50762 Centerra Cover_Layout 1 2015-03-31 3:48 PM Page 1
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A N N U A L R E P O R T
2014
C E N T E R R A G O L D I N C .
www.centerragold.com
CENTERRA GOLD INC.
Suite 1500
1 University Avenue
Toronto, Ontario
Canada M5J 2P1
T 416.204.1953
F 416.204.1954
50762 Centerra Cover_Layout 1 2015-03-31 3:48 PM Page 2
C O R P O R AT E P R O F I L E
Centerra is a North American-based gold mining company engaged in operating, developing, acquiring and exploring gold
properties in Asia, Canada and other markets worldwide. The Company is the largest Western-based gold producer in Central
Asia with two operating gold mines, one located in the Kyrgyz Republic and one in Mongolia. In 2014, Centerra produced
620,821 ounces of gold from its two operations.
Centerra’s objectives are to build shareholder value by maximizing the potential of its current properties, expand its portfolio
of gold mining operations, add additional exploration properties and continue to increase its reserves and resources.
Centerra’s shares trade on the Toronto Stock Exchange (TSX) under the symbol CG. The Company is headquartered in Toronto,
Ontario, Canada.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Information contained in this annual report
involves risks, uncertainties and other factors
Mr. Reid is a Qualified Person within the
which are not statements of historical facts,
that could cause actual results, performance,
meaning of NI 43-101. For more information,
and the documents incorporated by reference
prospects and opportunities to differ materially
please refer to the Company’s MD&A included
herein, may be “forward-looking information”
from those expressed or implied by such
in this Annual Report and the Company’s most
for the purposes of Canadian securities laws.
forward-looking information. For a detailed
recent Annual Information Form which is
These forward-looking statements relate to,
discussion of such risks and other factors, see
available on SEDAR.
among other things, the Company’s
the Management’s Discussion and Analysis
Although Centerra believes that the
expectations for 2015 gold production, costs,
(MD&A) included in this Annual Report and the
assumptions inherent in these forward-looking
exploration, capital and corporate expenditures;
Company’s most recent Annual Information
statements are reasonable, the reader should
the Company’s pipeline of exploration and
Form which is available on SEDAR.
not place undue reliance on these statements.
development properties and their potential,
Mineral resources are not mineral reserves and
Forward-looking information is as of March 27,
including expectations for exploration,
do not have demonstrated economic viability.
2015. For a detailed discussion of the key
development; estimates of production and
Inferred mineral resources have a greater
assumptions and risk factors, please refer to
costs at Kumtor and Boroo and consolidated
amount of uncertainty as to whether they can
the MD&A included in this Annual Report.
production and costs; expectations regarding
be mined economically. It cannot be assumed
Centerra disclaims any intention or obligation
the Gatsuurt Project, including as to the level
that all or part of the inferred resources will
to update or revise any forward-looking
of Mongolian state ownership therein, the
ever be upgraded to a higher category. There is
statements whether as a result of new
entering into a deposit development
no certainty that mineral resources of any
information, future events or otherwise, except
agreement; expectations regarding further
category can be upgraded to mineral reserves
to the extent required by applicable laws.
progress on the Öksüt Project, including the
through continued exploration. Reserves and
schedule for completion of a feasibility study;
Resources are as of December 31, 2014.
All dollar amounts are expressed in U.S. dollars
and expectations regarding the completion of a
Please refer to page 11 of the MD&A included
in this report, except as otherwise indicated.
restructuring of the Kumtor Project in
in this Annual Report. Except as otherwise
accordance with the Heads of Agreement on
noted herein, Gordon Reid, Professional
(1) Non-GAAP measure, see discussion under
the Kumtor Restructuring dated January 18,
Engineer and Centerra’s Vice President and
“Non-GAAP Measures” in the MD&A.
2014. Such forward-looking information
Chief Operating Officer, has reviewed and
approved the scientific and technical
information contained in this Annual Report.
C O R P O R AT E I N F O R M A T I O N
DIRECTORS
Stephen A. Lang, Chair
Ian Atkinson
Richard W. Connor
Raphael A. Girard
Emil Orozbaev
Michael S. Parrett
Sheryl K. Pressler
Terry V. Rogers, Lead Director
Kalinur Sadyrov
Kylychbek Shakirov
Bruce V. Walter, Vice-Chair
OFFICERS AND MANAGEMENT
Ian Atkinson
President and
Chief Executive Officer
Jeffrey S. Parr
Vice President and
Chief Financial Officer
Gordon D. Reid
Vice President and
Chief Operating Officer
Ronald Burk
Vice President, Exploration
Frank H. Herbert
General Counsel and
Corporate Secretary
Dennis C. Kwong
Vice President,
John W. Pearson
Vice President, Investor Relations
Darren J. Millman
Vice President, Finance and Treasurer
Kevin D’Souza
Vice President,
Sustainability and Environment
John M. Kazakoff
President, Boroo Gold Company
Daniel R. Desjardins (1)
President, Kumtor Gold Company
Michael M. Fischer
General Manager,
Öksüt Madencilik A.S.
Business Development
(1) Mr. Desjardins joined Centerra
Anthony J. Meade
Vice President, Human Resources
and Administration
on January 20, 2015
TRANSFER AGENT
AUDITORS
For information on common
KPMG LLP
share holdings, lost share
Suite 4600
OPERATIONS OFFICES
EXPLORATION OFFICES
Boroo Gold LLC
P.O. Box 223
Centerra Gold Mongolia LLC
Bodi Tower, 12th Floor
certificates and address
Bay Adelaide Centre
Bodi Tower, 11th Floor
Chinggis Khaan Square
changes, contact:
CST Trust Company
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
333 Bay Street
Suite 4600
Toronto, Ontario
Canada M5H 2S5
Chinggis Khaan Square
Chingeltei Duureg
Chingeltei Duureg
Ulaanbaatar, Mongolia
Ulaanbaatar, Mongolia
15160
15160
Centerra Madencilik A.S.
STOCK EXCHANGE LISTING
Kumtor Gold Company
Buyukesat Mahallesi
Toronto Stock Exchange
24 Ibraimov Street, 10th Floor
Cayhane Sokak No. 47/9
Symbol: CG
Bishkek, Kyrgyz Republic
06700 Gaziosmanpasa
720031
Cankaya, Ankara, Turkey
INVESTOR RELATIONS
CONTACT
John W. Pearson
Öksüt Madencilik A.S.
Turan Gunes Bulvari
Vice President Investor Relations
Hollanda Caddesi No. 3/5
investor@centerragold.com
Cankaya, Ankara, Turkey
CORPORATE HEADQUARTERS
06550
Suite 1500
1 University Avenue
Toronto, Ontario
Canada M5J 2P1
T 416.204.1953
F 416.204.1954
www.centerragold.com
C E N T E R R A G O L D I N C .
Printed in Canada
50762 Centerra Front End_Centerra 2015-03-26 12:28 PM Page 4
C E N T E R R A G O L D I N C .
A leading North American-based gold producer, headquartered in Toronto, Canada,
with over 20 years of experience in Central Asia. Centerra operates two gold mines,
one in the Kyrgyz Republic and one in Mongolia and has exploration interests
in Canada, Mongolia, Portugal and Turkey.
1
1
2
2
1
2
1
3
EXPLORATION/
JOINT VENTURES
Yukon 1
Portugal 2
ATO, Mongolia 3
PARTNERSHIP
DEVELOPMENT
OPERATIONS
1 Trans-Canada Project
1 Gatsuurt Deposit, Mongolia
2 Öksüt Deposit, Turkey
1 Kumtor Mine, Kyrgyz Republic
2 Boroo Mine, Mongolia
620,821Consolidated gold production for 2014 in ounces
ACHIEVEMENTS
2014 gold production of 620,821 ounces
All-in sustaining cost per ounce sold1 $852 for the full year
Gatsuurt designated as a mineral deposit of strategic importance (early 2015)
Majority of Öksüt Indicated Resources upgraded to Measured Resources
Good liquidity – no net debt, revolving credit facility renewed, maintained dividend
Subsequent to year-end formed a 50/50 partnership for joint ownership
and development of the Trans-Canada Project
50762 Centerra Front End_Centerra 2015-03-26 12:28 PM Page 5
P R E S I D E N T ’ S M E S S A G E
In 2014, we had a number of achievements:
for the government’s participation in the Gatsuurt
we met our full-year guidance on both gold
Project and to finalise a deposit development
production and unit costs and we continued our
agreement. In February, we also announced the
constructive discussions with the Government of
formation of a 50/50 partnership with Premier Gold
the Kyrgyz Republic regarding a restructuring of
Mines for joint ownership and development of the
the Kumtor Project. We also expanded the Öksüt
Hardrock Gold Project on the Trans-Canada Property,
Project resource, converting the majority of
which is located in the Geraldton-Beardmore
the previously reported indicated resources to
Greenstone Belt in northwestern Ontario. We now
measured resources as we continue our work
have three advanced development projects that can
to finalise the environmental and social impact
deliver strong production growth at low cost over
assessment and the feasibility study.
the next two to four years and provide operational
and geographic diversification. We can fund all three
Since the end of the year, we have had two other
of the projects ourselves from our balance sheet or
significant developments. In January 2015, our
through financing.
Gatsuurt Project in Mongolia was designated as
a mineral deposit of strategic importance, which
We also faced some challenges during 2014. The
paves the way for development of the project.
average gold price for the year was 10% lower than
We look forward to continuing to work with the
the average price in 2013. At Kumtor, our analysis of
Mongolian Government to determine the terms
both the impact of the buttress that we constructed
567,693
ounces of gold
produced in 2014
$779
all-in sustaining cost
per ounce sold1 in 2014
9.9
million ounces of gold
produced since 1997
K Y R G Y Z R E P U B L I C K U M T O R M I N E
C E N T E R R A G O L D I N C .
50762 Centerra Front End_Centerra 2015-03-26 12:28 PM Page 6
in March 2014 and the performance of the resource
restructuring transaction can be completed.
model resulted in a reduction in reserves and
Centerra continues to require that any agreement
resources and a revision to Kumtor’s life-of-mine
reached related to Kumtor must be fair to all
plan. The impact of the reserve adjustment and
Centerra shareholders.
changes in the life-of-mine plan triggered a non-cash
impairment charge of $111 million of the Company’s
On the financial front in 2014, Centerra reported
goodwill.
a net loss of $44 million or $0.19 per share (basic)
which includes the $111 million or $0.47 per share
We are continuing our negotiations with the
non-cash impairment charge of goodwill. We
Government of the Kyrgyz Republic to restructure
generated approximately $376 million in cash from
the Kumtor Project in accordance with the Heads
our operations or $1.59 per share. At the end of the
of Agreement (HOA) signed in 2014 to resolve
year the Company was in a good financial position
all outstanding concerns relating to the Kumtor
with $562 million of cash, cash equivalents and
Project. We are now in the process of negotiating
short-term investments, as well as $74 million
the definitive agreements with the government’s
undrawn on our $150 million credit facility. The
working group, Kyrgyzaltyn and their advisors.
credit facility was extended for another year which
As we have previously disclosed, the issues raised
will provide us with additional liquidity going
by the Stans Energy litigation will have to be fully
forward. The Company also invested approximately
resolved by the Kyrgyz Government before any
$16 million in exploration and business development
53,128
ounces of gold
produced in 2014
$973
all-in sustaining cost
per ounce sold1 in 2014
1.8
million ounces of gold
produced since 2004
M O N G O L I A B O R O O M I N E
C E N T E R R A G O L D I N C .
50762 Centerra Front End_Centerra 2015-03-31 3:40 PM Page 7
P R E S I D E N T ’ S M E S S A G E
and $41 million in our operations. We remain
Looking forward in 2015, our consolidated gold
unhedged, allowing us to participate in the upside
production is estimated to be in the range of
of any increase in the gold price. In addition,
480,000 to 535,000 ounces with the majority
we maintained our quarterly dividend at 4 cents
again coming from Kumtor, but unlike other years
(Canadian $).
Kumtor’s gold production is expected to be relatively
even quarter-over-quarter. The 2015 forecast
In 2014, our consolidated gold production was
assumes no mining activities at Boroo
621,000 ounces, about 10% lower than 2013.
and Gatsuurt, and no gold production from the
Kumtor again had an exceptional fourth quarter
Gatsuurt Project.
producing some 292,000 ounces. Additionally,
Boroo exceeded its production guidance for the
Our all-in sustaining costs1 on a consolidated basis
year, producing just over 53,000 ounces of gold.
for 2015 are expected to be in the range of $898
Our all-in sustaining costs1 for the year was
to $1,003 per ounce sold. ”All-in sustaining costs”
$852 per ounce sold and our all-in costs1, which
is a non-GAAP measure and includes sustaining
includes sustaining and growth capital, exploration
capital and corporate costs on a consolidated
and corporate costs, but excludes revenue-based
basis, but excludes growth capital and taxes. It is
tax and income tax, was a respectable $955 per
more fully described in “Non-GAAP Measures”
ounce sold.
in the accompanying Management’s Discussion
and Analysis.
40.0
million tonnes measured
and indicated resource
1.1
g Au/t
average grade
1.4
million contained
ounces of gold
E X P L O R AT I O N Ö K S Ü T P R O J E C T
C E N T E R R A G O L D I N C .
