operation can continue to feed the mill from stockpiles for approximately 2 more years and operate and
recover gold from the heap leach through 2014.
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 and ATO deposits in Mongolia, there can be no assurance that these programs will be successful.
Both the Kumtor Project and the Boroo Projects are unionized and may be subject to 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 will continue in effect until
December 31, 2014. At Boroo, the collective bargaining agreement expires on June 30, 2014. There can be no
assurance that, when such agreements expire, 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. 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.
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. On February 6, 2012, unionized employees at the Kumtor
Project began a 10-day illegal strike during which operations at the mine were suspended. The illegal work stoppage
related to a dispute regarding social fund deductions, which resulted in higher labour costs of approximately
$2 million (for 2012). Existing collective agreements may not prevent a strike or work stoppage, and any such work
stoppage could have a material adverse impact on Centerra.
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.
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2012 ANNUAL REPORT 71
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, each of Kumtor and Boroo use 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.
Centerra’s operations may be impacted by supply chain disruptions
Centerra operations depend on uninterrupted supply of key consumables, equipment and components. Both the
Kyrgyz and Mongolian operations are limited with respect to alternative suppliers of fuel, and any disruption at
supplier facilities could result in curtailment or suspension of operations. In addition, major equipment and
components and certain key consumables are imported, and any disruption in the transportation of these goods
or the imposition of customs clearance requirements may result in production delays.
Illegal mining has occurred and may continue to occur, on Centerra’s Mongolian properties
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 faces substantial decommissioning and reclamation costs
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’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. Further, the uncertainty surrounding Centerra’s ability to develop the Gatsuurt deposit and
prolong operations in Mongolia has increased the risk of personnel departures. This risk is heightened by the
increased presence of new companies in the country seeking qualifi ed personnel.
72 CENTERRA GOLD INC.
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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.
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. This may be particularly the case when we are not operating
the joint venture. 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.
FINANCIAL
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 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 and the assumptions such estimates rely on 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.
2012 ANNUAL REPORT 73
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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 ore bodies
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, and civil action. 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.
Restrictive covenants in Centerra’s revolving credit facility may prevent the Company from pursuing
business activities
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 to the extent required to repay those borrowings.
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, reduced global fi nancial liquidity, and increased restrictions on
capital reserves of fi nancial institutions, 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.
74 CENTERRA GOLD INC.
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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. These factors may also increase the Company’s
exposure to fi nancial counterparty risk. 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.
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 in Canada; 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.
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2012 ANNUAL REPORT 75
ENVIRONMENT, HEALTH AND SAFETY
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 activities,
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
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.
The Kumtor project is subject to signifi cant claims of environmental damage
In December 2012, Centerra received fi ve claims from SEITS, the State Inspectorate Offi ce for Environmental and
Technical Safety under the Government of the Kyrgyz Republic, relating to alleged environmental damages at the
Kumtor project. The claims are for an aggregate amount of approximately $152 million and include:
• a claim for approximately $142 million for alleged damages in relation to the placement on waste dumps of
waste rock from mining operations (2000 to date)
• a claim for approximately $4 million for use of water resources for the period of 2000 to date
• a claim for approximately $2.8 million for waste placed in the tailings management facility and for emissions
for 2009–2011, which claim has since been withdrawn; and
• a claim for approximately $2.3 million for alleged damages caused to land resources at the time of initial
construction of Kumtor.
In addition, Centerra also received a directive from SEITS requiring that actions be taken to correct various alleged
environmental and technical violations discovered in its review.
While Centerra believes that the allegations contained in SEITS’ claims are exaggerated or without foundation
and are subject to the Release Agreement between Centerra and the Kyrgyz Republic dated June 6, 2009, there can be
no assurance that the claims of environmental damage from SEITS will not be upheld and enforced. If such claims
should be upheld and enforced against Centerra, it could have an adverse impact on our future cash fl ows, earnings,
results of operations and fi nancial condition. In addition, additional claims for alleged environmental violations
may be forthcoming.
Centerra’s heap leach operations could unintentionally discharge hazardous materials, such as
sodium cyanide, into the environment
The Kumtor and Boroo operations employ sodium cyanide, which is a hazardous material, to extract gold from ore.
In addition, the Boroo operation uses heap leaching as a means of applying sodium cyanide to gold-bearing ore and
collecting the resulting gold-bearing solution. There is inherent risk of unintended discharge of hazardous materials
in the operation of leach pads.
Should sodium cyanide escape from the leach pad and collection infrastructure at Boroo, otherwise be detected
in the downstream surface and ground water points, or be spilled during transport, Centerra may become subject
to liability for remediation costs, which could be signifi cant and may not be insured against. In addition, production
could be delayed or halted to allow for remediation, resulting in a reduction or loss of cash fl ow for the Company.
While Centerra takes appropriate steps to prevent discharges and spills of sodium cyanide and other hazardous
materials into the ground water, surface water and the downstream environment, there is inherent risk in the
operation of leach pads and there can be no assurance that a release of hazardous materials will not occur.
76 CENTERRA GOLD INC.
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LEGAL AND OTHER
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
categories 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$11.2 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 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 July 5, 2012, the Kyrgyz Government cancelled Government Decree #168, which provided Kumtor with land
use (surface) rights over the Kumtor Concession Area for the duration of the Restated Concession Agreement. At
the same time, the related land use certifi cate issued by the local land offi ce was also cancelled. Based on advice
from Kyrgyz legal counsel, Centerra believes that the purported cancellation of our land use rights is in violation
of the Kyrgyz Republic Land Code, because the Land Code provides that land rights can only be terminated
by court decision and on the listed grounds set out in the Land Code. To the extent that the land use rights are
considered invalid (which we do not accept), the Company would seek to enforce its rights under the Restated
Investment Agreement to obtain the reissuance of its land use rights, which are guaranteed pursuant to the
Restated Investment Agreement.
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.
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.
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.
2012 ANNUAL REPORT 77
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Centerra’s largest shareholder is a state-owned entity of the Kyrgyz Government
Centerra’s largest shareholder is Kyrgyzaltyn, which is a state-owned entity, 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, through its ownership
and control of Kyrgyzaltyn, will not use its infl uence 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.
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 successful resolution of matters in the Kyrgyz
Republic relating to the State Commission Report, including discussions with the Government working group
formed to open negotiations on the Kumtor Project Agreements, the Kyrgyz Republic Parliament consideration
of the Draft Resolution referred to under the heading “Other Corporate Developments – Kyrgyz Republic – State
Commission Activities – Parliament Review and Draft Resolution”, the resolution of environmental claims for the
aggregate amount of $152 million; statements made under the heading, “Gold Industry, Key Economics and Recent
Market Uncertainty” regarding expectations in the gold industry, investor demand, and global fi nancial markets;
statements made under the heading “2013 Outlook”, including the Company’s future production, estimates
of operating cash costs and all-in unit cash costs, exploration expenditures and the success thereof, capital
expenditures; mining plans at each of the Company’s operations; the continued success with the management
of the ice, waste and water movements at Kumtor; the outcome of discussions with the new Mongolian government
on the way forward for the Company’s Gatsuurt deposit, the impact of the Water and Forest Law on the Company’s
Mongolian activities; 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 “2013 Outlook”. Factors that could cause actual
results or events to differ materially from current expectations include, among other things: (A) political and
regulatory risks, including the political risks associated with the Company’s principal operations in the Kyrgyz
Republic and Mongolia, resource nationalism, the impact of changes in, or to the more aggressive enforcement of,
laws, regulations and government practices in the jurisdictions in which the Company operates, the impact of any
actions taken by the Kyrgyz Republic Government and Parliament as a result of the Kyrgyz State Commission on
78 CENTERRA GOLD INC.
Centerra_Financials.indd 78
Apr/01/2013 1:28 PM
Kumtor, any impact on the purported cancellation of Kumtor’s land use rights at the Kumtor Project, the effect of the
Water and Forest Law on the Company’s operations in Mongolia, the effect of the 2006 Mongolian Minerals Law on
the Company’s Mongolian operations, the effect of the November 2010 amendments to the 2006 Mongolian Minerals
Law on the royalties payable in connection with the Company’s Mongolian operations, the impact of continued
scrutiny from Mongolian regulatory authorities on the Company’s Boroo project, 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 successfully negotiate an investment agreement for the Gatsuurt project to complete the development of
the mine and the Company’s ability to obtain all necessary permits and commissions needed to commence mining
activity at the Gatsuurt project; (B) risk related to operational matters, including the waste and ice movement at the
Kumtor Project and the Company’s continued ability to successfully manage it, the occurrence of further ground
movements at the Kumtor Project, the success of the Company’s future exploration and development activities,
including the fi nancial and political risks inherent in carrying out exploration activities, the adequacy of the
Company’s insurance to mitigate operational risks, mechanical breakdowns, the Company’s ability to obtain the
necessary permits and authorizations to raise the tailings dam at the Kumtor Project to the required height, the
Company’s ability to replace its mineral reserves, the occurrence of any labour unrest or disturbance and the ability
of the Company to successfully re-negotiate collective agreements when required, 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, reliance on a limited number of suppliers for
certain consumables, equipment and components, illegal mining on the Company’s Mongolian properties, the
Company’s ability to accurately predict decommissioning and reclamation costs, the Company’s ability to attract
and retain qualifi ed personnel, competition for mineral acquisition opportunities, and risks associated with the
conduct of joint ventures; (c) risks relating to fi nancial matters including the sensitivity of the Company’s business
to the volatility of gold prices, the imprecision of the Company’s mineral reserves and resources estimates and the
assumptions they rely on, the accuracy of the Company’s production and cost estimates, the impact of restrictive
covenants in the Company’s revolving credit facility which may, among other things, restrict the Company from
pursuing certain business activities, the Company’s ability to obtain future fi nancing, the impact of global fi nancial
conditions, the impact of currency fl uctuations, the effect of market conditions on the Company’s short-term
investments, the Company’s ability to make payments including any payments of principal and interest on the
Company’s debt facilities depends on the cash fl ow of its subsidiaries; and (d) risks related to environmental and
safety matters, including the ability to continue obtaining necessary operating and environmental permits, licenses
and approvals, the impact of the signifi cant environmental claims made in December 2012 relating to the Kumtor
Project, inherent risks associated with using sodium cyanide in the mining operations; legal and other factors such
as litigation, defects in title in connection with the Company’s properties, the Company’s ability to enforce its legal
rights, risks associated with having a signifi cant shareholder, 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.
2012 ANNUAL REPORT 79
Centerra_Financials.indd 79
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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. Inferred 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 20, 2013. 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.
80 CENTERRA GOLD INC.
Centerra_Financials.indd 80
Apr/01/2013 1:28 PM
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 82,
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:
Ian Atkinson
President and Chief Executive Offi cer
Jeffrey S. Parr
Vice President and Chief Financial Offi cer
February 20, 2013
Centerra_Financials.indd 81
Apr/01/2013 1:28 PM
2012 ANNUAL REPORT 81
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, 2012 and December 31, 2011 the consolidated
statements of earnings (loss) and comprehensive income (loss), shareholders’ equity and cash fl ows for the years
ended December 31, 2012 and December 31, 2011, 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, 2012 and December 31, 2011 and its consolidated fi nancial
performance and its consolidated cash fl ows for the years ended December 31, 2012 and December 31, 2011 in
accordance with International Financial Reporting Standards.
Toronto, Canada
February 20, 2013
Original signed by:
KPMG LLP
Chartered Accountants, Licensed Public Accountants
82 CENTERRA GOLD INC.
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Apr/01/2013 1:28 PM
Consolidated Statements of Financial Position
(Expressed in Thousands of United States Dollars)
NOTES
December 31
2012
December 31
2011
Assets
Current assets
Cash and cash equivalents
Short-term investments
Current portion of restricted cash
Amounts receivable
Inventories
Prepaid expenses
Property, plant and equipment
Goodwill
Restricted cash
Other assets
Long-term inventories
Total assets
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable and accrued liabilities
Short-term debt
Revenue-based taxes payable
Taxes payable
Current portion of provisions
Dividend payable
Provisions
Deferred income tax liability
Shareholders’ equity
Share capital
Contributed surplus
Retained earnings
Total liabilities and shareholders’ equity
Commitments and contingencies (note 27)
6
7
8
9
10
12
6
13
8
14
15
16(a)
16(b)
17
28
17
16(c)
26
$ 334,115
47,984
–
75,338
289,012
49,317
795,766
589,209
129,705
6,087
23,270
10,094
758,365
$ 1,554,131
$
63,940
74,617
18,643
5,180
5,257
167,637
5,949
49,911
1,808
57,668
660,420
36,243
632,163
1,328,826
$ 1,554,131
$ 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
The accompanying notes form an integral part of these consolidated fi nancial statements.