50762 Centerra Front End_Centerra 2015-03-26 12:28 PM Page 8
In 2015, we will continue to invest in our operating
the Company. Regrettably, I have to report that
properties. Total capital expenditures excluding
last year, a contract alpinist was fatally injured in an
capitalized stripping are estimated to be $76 million,
avalanche whilst involved in performing routine
which includes $50 million of sustaining capital and
maintenance work at a microwave communication
$26 million of growth capital. The cash component
station near the Kumtor Mine. As with all significant
of capitalized stripping costs related to the
incidents, we conducted a systematic investigation
development of the open pit at Kumtor is expected
that provided us with measures to help us in the
to be $185 million. We will continue our
future to avoid such incidents.
commitment to exploration, investing $11 million
in 2015. Exploration and business development
I look forward to advancing the Gatsuurt Project
activities will focus on Asia, Canada, Portugal,
in Mongolia, developing the Öksüt Project in Turkey,
Turkey, and expand into new regions to meet the
moving the Trans-Canada Project forward,
long-term growth targets of Centerra.
expanding our exploration program into new regions
and lastly, looking for new growth opportunities
We have every reason to be proud of our record
through acquisitions.
of responsible mining in the Kyrgyz Republic and
Mongolia. I applaud our employees for their
continued commitment to maintaining the high
safety, health and environmental standards at our
mines and for achieving the production goals of
Ian Atkinson
President and
Chief Executive Officer
17.1
million tonnes proven
and probable reserve
2.9
g Au/t
average grade
1.6
million contained
ounces of gold
D E V E L O P M E N T G A T S U U R T P R O J E C T
C E N T E R R A G O L D I N C .
50762 Centerra Front End_Centerra 2015-03-26 12:28 PM Page 9
F I N A N C I A L A N D O P E R AT I N G H I G H L I G H T S
SELECTED ANNUAL INFORMATION ($ millions, except as noted)
2014
2013
2012(1)
Revenue
Earnings from mine operations
Revenue-based taxes
Impairment of goodwill
Loss on de-recognition of underground assets
Exploration and business development
Corporate administration
Earnings (loss) from operations
Net earnings (loss)
Earnings (loss) per share – $ per share (basic)
Cash provided by operations
Cash flow per share – $ per share
Cash, cash equivalents and short-term investments
Total assets
Ounces produced
Ounces sold
Adjusted operating costs – $ per oz sold (2)
All-in sustaining costs – $ per oz sold (2)
All-in costs – $ per oz sold (2)
Average realized gold price – $ per oz sold (2)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
763
233
97
111
–
16
35
(35)
(44)
(0.19)
376
1.59
562
1,629
620,821
615,234
409
852
955
1,241
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
944
361
114
–
–
30
31
179
158
0.67
484
2.05
502
1,688
690,720
696,818
402
818
920
1,355
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
661
227
75
–
181
39
27
(128)
(144)
(0.61)
173
0.73
382
1,594
387,076
390,533
736
1,364
1,934
1,692
(1) The 2012 comparative period was restated as a result of the adoption of IFRC 20.
(2) Adjusted operating costs per ounce sold, all-in sustaining costs per ounce sold, all-in costs per ounce sold, as well as average realized gold price per ounce sold,
are non-GAAP measures and are discussed under “Non-GAAP Measures” in the Management’s Discussion and Analysis accompanying this Annual Report.
R E S E R V E S
G O L D P R O D U C T I O N
C A S H F L O W F R O M O P E R A T I O N S
(as at December 31)
(millions of contained ounces of gold)
(thousands of ounces)
($ millions)
11.1
10.2
679
642
691
621
8.2 8.1
7.7
387
281
484
435
376
173
10
11
12
13
14
10
11
12
13
14
10
11
12
13
14
C E N T E R R A G O L D I N C .
Centerra Gold Inc.
Management’s Discussion and Analysis (“MD&A”)
For the Fiscal Year Ended December 31, 2014
Centerra’s Business .......................................................................................................................2
Economic Indicators ......................................................................................................................4
Growth Strategy .............................................................................................................................7
Reserves and Resources .................................................................................................................8
Developments in 2014 ..................................................................................................................14
Consolidated Financial and Operating Highlights ...................................................................17
Results of Operating Segments ...................................................................................................22
Fourth Quarter Results – 2014 compared to 2013 ....................................................................27
Quarterly Results – Last Eight Quarters...................................................................................29
Balance Sheet ................................................................................................................................30
Contractual Obligations ..............................................................................................................32
Other Financial Information –Related Party Transactions.....................................................32
Other Corporate Developments..................................................................................................34
Critical Accounting Estimates ....................................................................................................40
Changes in Accounting Policies ..................................................................................................43
Disclosure Controls and Procedures and Internal Control Over Financial Reporting
(“ICFR”) .......................................................................................................................................44
2015 Outlook.................................................................................................................................44
Non-GAAP Measures ..................................................................................................................52
Qualified Person & QA/QC ........................................................................................................58
Risk Factors ..................................................................................................................................58
Caution Regarding Forward-Looking Information .................................................................86
1 University Avenue, Suite 1500
Toronto, ON
M5J 2P1
tel 416-204-1953
fax 416-204-1954
www.centerragold.com
1
The following discussion has been prepared as of February 19, 2015, and is intended to provide a
review of the financial position and results of operations of Centerra Gold Inc. (“Centerra” or the
“Company”) for the three and twelve months ended December 31, 2014 in comparison with the
corresponding periods ended December 31, 2013. This discussion should be read in conjunction
with the Company’s audited financial statements and the notes thereto for the year ended
December 31, 2014 prepared in accordance with International Financial Reporting Standards. In
addition, this discussion contains forward-looking information regarding Centerra’s business 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 (U.S.) dollars, except as
otherwise indicated. Additional information about Centerra, including the Company’s Annual
Information Form
the year ended December 31, 2014, will be available at
www.centerragold.com and on the System for Electronic Document Analysis and Retrieval
(“SEDAR”) at www.sedar.com.
for
All references in this document denoted with NG, indicate a non-GAAP term which is
discussed under “Non-GAAP Measures” on pages 52 to 56.
Centerra’s Business
Centerra is a Canadian-based gold producer, operating, exploring, developing and acquiring gold
properties in Asia and other 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
19, 2015, being the date of this Management’s Discussion and Analysis (“MD&A”), there are
236,454,141 common shares issued and outstanding.
As of December 31, 2014, Centerra’s significant subsidiaries include its wholly-owned Kumtor
Gold Company in the Kyrgyz Republic, Boroo Gold LLC and Centerra Gold Mongolia LLC
(owner of the Gatsuurt property and Altan Tsagaan Ovoo (“ATO”) property) in Mongolia and
Öksüt Madencilik A.S. in Turkey. Subject to the successful closing of the transaction scheduled
for March 2015 and the conclusion of a positive feasibility study, the Company will be
developing the Trans-Canada project along with its partner, Premier Gold Mines Limited. The
property is located in Ontario, Canada and will be operated under a partnership owned 50% each
by Centerra and Premier (see Recent Developments). Additionally, the Company is earning an
interest in a joint venture exploration property located in Portugal. The Öksüt property, the
Gatsuurt property and the Trans-Canada partnership are in the pre-development phase and the
ATO and Portuguese properties are in the exploration phase.
1 University Avenue, Suite 1500
Toronto, ON
M5J 2P1
tel 416-204-1953
fax 416-204-1954
www.centerragold.com
2
Substantially all of Centerra’s revenues are derived from the sale of gold. The Company’s
revenues are derived from production from its mines and gold prices realized as sale of these
ounces. Gold doré production from the Kumtor mine is purchased by Kyrgyzaltyn JSC
(“Kyrgyzaltyn”) for processing at its refinery in the Kyrgyz Republic while gold doré produced
by the Boroo mine is sold to the Bank of Mongolia (as of January 2014) or previously was
exported for processing under a refining agreement with Johnson Matthey Limited and sold
under a master sales agreement with Auramet Trading LLC.
The average spot price for gold in 2014 based on the London PM fix was $1,266 per ounce, a
decrease of 10% over the average in 2013. The average realized priceNG of gold received by
Centerra in 2014 was $1,241 per ounce, an 8% decrease as compared to the average price
realizedNG in 2013. Centerra’s average realized priceNG for gold in 2014 was lower than the
average spot price for the year because more than 50% of annual gold production at Kumtor was
in the fourth quarter when the price of gold averaged $1,201 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 earn-in projects, administrative costs
from the Toronto, Bishkek, Ulaanbaatar and exploration offices worldwide and also from
depreciation and depletion. There are many operating variables that affect the cost of producing
an ounce of gold.
In the mine, costs are influenced by the ore grade and the stripping ratio. The stripping ratio is
the ratio of the tonnage of waste material which must be removed per one tonne of ore mined.
Ore grade refers to the amount of gold contained in a tonne of ore. The significant costs of
mining include labour, diesel fuel and equipment maintenance.
In the mill, costs are dependent mainly on the ore grade and the metallurgical characteristics of
the ore which can impact gold recovery. For example, a higher grade ore would typically
contribute to a lower unit production cost. The significant costs of milling are reagents,
consumables, mill maintenance and energy.
Both mining and milling costs are also affected by the cost of labour, which depends mostly on
the availability of qualified 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 influence the cash costs of mining and milling. The non-cash costs
(namely depreciation, depletion and amortization) are influenced by the amount of capital 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 significant 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 final
decommissioning costs. Nevertheless, the majority of rehabilitation work can only be performed
1 University Avenue, Suite 1500
Toronto, ON
M5J 2P1
tel 416-204-1953
fax 416-204-1954
www.centerragold.com
3
following the completion of mining operations. Centerra’s practice is to record the estimated
final 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 environmental budget is
deposited by Boroo into a government account and such funds are recovered by Boroo when the
annual environmental commitments are completed.
The Company reports the results of its operations in U.S. dollars, however not all its costs are
incurred in U.S. dollars. As such, the movement in exchange rates between currencies the
Company incurs costs in and the U.S. dollar also impact reported costs of the Company.
Economic Indicators
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 significant of which is the
production of jewelry. Other fabrication uses include official coins, electronics, miscellaneous
industrial and decorative uses, medals and medallions.
In 2015, global gold production is anticipated to have no growth with the cancellation of projects
both planned and existing starting to impact global supply. The gold price at current levels will
continue to place pressure on gold producers to reduce the cost of production with potential
higher cost producers reducing some mine production further. There are also no new significant
gold mines planned to be in commercial production in the near term.
In addition to the supply factors impacting the industry as described above, external factors also
impact the gold price. For example, U.S. economic performance continued to demonstrate signs
of recovery from the global financial crisis along with finally winding down quantitative easing
measures (QE) in 2014. The U.S. dollar also significantly strengthened against most currencies
and, as gold is traded primarily in U.S. dollars, this negatively impacted the gold price in 2014.
The Company believes that fundamentals remain positive for gold in the coming year. The role
of gold as a hedge against inflation is expected to support continued demand for the metal as
should the growing appetite by central banks and developing Asian nations seeking a more
reliable store of value as compared with other investments. We believe Exchange Traded Funds
(ETFs) will shift to a net buyer of gold this year as opposed to net sellers in the past two years. In
addition, we anticipate physical demand of gold to increase from China and India at current gold
price levels.
Gold Price
The average quarterly gold spot price fell during the fourth quarter of 2014 from a low of
US$1,282/oz in the first three quarters to US$1,201/oz, a 6.3% decrease. The average gold spot
price for the year was $1,266 per ounce, a decrease of 10.3% over the average in 2013.
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The following table shows the average afternoon gold price fixing, by quarter, on the London
Bullion Market for 2013, and 2014:
Quarter
2013 Q1
2013 Q2
2013 Q3
2013 Q4
2014 Q1
2014 Q2
2014 Q3
2014 Q4
Average Gold Price ($)
1,631
1,415
1,326
1,276
1,293
1,288
1,282
1,201
Exchange Rates
Canadian dollar Kyrgyz Som Mongolian Tugrik
KGS Exchange Rate to USD
MNT Exchange Rate to USD
59.50
57.50
55.50
53.50
51.50
49.50
47.50
45.50
1,900
1,800
1,700
1,600
1,500
1,400
1,300
There were several macroeconomic themes that have impacted global currencies in 2014.
Q1-13
Q2-13
Q3-13
Q4-13
Q1-14
Q2-14
Q3-14
Q4-14
Q1-13
Q2-13
Q3-13
Q4-13
Q1-14
Q2-14
Q3-14
Q4-14
The first was the increase of the U.S. dollar against nearly every other currency. This was driven
by the recovery of the U.S. economy, the QE program finally winding down and heightened
expectations of rising US interest rates. This was further emphasized by the Eurozone beginning
to return to a period of recession with central banks commencing to cut interest rates.
The Eurozone slowdown, when combined with an apparent slowing of activity in China resulted
in downward pressure on commodities in general. This combination of lower commodity prices,
lower global demand and China’s economic slowdown, all served to put strong downward
pressure on emerging market currencies.
Political events also played a role in the markets. For example, the Russian incursion into
Ukraine triggered political tension in an already uncertain global economic environment.
Additional economic sanctions were placed on Russia which put further stress on the slowing
Russian economy. This increased economic pressure on Russia further and effectively drove the
Russian economy into recession. This, in turn, had negative effects on neighboring Russian
countries including the Kyrgyz Republic.
In mid-2014, oil prices started to fall as OPEC (Organization of the Petroleum Exporting
Countries) began to push back against rapidly expanding supply originating from non-OPEC
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countries, not the least of which included North American fracking and Canadian oil sands
activity.
Canadian Dollar
The Canadian dollar was slowly trending downwards in early 2014, until the last few months
when the decline accelerated. The major driver was thought to be the rapid drop in oil prices
which has a negative impact on the Canadian dollar, as it is an oil producing country. Canada
kept its interest rates low and its economy experienced modest growth, however these positive
factors promoting the currency were far outweighed by the improved U.S. economy and drop in
oil prices.
Mongolian Tugrik
Mongolia has continued to experience political issues in 2014 with a new government installed
during the year along with reduced levels of foreign direct investment and subsequent demand
for local currency. The other main factor affecting the Tugrik is the decline in Mongolian coal
and copper revenue from reduced commodity prices. This, in turn, put pressure on the
Mongolian Government to increase spending which it has done, however, this is unsustainable
over the longer term and in the short-term the government will need to cut spending or obtain
parliamentary approval to increase the debt ceiling limits.
Kyrgyz Som
The Kyrgyz Republic managed its official interest rates, with a significant increase from 4.2% to
approximately 10.5% in 2014. This increase in official interest rates did not offset the negative
impact of the significant rate decline during the period on the Som. The performance of the Som
mirrored several other emerging market currencies with close ties with the Russian economy.
Liquidity
Financial liquidity provides the Company with the ability to fund future operating activities and
investments. Centerra generated $376.4 million in cash from operations in 2014 and has a
balance of cash and short-term investments of $562 million at December 31, 2014 which
includes $76 million drawn from its revolving line of credit. The Company’s financial 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 financial institutions, and corporate
direct credit of highly-rated, highly-liquid issuers.
The global financial markets have improved during the year, however there continues to be
caution in the markets with volatility still present. This has continued to constrain the ability of
many companies to access capital markets financing.
In December 2014, Centerra extended its secured $150 million revolving credit facility with the
European Bank for Reconstruction and Development (EBRD) until February 2016. The facility
provides Centerra available liquidity for working capital and future growth initiatives. The
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Company has $76 million outstanding on this facility at December 31, 2014, repayable on
August 11, 2015 under its current draw notice, however, at the Company’s direction, this
payment date can be extended to a future period. It is expected that all planned capital and
operating expenditures can be funded out of operating cash flow for 2015. 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 earn-in properties where
the Company’s interests are earned by funding the costs of exploration drilling
and feasibility studies; and
pursuing selective acquisitions in other markets worldwide.
Centerra’s growth strategy could be impacted by the risk factors described on page 58.
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Reserves and Resources
During 2014, the Company continued its exploration drilling activities at its 100% owned Öksüt
project in Turkey and on its various advanced exploration projects. In early 2015, the Company
completed its analysis of the impact on Kumtor’s reserves and resources of the construction of
the buttress on the pit design, updated geotechnical information that requires lower pit slope
angles in some sectors of the pit and the performance of the Kumtor block model. The result of
this work, together with the negative production reconciliation experienced in 2014, has resulted
in a reduction in Kumtor’s reserves and resources. At Gatsuurt, the project was designated as a
mineral deposit of strategic importance shortly following the 2014 year-end, which now paves
the way for further exploration drilling on the deposit, since no exploration work has been done
on the property since 2010.
On February 9, 2015, the Company released the results of the updated reserve and resource
estimates for the Kumtor mine and Gatsuurt and Öksüt projects and updated resource estimates
for its advanced projects, all as of December 31, 2014.
Reserves:
At the end of 2014, Centerra’s estimated consolidated proven and probable gold reserves
decreased by 1.65 million contained ounces, after accounting for processing of 776,000
contained ounces in 2014. Centerra’s proven and probable reserves now total an estimated 7.7
million ounces of contained gold (85.6 million tonnes (Mt) at 2.8 grams per tonne gold (g/t Au)),
compared to 10.2 million ounces as of December 31, 2013. The reserve decrease is primarily at
Kumtor and is the result of: negative production reconciliation in 2014; the use of a new
resource model for reserve estimation; and design changes to the Kumtor Central Pit to reflect
the impact of the buttress and the flattening of certain pit slopes. A NI 43-101 technical report
on Kumtor is expected to be filed on SEDAR by March 26, 2015. The report will provide an
update on Kumtor’s life of mine production profile as well as revisions to life of mine operating
and capital costs. All 2014 year-end reserves were estimated using a gold price of $1,300 per
ounce, which is unchanged from December 31, 2013.
At the Kumtor mine, in the Kyrgyz Republic, proven and probable gold reserves decreased by
1.6 million contained ounces, after accounting for processing of 731,000 contained ounces in
2014. Kumtor’s proven and probable reserves now total an estimated 6.1 million ounces of
contained gold (68.5 Mt at 2.8 g/t Au), compared to 8.5 million ounces as of December 31, 2013.
At the end of December 2014, work on a new Central Pit resource model was completed to
account for negative block model reconciliation experienced during the year. The net impact of
the new resource model was to decrease probable reserves by 590,000 contained ounces. In
addition, the mine design was revised as a result of the new resource model and flattening of
certain pit slopes to mitigate geotechnical concerns. The new mine design has resulted in a
decrease in probable reserves of 743,000 contained ounces. During 2014, a buttress was built to
limit the movement in the South Arm of the Davidov Glacier. The location of the buttress has
reduced the ultimate pit wall boundary thereby decreasing probable reserves by an additional
358,000 contained ounces. Optimization of the Sarytor and Southwest open pits resulted in an
increase in the Sarytor probable reserves of 147,000 contained ounces and a decrease in the
Southwest probable reserves of 105,000 contained ounces.
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In Mongolia, all remaining reserves in the stockpile at the Boroo mine were processed in 2014.
The Boroo operation will continue to recover gold from the heap leach pad in 2015.
At the Gatsuurt Project, proven and probable reserves are unchanged and total more than 1.6
million contained ounces of gold (17.1 Mt at 2.9 g/t Au).
Resources:
As of December 31, 2014, Centerra’s measured and indicated resources increased by 223,000
contained ounces to an estimated total of 5.7 million ounces of contained gold (99.8 Mt at 1.8 g/t
Au) compared to the December 31, 2013 estimate. The change is a result of a 295,000 contained
ounce increase in the measured and indicated resources on the Öksüt Project and a 217,000
contained ounce net increase in the measured and indicated resources at Kumtor offset by a
289,000 contained ounce decrease at Kara Beldyr. The Company divested its interest in the Kara
Beldyr property in 2014.
At the 100% owned Öksüt Project in Turkey, measured and indicated resources total an
estimated 1.4 million ounces of contained gold (40.0 Mt at 1.1 g/t Au), an increase of 295,000
ounces from December 31, 2013. This increase resulted from adding 166,000 contained ounces
to measured and indicated resources at the Keltepe deposit and converting 128,000 contained
ounces in the Güneytepe deposit from the inferred resource category to the measured and
indicated resource category. Also, during 2014, a total of 946,000 contained ounces were
upgraded to the measured resource category from indicated resource category (Keltepe 894,000
contained ounces and Güneytepe 51,000 contained ounces) reflecting an increase in drill density
and related improved level of confidence in the estimation of the resources.
At Kumtor measured and indicated open pit resources increased by 284,000 contained ounces of
gold, to an estimated total 2.8 million contained ounces of gold (29.5 Mt at 3.0 g/t Au) at
December 31, 2014, primarily as a result of the downgrade of reserves to resources at the
Kumtor Central Pit. Measured resources decreased by 158,000 contained ounces to an estimated
1.47 million contained ounces (14.3 Mt at 3.2 g/t Au) and indicated resources increased by
441,000 contained ounces of gold to an estimated 1.3 million contained ounces of gold (15.1 Mt
at 2.7 g/t Au). These changes are attributable to the pit optimization undertaken at the Sarytor
and Southwest deposits and to applying a standardized methodology on all deposits at Kumtor in
2014.
As of December 31, 2014, Centerra’s inferred resource estimate totals 2.4 million ounces of
contained gold (21.2 Mt at 3.6 g/t Au), a decrease of 1.2 million contained ounces of gold over
the December 31, 2013 estimate. The decrease in inferred contained ounces is, primarily the
result of 411,000 contained ounces being reallocated to open pit indicated resources from the
high-grade underground Stockwork Zone inferred resource category, 128,000 inferred contained
ounces at the Güneytepe deposit of the Öksüt Project being upgraded to the measured and
indicated resource category, 581,000 inferred contained ounces being removed from the
Northeast Prospect, Southwest and Sarytor deposits as a result of not being captured within the
constraining pit resource shell developed at a gold price of $1,450 per ounce and 211,000
contained ounces being removed by the divestiture of the Kara Beldyr Project.
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The use of a constraining pit resource shell captures the open pit mineral resources outside the
mineral reserves pit and includes parameters for location, deposit scale and continuity, mining
method, metallurgical recovery, operating costs and commodity price. However the resource
shell does not take into account any future capital requirements; therefore it should not be used
as a proxy for conversion to mineral reserves.
At Kumtor, of the estimated 1.7 million contained ounces of inferred resources, 1.6 million
estimated ounces are contained within the high-grade underground inferred resources shell in the
SB and Stockwork Zones. There was a minor change in the 2014 year-end inferred underground
resource estimate at the SB Zone due to the impact of the buttress, which increased the inferred
underground resources by 86,000 contained ounces to 1.3 million contained ounces (3.8 Mt at
10.7 g/t Au); however, the inferred underground resources at the Stockwork Zone declined to an
estimated 294,000 contained ounces (0.8 Mt at 11.8 g/t Au) reflecting 411,000 contained ounces
being reallocated to open pit indicated resources.
The 2014 year-end resource estimates for Gatsuurt, ATO and Ulaan Bulag properties in
Mongolia are unchanged from 2013 year-end estimates.
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Centerra Gold Inc.
2014 Year-End Gold Reserve and Resource Summary
(as of December 31, 2014)
Gold Mineral Reserves (1) (12) (13)
(tonnes and ounces in thousands)
Proven
Probable
Total Proven and Probable
Kumtor (5)
Gatsuurt (8)
Total
Property (3)
Tonnes Grade
(g/t)
2.1
7,778
Contained
Gold (oz)
526
Tonnes Grade
(g/t)
2.9
2.9
2.9
60,729
17,129
77,858
Contained
Gold (oz)
5,610
1,603
7,213
2.1
7,778
Gold Measured and Indicated Mineral Resources(2) (11) (12) (13)
(tonnes and ounces in thousands)
526
Property (3)
Kumtor Open Pit (4) (5)
Kumtor Stockwork Underground (6)
Boroo(7)
Gatsuurt (8)
Ulaan Bulag (9)
ATO (10)
Öksüt(11)
Total
Measured
Indicated
Tonnes Grade
(g/t)
3.2
14,317
Contained
Gold (oz)
1,473
452
2.2
32
9,663
22,887
47,319
1.5
1.3
1.9
465
946
2,916
Tonnes Grade
(g/t)
2.7
10.8
1.5
2.4
1.5
1.1
0.8
1.7
15,144
156
4,464
5,098
1,555
8,920
17,124
52,461
Contained
Gold (oz)
1,330
54
210
398
73
306
437
2,809
Gold Inferred Mineral Resources(2) (12) (13) (14)
(tonnes and ounces in thousands)
Tonnes Grade
(g/t)
2.8
2.9
2.8
68,507
17,129
85,636
Contained
Gold (oz)
6,136
1,603
7,739
Total Measured and Indicated
Contained
Tonnes Grade
Gold (oz)
(g/t)
2,804
3.0
54
10.8
242
1.5
398
2.4
73
1.5
771
1.3
1,383
1.1
5,725
1.8
29,462
156
4,916
5,098
1,555
18,583
40,011
99,780
Property (3)
Kumtor Open Pit (4) (5)
Kumtor Stockwork Underground (6)
Kumtor SB Zone UG (6)
Boroo(7)
Gatsuurt (8)
Ulaan Bulag (9)
ATO (10)
Öksüt (11)
Total
(1)
(2)
(3)
Tonnes Grade
(g/t)
1.5
11.8
10.7
1.0
2.5
1.3
0.6
0.6
3.6
2,655
775
3,806
7,323
5,475
315
386
429
21,164
Contained
Gold (oz)
126
294
1,315
235
440
13
8
9
2,440
The mineral reserves have been estimated based on a gold price of $1,300 per ounce.
Mineral resources are in addition to reserves. Mineral resources do not have demonstrated economic viability.
Centerra’s equity interests as of this news release are: Kumtor 100%, Gatsuurt 100%, Boroo 100%, Ulaan Bulag 100%, ATO 100%, Öksüt 100% . All
contained ounces in table above are shown on a 100% basis.
Open pit resources at Kumtor are constrained by a pit shell developed using a gold price of $1,450 per ounce.