Approved by the Board of Directors
Original signed by:
Stephen Lang
Director
Richard Connor
Director
Centerra_Financials.indd 83
Apr/01/2013 1:28 PM
2012 ANNUAL REPORT 83
Consolidated Statements of Earnings (Loss)
and Comprehensive Income (Loss)
For the years ended December 31,
(Expressed in Thousands of United States Dollars,
except per share amounts)
Revenue from Gold Sales
Cost of sales
Abnormal mining costs
Mine standby costs
Regional offi ce administration
Earnings from mine operations
Revenue based taxes
Other operating expenses
Loss on de-recognition of underground assets
Exploration and business development
Corporate administration
Earnings (loss) from operations
Other (income) and expenses
Finance costs
Earnings (loss) before income tax
Income tax expense
NOTES
18
19
20
16(a)
21
10
22
23
24
25
16(b)
Net Earnings (loss) and comprehensive income (loss)
Basic and diluted earnings (loss) per common share
26
The accompanying notes form an integral part of these consolidated fi nancial statements.
2012
$ 660,737
387,470
60,881
4,585
21,042
186,759
74,697
34,280
180,673
38,531
27,046
(168,468)
(132)
3,978
(172,314)
11,684
$ (183,998)
$
(0.78)
2011
$ 1,020,344
382,295
–
213
21,321
616,515
131,750
15,471
–
42,894
44,902
381,498
(1,055)
3,545
379,008
8,130
$ 370,878
$
1.57
84 CENTERRA GOLD INC.
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Apr/01/2013 1:28 PM
Consolidated Statements of Cash Flows
For the years ended December 31,
(Expressed in Thousands of United States Dollars)
NOTES
2012
2011
Operating activities
Net (loss) earnings
Items not requiring (providing) cash:
Depreciation, depletion and amortization
Finance costs
Loss on disposal of equipment
Compensation expense on stock options
De-recognition of underground assets
Change in provisions
Income tax expense
Other operating items
Change in operating working capital
Change in long-term inventory
Revenue-based taxes advanced
Income taxes paid
Cash provided by operations
10
26(d)
10
17
32(a)
16(a)
Investing activities
Additions to property, plant and equipment
Net redemption (purchase) of short-term investments
32(b)
Increase in restricted cash
Increase in other assets
Proceeds from disposition of fi xed assets
Cash used in investing
Financing activities
Dividends paid
Payment of borrowing costs
Proceeds from short-term debt
Proceeds from common shares issued for cash
Cash provided by (used in) fi nancing
(Decrease) increase in cash during the year
Cash and cash equivalents at beginning of the year
$ (183,998)
$ 370,878
152,869
3,978
1,403
2,335
180,673
614
11,684
(673)
168,885
1,593
2,080
(30,000)
(7,838)
134,720
(366,423)
324,683
(5,908)
(1,070)
79
(48,639)
(22,238)
(1,416)
76,000
149
52,495
138,576
195,539
98,840
3,545
1,305
1,759
–
–
8,130
(2,430)
482,027
(44,150)
703
–
(3,657)
434,923
(175,155)
(290,389)
(616)
(7,375)
19
(473,516)
(99,322)
(630)
–
3,347
(96,605)
(135,198)
330,737
Cash and cash equivalents at end of the year
$ 334,115
$ 195,539
Cash and cash equivalents consist of:
Cash
Cash equivalents
$
51,675
282,440
$ 334,115
$
75,193
120,346
$ 195,539
The accompanying notes form an integral part of these consolidated fi nancial statements.
Centerra_Financials.indd 85
Apr/01/2013 1:28 PM
2012 ANNUAL REPORT 85
Consolidated Statements of Shareholders’ Equity
(Expressed in Thousands of United States Dollars,
except share information)
Balance at January 1, 2011
Share-based compensation expense
Shares issued on exercise of stock options
Dividend declared
Net earnings for the period
Balance at December 31, 2011
Share-based compensation expense
Shares issued on exercise of stock options
Shares issued on redemption of
restricted share units
Dividend declared
Net loss for the period
Number of
Common
Shares
235,869,397
–
469,644
–
–
Share
Capital
Amount
$ 655,178
–
4,939
–
–
236,339,041
–
30,752
$ 660,117
–
235
Contributed
Surplus
Retained
Earnings
Total
$
$
33,827
1,759
(1,592)
–
–
33,994
2,335
(86)
$ 572,792
–
–
(99,322)
370,878
$ 1,261,797
1,759
3,347
(99,322)
370,878
$ 844,348
–
–
$ 1,538,459
2,335
149
6,218
–
–
68
–
–
–
–
–
–
(28,187)
(183,998)
68
(28,187)
(183,998)
Balance at December 31, 2012
236,376,011
$ 660,420
$
36,243
$ 632,163
$ 1,328,826
The accompanying notes form an integral part of these consolidated fi nancial statements.
86 CENTERRA GOLD INC.
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Apr/01/2013 1:28 PM
Notes to the Consolidated Financial Statements
For the years ended December 31, 2012 and December 31, 2011
(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’s common shares are listed on the Toronto Stock Exchange (“TSX”). The Company is
domiciled in Canada and the registered offi ce is located at 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 and the Russian Federation.
2. BASIS OF PREPARATION AND STATEMENT OF COMPLIANCE
a. Statement of Compliance
These consolidated fi nancial statements of the Company and its subsidiaries are prepared in accordance with
International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards
Board (“IASB”).
These fi nancial statements were authorized for issuance by the Board of Directors of the Company on
February 20, 2013.
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 or net
realizable value.
These fi nancial statements are presented in U.S. dollars with all amounts rounded to the nearest thousands,
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.
a. Consolidation principles
These consolidated fi nancial statements include the accounts of Centerra, its subsidiaries, and its proportionate
ownership of joint ventures. 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.
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 joint ventures 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), seventy percent interest in the Kara Beldyr Russian
joint venture and seventy percent interest in the Öksüt Turkish joint venture.
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2012 ANNUAL REPORT 87
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 (Loss) and Comprehensive Income (Loss).
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 Statements of Cash Flows. 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 its use is classifi ed separately as restricted cash.
e. Short-term investments
Short-term investments consist of marketable securities with original 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 gold 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 assets.
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 the cost of stockpiles based on the current mining cost per ounce mined and removed
at the average cost per ounce of the stockpiled ore. Costs are added to the costs of ore on the heap leach pads based
on average cost per ounce of stockpiled ore plus additional costs incurred to place ore on the heap leach pad. Costs
of ore on the heap leach pads are transferred to in-circuit inventories 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.
In-circuit inventories represent materials that are in the process of being converted to a gold doré. 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.
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 to sell.
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.
88 CENTERRA GOLD INC.
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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 operation as 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 de-recognized upon disposal or when no further future
economic benefi ts are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset
(calculated as the difference between any proceeds received and the carrying amount of the asset) is included
in profi t or loss in the year the asset is de-recognized.
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 expenditures are 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.
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.
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.
Development properties are not amortized 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, in-pit
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.
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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
the 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 losses. 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 proportionate share of the
recognized amounts of the identifi able net assets recognized at acquisition.
Goodwill, upon acquisition, is allocated to the cash-generating units (“CGU”) expected to benefi t from the
related business combination. 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 to which goodwill is 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 (“FVLCS”)) of the CGU 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.
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 which the Company typically estimates 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.
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.
90 CENTERRA GOLD INC.
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i. Impairment
Long-term assets are reviewed for impairment if there is any indication that the carrying amount may be impaired.
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 comprises current and deferred tax. Current tax and deferred tax is recognized in profi t or loss
except to the extent that it relates to a business combination, or items recognized directly in equity or in other
comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates
enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous
years. Current tax payable also includes any tax liability arising from the declaration of dividends, withholding taxes
payable and sales tax payable.
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and
liabilities for fi nancial reporting purposes and the amounts used for taxation purposes. Deferred tax is not
recognized for:
• temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business
combination and that affects neither accounting nor taxable profi t or loss;
• temporary differences related to investments in subsidiaries, associates and jointly controlled entities to the
extent that the group is able to control the timing of the reversal of the temporary differences and it is probable
that they will not reverse in the foreseeable future; and
• taxable temporary differences arising on the initial recognition of goodwill.
The measurement of deferred tax refl ects the tax consequences that would follow the manner in which the group
expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they
reverse, using tax rates enacted or substantively enacted at the reporting date.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and
assets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities,
but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be
realized simultaneously.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences to the
extent that it is probable that future taxable profi ts will be available against which they can be utilized. Deferred tax
assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related
tax benefi t will be realized.
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.
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2012 ANNUAL REPORT 91
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 re-measured 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 accretion of the discount is
recognized as a fi nance cost in the Statements of Earnings (Loss) and Comprehensive Income (Loss).
m. Depreciation and depletion
Mine buildings, plant and equipment used in production and mineral properties are depreciated or depleted using
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 using 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 net earnings (loss) per share is computed by dividing the net earnings (loss) applicable to common shares by
the weighted average number of common shares outstanding during the year.
Diluted net earnings (loss) per share is computed by dividing the net earnings (loss) 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
(loss) 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 (loss) per share computation.
In periods where the Company incurs a loss, diluted loss per share equals basic loss per share, as the inclusion of
any potentially dilutive instruments would be anti-dilutive.
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 consideration received, or to be received, in respect of the sale can be
reliably measured.
p. 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 26.
92 CENTERRA GOLD INC.
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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 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 to 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, a portion of the fair value of the performance share units is recognized at each reporting period
based on the pro-rated number of days the eligible employees are employed by the Company 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.
q. 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. 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 either fi nancial
liabilities measured at fair value through profi t or loss or other fi nancial liabilities.
Transaction costs associated with fi nancial assets and fi nancial liabilities carried at fair value through profi t or
loss 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.
i. Financial assets
Financial assets recorded at fair value through profi t or loss
Financial assets classifi ed as fair value 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 de-recognized or impaired.
2012 ANNUAL REPORT 93
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The Company’s amounts receivable and long-term receivables are classifi ed as loans and receivables. A
provision is recorded when the estimated recoverable amount of the loan or receivable is lower than the
carrying amount. The Company believes the carrying values of amounts receivable and long-term receivables
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 include fi nancial liabilities designated as
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 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 normally 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 or 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 or 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
immediately, or capitalized if directly attributable to a qualifying asset, over the period to maturity using the
effective interest method.
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 date of the
consolidated statement of fi nancial position date.
The Company’s trade and other payables and short-term debt 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, the reported amounts of assets and liabilities and disclosure of
commitments and contingent liabilities at the date of the fi nancial statements, and the reported amounts of
revenues and expenses during the reporting period. The determination of estimates requires the exercise of
judgment based on various assumptions and other factors such as historical experience, current and expected
economic conditions, and in some cases actuarial techniques. Actual results could differ from those 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 key sources of estimation uncertainty and judgments used in the preparation of these consolidated fi nancial
statements that have a signifi cant risk of causing a material adjustment to the carrying amounts of assets and
liabilities and earnings within the next fi nancial year, are discussed below:
i.
Share-based Compensation
Cash and equity-settled share-based payments are measured at fair value at the date of grant. The fair value
determined using the Black-Scholes option pricing model or Monte Carlo simulation model, is based on
signifi cant assumptions such as volatility, expected life, expected dividends, risk-free interest rate and
expected forfeiture rates. The expected life used in the model has been adjusted, based on management’s best
estimate, for the effects of non-transferability of the instruments and employees’ behavioral considerations.
94 CENTERRA GOLD INC.
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A change in any or a combination of the key assumptions used to determine the fair value of the issued
share-based compensation at grant date and at the reporting date, could have a material impact on the
share-based compensation cost expensed and the carrying value of the share-based compensation liabilities.
Total share-based compensation cost (recovery) recorded in the Statement of Earnings (Loss) and
Comprehensive Income (Loss) for the year ended December 31, 2012 was $3.0 million (December 31, 2011 –
charge of $19.1 million) and carrying amount of the associated liabilities was $5.2 million as at December 31,
2012 (December 31, 2011 – $42.0 million).