The open pit reserves and resources at Kumtor are estimated based on a cut-off grade of 0.85 grams of gold per tonne for the Central Pit and 1.0 grams of gold
per tonne for the Southwest and Sarytor deposits.
Underground resources occur below the open pit resources shell and are estimated based on a cut-off grade of 6.0 grams of gold per tonne.
The open pit resources at Boroo are estimated as all material below the pit above a 0.5 grams of gold per tonne cut-off grade.
The open pit reserves and resources at Gatsuurt are estimated using a 1.4 grams of gold per tonne cut-off grade. Resources are estimated as all material below
the reserve pit above the 1.4 grams per tonne cutoff grade.
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.
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
The Open pit resources at Öksüt are estimated based on a 0.2 gram of gold per tonne cut-off grade and are constrained by a pit shell developed using a gold
price of $1,450 per ounce.
A conversion factor of 31.10348 grams per ounce of gold is used in the reserve and resource estimates.
Numbers may not add up due to rounding.
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 converted to a higher category.
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
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2014 Year-End Polymetallic Resource Summary
(as of December 31, 2014)
Category
Tonnes
(000’s)
Gold
Grade
(g/t)
Contained
Gold (20)
(oz 000’s)
Silver
Grade
(g/t)
Contained
Silver
(oz 000’s)
Lead
Grade
(%)
Contained
Lead
(lb 000’s)
Zinc
Grade
(%)
Contained
Zinc
(lb 000’s)
Measured Resources
Indicated Resources
Measured and Indicated
Inferred Resources (17)
3,677
3,294
6,971
87
ATO Project (18) (19)
Oxide Mineral Resources (15) (16) (17) (20) (21) (22)
(> $6.50 NSR cut-off Grade)
1.3
0.7
1.0
148
78
226
8.5
7.2
7.9
1,010
758
1,768
0.8
2
5.0
Sulphide Mineral Resources (15) (16) (17) (20) (21) (22)
(> $25.50 NSR cut-off Grade)
14
Measured Resources
Indicated Resources
Measured and Indicated
5,986
5,626
11,612
1.7
1.3
1.5
318
228
545
8.02
8.52
8.26
1,543
1,541
3,084
0.979
0.803
0.894
129,197
99,598
228,795
1.704
1.447
1.579
224,874
179,474
404,349
Inferred Resources (17)
299
0.6
6
5.78
56
1.025
6,757
2.306
15,201
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Mineral resources have been estimated on the following metal prices (gold $1,300 per ounce), (silver $20 per ounce), (lead $ 0.90 per lb), (zinc $0.90 per lb).
Mineral resources do not have demonstrated economic viability.
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.
Centerra’s equity interest in the ATO project is 100%.
Numbers may not add up due to rounding.
The contained gold resources have also been included in Centerra’s 2014 Year-end Gold Reserve and Resource Summary
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.
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%
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Centerra Gold Inc.
Reconciliation of Gold Reserves and Resources
(in thousands of ounces of contained gold) (8) (9)
December 31
2013 (1)
2014
Throughput (2)
2014 Addition
(Deletion) (3)
December 31
2014
Gold Proven and Probable Mineral Reserves
Kumtor (4) (5)
Boroo(4)
Gatsuurt (4) (7) (11)
Total Proven and Probable Reserves
8,516
49
1,603
10,168
731
44
0
776
(1,649)
(5)
0
(1,654)
Gold Measured and Indicated Mineral Resources
Kumtor (4) (6)
Kumtor Stockwork Underground (4)
Boroo(4)
Gatsuurt(4) (7)
Ulaan Bulag(4)
ATO(4)
Öksüt(4)
Kara Beldyr (11)
Total Measured & Indicated Resources
2,520
121
242
398
73
771
1,088
289
5,502
0
0
0
0
0
0
0
0
0
Gold Inferred Mineral Resources (10)
Kumtor Open Pit(4) (6)
Kumtor Stockwork Underground(4)
Kumtor SB Underground(4)
Boroo(4)
Gatsuurt(4) (7)
Ulaan Bulag(4)
ATO(4)
Öksüt(4)
Kara Beldyr (11)
Total Inferred Resources
712
705
1,229
235
440
13
8
134
211
3,687
0
0
0
0
0
0
0
0
0
0
284
(67)
0
0
0
0
295
(289)
223
(586)
(411)
86
0
0
0
0
(125)
(211)
(1,247)
6,136
0
1,603
7,739
2,804
54
242
398
73
771
1,383
0
5,725
126
294
1,315
235
440
13
8
9
0
2,440
(1) Reserves and resources as reported in Centerra’s Annual Information Form filed in March 2014.
(2) Corresponds to mill feed at Kumtor and mill feed or stacked on heap leach pad at Boroo.
(3) Changes in reserves or resources, as applicable, are attributed to information provided by drilling and subsequent reclassification 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. See “Kumtor Update on Block Model and Mine Plan” for a discussion on the deletion from Kumtor’s reserves and resources.
(4) Centerra’s equity interests as of this news release are as follows: Kumtor 100%, Gatsuurt 100%, Boroo 100%, Ulaan Bulag 100%, ATO 100%,
Öksüt 100%.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 Pits.
(6) Kumtor open pit resources include the Central Deposit, Southwest Deposit and Sarytor 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 identified as reserves.
(9) Numbers may not add up due to rounding.
(10) Inferred mineral resources have a great amount of uncertainty as to their existence and as to whether they can be mined economically. It cannot
be assumed that all or part of the inferred resources will ever be converted to a higher category.
(11) The Company divested its 70% interest in the Kara Beldyr Property in 2014. Contained ounces at Kara Beldyr shown above reflect 100% basis.
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Developments in 2014
Kumtor Operations
• The Company continued its discussions with the Government of the Kyrgyz Republic
relating to the restructuring described in the Heads of Agreement dated January 18, 2014 (the
“HOA”). See “Other Corporate Developments”.
• The Company completed its analysis of the impact on Kumtor’s reserves of the buttress
constructed in early 2014 to manage the movement of the Davidov Glacier and the
performance of the Kumtor block model over the past year. Centerra announced its annual
reserves and resources update on February 9, 2015, in which the reserves at Kumtor were
lowered as a result of both of these events in 2014. See the Company’s news release dated
February 9, 2015 on SEDAR and “Operations Update – Kumtor Operating Results –
Technical Matters” below.
• A new collective labour agreement was ratified and signed by Kumtor and the unionized
employees on January 23, 2015. The new two year labour agreement will expire on
December 31, 2016 and provides for inflation adjustments during the period. The local
inflation rate will be reviewed every six months and an inflation allowance may be made
with a cap of 8% per annum maximum.
• Starting in the fourth quarter of 2014, Kumtor has submitted to various Kyrgyz Republic
governmental agencies for approval its 2015 annual mine plan and its ecological passport,
which provides for, among other things, allowable levels of environmental emissions and
discharges. The ecological passport requires renewal every five years. Similar to Kumtor’s
experience in 2014, Kumtor has received correspondence from such agencies declining to
review such documents and expressing concerns regarding the mining of ice at Kumtor. The
Company and Kumtor dispute the reasons provided by the regulatory agencies for their
refusal to review the documents. The Company notes that the current project agreements
governing the Kumtor Project require relevant Kyrgyz Republic Government authorities to
be reasonable in relation to their approval of any mining plans submitted for approval, and
with respect to permits and approvals, Kumtor is entitled to maintain, have renewed and
receive such licenses, consents, permissions and approvals as are from time to time necessary
or convenient for the operation of the Kumtor Project. The Company intends to continue
discussion with the Kyrgyz Republic Government and the applicable agencies to obtain the
relevant approvals and permits but there can be no assurances that such approvals and
permits will be received or that a suspension of mining will not occur. See “Other Corporate
Developments - Kyrgyz Permitting and Regulatory Matters”.
Goodwill Impairment
• The Company updated its reserves and resources during the fourth quarter of 2014, the result
of which indicated a significant reduction in reserves and resources at Kumtor. This
reduction in reserves necessitated a revision to the Kumtor life of mine plan and significantly
lowered reserves. The impact of the reserves and changes in the life of mine plan triggered
an impairment of the Company’s goodwill of $111.0 million.
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14
Mongolian Operations
• The Company announced on January 23, 2015 that the Gatsuurt Project, which is located
approximately 35 km from the Company’s Boroo mine in Mongolia, has been designated as
a mineral deposit of strategic importance by the Mongolian Parliament. This designation
allows the Gatsuurt Project to move forward within the application of the Water and Forest
Law and also allows Mongolia to acquire up to a 34% interest in the project. Centerra
understands that, on February 17, 2015, the Government’s proposal on state ownership of
20% was considered by Parliament but voted down and returned to the Government for
review. The Company now expects that Parliament will consider a new proposal for the
level of state ownership in the project during its spring session which begins in early April.
The terms of such participation are subject to continued discussions between the Company
and the Mongolian Government. Further development of the Gatsuurt Project will be subject
to, among other things, receiving Parliamentary approval of the Mongolia’s state ownership
as well as the all required approvals and regulatory commissioning from the Mongolian
Government. See “Other Corporate Developments - Mongolia” and “Risk Factors”.
Corporate
• Centerra is subject to an order dated October 10, 2014 and amended October 20, 2014 (the
“Stans Order”) from the Ontario Superior Court of Justice in favour of Stans Energy Corp.
(“Stans”) which prohibits Kyrgyzaltyn JSC (“Kyrgyzaltyn”) from, among other things: (i)
selling, disposing or exchanging 47,000,000 shares (the “Frozen Shares”) of the 77,401,766
shares it holds in the capital of Centerra; (ii) obtaining share certificates in respect of such
shares; or (iii) exercising its rights as a registered shareholder of Centerra in a manner that is
inconsistent with or would undermine the terms of the Stans Order. The order also prohibits
Centerra from, among other things, registering any transfers or issuing share certificates in
respect of the Frozen Shares, and requires Centerra to hold in trust for the Stans Application
(as defined below) any amounts payable to Kyrgyzaltyn in respect of dividends or
distributions that Centerra is currently holding in trust for Kyrgyzaltyn or may declare or pay
in the future. Accordingly, the funds held in trust for Kyrgyzaltyn in connection with the
Sistem proceedings (as discussed below and in “Other Corporate Developments”) continue to
be held by Centerra.
• Centerra was also served by Stans with a notice of application to the Ontario Superior Court
of Justice (the “Stans Application”) which seeks to enforce a June 30, 2014 arbitral award
(the “Stans Arbitration Award”) obtained by Stans against the Kyrgyz Republic from the
arbitration tribunal of the Moscow Chamber of Commerce (“MCCI”) in the amount of
approximately $118 million. The Stans Application seeks, among other things, an order
declaring that the Kyrgyz Republic has a beneficial interest in all of the shares in Centerra
held by Kyrgyzaltyn and that monies, interest, dividends and other rights of Kyrgyzaltyn in
the stock of Centerra may be seized in order to satisfy the Stans Arbitration Award. We
understand that the Kyrgyz Republic is appealing the Stans Arbitration Award to Russian
courts in Moscow on the basis that the MCCI lacked the jurisdiction to hear the matter. This
matter is scheduled to be heard in the first quarter of 2015.
In a separate proceeding, Kyrgyzaltyn has appealed to the Ontario Court of Appeal (the
“Sistem Appeal”) the decision of the Ontario Superior Court of Justice in the Sistem
Muhendislik Insaat Sanayi ve Ticaret AS matter, which found that the Kyrgyz Republic has a
•
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15
beneficial interest in the Centerra shares held by Kyrgyzaltyn. See “Other Corporate
Developments”.
•
If the Kyrgyz Republic does not succeed in overturning the Stans Arbitration Award in the
Russian courts and Kyrgyzaltyn is unsuccessful in the Sistem Appeal, Centerra expects that
Stans would likely succeed in enforcing the Stans Arbitration Award in Ontario and in
seizing a sufficient number of the Centerra shares held by Kyrgyzaltyn to satisfy the Stans
Arbitration Award. If Stans ultimately seizes such shares, Kyrgyzaltyn would no longer hold
a sufficient number of Centerra shares to contribute to the HOA restructuring transaction
such that it could receive 50% of a new Kumtor joint venture. In such circumstances, the
Company believes that the restructuring of the Kumtor Project in accordance with the HOA
would be impossible. See “Other Corporate Developments”.
Subsequent Event
• Centerra announced on February 5, 2015 that it has signed a definitive agreement to form a
50/50 partnership for the joint ownership and development of Premier Gold’s Trans-Canada
Property including the Hardrock Gold Project located in the Geraldton-Beardmore
Greenstone Belt in Ontario. The transaction is expected to close on or about March 6, 2015,
subject to the receipt of applicable regulatory approvals and the satisfaction of customary
conditions precedent. Under the terms of the partnership agreement, Premier will contribute
all of its interests in the Project and related assets to the Partnership and Centerra will
contribute Cdn$85 million to the Partnership and in return, each partner shall receive a 50%
interest in the Partnership. Centerra has also agreed to commit up to an additional Cdn$185.0
million to fund the project, subject to certain feasibility and project advancement criteria, and
up to Cdn$30.0 million contingent on the results of the updated mineral resource calculation.