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, as well as the timing of the
reclamation activities and estimated discount rate. 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 costs.
A change in any or a combination of the key assumptions used to determine the provisions could have a
material impact on the carrying value of the provisions (see note 17). Changes to the estimated future
reclamation costs for operating sites are recognized in the Statement of Financial Position by adjusting both
the retirement asset and provision, and will impact earnings as these amounts are respectively amortized
and accreted over the life of the mine.
The carrying amount of the asset retirement obligations as at December 31, 2012, was $55.2 million
(2011 – $55.6 million).
iii. Depreciation, depletion and amortization period for property plant and equipment
All mining assets (except for mobile equipment and buildings) are amortized using the units-of-production
method where the mine operating plan calls for production from well-defi ned ore reserves over proven and
probable reserves.
For mobile and other equipment, the straight-line method is applied over the estimated useful life of the
asset which does not exceed the estimated mine life based on proven and probable ore reserve as the useful
lives of these assets are considered to be limited to the life of the relevant mine. The calculation of the
units-of-production rate of amortization could be impacted to the extent that actual production in the future
is different from current forecast production based on proven and probable ore reserve. This would generally
arise when there are signifi cant changes in any of the factors or assumptions used in estimating ore reserve.
Changes to these estimates, which can be signifi cant, could be caused by a variety of factors, including
future production differing from current forecasts, expansion of mineral reserves through exploration
activities, differences between estimated and actual costs of mining and other factors impacting mineral
reserves or the expected life of the mining operation.
iv.
Impairment of long-term assets
The Company reviews and tests the carrying amounts of long-term assets and intangible assets with defi nite
lives when an indicator of impairment is considered to exist. The Company considers both external and
internal sources of information in assessing whether there are any indications that long-term assets and
goodwill are impaired. External sources of information that the Company considers include changes in the
market, economic and legal environment in which the Company operates that are not within its control and
affect the recoverable amounts of long-term assets and goodwill. Internal sources of information that the
Company considers include the manner in which long-term assets are being used or are expected to be used
and indications of economic performance of the assets.
Centerra_Financials.indd 95
Apr/01/2013 1:28 PM
2012 ANNUAL REPORT 95
For the purposes of determining whether an impairment of assets, including goodwill, has occurred, and
the amount of any impairment or its reversal, management uses key assumptions in estimating the
recoverable value of a CGU which is calculated as the higher of the CGU’s value-in-use and fair value less
costs to sell. Management performed a goodwill impairment test for the Kumtor CGU as at September 1,
2012 and calculated the fair value less cost to sell using a discounted cash fl ow model which required
management to estimate the future cash fl ows, future operating plans, gold prices, discount rates and
exchange rates.
Expected gold production levels, which comprise proven and probable reserves and a conversion estimate
of resources, are used to estimate expected future cash fl ows. Management also estimates future operating
and capital costs based on the most recently approved life of mine plan. The discount rate applied is
reviewed annually, although it has been stable in recent years.
While management believes that estimates of future cash fl ows are reasonable, different assumptions
regarding such cash fl ows could materially affect the recoverable value of the CGU. Please see Note 12 for
additional information on the basis for management’s estimates.
Changes in these estimates which decrease the estimated recoverable value of the CGU could affect the
carrying amounts of assets and result in an impairment charge. The carrying amount of goodwill in the
consolidated fi nancial statements at December 31, 2012 and December 31, 2011 was $129.7 million. The
carrying amount of long-term assets (Property plant and equipment and long-term receivables and others),
other than goodwill at December 31, 2012 was $622.6 million (December 31, 2011: $627.0 million).
v. 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, the
Company considers factors such as tax rates in the different jurisdictions, non-deductible expenses, 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 effects of these temporary
differences are recorded as deferred tax assets or liabilities in the fi nancial statements.
The Company does not recognize deferred tax assets where management does not expect such assets to
be realized based upon current forecasts. In the event that actual results differ from these estimates,
adjustments are made to future periods in these estimates, and changes in the amount of the deferred tax
assets recognized may be required, which could materially impact the fi nancial position and the income for
the period. At December 31, 2012, the total deductible temporary differences for which a deferred tax asset is
not recognized amounted to $285.1 million (December 31, 2011 – $264.1 million). Most of the unrecognized
amount relates to unused loss carry forwards. Deferred tax assets of $5.5 million (December 31, 2011 –
$5.2 million) were recognized in the Company’s statement of fi nancial position.
vi.
Inventories of stockpiled ore, in-circuit and gold doré
Management makes estimates of recoverable quantities of gold in stockpiled ore, ore stacked on heap leach
pads and in process to determine the average costs of fi nished goods sold during the period and the value of
the inventoried asset in the Company’s Statements of Financial Position. Costs that are incurred in or benefi t
the mine and mill production process are accumulated as stockpiles of ore, ore on leach pads, heap leach in
circuit and gold-in circuit. Net realizable value tests are performed at least annually based on the estimated
future sales price of the gold doré, based on prevailing and long-term gold prices, less estimated costs to
complete production and bring the gold to selling condition.
The recoverable quantity of ore on stockpiles is estimated based on tonnage added and removed from the
stockpiles, the amount of contained gold ounces based on assay data, and the estimated recovery percentage
based on the historical recoveries obtained in the expected processing method. Stockpiled ore tonnage is
verifi ed by periodic surveys.
Estimates of the recoverable gold on the leach pads are calculated from the quantities of ore placed on the
pads based on tonnage added to the leach pads, the grade of ore placed on the leach pads based on assay
data and a recovery percentage based on metallurgical testing and ore type.
96 CENTERRA GOLD INC.
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Although the quantities of recoverable metal are reconciled by comparing the grades of ore to the
quantities of gold actually recovered, the nature of the process inherently limits the ability to precisely
monitor recoverability levels. As a result, the metallurgical reconciliation process is constantly monitored
and engineering estimates are refi ned based on actual results over time.
As at December 31, 2012 the carrying amount of inventories (excluding gold doré and supplies
inventories) was $116.1 million (December 31, 2011 – $125.3 million)
vii. Ore reserve estimation
The Company estimates its ore reserves and mineral resources based on information compiled by qualifi ed
persons as defi ned in accordance with the Canadian Securities Administrators’ National Instrument 43-101
Standards of Disclosure for Mineral Projects requirements. The estimation of ore reserves requires judgment
to interpret available geological data then select an appropriate mining method and establish an extraction
schedule. It also requires assumptions about future commodity prices, exchange rates, production costs,
recovery rates and discount rates and, in some instances, the renewal of mining licenses. There are numerous
uncertainties inherent in estimating ore reserves and assumptions that are valid at the time of estimation
may change signifi cantly when new information becomes available. New geological data as well as changes
in the above assumptions may change the economic status of reserves and may, ultimately, result in the
reserves being restated.
Estimates of mineral reserves and resources impact the following items in the fi nancial statements:
• useful lives of assets depreciated on a straight-line basis, where those lives are limited to the life
of the mine.
• Depreciation and depletion of assets using the units-of-production method
• Estimate of recoverable value of the CGU
• Estimated timing of reclamation activities
• Expected future economic benefi t of expenditures, including stripping and development activities
viii. Litigation and contingency
On an ongoing basis the Company is subject to various claims and other legal disputes described in note 27,
the outcomes of which cannot be assessed with a high degree of certainty. A liability is recognized where,
based on the Company’s legal views and advice, it is considered probable that an outfl ow of resources will be
required to settle a present obligation that can be measured reliably.
By their nature, these contingencies will only be resolved when one or more future events occur or fail to
occur. The assessment of such contingencies inherently involves the exercise of signifi cant judgment of the
potential outcome of future events. Disclosure of other contingent liabilities is made unless the possibility of
a loss arising is considered remote.
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 2011 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 de-recognized in their entirety, and for fi nancial assets that are
de-recognized 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.
Centerra_Financials.indd 97
Apr/01/2013 1:28 PM
2012 ANNUAL REPORT 97
This standard is effective for the Company’s annual period beginning January 1, 2015 (as amended from
January 1, 2013 by the IASB in December 2012). 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.
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. This is a change from the
existing standards, under which the Company chose to proportionally consolidate joint ventures. The Company
intends to adopt this standard effective January 1, 2013. The impact of these changes on the Company fi nancial
statements is currently under review in preparation of the fi rst quarter 2013 fi nancial reporting.
IFRS 12 Disclosure of Interests in Other Entities (“IFRS 12”) 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 expect IFRS 12 to result in additional disclosure regarding its interests in subsidiaries and joint
arrangements in its fi nancial statements.
IFRS 13 Fair Value Measurement (“IFRS 13”) 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 (“IFRIC 20”) 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. 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 in future periods is recognized as a non-current
‘stripping activity asset’ when specifi ed criteria are met. The Company intends to adopt IFRIC 20 in its fi nancial
statements for the annual period beginning on January 1, 2013. The impact of these changes on the Company
fi nancial statements is currently under review in preparation of the fi rst quarter 2013 fi nancial reporting.
98 CENTERRA GOLD INC.
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6. RESTRICTED CASH
(Thousands of U.S. Dollars)
Current:
Boroo escrow account
Non current:
Dividend trust account
Other
Total restricted cash
2012
2011
$
$
–
–
$
179
179
5,938
149
6,087
6,087
–
–
–
$
179
The Boroo escrow bank account was created in compliance with a memorandum of understanding agreed to with
the Ministry of Health of Mongolia. The cash deposited was used to fund the design and construction of a maternity
hospital in Ulaanbaatar. Funding for the hospital was completed before December 31, 2012 and the hospital is due
to be commissioned in early 2013.
Pursuant to an Ontario court decision dated September 5, 2011, Kyrgyzaltyn’s portion of the Centerra dividends
declared on August 1, 2012 and November 7, 2012 of $6.3 million net of withholding taxes of $0.4 million
($5.9 million net) is held in trust to the credit of the Sistem court proceedings (see note 27). The dividend payable
and restricted cash held in trust have been classifi ed as long-term since the timing of the resolution of the court
proceedings is unknown.
7. AMOUNTS RECEIVABLE
(Thousands of U.S. Dollars)
Gold sales receivable from related party (note 28)
Gold sales receivable from third party
Other receivables
The aging of the gross amounts receivable at each reporting date was as follows:
(Thousands of U.S. Dollars)
Less than 1 month
1 to 3 months
Over 3 months
2012
48,325
17,906
9,107
75,338
2012
68,203
884
6,251
75,338
$
$
$
$
2011
$ 47,366
–
9,383
$ 56,749
2011
$ 49,817
5,642
1,290
$ 56,749
The Company has not recorded any allowance for credit losses for the periods presented above.
8. INVENTORIES
(Thousands of U.S. Dollars)
Stockpiles of ore
Gold in-circuit
Heap leach in-circuit
Gold doré
Supplies
Total Inventories (net of provisions)
Less: Long-term inventory (heap leach stockpiles)
Total Inventories – current portion
2012
2011
$
90,735
19,140
6,189
7,612
123,676
175,430
299,106
(10,094)
$ 289,012
$ 105,635
16,343
3,359
10,645
135,982
156,136
292,118
(12,174)
$ 279,944
The provision for mine supplies obsolescence was increased for the year ended December 31, 2012 by $0.8 million
(December 31, 2011 – $0.9 million) which was charged to cost of sales, as disclosed in note 18.
2012 ANNUAL REPORT 99
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The Company de-recognized underground supplies inventories of $14.0 million as part of the $180.7 million
de-recognition of the underground development costs and underground assets resulting from the new mine plan
for Kumtor announced on November 7, 2012 (see note 10).