The transaction is expected to close on or about March 6, 2015, subject to the receipt of
applicable regulatory approvals and the satisfaction of customary conditions precedent.
See the Company’s news release of February 5, 2015 available on SEDAR.
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16
Consolidated Financial and Operating Highlights
The consolidated financial statements of Centerra are prepared in accordance with International
Financial Reporting Standards, as issued by the International Accounting Standards Board and
have been measured and expressed in United States dollars. Some of the information discussed
below are non-GAAP measures. See “Non-GAAP Measures”.
($ millions, except as noted)
Financial Highlights
Revenue
Cost of sales
Abnormal mining costs
Mine standby costs
Regional office administration
Earnings from mine operations
Revenue-based taxes
Other operating expenses
Impairment of goodwill
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)
Earnings (loss) per common share - $ basic
Earnings (loss) per common share - $ diluted
Weighted average common shares outstanding - basic (thousands)
Weighted average common shares outstanding - diluted (thousands)
Total assets
Long-term provision for reclamation, dividends payable and deferred income taxes
Cash provided by operations
Capital expenditures
Operating Highlights
Gold produced – ounces poured
Gold sold – ounces sold
Average realized gold price - $/oz(2)
Average gold spot price - $/oz (1)
Operating costs (on a sales basis) (2)
Adjusted operating costs (2)
All-in Sustaining Costs(2)
All-in Costs (2)
All-in Costs - including taxes (2)
Unit Costs
Cost of sales - $/oz sold(2)
Adjusted operating costs - $/oz sold (2)
All-in sustaining costs – $/oz sold(2)
All-in costs – $/oz sold (2)
All-in costs (including taxes) – $/oz sold (2)
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Year ended December 31, (3)
2014
763.3
$
$
502.5
-
2.4
25.2
233.2
97.2
9.8
111.0
-
15.7
34.8
(35.3)
1.2
5.0
(41.5)
2.6
(44.1)
(0.19)
(0.19)
236,396
236,396
1,629
80
376.4
351.2
620,821
615,234
1,241
1,266
219.9
251.8
524.4
587.4
687.5
817
409
852
955
1,118
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2013
944.4
559.2
-
-
23.8
361.4
113.5
8.3
-
-
29.6
30.6
179.4
3.6
5.0
170.8
13.1
157.7
0.67
0.64
236,382
236,663
1,688
72
483.9
376.6
690,720
696,818
1,355
1,411
250.2
279.8
570.0
641.4
767.7
803
402
818
920
1,102
2012
$
660.7
383.3
24.8
4.6
21.0
227.0
74.7
34.3
-
180.7
38.5
27.0
(128.2)
(0.1)
4.0
(132.1)
11.7
(143.7)
(0.61)
(0.61)
236,369
236,369
1,594
58
173.4
461.2
387,076
390,533
1,692
1,669
241.2
287.3
532.6
755.2
841.7
981
736
1,364
1,934
2,155
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
17
(1) Average for the period as reported by the London Bullion Market Association (US dollar Gold P.M. Fix
Rate).
(2) Adjusted operating costs, all-in sustaining costs, all-in costs, all-in costs (including taxes) and cost of
sales (in each case, on an aggregate or per ounce sold basis), as well as average realized gold price per
ounce sold are non-GAAP measures and are discussed under “Non-GAAP Measures”.
(3) Results may not add or compute due to rounding.
Results of Operations
2014 Compared to 2013
The Company recorded a net loss of $44.1 million in 2014, compared to net earnings of $157.7
million in 2013. The loss in 2014 included a non-cash impairment charge of $111.0 million on
goodwill in the Kyrgyz cash generating unit (CGU). In addition, there were fewer ounces sold
and produced, lower realized gold prices and higher share-based compensation, partially offset
by lower exploration spending.
Production:
Gold production for 2014 totaled 620,821 ounces compared to 690,720 ounces in 2013, which
reflects lower production at both operations. The lower production at Kumtor of 32,709 ounces
of gold was due to processing lower grades from cut-back 16 in 2014 compared to the higher
grades of ore processed from cut-back 15 in 2013. Boroo’s lower production of 37,190 ounces
of gold was due to the cessation of milling operations in December 2014, the processing of lower
grade ore through the mill and the ultimate depletion of the stockpiled ore. In addition, fewer
ounces were recovered from the heap leach operation as the operation transitioned to secondary
leaching in 2014.
The consolidated production for 2014 was within the Company’s guidance of 600,000 to
650,000 ounces disclosed by the Company on October 29, 2014.
Safety and Environment Performance in 2014:
Centerra had ten recordable injuries in 2014, five lost time injuries and five medical aid injuries.
The lost time injuries included one fatality at Kumtor where a contract alpinist was involved in
an avalanche while performing routine maintenance work at the Sary Moinok microwave station
near the Kumtor mine.
There were no reportable releases to the environment during 2014.
Financial Performance:
Goodwill for the Kyrgyz CGU was impaired at December 31, 2014 by $111 million, primarily
resulting from the significant reduction in Kumtor’s reserves and resources announced on
February 9, 2015 as part of the Company’s regular year-end update of reserves and resources.
The reserve decrease is a result of the negative production reconciliation in 2014 and the impact
from the construction of the buttress at Kumtor, development of a new resource model for the
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Kumtor Central Pit and design changes to the Kumtor Central Pit resulting from the new
resource model and flattening of certain pit slopes.
Lower revenue resulted primarily from 12% lower ounces sold and 8% lower average realized
gold priceNG ($1,241 per ounce compared to $1,355 per ounce in 2013). Sales volumes were
615,234 ounces compared to 696,818 ounces in 2013. The lower revenue resulted in a 14%
decrease in revenue based taxes.
Cost of sales decreased by 10% to $502.5 million due primarily to a reduction in ounces sold.
Depreciation, depletion and amortization (DD&A) associated with production and included in
cost of sales decreased to $282.7 million in 2014 from $309.0 million in the comparative period
of 2013.
Standby costs in 2014 of $2.4 million were a result of placing Boroo’s mill on care and
maintenance after the mill processed the last of the ore stockpiles in December 2014. The Boroo
mill is planned to be kept on standby awaiting the finalization of agreements and permits with
the Mongolian Government regarding the Gatsuurt Project. See “Other Corporate Developments
– Mongolia” and “Caution Regarding Forward-Looking Information”.
Other operating expenses in 2014 include pre-development spending of $6 million at the
Company’s Öksüt Project, partially offset by $1.9 million earned at Boroo for the processing of
third party ore through its mill.
Exploration and business development expenditures totaled $15.7 million in 2014 compared to
$29.6 million in the same period of 2013. The decrease primarily reflects the cessation of all
exploration activities at Kumtor and reduced spending on the Company’s projects in Turkey,
Mongolia and Russia.
Corporate administration costs increased to $34.8 million from $30.6 million in 2013 due
primarily to an increase in share-based compensation of approximately $6.7 million, partially
offset by a decrease in expenditures. The increase in share-based compensation reflects the
appreciation in the Company’s share price.
The reduction in income tax expense of $10.5 million in 2014 was due to lower taxable income
at Boroo.
Operating Costs and All-in Measures:
Adjusted operating costsNG decreased by $27.9 million to $251.9 million in 2014 compared to
the same period of 2013, predominately due to higher levels of contained ounces in the broken
ore stockpiles at Kumtor at the end of 2014 which absorbed more operating costs into inventory,
and lower heap leach costs at Boroo due to the completion of crushing and stacking activities in
2013. Kumtor also benefited from lower prices on tires and fuel, while Boroo consumed fewer
reagents. This was partially offset by the cost of the mill liner replacement at Kumtor and the
drawdown of higher cost inventory at both operations in 2014.
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Centerra’s all-in sustaining costs per ounce soldNG, which excludes revenue-based tax and
income tax, for 2014, increased to $852 compared to $818 in 2013. The increase resulted from
fewer gold ounces sold, partially offset by the reduction in operating costs. The all-in sustaining
costs per ounce soldNG for 2014 was within the Company’s guidance of $830 to $897 per ounce
sold disclosed by the Company on October 29, 2014.
For 2014, Centerra’s all-in costs per ounce soldNG, which exclude revenue-based tax at Kumtor
and income tax, was $955, compared to $920 per ounce sold in 2013. The increase is primarily
due to fewer ounces sold and increased spending on the Company’s Öksüt Project, partially
offset by lower capitalized stripping costs at Kumtor, lower spending on sustaining capitalNG and
lower exploration spending. The all-in costs per ounce soldNG (excluding tax) for 2014 was
within the Company’s guidance of $955 to $1,035 per ounce sold disclosed by the Company on
October 29, 2014.
Cash generation and capital investments
Cashflow
Unaudited ($ millions, except as noted)
Cash provided by operating activities
Cash (used in) provided by investing activities:
-Capital additions (cash)
-Short-term investment net redeemed (net purchased)
-other investing items
Cash used in investing activities:
Cash used in financing activities
(Decrease) increase in cash
Year ended December 31,
2014
376.4
2013 % Change
483.9
(22%)
(276.3)
(103.1)
(5.2)
(384.6)
(34.4)
(42.6)
(308.7)
(110.4)
(22.0)
(441.1)
(33.9)
8.9
(10%)
(7%)
(76%)
(13%)
1%
(579%)
Cash provided by operations decreased to $ 376.4 million in 2014 from $ 483.9 in 2013, mainly
from lower earnings partially offset by lower levels of working capital.
Cash used in investing activities decreased 13% to $384.6 million in 2014, reflecting lower
capital purchases and reduced net purchase of short-term investments in 2014. Other investing
activities in 2013 include the purchase of the remaining interest in the Öksüt project in Turkey
for $19.7 million, net of cash acquired.
Cash used in financing activities for both periods include dividend payments and payments of
interest and commitment fees on the credit facility.
Cash, cash equivalents and short-term investments at December 31, 2014 increased to $562.0
million from $501.5 million at December 31, 2013. These amounts both include $76 million
drawn on the revolving credit facility with the European Bank for Reconstruction and
Development.
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Capital Expenditure (spent and accrued)
Unaudited ($ millions)
Year ended December 31,
Kumtor
Boroo and Gatsuurt
Other
Consolidated
Sustaining capitalNG
Capitalized stripping
Growth capitalNG
Total
Sustaining capitalNG
Growth capitalNG
Total
Sustaining capitalNG
Total
Sustaining capitalNG
Capitalized stripping
Growth capitalNG
Total capital expenditures
2014
48.7
261.1
40.1
349.9
0.3
0.8
1.1
0.2
0.2
49.2
261.1
40.9
351.2
2013 % Change
(2%)
49.7
(6%)
278.6
2%
39.2
(5%)
367.5
(97%)
7.9
14%
0.7
(87%)
8.6
(63%)
0.6
(63%)
0.6
(15%)
58.1
(6%)
278.6
3%
39.9
(7%)
376.6
In 2014, capital expenditures decreased 7% to $351.2 million due primarily to a reduction in
capitalized stripping of cut-back 16 as compared to cut-back 15 in the prior year and lower
maintenance expense for equipment overhauls at Kumtor.
Growth capital in 2014 includes spending on the infrastructure relocation project and equipment
purchases at Kumtor.
Credit and Liquidity:
On August 11, 2014, the Company drew $76 million under its $150 million revolving credit
facility with EBRD, leaving a balance of $74 million undrawn at December 31, 2014. The $76
million drawn amount was subsequently redrawn on February 11, 2015 and is due to be repaid
on August 11, 2015 or, at the Company’s discretion, repayment of the loaned funds may be
extended until February 2016.
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 office is in Toronto,
Canada. During 2014, the Company incurred combined costs (including capital) totaling roughly
$715 million. Approximately $353 million of this (49%) 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: 58% in Kyrgyz Soms, 19% in Canadian dollars, 10% in Euros, 9% in Mongolian
Tugriks, 3% in Turkish Lira, and approximately 1% in Russian Rubles, Australian dollars,
British Pounds and Chinese Yuan combined. In 2014, the average value of the currencies of the
Russian Ruble, Mongolian Tugrik, Kyrgyz Som, Canadian dollar, Euro, Turkish Lira, Chinese
Yuan, and the British Pound depreciated against the U.S. dollar by approximately 17%, 9%, 9%,
4%, 4%, 2%, 2% and 1% respectively, from their value at December 31, 2013. The Australian
dollar increased in value against the U.S. dollar by 1%. The net impact of these movements in
2014, after taking into account currencies held at the beginning of the year, was to decrease
annual costs by $25 million (decrease of $12.7 million in 2013).
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Gold Hedging and Off-Balance Sheet Arrangements:
The Company had no gold hedges in place as of December 31, 2014. 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 affiliates.
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 9.9 million ounces of gold to December 31, 2014.
Ongoing Technical Matters
As previously noted in the Company’s news release of May 6, 2014, Kumtor constructed a
buttress at the edge of the ultimate pit in response to increased movement of the south arm of the
Davidov glacier. The buttress, which continues to be monitored, has been effective in reducing
the rate of movement to manageable levels. As a result of the positioning of the buttress, the
Company had to reduce the width of the ultimate cut-back for the SB Zone and has made the
appropriate adjustment to reserves.