The table below summarizes inventories adjusted for the provision for obsolescence:
(Thousands of U.S. Dollars)
Total inventories
Less : Provisions for supplies obsolescence
Total Inventories (net of provisions)
Less: Long-term inventory (heap leach stockpiles)
Total Inventories – current portion
9. PREPAID EXPENSES
(Thousands of U.S. Dollars)
Revenue based taxes (note 16a)
Insurance
Rent
Others
Total
2012
2011
$ 302,079
(2,973)
299,106
(10,094)
$ 289,012
$ 294,319
(2,201)
292,118
(12,174)
$ 279,944
2012
30,000
6,120
586
12,611
49,317
$
$
$
2011
–
6,697
440
19,699
$ 26,836
10. PROPERTY, PLANT AND EQUIPMENT
The following is a summary of the carrying value of property, plant and equipment:
(Thousands of U.S. Dollars)
buildings
equipment
properties
costs
Equipment
(“CIP”)
Total
Mine
Plant and
Mineral
stripping
Mobile
in progress
Capitalized
Construction
Cost
January 1, 2011
Additions
Disposals
Reclassifi cation
$ 53,915
$ 310,919
$ 169,187
$ 71,351
$ 264,786
$ 149,484
$ 1,019,642
310
12,244
18,247
44,847
102,426
30,415
208,489
(389)
(1,049)
–
661
–
–
–
–
(20,588)
303
(394)
(964)
(22,420)
–
Balance December 31, 2011
$ 53,836
$ 322,775
$ 187,434
$ 116,198
$ 346,927
$ 178,541
$ 1,205,711
Additions
De-recognition of underground assets
Disposals
Reclassifi cation
–
(1,131)
–
–
7,422
(2,932)
(1,032)
3,556
2,288
198,316
146,371
55,091
409,488
–
(829)
–
–
–
–
(18,521)
(155,613)
(178,197)
(26,650)
–
(28,511)
4,517
(8,073)
–
Balance December 31, 2012
$ 52,705
$ 329,789
$ 188,893
$ 314,514
$ 452,644
$ 69,946
$ 1,408,491
Accumulated depreciation
January 1, 2011
Charge for the year
Disposals
$ 32,255
$ 196,826
$ 116,357
$ 40,272
$ 114,913
$
2,367
12,331
7,556
35,475
78,304
(384)
(701)
(3)
–
(20,008)
Balance December 31, 2011
$ 34,238
$ 208,456
$ 123,910
$ 75,747
$ 173,209
$
Charge for the year
De-recognition of underground assets
Disposals
1,406
(388)
–
8,267
(1,733)
(832)
9,381
126,737
96,446
–
(726)
–
–
(9,366)
(25,470)
Balance December 31, 2012
$ 35,256
$ 214,158
$ 132,565
$ 202,484
$ 234,819
$
–
–
–
–
–
–
–
–
$ 500,623
136,033
(21,096)
$ 615,560
242,237
(11,487)
(27,028)
$ 819,282
Net book Value
Balance December 31, 2011
Balance December 31, 2012
$ 19,598
$ 114,319
$ 63,524
$ 40,451
$ 173,718
$ 178,541
$ 590,151
$ 17,449
$ 115,631
$ 56,328
$ 112,030
$ 217,825
$ 69,946
$ 589,209
100 CENTERRA GOLD INC.
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The following is an analysis of the depreciation, depletion and amortization charge for the year recorded in the
Statements of Financial Position and Statements of Earnings (Loss) and Comprehensive Income (Loss):
(Thousands of U.S. Dollars)
Amount recorded in cost of sales
Amount recorded in corporate administration
Amount recorded in abnormal mining costs
Amount recorded in mine standby costs
Amount recorded in other operating expenses
Total included in Statements of Earnings (Loss) and Comprehensive Income (Loss)
Amount recorded in inventory
Amount capitalised in PP&E
Total
2012
2011
$ 142,198
248
7,035
2,151
1,237
152,869
35,036
54,332
$ 242,237
$ 98,378
462
–
–
–
98,840
18,564
18,629
$ 136,033
De-recognition of underground development costs and underground assets
On November 7, 2012, the Board of Directors approved an updated reserves estimate and new mine plan for Kumtor.
Under the new mine plan, the existing underground development infrastructure at Kumtor will no longer be used.
As a result, the Company de-recognized the capitalized cost of the underground development, underground
equipment and the underground supplies inventories and recorded a charge of $180.7 million during the year ended
December 31, 2012.
The following is a summary of the $180.7 million charge:
(Thousands of U.S. Dollars)
Development costs
Underground mobile equipment
Total de-recognized underground development and equipment costs
Underground development consumable inventory (note 8)
Net Amount
$ 155,613
11,097
166,710
13,963
$ 180,673
11. JOINT VENTURES
The Company proportionately consolidates its 70% interest (2011 – 50% interest) in the Kara Beldyr Russian joint
venture and seventy percent interest (2011 – 50% interest) in the Öksüt Turkish joint venture which the Company
jointly-controls. On January 24, 2013, the Company acquired the remaining 30% interest in the Öksüt Gold Project
(see note 33).
Included in the consolidated fi nancial statements are the following items that represent the Company’s
proportionate interest in the assets and liabilities and expenses of these joint ventures:
(Thousands of U.S. Dollars)
Current assets
Non-current assets
Current liabilities
Net assets
Exploration expenses
12. GOODWILL
$
2012
861
1,415
(2,180)
96
$
2011
151
246
(129)
268
6,423
1,470
The Company has two CGUs, one in the Kyrgyz Republic and one in Mongolia, of which only the Kyrgyz CGU
has been allocated goodwill. The carrying value of goodwill for the Kyrgyz Republic remained unchanged at
$129.7 million as at December 31, 2012 and December 31, 2011.
Annual Test as at September 1, 2012:
The Company performed its annual test for goodwill impairment as at September 1, 2012 in accordance with its
policy described in note 3.
2012 ANNUAL REPORT 101
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The net asset value (“NAV”) of the Kyrgyz CGU is determined based on a discounted cash fl ow analysis and the
recoverable amount is 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 includes the cash fl ows which management expects to
generate over the mine’s life, using various business and economic assumptions.
Key assumptions used in the discounted cash fl ow model and for calculating the Kyrgyz CGU recoverable value
used in the September 1, 2012 impairment test were as follows:
i. Gold price per ounce was $1,695 per ounce for the balance of 2012, $1,727 per ounce for 2013, $1,626 per
ounce for 2014, $1,510 per ounce for 2015 and $1,249 per ounce for 2016 onwards. Management determined
gold prices based on the average of the most recent market commodity price forecasts consensus up to
September 1, 2012 from a number of recognized fi nancial analysts.
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.
ii. Total production over the life of the Kumtor mine of 7.4 million ounces (2011 – 6.9 million ounces) includes
2.6 million ounces (2011 – 2.4 million ounces) of converted resources. Management expects the Kyrgyz CGU to
continue mining and processing ore (including converted resources) through 2025. Management determined
its planned production profi le and total life of mine production based on its development activity and its mine
and processing plans as at September 1, 2012.
iii. The real after tax discount rate of 11.5% (2011–11.5%) based on the Company’s estimated weighted-average
cost of capital adjusted for the risks associated with the Kyrgyz cash fl ows.
As a result of the size of the excess of FVLCS as compared to the carrying amount of the Kyrgyz CGU as at
September 1, 2012, management believes no reasonably possible change in assumptions would cause the carrying
amount of the CGU to exceed its current recoverable amount.
As a result, management concluded that current circumstances did not indicate that the carrying value of the
Kyrgyz reporting unit exceeded its recoverable value and thus no impairment of its goodwill was required at this time.
13. OTHER ASSETS
(Thousands of U.S. Dollars)
Reclamation trust fund (note 17)
Other long-term receivables
Deferred fi nancing fees (note 15) (a)
Other assets (b)
Total
2012
11,328
263
–
11,679
23,270
$
$
2011
$
9,081
4
2,474
13,115
$ 24,674
(a) The carrying value of the deferred fi nancing fees was off-set against the balance of the short-term debt for the year ended December 31, 2012.
(b) Includes $7.4 million (December 31, 2011 – $12.9 million) of deposits for the purchase of mobile equipment.
14. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
(Thousands of U.S. Dollars)
Trade creditors and accruals
Liability for share-based compensation
Total
2012
58,704
5,236
63,940
$
$
2011
$ 34,411
41,974
$ 76,385
102 CENTERRA GOLD INC.
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15. SHORT-TERM DEBT
On November 16, 2010 the Company entered into a Credit Agreement with the European Bank for Reconstruction
and Development (“EBRD”) which provides for a $150 million, three-year revolving credit facility (the “Facility”). On
August 8, 2012, the Company borrowed $76 million under the facility for a six month term to be used for general
corporate purposes. The amounts drawn on the Facility bear interest at six-month LIBOR rate of 0.72% plus 2.9%.
Interest is payable at the end of the loan term. A commitment (standby) fee is also payable on the undrawn amount
of the Facility. A commitment 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 more than 50% of the facility amount is drawn.
The terms of the Facility requires 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 years ended December 31, 2012 and December 31, 2011.
On February 5, 2013, the Company rolled over the $76 million for an additional six month term (repayable
August 8, 2013).
The amount of the short-term debt is net of deferred fi nancing fees as shown below:
(Thousands of U.S. Dollars)
Revolving credit facility
Deferred fi nancing fees
Total
16. TAXES
2012
76,000
(1,383)
74,617
$
$
2011
–
–
–
$
$
a. Revenue Based Taxes – Kumtor
Kumtor pays taxes on revenue, at a rate of 13% of gross revenue, with an additional contribution of 1% of gross
revenue payable to the Issyk-Kul Oblast Development Fund.
During the period ended December 31, 2012, the 13% revenue-based tax expense recorded by Kumtor was
$69.4 million ($122.3 million in 2011), while payments to the Issyk-Kul Oblast Development Fund of 1% of gross
revenue totaled $5.3 million ($9.4 million in 2011).
As at December 31, 2012, $18.6 million of revenue-based tax is payable to the Kyrgyz Government (December 31,
2011 – $15.2 million).
On May 28, 2012, a tax advance agreement was signed by Kumtor and the Kyrgyz Government and $30 million
of future revenue-based taxes were advanced to the government. This interest-free advance will be applied against
revenue-based taxes otherwise payable during 2013 and was included in prepaid expenses at December 31, 2012
(note 9).
In December 2012, at the request of the Kyrgyz Government, Kumtor advanced $8.3 million of 2012 revenue-
based taxes otherwise payable in January 2013. As at December 31, 2012, the amount advanced of $8.3 million was
used to reduce the amount of revenue-based taxes payable.
Similarly, revenue-based taxes were also advanced at the request of the Kyrgyz Government in the fourth quarter
of 2011 totalling $2 million. This advance was outstanding as at December 31, 2011 and was fully applied against
Kumtor’s 2011 revenue-based taxes payable in January 2012.
b. Income Tax Expense
(Thousands of U.S. Dollars)
Current tax
Deferred tax
Total Income Tax Expense
2012
11,734
(50)
11,684
$
$
2011
2,856
5,274
8,130
$
$
No entities, other than those in the Mongolian segment, recorded an income tax expense during the years ended
December 31, 2012 and December 31, 2011.
Centerra_Financials.indd 103
Apr/01/2013 1:28 PM
2012 ANNUAL REPORT 103
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 U.S. Dollars)
Earnings (loss) before income tax
Income tax calculated at Canadian tax rates if applicable to earnings (loss) 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
Other non-deductible expenses or non-taxable items
c. Deferred Income Tax
The signifi cant components of deferred income tax assets and liabilities are as follows:
(Thousands of U.S. Dollars)
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
Net deferred tax assets/(liabilities)
2012
2011
$ (172,314)
(45,663)
$ 379,008
107,070
41,070
8,040
298
1,339
6,600
11,684
(121,621)
11,555
2,032
1,200
7,894
8,130
$
2012
2011
1,530
4,009
5,539
(848)
(930)
(5,569)
–
(7,347)
(1,808)
$
$
$
$
$
2,487
2,682
5,169
(685)
(930)
(5,229)
(222)
(7,066)
(1,897)
$
$
$
$
$
$
The Company had the following positions in respect of which no deferred income tax asset has been recognized:
(Thousands of U.S. Dollars)
income
capital
Exploration
Reserves
Other
Total
Tax losses
Tax losses
Non
Deductibles
December 31, 2012
Expiring within one to fi ve years
Expiring after fi ve years
No expiry date
December 31, 2011
Expiring within one to fi ve years
Expiring after fi ve years
No expiry date
$ 23,120
191,592
260
$ 214,972
$
$
–
–
$
–
–
$
–
–
–
–
32,458
26,772
3,679
7,177
$ 23,120
191,592
70,346
$ 32,458
$ 26,772
$
3,679
$
7,177
$ 285,058
$ 15,889
$
142,499
$
–
–
$
–
–
–
–
386
31,629
23,433
43,443
$ 158,774
$ 31,629
$ 23,433
$ 43,443
$
$
–
–
6,854
6,854
$ 15,889
142,499
105,745
$ 264,133
No deferred tax liabilities have been recognized in respect of the aggregate amount of $1,092 million ($1,319 million
as at December 31, 2011) 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, and the
differences are not anticipated to reverse in the foreseeable future.