Historically, Kumtor’s block model and the reconciliation to the model performed very well, but
as the Company reported in February 2014, the Kumtor operation experienced a negative
production reconciliation during 2013, totaling 184,000 contained ounces of gold. As a result, in
2014 the Company retained an independent consultant to conduct an audit of the resource model
to determine if any adjustments to the model were required. The work determined that the KS13
resource model was potentially biased and that Centerra should investigate different
methodologies for estimating the higher grade section of the SB Zone. They also recommended
that Kumtor undertake additional infill drilling in the deeper parts of the ore body which is
scheduled to be completed in the first half of 2015.
The negative reconciliation experienced in the fourth quarter of 2013 re-occurred in the fourth
quarter of 2014 when mining access to the high-grade SB Zone was gained. The Company
retained a second independent consultant to assist in the development of a new resource model
for the Kumtor Central Pit. This new resource model was used for the reserve and resource
estimate disclosed in the Company’s news release of February 9, 2015 filed on SEDAR.
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The reserve estimate also incorporates the impact of the buttress on the pit design and updated
geotechnical information that requires lower pit slope angles in some sectors of the pit. The
Company is planning on carrying out further geotechnical drilling in 2015. The results of this
work will be incorporated into an updated geotechnical model to determine what, if any, further
revisions are required to the pit slope angles.
Using the new reserve estimates, Kumtor’s new life of mine plan (LOM) is now being optimized
and will also reflect the deferral of capital related to additional mine haulage equipment (20
trucks) and the cancelation of the mill expansion, both of which were planned and described in
the December 2012 technical report. The updated technical report including the new LOM is
expected to be filed on SEDAR by March 26, 2015 and will reflect an updated production
profile, and updated operating and capital costs from those that were disclosed in the NI 43-101
technical report for Kumtor dated December 20, 2012.
In addition, Kumtor has experienced difficulty in achieving the gold recoveries published in the
December 2012 technical report which assumed a LOM gold recovery rate of 81%. It is now
estimated that going forward the average LOM gold recovery is expected to be 77%, which will
be reflected in the new LOM production profile in the updated technical report. Work continues
at Kumtor on implementing strategies to improve gold recoveries.
The movement in the Central Valley waste-rock dump, which began in mid-March 2013, has
since decreased to manageable levels. The Company continues to make progress in relocating
and reconstructing affected infrastructure.
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Kumtor Operating Results
($ millions, except as noted)
Revenue
Cost of sales-cash
Cost of sales-non-cash
Cost of sales-total
Cost of sales - $/oz sold(1)
Tonnes mined - 000s
Tonnes ore mined – 000s
Average mining grade - g/t
Tonnes milled - 000s
Average mill head grade - g/t
Recovery - %
Mining costs - total ($/t mined material)
Milling costs ($/t milled material)
Gold produced – ounces
Gold sold – ounces
Average realized gold price - $/oz(1)
Capital expenditures (sustaining)(1)
Capital expenditures (growth)(1)
Capital expenditures (stripping)
Operating costs (on a sales basis) (2)
Adjusted operating costs (1)
All-in Sustaining Costs (1)
All-in Costs(1)
All-in Costs - including taxes(1)
Adjusted operating costs - $/oz sold (1)
All-in sustaining costs – $/oz sold (1)
All-in costs – $/oz sold (1)
All-in costs (including taxes) – $/oz sold (1)
Year ended December 31,
2014
694.6
2013 % Change
810.9
(14%)
174.4
270.0
444.4
792
191,723
8,640
3.37
5,840
3.90
78.0%
0.37
12.04
567,693
561,154
1,238
48.7
40.1
261.1
174.4
199.9
437.0
477.0
574.0
356
779
851
1,024
191.0
282.0
473.0
786
176,693
7,289
3.64
5,596
4.26
79.3%
0.33
12.65
600,402
601,887
1,347
49.7
39.2
278.6
191.0
215.0
467.0
513.0
627.0
357
775
853
1,042
(9%)
(4%)
(6%)
1%
9%
19%
(7%)
4%
(9%)
(2%)
11%
(5%)
(5%)
(7%)
(8%)
(2%)
2%
(6%)
(9%)
(7%)
(6%)
(7%)
(8%)
(0%)
1%
(0%)
(2%)
(1) Adjusted operating costs, all-in sustaining costs, all-in costs and all-in costs (including taxes) (in each case, on an aggregate or
per ounce sold basis), as well as average realized gold price per ounce sold, cost of sales per ounce sold and capital
expenditures (sustaining and growth) are non-GAAP measures and are discussed under “Non-GAAP Measures”.
(2) Operating costs (on a sales basis) is comprised of mine operating costs such as mining, processing, regional office
administration, royalties and production taxes (except at Kumtor where revenue-based taxes are excluded), but excludes
reclamation costs and depreciation, depletion and amortization.
Production:
During 2014, Kumtor completed waste stripping of cut-back 16 in the first eight months to
establish access to the ore body. The mill processed ore from 2013 stockpiles until early
September when it reached ore in cut-back 16. For the balance of the year, it mined, stockpiled
and processed this ore.
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The total waste rock and ore mined in 2014 was 191.7 million tonnes compared to 176.7 million
tonnes in the comparative period of 2013, representing an increase of 8%. The increased volume
is due to the higher density material mined, the shorter haulage distances of waste rock material
which was used for construction of the buttress and the increased fleet capacity.
Kumtor produced 567,693 ounces of gold in 2014 compared to 600,402 ounces of gold in the
comparative period of 2013. The decrease in ounces poured during 2014 was due to the
processing of lower grades from ore mined from cut-back 16 in comparison to the ore from cut-
back 15 that was processed in the comparative period of 2013. During 2014, Kumtor’s average
mill head grade was 3.90 g/t with a recovery of 78.0%, compared with 4.26 g/t and a recovery of
79.3% for the same period of 2013. Tonnes processed were approximately 5.8 million for 2014,
4% higher than 2013 as the mill reduced throughput in order to minimize the risk of cracking
that was observed in the ball mill ring gear.
Operating costs and All-in Measures:
Operating costs (on a sales basis), excluding capitalized stripping, decreased by $16.6 million
predominately due to a higher absorption of costs in the inventory due to greater contained
ounces in the broken ore stockpiles at the end of 2014 and lower prices for tires and fuel. This
was partially offset by increased blasting costs resulting from greater mined and blasted tonnage,
higher diesel usage due to mining greater tonnage of higher density material, higher cost for the
mill liner replacement, higher cyanide costs due to price increases and higher maintenance costs
of a larger haul truck and shovel fleet.
All-in sustaining costs per ounce soldNG, which excludes revenue-based tax, was $779 per ounce
sold in 2014, consistent with 2013. The 7% reduction in ounces sold in 2014 was offset by lower
operating costs and lower spending for stripping and sustaining capitalNG.
All-in costs per ounce soldNG, which excludes revenue-based tax, was $851 per ounce sold in
2014, which was also consistent with the prior year of 2013.
Boroo Mine
The Boroo gold mine, located in Mongolia, was the first hard rock gold mine in Mongolia. It has
produced approximately 1.9 million ounces of gold since it began operation in 2004.
Mining activities at Boroo were completed in September of 2012, although the mill continued to
process stockpiled ore until December 7, 2014. Heap leach processing activities continued
during 2014 though crushing and stacking of ore was completed in 2013.
Following the completion of milling of Boroo ore, the Company was engaged by a third party to
process its ore in the Boroo mill. The mill processed 86,797 tonnes of ore in early December
2014. The Company received $1.9 million under the agreement, which included a processing fee
and a share of the net proceeds from the ultimate sale of the gold bullion that was recovered.
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The mill was placed on care and maintenance in late December 2014, following the completion
of the third party processing arrangement. It is anticipated that shutdown activities at the mill
will be completed by the end of February 2015, after which the mill is planned to be kept on
standby awaiting the start-up of the Gatsuurt Project. The Company expects that the mill at
Boroo will commence an organized restart once sufficient feed of Gatsuurt ore is stockpiled for
processing. See “Other Corporate Developments – Mongolia” and “Caution Regarding Forward-
Looking Information”.
Overview of Operating Results
Boroo Operating Results
($ millions, except as noted)
Revenue
Cost of sales-cash
Cost of sales-non-cash
Cost of sales-total
Cost of sales - $/oz sold(1)
Tonnes milled - 000s
Average mill head grade - g/t
Recovery - %
Milling costs ($/t milled material)
Gold produced – ounces
Gold sold – ounces
Average realized gold price - $/oz(1)
Capital expenditures (sustaining)(1)
Operating costs (on a sales basis) (2)
Adjusted operating costs (1)
All-in Sustaining Costs (1)
All-in Costs(1)
All-in Costs - including taxes(1)
Adjusted operating costs - $/oz sold (1)
All-in sustaining costs – $/oz sold (1)
All-in costs – $/oz sold (1)
All-in costs (including taxes) – $/oz sold (1)
Year ended December 31,
2014
68.7
2013 % Change
133.4
(49%)
45.5
12.7
58.2
1,076
2,083
0.66
61.2%
10.03
53,128
54,080
1,271
0.3
45.4
51.8
52.6
52.6
55.4
959
973
973
1,025
59.2
27.2
86.4
909
2,394
1.12
57.6%
9.66
90,318
94,931
1,406
0.7
59.1
64.7
72.4
72.4
85.2
683
765
765
899
(23%)
(53%)
(33%)
18%
(13%)
(41%)
6%
4%
(41%)
(43%)
(10%)
(57%)
(23%)
(20%)
(27%)
(27%)
(35%)
40%
27%
27%
14%
(1) Adjusted operating costs, all-in sustaining costs, all-in costs and all-in costs (including taxes) (in each case, on an aggregate or per
ounce sold basis), as well as average realized gold price per ounce sold, cost of sales per ounce sold and capital expenditures
(sustaining and growth) are non-GAAP measures and are discussed under “Non-GAAP Measures”.
(2) Operating costs (on a sales basis) is comprised of mine operating costs such as mining, processing, regional office administration,
royalties and production taxes, but excludes reclamation costs and depreciation, depletion and amortization.
Production:
Boroo produced 53,128 ounces of gold in 2014 as compared to 90,318 ounces of gold in 2013.
The lower gold production results mainly from processing the remaining lower grade stockpiled
ore through the mill. Additionally, fewer ounces were poured from the heap leach operation due
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to leaching lower grade ore averaging 0.52 g/t in 2014, as a result of commencing secondary
leaching from August of 2014, compared to 0.70 g/t from primary leaching in 2013.
Operating costs and All-in Measures:
Operating costs (on a sales basis) decreased by $13.6 million to $45.5 million in 2014, as a result
of lower activity at the project with the completion of milling operations in December and the
transition to secondary leaching in 2014.
All-in sustaining costs per ounce soldNG and all-in costs per ounce soldNG, which exclude income
tax, increased in 2014 to $973 from $765 in 2013. The increase is primarily due to a decrease of
43% in ounces sold, partially offset by lower adjusted operating costsNG and lower sustaining and
growth capitalNG spending.
Fourth Quarter Results - 2014 compared to 2013
Unaudited ($ millions, except as noted)
Financial Summary
Revenue
Cost of sales
Mine standby costs
Regional office administration
Earnings from mine operations
Revenue-based taxes
Other operating expenses
Impairment of goodwill
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)
Earnings (loss) per common share - $ basic
Earnings (loss) per common share - $ diluted
Weighted average common shares outstanding - basic (thousands)
Weighted average common shares outstanding - diluted (thousands)
Operating Summary
Gold produced – ounces poured
Gold sold – ounces sold
Average realized gold price - $/oz(2)
Average gold spot price - $/oz (1)
Cost of sales - $/oz sold(2)
Adjusted operating costs - $/oz sold (2)
All-in sustaining costs – $/oz sold(2)
All-in costs – $/oz sold (2)
All-in costs (including taxes) – $/oz sold (2)
$
$
$
$
$
$
$
$
$
$
$
Three months ended December 31,(3)
2013
468.9 $
Change % Change
-23%
(108.8)
2014
360.1 $
183.5
2.2
7.6
166.8
48.5
1.9
111.0
4.1
10.4
(9.1)
2.3
1.1
(12.5)
(1.3)
(11.3) $
(0.05) $
(0.05) $
236,402
236,402
301,236
300,369
1,199 $
1,201 $
611 $
276 $
439 $
501 $
661 $
271.8
-
6.1
191.0
62.9
1.9
-
8.8
8.1
109.3
0.5
1.2
107.6
1.0
106.6 $
0.45 $
0.44 $
236,388
236,646
(88.3)
2.2
1.5
(24.2)
(14.4)
-
111.0
(4.7)
2.3
(118.4)
1.8
(0.1)
(120.1)
(2.3)
(117.9)
(0.50)
(0.49)
13
(245)
362,234
368,954
1,271 $
1,276 $
(60,998)
(68,585)
(72)
(75)
737 $
247 $
433 $
474 $
644 $
(126)
29
7
26
17
-32%
100%
25%
-13%
-23%
0%
100%
-53%
28%
-108%
360%
-8%
-112%
-230%
-111%
-111%
-111%
0%
0%
-17%
-19%
-6%
-6%
-17%
12%
2%
6%
3%
(1) Average for the period as reported by the London Bullion Market Association (US dollar Gold P.M. Fix Rate).
(2) All-in sustaining costs per ounce sold, all-in costs per ounce sold, all-in costs (including taxes) per ounce sold, as well as average realized
price per ounce sold and cost of sales per ounce sold, are non-GAAP measures and are discussed under “Non-GAAP Measures”.
(3) Results may not add or compute due to rounding.
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Overview
Net loss in the fourth quarter of 2014 was $11.3 million ($0.05 per common share - basic) as
compared to net earnings of $106.6 million in the same period of 2013. The loss includes a non-
cash impairment charge against goodwill for the Kyrgyz CGU of $111 million, following the
decrease in reserves and resources at Kumtor as calculated in the reserve and resource update at
the end of 2014 and released on February 9, 2015 (see news release filed on SEDAR). The
following provides an overview of the major items impacting the fourth quarter in 2014 as
compared to 2013:
• Gold production for the fourth quarter of 2014 decreased 17% to 301,236 ounces poured.
The decrease in ounces poured is due to the processing of lower grades from ore mined
from cut-back 16 in 2014 in comparison to the ore from cut-back 15 that was processed in
the fourth quarter of 2013. During the fourth quarter of 2014, Kumtor’s head grade was
7.40 g/t with a recovery of 82.2%, compared with 8.88 g/t and a recovery of 84.1% for the
same quarter in 2013. Boroo recorded lower production in the fourth quarter of 2014 as it
processed lower feed grades through the mill until it ultimately exhausted its stockpiled ore
in early December 2014. Fewer ounces were also recovered from the heap leach operation
as the operation transitioned from primary to secondary leaching midway through 2014.
• Revenues in the fourth quarter of 2014 decreased 23% to $360.1 million, as a result of 19%
fewer ounces sold and a 6% lower realized gold price. The lower ounces sold is a
reflection of the lower production in the fourth quarter at both operations.
• Cost of sales for the fourth quarter of 2014 decreased 32% to $183.5 million compared to
the same quarter of 2013. The decrease reflects fewer ounces sold at both operations and
the reversal in the fourth quarter of the inventory impairment of $12.2 million recorded in
the third quarter of 2014 at Kumtor.
• Regional administration and corporate administration costs increased 25% and 28%
respectively in the fourth quarter of 2014 as compared to the same period of 2013. The
increase resulted primarily from higher share-based compensation as the Company’s share
price increased in the fourth quarter of 2014 by 20% while it decreased by 10% in the
comparative quarter of 2013.
• Cash provided by operations was $217.0 million in the fourth quarter of 2014 compared to
$359.5 million in the same period of 2013. The decrease reflects lower earnings in the
fourth quarter 2014 and a more significant reduction in working capital levels in the
comparative quarter of 2013.
• Cash used in investing activities in the fourth quarter of 2014 totaled $79.5 million,
compared to $205.3 million in the same quarter of 2013. The fourth quarter of 2014
reflects 37% less capital purchased and 79% fewer purchases of short-term investments.
• Capital expenditures (spent and accrued) in the fourth quarter of 2014 were $57.7 million
as compared to $86.7 million in the same period of 2013. Sustaining capitalNG in the fourth
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quarter of 2014 of $13.4 million compared to $10 million in 2013, with the increase
reflecting more equipment overhauls at Kumtor in 2014. Growth capitalNG of $11.8 million
in the fourth quarter of 2014 compares to $5.9 million in the same quarter of 2013. The
increase in 2014 reflects spending at Kumtor, mainly related to the infrastructure
relocation. Capitalized stripping in the fourth quarter of 2014 was $32.5 million compared
to $70.8 million in the fourth quarter of 2013 reflecting lower tonnage of waste stripping in
the fourth quarter of 2014 as more of the mining fleet at Kumtor was committed to
advancing the ore production out of cut-back 16. In the fourth quarter of 2013, the mining
fleet was split between stripping cut-backs 16 and 17, and completing ore mining in cut-
back 15.
• Centerra’s all-in sustaining costs per ounce soldNG, which excludes revenue-based tax and
income tax, in the fourth quarter of 2014, increased to $439 compared to $433 in the same
period of 2013. The increase resulted from lower gold ounces sold, partially offset by the
reduction in operating costs.
• All-in costs per ounce soldNG, which exclude revenue-based tax and income tax, were $501
in the fourth quarter of 2014 compared to $474 in the same quarter of 2013. The increase
reflects fewer ounces sold, higher spending on growth and sustaining capitalNG and
increased spending on the Company’s Öksüt Project, partially offset by lower capitalized
stripping costs at Kumtor and lower exploration spending.
Quarterly Results – Previous Eight Quarters
Over the last eight quarters, Centerra’s results reflect the impact of an overall decline in gold
prices as well as increasing costs. Production continues to be concentrated at the end of the year
and this was reflected in the fourth quarters of 2014 and 2013. Non-cash costs have progressively
increased until 2013 resulting from the expanded mining fleet and the increased amortization of
capitalized stripping at Kumtor resulting from increased stripping as the pit gets larger. The
2014 year showed a slight decrease in non-cash costs due to the lower stripping requirements of
cut-back 16 at Kumtor. The Company recorded a non-cash impairment of goodwill related to its
Kyrgyz CGU of $111.0 million. The quarterly financial results for the last eight quarters are
shown below:
$ million, except per share data
Quarterly data unaudited
Revenue
Net earnings (loss)
Basic earnings (loss) per share
Diluted earnings (loss) per share
2014
2013
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
360
(11)
(0.05)
(0.05)
136
(3)
(0.01)
(0.02)
119
(32)
(0.13)
(0.13)
148
2
0.01
-
469
107
0.45
0.44
155
(2)
(0.01)
(0.01)
128
2
0.01
-
192
51
0.22
0.21
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Balance Sheet
Inventory
Total inventory at December 31, 2014 of $408.4 million ($378.5 million at December 31, 2013)
includes gold inventory of $234.4 million ($204.6 million in 2013) and supplies inventory of
$174.0 million ($173.9 million in 2013). The increase in 2014 reflects higher stockpiles of ore
coming from cut-back 16 at Kumtor.
Property, Plant and Equipment
The aggregate book value of property, plant and equipment at December 31, 2014 of $524.7
million, compares to $539.1 million at the end of 2013 and is allocated as follows: Kyrgyz
Republic $437.1 million (2013- $444.8 million), Mongolia $86.8 million (2013- $93.1 million)
and corporate entities $0.8 million (2013- $1.2 million). The decrease in 2014 of $14.4 million
reflects a lower asset base at Boroo as the operation nears its completion and lower capital
spending at Kumtor.
Goodwill
During the year ended December 31, 2014, the Company undertook its normal annual review of
the $129.7 million of goodwill recorded by the Kyrgyz CGU. The annual test was performed on
September 1 and included the then current Kumtor life of mine plan as well as updated
assumptions for the discounted cash flow model to estimate the market value of the CGU. As at
September 1, 2014, management concluded that current circumstances did not indicate that the
carrying value of the unit exceeded its recoverable value.
Subsequent to September 1, the Company evaluated whether an impairment trigger existed
thereby requiring a further review of recoverability. The Company completed its regular update
to its reserves and resources in early 2015, the result of this update indicated a significant
reduction in reserves and resources. The reserve decrease is a result of negative production
reconciliation in 2014 and the impact from the construction of the buttress at Kumtor,
development of a new resource model for the Kumtor Central Pit, , and design changes to the
Kumtor Central Pit resulting from the new resource model and flattening of certain pit slopes.
The reserves decrease was the primary reason for the need to revise the Kumtor life of mine plan.
The Company determined that the impact of this reserve reduction was considered an indicator
of impairment.
As a result, the Company performed a re-assessment of the recoverable amount of its Kyrgyz
CGU as at December 31, 2014, which incorporated the results of the 2014 year end reserve and
resource update which were published by the Company on February 9, 2015. Assumptions in the
discounted cash flow model were updated as of December 31, 2014 resulting in a reduction of
the consensus future gold prices, a measure of the lower gold spot prices, and an increase in the
risk-adjusted discount rate for the Kyrgyz Republic, a reflection of increasing country risk and
higher bond yield rates, as compared to the September 1, 2014 annual test. As a result of this
assessment, the Company’s carrying value exceeded the recoverable value by $111.0 million
resulting in a non-cash impairment charge of the goodwill attributable to the Company's Kumtor
Project.
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The remaining goodwill at December 31, 2014 totals $18.7 million, compared to $129.7 million
at December 31, 2013.
Asset Retirement Obligations
The total future asset retirement obligations were estimated by management based on the
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
$67.9 million as at December 31, 2014 (December 31, 2013 - $60 million). These payments are
expected to commence over the next 1 to 12 years. The Company used a risk-free rate of 2.23%
at Kumtor, 2.26% at Boroo and 2.23% at Gatsuurt to calculate the present value of the asset
retirement obligations.
The increase in 2014 in the present value of the obligation of $7.9 million was mainly as a result
of the regularly scheduled update to the closure costs estimates at Boroo and Gatsuurt which was
completed in late 2014. As a result, Boroo recorded a net increase to its provision of $2.5
million and Gatsuurt increased its provision by $1.8 million, while the revision to the closure
costs at Kumtor increased its provision by $3.0 million. The last regularly scheduled closure
cost update at Kumtor was completed in 2013. The accretion expense for 2014 was $1.7 million,
and cash spending on on-going reclamation was $1.1 million.
The Company’s future undiscounted decommissioning and reclamation costs have been
estimated to be $87.3 million at December 31, 2014 before salvage value.
Share capital
As of February 19, 2015, Centerra had 236,454,141 shares outstanding and options to acquire
3,868,334 common shares outstanding under its stock option plan with exercise prices ranging
between Cdn$3.82 and Cdn$22.28 per share, with expiry dates ranging between 2016 and 2021.
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Contractual Obligations
The following table summarizes Centerra’s contractual obligations, including payments due for
the next five years and thereafter, as of December 31, 2014.
$ millions
Kumtor
Reclamation trust deed (1)
Capital equipment (2)
Operational supplies
Lease of premises
Boroo
Lease of premises
Corporate
Loan repayment (principal only)
Lease of premises (3)
Total
Due in Less
than One Year
Due in 1 to 3
Years
Due in 4 to 5
Years
Due After 5
Years
$ 27.9
7.6
37.6
0.1
$ 2.7
7.6
37.6
0.1
0.3
0.3
76.0
3.6
76.0
0.5
$ 8.8
$ 5.8
$ 10.6
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1.0
1.0
1.1
Total contractual obligations (4)
$ 153.1
$ 124.8
$ 9.8
$ 6.8
$ 11.7
(1) Centerra’s future decommissioning and reclamation costs for the Kumtor mine are estimated to be $43.9 million to be incurred beyond
2026. The estimated future cost of closure, reclamation and decommissioning of the project are used as the basis for calculating the
amount remaining to be deposited in the Reclamation Trust Fund ($27.9 million). This restricted cash is funded by sales revenue, annually
in arrears and on December 31, 2014 the balance in the fund was $16.0 million (2013 - $13.5 million), with the remaining $27.9 million to
be funded over the life of the mine.
(2) Agreements as at December 31, 2014 to purchase capital equipment.
(3) Lease of corporate office premises expiring in November 2021.
(4) Excludes trade payables and accrued liabilities.
Other Financial Information- 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, a shareholder of the Company and a state-owned
entity of the Kyrgyz Republic.
The table below summarizes the management fees paid and accrued by 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 (“Sales Agreement”) between KGC,
Kyrgyzaltyn and the Government of the Kyrgyz Republic dated June 6, 2009.
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The breakdown of the sales transactions and expenses with Kyrgyzaltyn are as follows:
Included in sales:
Gross gold and silver sales to Kyrgyzaltyn
Deduct: refinery and financing charges
Net sales revenue received from Kyrgyzaltyn
Included in expenses:
Management fees to Kyrgyzaltyn
Contracting services
Expenses paid to Kyrgyzaltyn
Dividend:
Dividends declared to Kyrgyzaltyn
Withholding taxes
Net dividends declared to Kyrgyzaltyn
Realized exchange difference
Net dividends transferred to restricted cash
Net dividends paid to Kyrgyzaltyn
Related party balances
2014
2013
$
$
$
$
$
$
697,903
(3,313)
694,590
561
1,628
2,189
2014
11,164
(558)
10,606
(9)
(2,596)
8,001
$
$
$
$
$
$
814,416
(3,472)
810,944
602
1,762
2,364
2013
11,915
(599)
11,316
-
(5,284)
6,032
The assets and liabilities of the Company include the following amounts receivable from and
payable to Kyrgyzaltyn:
Amounts receivable
Dividend payable (net of withholding taxes)
Net unrealized foreign exchange gain
Dividend payable (net of withholding taxes)(a)
Amount payable
Total related party liabilities
2014
2013
62,143
13,828
(1,574)
12,254
616
12,870
$
$
$
69,382
11,233
(597)
10,636
157
10,793
$
$
$
(a) Equivalent of Cdn $14.2 million as at December 31, 2014 ( 2013 - Cdn $11.3 million).
Gold produced by the Kumtor mine is purchased at the mine site by Kyrgyzaltyn for processing
at its refinery 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
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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. Subsequent to December 31, 2014, the balance receivable from
Kyrgyzaltyn was paid in full.