104 CENTERRA GOLD INC.
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17. PROVISIONS
(Thousands of U.S. Dollars)
Asset retirement obligations
Other provision
Total provisions
Less: current portion
(a) Asset Retirement Obligations
(Thousands of U.S. Dollars)
Kumtor gold mine
Boroo gold mine
Total asset retirement obligations
Less: current portion
(a)
(b)
2012
2011
$ 54,554
614
55,168
(5,257)
$ 49,911
$ 55,625
–
55,625
(1,848)
$ 53,777
2012
30,986
23,568
54,554
(4,643)
49,911
$
$
2011
$ 30,378
25,247
55,625
(1,848)
$ 53,777
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,
2012 to be $61.6 million (December 31, 2011 – $62.9 million). The following is a summary of the key assumptions on
which the carrying amount of the asset retirement obligations is based:
i. Expected timing of payment of the cash fl ows is based on the LOM plans.
ii. Ongoing reclamation spending continues at Boroo, while at Kumtor reclamation is expected to start at the end
of its mine life.
iii. Risk-free discount rates of 2% at Kumtor and 1.3% at Boroo at December 31, 2012 (December 31, 2011 – 2% at
Kumtor and 0.6% at Boroo).
The following is a reconciliation of the total discounted liability for asset retirement obligations
(Thousands of U.S. Dollars)
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
Accretion expense
Total asset retirement obligations
Less: current portion
Balance at December 31
2012
55,625
(702)
(1,129)
–
760
54,554
(4,643)
49,911
$
$
2011
$ 40,433
(2,446)
15,942
494
1,202
55,625
(1,848)
$ 53,777
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, 2012 was $11.3 million (December 31, 2011 – $9.1 million).
In December 2012, the Company revised the closure plan at Boroo resulting in an extension of the reclamation
spending by an additional two years, ending in 2020. As a result of extending the reclamation spending and an
increase in the discount rate, the present value of the obligation at Boroo decreased by $1.1 million with an offsetting
decrease in the related reclamation asset.
In December 2011, the Company revised the closure plan at Boroo resulting in an extension of the reclamation
spending to 2018 and updated the closure cost plans for Kumtor and Boroo. As a result of extending the reclamation
spending, a decrease in the 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 the related reclamation asset. A similar update to
Kumtor’s closure cost plan and a decrease in the discount rate resulted in an increase in 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 related
reclamation asset, included as part of property plant and equipment.
2012 ANNUAL REPORT 105
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The next regular update to the closure costs estimates at Kumtor is scheduled in 2013, at which time the asset
retirement obligation for Kumtor will be updated for the new closure cost estimates. The last closure cost update at
Boroo was completed in 2012 and its asset retirement obligation was updated at that time.
(b) Other provision
On February 27, 2012, the Company announced that it would close its exploration offi ce in Reno, Nevada USA as of
June 30, 2012. As a result, a $0.95 million provision was recorded by the Company. The provision is based on current
estimates of the likely amounts to be incurred and include termination benefi ts that affected employees will be
entitled to receive. During the year ended December 31, 2012, the Company made a payment of $0.33 million to
settled part of the provision. The remaining balance of the provision will be settled over the next fourteen months.
18. COST OF SALES
(Thousands of U.S. Dollars)
Operating costs:
Salaries and benefi ts (a)
Consumables
Third party services
Other operating costs
Royalties, levies and production taxes
Changes in inventories
Inventories obsolescence (Note 8)
Depreciation, depletion and amortization
2012
2011
$
72,251
96,790
5,789
18,236
6,500
44,934
244,500
772
142,198
$ 387,470
$ 80,520
212,240
5,055
16,221
4,321
(35,336)
283,021
897
98,377
$ 382,295
(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, the Company paid $6.2 million in 2012 as the Company’s contributions to the Social Fund.
19. ABNORMAL MINING COSTS
(Thousands of U.S. Dollars)
Abnormal mining costs (a)
Unloading of abnormal waste (b)
2012
36,112
24,769
60,881
$
$
2011
–
–
–
$
$
(a) The original mining plan at Kumtor for the year ended 2012 included stripping of waste material in the SB Zone and the continued normal mining of ice and waste in
the southeast section of the pit to allow access to and mining of ore. The Company announced on March 27, 2012 its decision to re-sequence the Kumtor mine plan
and delay the mining of ore in the SB zone due to concerns created by the acceleration of ice and waste movement in the high movement area above the southeast
portion of the SB zone. The resulting stripping activity in the southwest portion of the SB zone under the revised mine plan during a period where little ore was mined
resulted in a signifi cant amount of costs which did not relate to the production of inventory in the period and were expensed.
(b) The revised mining plan for 2012 required that a signifi cant area of ice and waste be removed, primarily located outside of the current pit limits, the costs of which have
been expensed.
20. MINE STANDBY COSTS
Over a period of ten days ending February 16, 2012 the Company’s operations at Kumtor were temporarily
suspended due to a labour dispute initiated by unionized workers at Kumtor. The Company incurred and expensed
$4.6 million in labour, maintenance and mine support costs directly as a result of the labour dispute at Kumtor.
106 CENTERRA GOLD INC.
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21. OTHER OPERATING EXPENSES
(Thousands of U.S. Dollars)
Social development contributions (a)
Claim settlement (b)
Net alluvial production (income) expenses
Project care and maintenance (c)
Project closure (d)
2012
26,163
–
(48)
369
7,796
34,280
$
$
2011
$ 12,641
2,587
(129)
372
–
$ 15,471
(a) During the year ended December 31, 2012, the Company, through its subsidiary Kumtor, contributed $21 million to a national micro-credit fi nancing program, whose
objective is to provide fi nancing for small sustainable development projects throughout the Kyrgyz Republic. The Company also accrued a further $1.1 million for the
construction and equipping of a maternity hospital in Ulaanbaatar through the Boroo Community Development Initiatives program in Mongolia. 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. On-going spending on social development programs were $4.0 million in 2012 and
$2.6 million in 2011.
(b) During the year ended December 31, 2011, the Company 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) Project care and maintenance costs of $0.4 million for the year ended December 31, 2012 (December 31, 2011 – $0.4 million) were incurred to maintain the site at the
Gatsuurt development project.
(d) Project closure costs of $7.8 million in 2012 were expensed (December 31, 2011 – Nil) following the decision on August 1, 2012 to place the underground project at
Kumtor on hold and ultimately decommissioned following the change in mine plan announced on November 7, 2012 (Note 10). Closure costs include employee
severance payments, ground condition monitoring, remedial work, water control and ventilation.
22. EXPLORATION AND BUSINESS DEVELOPMENT COSTS
(Thousands of U.S. Dollars)
Exploration:
Mine site exploration
Advanced projects
Generative exploration and other projects
Exploration administration
Total exploration
Business development
23. CORPORATE ADMINISTRATION
(Thousands of U.S. Dollars)
Administration and offi ce
Professional fees
Salaries and benefi ts
Share-based compensation (recovery)
Depreciation and amortization
24. OTHER (INCOME) AND EXPENSES
(Thousands of U.S. Dollars)
Interest income
Loss on disposal of assets
Bank charges
Miscellaneous income
Foreign exchange loss /(gain)
2012
2011
11,446
9,302
13,880
3,311
37,939
592
38,531
2012
7,574
7,186
15,099
(3,061)
248
27,046
$ 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
2012
(728)
556
67
(119)
92
(132)
2011
$
(1,175)
484
71
(343)
(92)
$
(1,055)
$
$
$
$
$
$
2012 ANNUAL REPORT 107
Centerra_Financials.indd 107
Apr/01/2013 1:28 PM
25. FINANCE COSTS
(Thousands of U.S. Dollars)
Revolving credit facility:
Amortization of deferred fi nancing costs
Interest expense (Note 15)
Commitment fees and other revolving credit facility costs
Accretion expense and impact of revisions on asset retirement obligations (Note 17)
2012
2011
$
$
1,091
1,117
1,010
760
3,978
$
772
–
1,077
1,696
3,545
$
26. 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 (loss) per Share
All potentially dilutive securities were excluded from the calculation of diluted loss per share for the year ended
December 31, 2012 as they would have been anti-dilutive as a result of the net loss recorded for the period.
For the year ended December 31, 2011 certain potentially dilutive securities were excluded from the calculation of
diluted earnings per share due to the exercise prices of certain stock options being greater than the average market
price of the Company’s ordinary shares for the period and the effect of the assumed potential conversion of the
performance share units and restricted share units to equity which was anti-dilutive.
(Thousands of U.S. Dollars)
Net earnings (loss) 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 number of common shares outstanding (thousands)
Basic and diluted earnings (loss) percommon share
2012
2011
$ (183,998)
236,369
$ 370,878
236,088
–
–
236,369
248
18
236,354
$
(0.78)
$
1.57
Potentially dilutive securities, including stock options, restricted share units, performance share units (PSUs) and
annual performance share units (annual PSUs), summarized below were excluded in the calculation of the diluted
earnings (loss) per share:
(Thousands of units)
Stock options
Restricted share units
PSUs and Annual PSUs (1)
2012
597
92
150
839
2011
215
–
1,903
2,118
(1) After the impact of the estimated adjustment factor which represents the relative performance of Centerra’s share as compared to the S&P/TSX Global Gold Index
Return Value during the applicable period.
c. Dividends
Dividends are declared in Canadian dollars and paid in Canadian dollars. At December 31, 2012, dividends payable
to Kyrgyzaltyn of $5.9 million was outstanding (see note 28). The details of dividends distribution in 2012 and 2011
are as follows:
(Thousands of U.S. Dollars)
Dividends declared (Thousands of U.S. Dollars)
Dividends declared (Canadian Dollar per share amount)
Special Dividends declared (Canadian Dollar per share amount)
108 CENTERRA GOLD INC.
2012
2011
28,187
$ 99,322
0.12
–
0.12
$
$
0.10
0.30
0.40
$
$
$
Centerra_Financials.indd 108
Apr/01/2013 1:28 PM
d. Share-Based Compensation
The impact of Share-Based Compensation is summarized as follows:
(Millions of U.S. dollars except as indicated)
(i) Stock options
(ii) PSUs
(iii) Annual PSUs
(iv) Deferred share units
(v) Restricted share units
(i) Stock Options
Number
outstanding
Dec 31/12
1,674,194
603,126
76,474
209,690
112,397
Expense/(Income)
Liability
Dec 31/12
Dec 31/11
Dec 31/12
Dec 31/11
$
$
2.3
(3.3)
–
(2.5)
0.5
(3.0)
$
$
1.8
15.2
1.9
(0.7)
0.9
19.1
$
$
–
2.3
–
1.9
1.0
5.2
$
–
33.0
1.9
6.2
0.9
$
42.0
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 special grants issued in 2010 and 2012 which vest under
terms ranging from 9 months to 2 years. 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 apply, including that the maximum number of shares that may
be granted to any individual within a 12-month period can not exceed 5% of the outstanding common shares.
Average exercise award price for options granted in the year (Cdn $/share)
Weighted average exercise price on outstanding options (Cdn $/share)
Centerra’s stock options transactions during the year were as follows:
2012
11.50
11.88
$
$
2011
18.42
12.31
$
$
Balance, January 1
Granted
Cancelled
Exercised
Balance, December 31
2012
2011
Weighted
Average
Exercise
Price-Cdn $
$
$
12.31
11.50
(16.42)
(4.81)
11.88
Number of
Weighted
Average
Exercise
Options
Price-Cdn $
903,986
318,106
–
(469,644)
752,448
$
7.45
18.42
–
(7.09)
$
12.31
Number of
Options
752,448
989,953
(37,455)
(30,752)
1,674,194
The weighted average share price at the date of exercise for share options exercised in 2012 was Cdn $19.56
(2011 – Cdn $20.07).
Centerra_Financials.indd 109
Apr/01/2013 1:28 PM
2012 ANNUAL REPORT 109
The Black-Scholes model was used to estimate the fair value of stock options. In determining the fair value
of these employee stock options, the following weighted average assumptions were used for the series issued
in 2012:
• On March 6, 2012, Centerra granted 333,861 stock options at an exercise price of Cdn $19.48 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, 49.03% historical volatility of the Company’s share price,
dividend yield of 2.26% and a risk-free rate of return of 1.18%. The resulting weighted average fair value
per option granted was Cdn $4.68. The estimated fair value of the options is expensed over their graded
vesting periods, which range from 1 year to 3 years.
• On August 14, 2012, Centerra granted 106,092 stock options at an exercise price of Cdn $7.29 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, 67.18% historical volatility of the Company’s share price,
dividend yield of 2.03% and a risk-free rate of return of 1.23%. The resulting weighted average fair value
per option granted was Cdn $2.58. The estimated fair value of the options is expensed over their graded
vesting periods, which range from 1 year to 3 years.
• On August 14, 2012, Centerra granted 500,000 stock options at an exercise price of Cdn $7.29 per share.
The fair value of the stock options was determined using the Black-Scholes valuation model, assuming
a weighted average expected life of 2.5 years, 70.89% historical volatility of the Company’s share price,
dividend yield of 2.03% and a risk-free rate of return of 1.16%. The resulting weighted average fair value
per option granted was Cdn $2.54. The estimated fair value of the options is expensed over their graded
vesting periods, which range from 1 year to 2 years.
• On November 19, 2012, Centerra granted 50,000 stock options at an exercise price of Cdn $9.31 per share.
The fair value of the stock options was determined using the Black-Scholes valuation model, assuming
average expected life of 10 months, 73.89% historical volatility of the Company’s share price, dividend
yield of 1.87% and a risk-free rate of return of 1.10%. The resulting weighted average fair value per option
granted was Cdn $2.47. The estimated fair value of the options is expensed over a ten months period.
The terms of the options outstanding at December 31, 2012 are as follows:
Award Date
2008
2009
2010
2011
2011
2012
2012
2012
2012
Award Price
$14.29 (Cdn)
$4.81 (Cdn)
$14.37 (Cdn)
$18.31 (Cdn)
$22.28 (Cdn)
$19.48 (Cdn)
$7.29 (Cdn)
$7.29 (Cdn)
$9.31 (Cdn)
Expiry Date
March 18, 2016
February 17, 2017
August 19, 2018(a)
March 7, 2019
September 14, 2019
March 6, 2020
August 14, 2020
August 14, 2020(a)
November 19, 2020(b)
Number of
Options
Outstanding
38,030
265,560
100,000
299,499
9,107
314,410
102,588
495,000
50,000
Number of
Options
Vested
38,030
265,560
100,000
99,824
3,034
–
–
–
–
(a) These grants have a different vesting schedule whereby 50% vests on the fi rst anniversary and the remaining 50% vest on the secondary anniversary
(b) The grant carries a 100% vesting on the earlier of August 19, 2013 and the achievement of specifi c objectives
1,674,194
506,448
In 2012, $2.3 million ($1.8 million in 2011) of compensation expense was recorded related to stock options.
(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 volume 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
110 CENTERRA GOLD INC.
Centerra_Financials.indd 110
Apr/01/2013 1:28 PM
multiplying the number of units granted to the participant by the adjustment factor, which ranges from 0 to
1.5 for units granted before 2010 or 0 to 2.0 for units granted in 2010 and onwards. 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.
In 2010 “special” performance share units were granted in lieu of stock options. The “special” units vest
one third at the end of each year of their three-year term and have a fi xed adjustment factor of 1.0.
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 sixty-one trading days volume weighted average share price on the date of
the dividend.
Centerra’s performance share unit plan transactions during the year were as follows:
Balance, January 1
Granted
Exercised
Cancelled
Balance, December 31
2012
2011
1,314,134
227,505
(903,534)
(34,979)
603,126
1,528,209
219,211
(421,964)
(11,322)
1,314,134
The Monte Carlo simulated option pricing model was used in estimating the fair value of performance share
units that are 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 – Cdn $
S&P/TSX Global Gold Index – Cdn $
Expected life (years)
Expected volatility – Centerra’s share price
Expected volatility – S&P/TSX Global Gold Index
Expected dividends
Risk-free rate of return
Forfeiture rate
$
$
2012
9.07
324.18
1.35
88.0%
29.4%
1.3%
1.6%
3.8%
2011
$
20.37
$ 429.16
1.29
54.1%
33.4%
1.5%
0.4%
2.8%
For the units that are fully vested as at year end, the fair value of the units were determined using the calculated
sixty-one trading days volume weighted average share price multiplied by the adjustment factor. In determining
the fair value of the vested units, the principal assumptions used were a share price of Cdn $10.33 and adjusted
factor of 1.04 (December 31, 2011 – share price of Cdn $20.37 and adjusted factor of 1.53).
The vested number of units outstanding as at December 31, 2012 are 306,328 (December 31, 2011 –
892,262). The intrinsic value of the vested units at December 31, 2012 is $2.3 million (December 31, 2011 –
$27.8 million).
At December 31, 2012, the total number of units outstanding (vested and unvested) was 603,126, with
a related liability of $2.3 million (December 31, 2011 – 1,314,134, with a related liability of $33.0 million).
In 2012, a compensation cost recovery of $3.3 million was recorded on this plan (a charge of $15.2 million
in 2011) as a result of a decrease in the market price of the Company’s common shares in 2012.
(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 volume
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 applicable period.
2012 ANNUAL REPORT 111
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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 sixty-one trading days volume weighted average share price on the date of
the dividend.
Centerra’s annual performance share unit plan transactions during the year were as follows:
Balance, January 1
Granted
Exercised
Cancelled
Balance, December 31
2012
77,013
89,654
(77,013)
(13,180)
76,474
2011
156,571
96,059
(159,497)
(16,120)
77,013
At December 31, 2012, the number of units outstanding and fully vested was 76,474 with a related liability of
$ Nil (December 31, 2011 – 77,013 with a related liability of $1.9 million). In 2012, compensation cost expense
of $ Nil was recorded on this plan ($1.9 million in 2011).
The fair value of the units that are fully vested as at year end was determined using the calculated sixty-one
trading day volume weighted average share price multiplied by the adjustment factor. In determining the fair
value of the vested units, the principal assumptions used were a share price of Cdn $10.33 and weighted average
adjusted factor of Nil (December 31, 2011 – share price of Cdn $20.37 and weighted adjusted factor of 1.17).
(iv) Deferred share unit plan
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:
Balance, January 1
Granted
Exercised
Balance, December 31
2012
2011
354,516
12,724
(157,550)
209,690
344,728
9,788
–
354,516
At December 31, 2012, the number of units outstanding was 209,690 with a related liability of $1.9 million
(December 31, 2011 – 354,516 with a related liability of $6.2 million). In 2012, a compensation cost recovery of
$2.5 million was recorded on this plan (recovery of $0.7 million in 2011) as a result of a decrease in the market
price of the Company’s common shares in 2012.
(v) Restricted share unit plan
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.
112 CENTERRA GOLD INC.
Centerra_Financials.indd 112
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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:
Balance, January 1
Granted
Exercised
Balance, December 31
2012
49,659
94,737
(31,999)
112,397
2011
–
55,422
(5,763)
49,659
At December 31, 2012, the number of units outstanding was 112,397 with a related liability of $1.0 million and
expense of $0.5 million (December 31, 2011 – 49,659 units with a related liability and expense of $0.9 million).
27. COMMITMENTS AND CONTINGENCIES
Commitments
As at December 31, 2012, the Company had entered into contracts to purchase capital equipment and operational
supplies totalling $98.3 million (Kumtor $97.9 million and Boroo $0.4 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 signifi cant operating lease payments, including operating costs, are for its corporate offi ces in
Toronto and in the current year 2012 were $0.7 million (2011 – $0.7 million). The future aggregate minimum lease
payments for the non-cancellable operating lease of the Toronto Corporate offi ce are as follows:
(Thousands of U.S. Dollars)
2012
2013
2014
2015
2016
Contingencies
Kyrgyz Republic
2012
–
401
438
478
478
1,795
$
$
$
2011
398
401
438
478
478
$
2,193
(a) Kyrgyz Republic State Commission Report
In 2012, Kyrgyz Government established a state commission for the purpose of inspecting and reviewing Kumtor’s
compliance with Kyrgyz operational and environmental laws and regulations and community standards (the “State
Commission”). The following developments have occurred:
(i) State Commission Report
In December 2012, the State Commission issued its fi nal report (the “State Commission Report”), following fi ve
months of study and several visits to the Kumtor mine site, and over 120 written requests for information on a wide
variety of matters going back to 1993 when the original agreement regarding the Kumtor Project was executed. The
State Commission was comprised of three working groups with responsibility for environmental and technical
matters, legal matters (including a review of all prior and current agreements relating to the Kumtor Project), and
social-economic matters (including a review of fi nancial, taxation, procurement and employment-related matters).
2012 ANNUAL REPORT 113
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The State Commission Report includes a large number of allegations in regard to prior transactions relating to the
Kumtor Project and the Kumtor Project’s operations and management.
The State Commission Report recommends that the Kyrgyz Government open negotiations under which the
Kumtor Project is governed, including requiring Kumtor to accept the current tax regime and pay higher
environmental charges; changes in the management of Kumtor and Centerra including greater representation by
Kyrgyzaltyn on the Centerra board of directors and greater representation of Kyrgyz citizens in management of the
Kumtor Project; and recommendations for additional charges and fees to be paid by the Kumtor Project including
for land use, and for those items raised by SIETS. The State Commission Report also recommends various actions
to be taken by Kyrgyzaltyn, by the Kyrgyz Government, including revisions to Kyrgyz law, and the Kyrgyz Republic
General Prosecutor’s Offi ce with respect to investigating the personal liability of parties who were involved in
negotiating previous agreements governing the Kumtor Project for violations of Kyrgyz legislation and for infl icting
losses to the Kyrgyz Republic’s interests. The State Commission recommended the establishment of a working group
to give effect to the recommendations, in particular the opening of negotiations with Centerra and Kumtor.
The Company received the fi nal copy of the State Commission Report on January 18, 2013. Subsequently, the
Kyrgyz Government received the State Commission Report and issued a decree, Decree of the Kyrgyz Government
dated January 24, 2013, #34 (“Decree #34”), accepting the State Commission Report and sending it to the Kyrgyz
Parliament. Kyrgyz Government also established a working group to hold discussions on the revisions of terms
governing the Kumtor Project, particularly on revisions to the tax regime and other matters identifi ed in the State
Commission Report.
The Company believes that the conclusions and claims in the State Commission Report are exaggerated or
without merit. The Company has responded in detail in writing to such conclusions and claims. The Company
believes that the agreements entered into in 2009 governing the Kumtor Project (the “Kumtor Project Agreements”)
are legal, valid and enforceable obligations. The Kumtor Project Agreements were reviewed and approved by the
Kyrgyz Republic Government and the Kyrgyz Republic Parliament, and were the subject of a positive decision of the
Kyrgyz Republic Constitutional Court and a legal opinion by the Kyrgyz Republic Ministry of Justice.
The Company intends to meet with the working group and other Kyrgyz Government offi cials, with the objective
of resolving matters through constructive dialogue. However, there can also be no assurance that such discussions
will result in a successful outcome for the Company, or that the Kyrgyz Government will not take actions that are
inconsistent with its obligations under the Kumtor Project Agreements or cancel government decrees, orders or
licenses under which the Kumtor Project currently operates. Any such actions could have a material adverse impact
on the Company’s future cash fl ows, earnings, results of operations and fi nancial conditions.
(ii) Claims from Kyrgyz Authorities for Alleged Environmental Violations
Kumtor received in mid-December 2012, fi ve claims from the SIETS for alleged environmental violations. The claims
are for an aggregate amount of approximately $152 million, including (i) a claim for approximately $142 million
for alleged damages in relation to the placement on waste dumps of waste rock (unprocessed rock) from mining
operations for the period from 2000 to 2011; (ii) a claim for approximately $4 million for use of water resources from
Petrov Lake for the period of 2000 to 2011; and (iii) a claim for approximately $2.3 million for alleged damages
caused to land resources, including in some cases from the time of initial construction of the Kumtor facilities in
1995. One claim for $2.8 million for waste placed in the tailings management facilities and for emissions for 2009–
2011 was withdrawn after discussions with the applicable Kyrgyz regulatory authorities, although there are no
assurances that further claims will not be issued on this matter. The claims reference the review of the Kumtor
Project carried out by the environmental and technical working group of the State Commission. Kumtor disagrees
with these claims and has responded to them in detail in writing to the relevant authority. Centerra believes that the
Kumtor Project operates in compliance with Kyrgyz laws on environmental, safety and health standards and that
Kumtor has good defenses against these claims under Kyrgyz law and the Project Agreements, which were reviewed
and approved by all relevant Kyrgyz governmental authorities, including the Kyrgyz Government, Parliament and the
Constitutional Court, and subject to a legal opinion by the Kyrgyz Republic Ministry of Justice. While the Company
believes that such claims are exaggerated or without merit, there can be no assurances that these claims will be
successfully resolved in favour of the Company or that further claims will not be issued.
114 CENTERRA GOLD INC.
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(iii) Decree #168
The Government cancelled, on July 5, 2012, Government Decree #168, which provided Kumtor with land use
(surface) rights over the Kumtor concession area for the duration of the Restated Concession Agreement.
Correspondingly, the related land use certifi cate issued by the local land offi ce was also cancelled. Based on advice
from Kyrgyz legal counsel, the Company believes that the purported cancellation of land rights is in violation of
the Kyrgyz Republic Land Code because such legislation provides that land rights can only be terminated by court
decision and on the listed grounds set out in the Land Code. To the extent that Kumtor’s land use rights are considered
invalid (which the Company does not accept), the Company would seek to enforce its rights under the Restated
Investment Agreement to obtain the rights otherwise guaranteed to it.
(b) Kyrgyz Republic Social Fund Dispute
The Social Fund commenced a claim in the Kyrgyz courts to invalidate documentary acts (assessments) issued by the
Social Fund for the years 2004–2009. Preliminary motions regarding jurisdictional matters were argued on August 28,
2012 and subsequently determined in favour of Kumtor. Such decision was appealed by the Social Fund to the
Bishkek City Court, which dismissed the appeal of the Social Fund on November 28, 2012. In early February 2013,
the Social Fund appealed this decision of the Bishkek City Court to the Kyrgyz Republic Supreme Court.
In addition to the court claim commenced by the Social Fund, the Company also received notices from the Social
Fund in July 2012 alleging (i) the illegality of an August 23, 1994 agreement between the Social Fund and Kumtor
Operating Agreement, which if found invalid, could require Kumtor to pay Social Fund contributions for all
expatriate employees for the period from February 15, 1993 to date (subject to the application of Kyrgyz limitation
periods and the terms of a release agreement entered into between the Government and KOC (among others) dated
June 6, 2009); and (ii) that Kumtor should make Social Fund contributions on high altitude premiums paid to all
Kumtor employees before 2010.
The Company does not believe it is likely that the Social Fund will be successful in its claims. However, there are no
assurances that the Company and Kumtor will be able to resolve the outstanding matters relating to the Social Fund
without any material impact on the Company’s future cash fl ows, earnings, results of operations and fi nancial condition.
Mongolia
Gatsuurt and the Impact of the Mongolian Water and Forest Law
The Mongolian Parliament enacted in July 2009 the Mongolian Law to Prohibit Mineral Exploration and Mining
Operations at River Headwaters, Protected Zones of Water Reservoirs and Forested Areas (the “Water and Forest
Law”) which prohibits mineral prospecting, exploration and mining in water basins and forestry areas in Mongolia.
The law provides for a specifi c exemption for “mineral deposits of strategic importance”, which exempts the Boroo
hard rock deposit from the application of the law. Centerra’s Gatsuurt licenses are currently not exempt. Under the
Mineral Laws of Mongolia, Parliament on its own initiative or, on the recommendation of the Mongolian
Government, may designate a mineral deposit as strategic. Such designation could result in Mongolia receiving up
to a 34% interest in the applicable project.
Centerra is currently in discussions with the Mongolian Government regarding the development of the Gatsuurt
property. 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 Forest Law having a limited impact on the Gatsuurt
property, in particular, and other Company’s Mongolian activities including ATO. 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 Gatsuurt 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, 2012, the Company had net assets recorded amounting to approximately $37 million related
to the investment in Gatsuurt and approximately $28 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 or fi nancial condition.
2012 ANNUAL REPORT 115
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Corporate
Enforcement Notice by Sistem:
During 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. These
notices were served by Sistem 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 Kyrgyz Republic in
accordance with a judgment of the Ontario Superior Court enforcing an international arbitration award against the
Kyrgyz Republic. In these Ontario proceedings, Sistem alleges that the shares in Centerra owned by Kyrgyzaltyn and
any dividends paid in respect of those shares, are in fact legally and benefi cially owned by the Kyrgyz Republic and
are therefore subject to execution to pay the judgment.
Based on legal advice received, Centerra disputes those allegations and paid to Kyrgyzaltyn its portion of
Centerra dividends payable on May 18, 2011 (approximately Cdn $31 million) and on May 31, 2012 (approximately
Cdn $3 million). Sistem is continuing with its claim regarding the Centerra shares owned by Kyrgyzaltyn. 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. However, Centerra
believes it has a strong defense to that claim based on the facts and the law.
Preliminary motions regarding jurisdictional matters have been heard in the Ontario Superior Court over the
course of 2012, with the objective of setting aside the Ontario judgment enforcing the arbitration award. The lower
court decision found in favour of Sistem and dismissed the motion. Kyrgyzaltyn appealed such decision to the Court
of Appeal where it was not successful. At this point, the matter can either be appealed further by Kyrgyzaltyn or the
trial on the substantive issue will commence.
28. 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 the management fees and concession payments paid and accrued by Kumtor Gold
Company (“KGC”), a subsidiary of the Company, to Kyrgyzaltyn and the amounts paid and accrued by Kyrgyzaltyn
to KGC according to the terms of a Restated Gold and Silver Sale Agreement between KGC, Kyrgyzaltyn and the
Government of the Kyrgyz Republic dated June 6, 2009.
The breakdown of the sales transactions and expenses with Kyrgyzaltyn are as follows:
(Thousands of U.S. Dollars)
Management fees to Kyrgyzaltyn
Gross gold and silver sales to Kyrgyzaltyn
Deduct: refi nery and fi nancing charges
Net sales revenue received from Kyrgyzaltyn
Dividend
(Thousands of U.S. Dollars)
Dividends declared to Kyrgyzaltyn
116 CENTERRA GOLD INC.
2012
315
$
$ 535,437
(1,883)
$ 533,554
2011
$
599
$ 944,020
(2,947)
$ 941,073
2012
2011
$
5,949
$ 29,412
Centerra_Financials.indd 116
Apr/01/2013 1:28 PM
Related party balances
The assets and liabilities of the Company include the following amounts with Kyrgyzaltyn:
(Thousands of U.S. Dollars)
Prepaid amounts
Amounts receivable (note 7)
Total related party assets
Dividend payable (net of withholding taxes)
Total related party liabilities
2012
–
48,325
48,325
5,949
5,949
$
$
$
$
2011
$
143
47,366
$ 47,509
$
$
–
–
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 Gold and Silver Sale Agreement. Amounts receivable from Kyrgyzaltyn arise from
the sale of gold to Kyrgyzaltyn. 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.
Dividend payable and restricted cash held in trust
Pursuant to an Ontario court decision dated September 5, 2012, Kyrgyzaltyn’s portion of the Centerra dividend
declared on August 1, 2012 and November 7, 2012 of $6.3 million net of withholding taxes of $0.4 million ($5.9 million
net) is held in trust to the credit of the Sistem court proceedings (see note 6).
The dividend payable and restricted cash held in trust have been classifi ed as long-term since the timing of the
resolution of the court proceedings is unknown.
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 share-based payments) and
as employees of the Company (salaries, benefi ts and share-based payments).
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, Vice
President Global Exploration, General Counsel and Corporate Secretary, Vice President Business Development and
Vice President Human Resources.
During 2012 and 2011, remuneration to directors and key management personnel were as follows:
Compensation of Directors
(Thousands of U.S. Dollars)
Fees earned and other compensation
Share-based compensation (recovery)
Total expensed (recovery)
2012
1,027
(2,880)
(1,853)
$
$
2011
$
1,055
544
$
1,599
Fees earned and other compensation
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 payment 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 26.
Centerra_Financials.indd 117
Apr/01/2013 1:28 PM
2012 ANNUAL REPORT 117
Compensation of Key Management Personnel
Compensation of key management personnel comprised:
(Thousands of U.S. Dollars)
Salaries and benefi ts
Share-based compensation (recovery)
Total expensed
2012
5,236
(724)
4,512
$
$
$
2011
5,462
9,221
$ 14,683
Salaries and benefi ts
These amounts represent salary, supplementary executive retirement plan contributions, and benefi ts earned
during the year, plus cash bonuses awarded for the year.
Share-based compensation
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 26.
29. 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. In 2012, the Company borrowed
$76 million under the revolving credit facility (see note 15).
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 as shown below:
(Thousands of U.S. Dollars)
Short-term debt
Cash and cash equivalent
Short-term investments
Net assets
Shareholders’ equity
Total invested capital
2012
2011
$
76,000
(334,115)
(47,984)
(306,099)
1,328,826
$ 1,022,727
$
–
(195,539)
(372,667)
(568,206)
1,538,459
$ 970,253
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, 2012 and December 31, 2011 the Company was in compliance with these requirements.
30. FINANCIAL INSTRUMENTS
The Company has various fi nancial instruments comprised of cash and cash equivalents, short-term investments,
restricted cash, amounts receivables, a reclamation trust fund, short-term debt, 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 judgement 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 assets carried at fair value through profi t or loss and amounts receivable are classifi ed
as “Loans and Receivables”, which are measured at amortized cost.
118 CENTERRA GOLD INC.
Centerra_Financials.indd 118
Apr/01/2013 1:28 PM
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. 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 approximates to the carrying value due to the short-term nature of
the receivables.
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
approximate their carrying amount given the fl oating component of the interest rate.
Classifi cation of the fi nancial assets and liabilities in the statement of fi nancial position were as follows:
December 31, 2012
(Thousands of U.S. Dollars)
Financial Assets
Cash and cash equivalents
Short-term investments
Restricted cash
Amounts receivable
Reclamation trust fund
Long-term receivables
Financial Liabilities
Accounts payable and accrued liabilities
Short-term debt
December 31, 2011
(Thousands of U.S. Dollars)
Financial Assets
Cash and cash equivalents
Short-term investments
Restricted cash
Amounts receivable
Reclamation trust fund
Long-term receivables
Financial Liabilities
Accounts payable and accrued liabilities
Loans and
receivables
Other fi nancial
at fair value
liabilities
through earnings
Assets/liabilities
$
–
–
–
75,338
–
263
$ 75,601
$
$
–
–
–
$
$
–
–
–
–
–
–
–
$ 58,703
76,000
$ 134,703
$ 334,115
47,984
6,087
–
11,328
–
$ 399,514
$
$
–
–
–
Loans and
receivables
Other fi nancial
at fair value
liabilities
through earnings
Assets/liabilities
$
$
–
–
–
56,749
–
4
$ 56,753
$
–
–
–
–
–
–
–
$
$
–
–
$ 35,790
$ 35,790
$ 195,539
372,667
179
–
9,081
–
$ 577,466
$
$
–
–
Centerra_Financials.indd 119
Apr/01/2013 1:28 PM
2012 ANNUAL REPORT 119
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 establishes a hierarchy
for which of these assets and liabilities must be grouped based on whether the inputs to those valuation techniques
are observable or unobservable. Observable inputs refl ect market data obtained from independent sources,
while unobservable inputs refl ect the Company’s assumptions. These 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, 2012, and December 31,
2011 for assets and liabilities measured at fair value on a recurring basis:
(Thousands of U.S. Dollars)
Financial Assets
Cash and cash equivalents
Short-term investments
Restricted cash
Reclamation trust fund
Financial Liabilities
Cash settled share-based compensation liabilities
December 31, 2012
December 31, 2011
Level 1
Level 2
Level 1
Level 2
$ 334,115
47,984
6,087
11,328
$ 399,514
$
$
–
–
$
$
$
$
–
–
–
–
–
5,235
5,235
$ 195,539
372,667
179
9,081
$ 577,466
$
$
–
–
$
$
$
$
–
–
–
–
–
41,974
41,974
31. FINANCIAL RISK EXPOSURE AND RISK MANAGEMENT
The Company is exposed in varying degrees to certain fi nancial 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. 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.
120 CENTERRA GOLD INC.
Centerra_Financials.indd 120
Apr/01/2013 1:28 PM
The Company either makes purchases in foreign currencies at the prevailing spot price to fund corporate
activities or enters into short-term forward contracts to purchase Canadian Dollars or Euros. During the year ended
December 31, 2012, Cdn $76.5 million and Euro 29.0 million of such forward contracts were executed (December 31,
2011 – Cdn $111.7 million and Euro 8.0 million). There were no outstanding Canadian Dollar forward contracts and
no outstanding Euro contracts outstanding at December 31, 2012 (December 31, 2011 – no outstanding Canadian
Dollar forward contracts and Euro 2 million contracts).
The exposure of the Company’s fi nancial assets and liabilities to currency risk is as follows:
December 31, 2012
(Thousands of U.S. Dollars)
Som
Tugrik
Dollar
Kyrgyz
Mongolian
Canadian
Russian
Rubles
European
Turkish
Australian
Euro
Lira
Dollar
Financial Assets
Cash and cash equivalents
Restricted cash
Amounts receivable
Financial Liabilities
Accounts payable and
accrued liabilities
December 31, 2011
$
$
157
148
261
566
$
559
$ 15,545
$
389
$ 5,398
$
2
7,317
–
216
$ 7,878
$ 15,761
$
–
137
526
–
590
$ 5,988
$
130
$
$
76
–
54
–
–
–
–
$ 19,956
$ 19,956
$ 5,435
$ 5,435
$ 12,307
$ 12,307
$
$
28
28
$
$
106
106
$
$
531
531
$
$
164
164
(Thousands of U.S. Dollars)
Som
Tugrik
Dollar
Kyrgyz
Mongolian
Canadian
Russian
Rubles
European
Turkish
Australian
Euro
Lira
Dollar
Financial Assets
Cash and cash equivalents
Short-term investments
Restricted cash
Amounts receivable
Financial Liabilities
Accounts payable and
accrued liabilities
$
650
$
684
$ 32,572
$
–
–
132
782
$
–
179
2,093
4,758
–
616
$ 2,956
$ 37,946
$
50
–
–
125
175
$ 6,313
$
–
–
173
$ 6,486
$
$ 10,077
$ 10,077
$ 7,862
$ 7,862
$
$
251
251
$
$
254
254
$
$
843
843
$
$
15
–
–
29
44
16
16
$
$
$
$
–
–
–
–
–
–
–
A strengthening of the U.S. Dollar by 10% against the Canadian Dollar, the Kyrgyz Som, the Turkish Lira, the Russian
Ruble, the European Euro and the Mongolian Tugrik at December 31, 2012, with all other variables held constant
would have led to additional income before tax of $0.8 million (2011 – $2.9 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 risk of changes in cash
fl ow as a result of the change in interest rate. 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, 2012, the majority of the
$382.1 million in cash and cash equivalents and short-term investments (December 31, 2011 – $568.2 million) were
comprised of interest-bearing assets. Based on amounts as at December 31, 2012, a 100 basis point change in
interest rates would change net annual interest income by approximately $3.8 million (2011 – $4.4 million).
In addition, the interest on the $76 million short-term debt includes a variable rate component pegged to the
London Interbank Offer Rate, or LIBOR. Based on the amount drawn as at December 31, 2012, a 100 basis point
change in LIBOR would change net annual interest expenses by approximately $0.8 million (2011 – nil).
2012 ANNUAL REPORT 121
Centerra_Financials.indd 121
Apr/01/2013 1:28 PM
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 28).
Based on movements of Centerra’s share price, and the value of individual or unsettled gold shipments, over
the course of 2012, 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 $56.7 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, 2012, 21% of cash and cash equivalents were held with Bank of Nova Scotia, 13% each held in
bonds issued by the Provinces of Quebec and Ontario. Another 23% were held with various other U.S. and foreign
banks. This 71% 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 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, $74 million of the credit facility fi nancing remains available. The
Company believes that these sources will be suffi cient to cover its anticipated short and long-term cash requirements.
At December 31, 2012, the Company had cash and cash equivalents and short-term investments totaling
$382.1 million (December 31, 2011 – $568.2 million). 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 U.S. Dollars)
Account payable and accrued liabilities
Short-term debt
Reclamation trust deed
Capital equipment
Operation supplies
Lease of premises (a)
Total contractual obligations
Due in
Less than
One year
Due in
1 to 3
Years
Due in
4 to 5
Years
$
$
63.9
76.0
2.2
28.9
69.4
0.6
$
241.0
$
–
–
7.4
–
–
1.5
8.9
$
$
–
–
5.0
–
–
0.5
5.5
$
Due in
After 5
Years
–
–
11.1
–
–
–
$
11.1
Total
63.9
76.0
25.7
28.9
69.4
2.6
266.5
$
$
(a) Includes leases for the Company’s offi ces in Toronto, Canada, Bishkek, Kyrgyzstan and Ulaanbaatar, Mongolia.
The Company has suffi cient cash and cash equivalents and short-term investments to meet its current obligations.
122 CENTERRA GOLD INC.
Centerra_Financials.indd 122
Apr/01/2013 1:28 PM
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 affect 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 or 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, the fair value of the Company’s mineral assets increases and cash fl ows will
improve; conversely, declines in the price of gold will reduce the fair value of mineral assets 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 Company’s
profi tability and cash fl ows 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, 2012, 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 loss before tax of $75.1 million (2011 – $52.2 million).
The Company does not enter into any fi nancial instruments to mitigate commodity price risk.
32. SUPPLEMENTAL CASH FLOW DISCLOSURE
a. Changes in operating working capital
(Thousands of U.S. Dollars)
(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 (note 10)
Reduction (increase) in accruals included in additions to PP&E
De-recognition of underground inventory – supplies
Accrued interest excluded from accrued liabilities
Reclassifi cation of prepaid revenue – based tax from prepaid expenses
Reclassifi cation of other taxes payable from income taxes payable
b. Investment in property, plant and equipment (PP&E)
(Thousands of U.S. Dollars)
Additions to PP&E during the year ended December 31, (note 10)
Impact of revision to asset retirement obligation included in PP&E (note 17)
Depreciation and amortization included in additions to PP&E ( note 10)
Increase in accruals included in additions to PP&E
2012
(18,589)
10,226
(19,294)
(22,481)
(12,445)
3,465
35,036
10,138
(13,962)
(713)
30,000
212
1,593
$
$
2011
$ 43,813
(55,521)
(42,790)
(4,615)
5,475
(10,311)
18,564
1,235
–
–
–
–
$ (44,150)
2012
2011
$ (409,488)
(1,129)
54,332
(10,138)
$ (366,423)
$ (208,489)
15,942
18,627
(1,235)
$ (175,155)
2012 ANNUAL REPORT 123
Centerra_Financials.indd 123
Apr/01/2013 1:28 PM
33. SUBSEQUENT EVENT
On January 24, 2013, the Company purchased the remaining 30% interest in the Öksüt Gold Project, located in
central Turkey, from Stratex International Plc. With the closing, the Company became the sole owner of the Öksüt
Gold Project and assumed operatorship and day-to-day management of the project. Consideration for Stratex’s
interest in the project consisted of $20 million paid at closing and a 1% Net Smelter Return royalty on the project,
subject to a maximum of $20 million.
34. 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. Information presented in the table below is shown at the level at which it is review by
the CODM in his decision making process.
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 involve the head offi ce located in Toronto
and other international exploration projects. The segments’ accounting policies are the same as those described
in the summary of signifi cant accounting policies in the Company’s 2012 annual fi nancial statements 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 from operations.
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 statements of earnings (loss) and comprehensive income (loss).
Year ended December 31, 2012
(Millions of U.S. Dollars)
Revenue from Gold Sales
Cost of sales
Abnormal mining costs
Mine standby costs
Regional offi ce administration
Earnings from mine operations
Revenue based taxes
Other operating expenses
Loss on de-recognition of underground assets
Exploration and business development
Corporate administration
Earnings (loss) from operations
Other (income) and expenses
Finance costs
Loss before income taxes
Income tax expense
Net loss and comprehensive loss
Capital expenditure for the year
Goodwill
Assets (excluding Goodwill)
124 CENTERRA GOLD INC.
Kyrgyz
Corporate
Republic
Mongolia
and other
Total
$
533.5
$
127.2
$
311.1
60.9
4.6
15.5
141.4
74.7
31.8
180.7
11.8
1.8
(159.4)
76.4
–
–
5.5
45.3
–
2.5
–
10.0
0.2
32.6
$
$
$
399.9
129.7
889.2
$
$
$
10.2
–
346.3
$
$
$
–
–
–
–
–
–
–
–
–
16.7
25.0
$
660.7
387.5
60.9
4.6
21.0
186.7
74.7
34.3
180.7
38.5
27.0
(41.7)
(168.5)
(0.2)
4.0
(172.3)
11.7
$
(184.0)
$
$
410.6
129.7
0.5
–
188.9
$ 1,424.4
Centerra_Financials.indd 124
Apr/01/2013 1:28 PM
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 (loss) from operations
Other (income) and expenses
Finance costs
Earnings 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
$
79.2
49.7
0.2
6.0
23.3
–
3.9
11.4
0.4
7.6
$
–
–
–
–
–
–
–
17.9
42.4
(60.3)
$
$
180.7
129.7
$ 1,016.6
$
$
$
6.6
–
319.4
$
$
$
$
$
$
0.6
–
222.9
$ 1,558.9
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
187.9
129.7
Centerra_Financials.indd 125
Apr/01/2013 1:28 PM
2012 ANNUAL REPORT 125
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.
126 CENTERRA GOLD INC.
Centerra_Financials.indd 126
Apr/01/2013 1:28 PM
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.
Centerra_Financials.indd 127
Apr/01/2013 1:28 PM
2012 ANNUAL REPORT 127
Corporate Information
Exploration Offi ces
Centerra Gold Mongolia LLC
Bodi Tower
12th Floor
Sukhbaatar Square
Ulaanbaatar, Mongolia
210646
Centerra Madencilik A.S.
Buyukesat Mahallesi
Cayhane Sokak No. 47/9
06700 Gaziosmanpasa
Cankaya, Ankara, Turkey
Centerra Gold Inc.
Beijing Representative Offi ce
1606 Full Tower
9 Doung San Huan Zhong Lu
Chaoyang District
Beijing, China
100020
Operations Offi ces
Kumtor Operating Company
Kumtor Gold Company
24 Ibraimov Street
Bishkek, Kyrgyz Republic
720031
Boroo Gold LLC
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.
P.O. Box 700
Station B
Montreal, QC
H3B 3K3
North America
phone toll free:
1.800.387.0825 or
416.682.3860
Fax: 1.888.249.6189
Email: inquiries@canstockta.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 (1)
Stephen A. Lang (3), (6), (7), (8)
Ian Atkinson
Richard W. Connor (2), (4)
Raphael A. Girard (3), (4), (7)
Karybek U. Ibraev (5), (6), (7)
John W. Lill (5), (6), (7)
Amangeldy M. Muraliev (3), (5)
Sheryl K. Pressler (2), (3)
Terry V. Rogers (2), (4), (6)
Bruce V. Walter (5), (6), (9)
(1) As of January 2, 2013
(2) Member of the Audit Committee
(3) Member of the Nominating and Corporate
Governance Committee
(4) Member of the Human Resources and
Compensation Committee
(5) Member of the Safety, Health and
Environmental Committee
(6) Member of the Reserves Committee
(7) Member of Corporate Social Responsibility Committee
(8) Mr. Lang is Chair of the Board of Directors
(9) Mr. Walter is Vice-Chair of the Board of Directors
Offi cers and Management
Ian Atkinson
President and Chief Executive Offi cer
Jeffrey S. Parr
Vice President and Chief Financial Offi cer
Gordon D. Reid
Vice President and Chief Operating Offi cer
David A. Groves
Vice President, Global Exploration
Frank H. Herbert
General Counsel and Corporate Secretary
Dennis C. Kwong
Vice President, Business Development
Anthony J. Meade
Vice President, Human Resources
and Administration
John W. Pearson
Vice President, Investor Relations
Turat Usubaliev
Vice President
John M. Kazakoff
President, Boroo Gold Company
Michael M. Fischer
President, Kumtor Operating Company
Andrew A. Sazanov
President, Kumtor Gold Company
128 CENTERRA GOLD INC.
Centerra_Financials.indd 128
Apr/01/2013 1:28 PM
Printed in Canada using VOC-free inks.
Suite 1500
1 University Avenue
Toronto, Ontario
Canada m5j 2p1
T 416.204.1953
F 416.204.1954
www.centerragold.com