Dividends payable and restricted cash held in trust
An Ontario court order last updated on June 5, 2013, set a maximum of approximately Cdn$11.3
million of Centerra dividends otherwise payable to Kyrgyzaltyn to be held in trust for the benefit
of the court proceedings commenced by a Turkish company, Sistem Muhendislik Insaat Sanayi
ve Ticaret A.S against the Kyrgyz Republic and Kyrgyzaltyn. The maximum amount under the
court order was achieved in July 2013.
On September 8, 2014, a decision of the Ontario Court of Appeal required Centerra to pay to
Kyrgyzaltyn all of the amounts held in trust for the Sistem proceedings, subject to the
satisfaction of certain conditions. The Company understands that those conditions were satisfied
on September 23, 2014. However prior to receiving instructions from Kyrgyzaltyn with respect
to the transfer of the funds, a subsequent order of the Ontario Superior Court of Justice on
October 10, 2014 which was amended on October 20, 2014 (the “Stans Order”) was made that
restricts Centerra from paying such monies to Kyrgyzaltyn. The Stans Order also requires
Centerra to hold in trust for the benefit of court proceedings between Stans Energy and the
Kyrgyz Republic, all dividends (net of withholding taxes) otherwise payable to Kyrgyzaltyn.
See “Other Corporate Developments – Corporate”.
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 and Mongolia. For a more complete
discussion of these matters, see the Company’s most recently filed Annual Information Form
(the “2013 Annual Information Form”) available on SEDAR at www.sedar.com.
Readers are cautioned that there are a number of legal and regulatory matters that are currently
affecting the Company and that the following brief description is only a summary of the current
status of such matters. For more complete background and information on these matters,
including with respect to the Kyrgyz Parliamentary and State Commissions and their reports,
Kyrgyz Parliamentary resolutions, discussions with the Government of the Kyrgyz Republic in
relation to the Heads of Agreement relating to the proposed restructuring of the Kumtor Project,
various environmental and other claims made by Kyrgyz state agencies and the draft Kyrgyz
Law on Denunciation of the Agreement on New Terms for the Kumtor Project, please refer to
the description contained in the 2013 Annual Information Form.
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Kyrgyz Republic
Negotiations between Kyrgyz Republic and Centerra
Following discussions with representatives of the Kyrgyz Government in the second half of
2013, Centerra announced on December 24, 2013 that it had entered into a non-binding heads of
agreement with the Government of the Kyrgyz Republic in connection with a potential
restructuring transaction under which Kyrgyzaltyn would exchange its 32.7% equity interest in
Centerra for an interest of equivalent value in a joint venture company that would own the
Kumtor Project. The agreement was revised and re-executed on January 18, 2014 (the “HOA”).
On February 6, 2014, after its review of the HOA, the Kyrgyz Parliament adopted a resolution
which appears to support the concept of the restructuring described in the HOA but also contains
a number of recommendations that are materially inconsistent with the terms of the HOA.
transaction
to resolve all outstanding concerns relating
Centerra expects to continue its discussions with the Government regarding a potential
restructuring
the Kumtor
Project. However, it maintains that any agreement to resolve matters must be fair to all of
Centerra’s shareholders. Any definitive agreement for a potential restructuring remains subject
to required approvals in the Kyrgyz Republic, including the Government and Parliament of the
Kyrgyz Republic, Centerra Special Committee and Board approval, as well as compliance with
all applicable legal and regulatory requirements and approvals, including an independent formal
valuation and shareholder approval.
to
However, Centerra notes that if the Kyrgyz Republic does not succeed in overturning the Stans
Arbitration Award (as discussed above and defined below) in the Russian courts and
Kyrgyzaltyn is unsuccessful in the Sistem Appeal (as discussed above and defined below),
Centerra expects that Stans would likely succeed in enforcing the Stans Arbitration Award in
Ontario and in seizing a sufficient number of the Centerra shares held by Kyrgyzaltyn to satisfy
the Stans Arbitration Award. If Stans ultimately seizes such shares, Kyrgyzaltyn would no
longer hold a sufficient number of Centerra shares to contribute to the HOA restructuring
transaction such that it could receive 50% of a new Kumtor joint venture. In such circumstances,
the Company believes that the restructuring of the Kumtor Project in accordance with the HOA
would be impossible.
While Centerra expects to continue discussions with the Government, there can be no assurance
that any transaction will be consummated or that Centerra will be able to successfully resolve
any of the matters currently affecting the Kumtor Project. The inability to successfully resolve
matters, including obtaining all necessary approvals, and/or further actions of the Kyrgyz
Republic Government and/or Parliament, and/or the inability of the Kyrgyz Republic to overturn
the Stans Arbitration Award and/or for Kyrgyzaltyn to successfully challenge the determination
that the Kyrgyz Republic beneficially owns the Centerra shares held by Kyrgyzaltyn, could have
a material adverse impact on Centerra’s future cash flows, earnings, results of operations and
financial conditions.
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Kyrgyz Permitting and Regulatory Matters
In the normal course of operations at Kumtor, KGC prepares annual mine plans and other
documents for approval for the Kumtor project which are considered and approved by, among
others, the State Agency for Environmental and Forestry under the Government of the Kyrgyz
Republic (“SAEPF”) and the State Agency for Geology and Mineral Resources (“SAGMR”). As
was previously disclosed, KGC experienced delays in 2014 in obtaining the required approval of
the annual mine plan and other permits and approvals due to concerns raised by SAEPF and
SAGMR and other regulatory agencies regarding, among other things, the mining of ice at
Kumtor. After months of negotiating, Centerra announced on June 2, 2014 that the continuing
absence of such approvals and permits created significant uncertainty and risk for Centerra and
its employees and that accordingly, Centerra had instructed Kumtor to begin an orderly
shutdown of operations if the approvals and permits were not received by June 13, 2014.
Fortunately, the approvals and permits were received prior to any shut down being initiated.
In the fourth quarter of 2014, Kumtor submitted to SAEPF, SAGMR and other relevant agencies
various documents for approval, including its 2015 annual mine plan and its ecological passport,
which provides for, among other things, allowable levels of environmental emissions and
discharges. Similar to 2014, Kumtor received correspondence from such agencies declining to
review such documents and expressing concern regarding the mining of ice at Kumtor.
As previously disclosed, the Parliament of the Kyrgyz Republic passed a law prohibiting
activities which affect glaciers in the Kyrgyz Republic. This law passed by Parliament on April
23, 2014, but was not approved by the President of the Kyrgyz Republic who returned it to
Parliament for revision. Centerra understands that this matter is still being reviewed by Kyrgyz
Parliament. In addition, Kyrgyz regulators have also referred to older legislation, the 2005 Law
of Water (the “Water Law”), which purports to prohibit the mining of ice by Kumtor. Centerra
disputes the reasons stated by the regulatory authorities and have urged the relevant agencies and
the Kyrgyz Government to provide the approvals and permits which are necessary for the
operation of the Kumtor Project, including the 2015 annual mine plan and ecological passport.
Centerra believes that the stabilization and non-discrimination provisions contained in the
Kumtor Project Agreements (the “Kumtor Project Agreements”) and the laws of the Kyrgyz
Republic which implemented the Kumtor Project Agreements support the view that the Water
Law and any new law which could purport to prohibit the mining of ice would not apply to
Kumtor operations. Centerra believes that any disagreement in relation to the application of the
Water Law to Kumtor would be subject to the international arbitration provisions of the Kumtor
Project Agreements. Centerra has also explained that (i) the Kumtor Project Agreements require
the relevant Government authorities to be reasonable in their consideration of such approvals; (ii)
the mining of ice has been a constant feature of the Kumtor Project since its inception; and (iii)
that the continued mining of ice is critical to ensuring efficient and stable mining operations. In
addition, Centerra also notes that with respect to permits and approvals, Kumtor is entitled to
maintain, have renewed and receive such licenses, consents, permissions and approvals as are
from time to time necessary or convenient for the operation of the Kumtor Project.
Centerra also notes that Kumtor has not received notice from any governmental authority
ordering or threatening to order it to suspend operations. Furthermore, successive Kyrgyz
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governments have consistently emphasized the strategic importance to the Kyrgyz Republic of
continued operation of the Kumtor mine. The Restated Investment Agreement requires that any
order of suspension be stayed pending the outcome of the dispute resolution provisions of the
Restated Investment Agreement, unless necessary to prevent imminent harm to human health
and safety or imminent material harm to the environment.
While Centerra and KGC expect to continue discussions with the Government and the relevant
Kyrgyz authorities in relation to the approval of the 2015 annual mine plan and other related
approvals and permits, there can be no assurance that any such approvals and permits will be
received or that a suspension of mining operations will not occur. The inability to successfully
resolve matters, including obtaining all necessary approvals, and/or further actions of the Kyrgyz
Republic Government and/or Parliament, could have a material adverse impact on Centerra’s
future cash flows, earnings, results of operations and financial conditions.
Kumtor Dividend Claim and Japarov Criminal Proceeding
As previously disclosed, the Kyrgyz Republic General Prosecutor’s Office (“GPO”) filed on
May 23, 2014 a civil claim in Kyrgyz court against KGC which sought to unwind a $200 million
inter-corporate dividend declared and paid by KGC to Centerra in December 2013. KGC and
Centerra believe the dividend complied with the Kumtor Project Agreements and all applicable
Kyrgyz laws, and that the payment of the dividend does not have an impact on the valuation
which underlies the restructuring contemplated by the HOA. Effective October 10, 2014, the
case has been suspended at the request of the GPO until the completion of the criminal
proceedings against Mr. Japarov (see below).
The GPO has brought criminal proceedings against Mr. D. Japarov, who was a member of the
KGC board of directors (as nominee of Kyrgyzaltyn) in December 2013, when the KGC board of
directors approved the declaration and payment of a $200 million inter-corporate dividend to
Centerra. Mr. Japarov was also Chairman of the management board of Kyrgyzaltyn at that time.
Such court hearings are ongoing and Mr. Japarov remains in custody.
Environmental Claims
As previously disclosed, Kumtor has received very substantial claims from various Kyrgyz
Republic state agencies in relation to alleged environmental offences and other matters. In
aggregate, these claims amount to approximately $470 million at the then current exchange rates.
Such claims continue to be before the Kyrgyz courts. For further detail on such claims, please
refer to the Company’s news releases dated February 19, 2014, May 6, 2014, July 29, 2014,
October 29, 2014 and the Company’s 2013 Annual Information Form.
As previously stated, Kumtor believes the claims are exaggerated and without merit. The
Kumtor Project has been the subject of systematic audits and investigations over the years by
Kyrgyz and international experts, including by an independent internationally recognized expert
who carried out a due diligence review of Kumtor’s performance on environmental matters at the
request of Centerra’s Board of Directors. The report of this expert was released in October 2012
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and can be found on the Kumtor website at http://www.kumtor.kg/en/ under the “Environment”
section.
Land Use Claim
As previously disclosed on November 11, 2013, the Company received a claim from the Kyrgyz
Republic General Prosecutor’s Office requesting the Inter-District Court of the Issyk-Kul
Province to invalidate the Company’s land use certificate and seize certain lands within
Kumtor’s concession area. Kumtor challenges this claim and the matter is currently before the
Kyrgyz courts. For further details of the claim, see the Company’s news releases dated February
19, 2014, May 6, 2014, July 29, 2014, October 29, 2014 and the Company’s 2013 Annual
Information Form.
Management Assessment
There are several important outstanding issues affecting the Kumtor Project, which require
consultation and co-operation between the Company and Kyrgyz regulatory authorities. The
Company has benefited from a close and constructive dialogue with Kyrgyz authorities during
project operations and remains committed to working with them to resolve these issues in
accordance with the Kumtor Project Agreements, which provide for all disputes to be resolved
by international arbitration, if necessary. However, there are no assurances that the Company
will be able to successfully resolve any or all of the outstanding matters affecting the Kumtor
Project. There are also no assurances that continued discussions between the Kyrgyz
Government and Centerra will result in a mutually acceptable solution regarding the Kumtor
Project, that any agreed upon proposal for restructuring would receive the necessary legal and
regulatory approvals under Kyrgyz law and/or Canadian law and that the Kyrgyz Republic
Government and/or Parliament will not take actions that are inconsistent with the Government’s
obligations under the Kumtor Project Agreements, including adopting a law “denouncing” or
purporting to cancel or invalidate the Kumtor Project Agreements or laws enacted in relation
thereto. The inability to successfully resolve all such matters would have a material adverse
impact on the Company’s future cash flows, earnings, results of operations and financial
condition. See “Caution Regarding Forward-looking Information”.
Mongolia
Gatsuurt
The Company announced on January 23, 2015 that the Gatsuurt project, which is located
approximately 35 km from the Company’s Boroo mine in Mongolia, has been designated as a
mineral deposit of strategic importance by the Mongolian Parliament. This designation allows
the Gatsuurt project to move forward within the application of the Water and Forest Law and
also allows Mongolia to acquire up to a 34% interest in the project. The terms of such
participation are subject to continued discussions between the Company and the Mongolian
Government. Centerra understands that, on February 17, 2015, the Government’s proposal on
state ownership of 20% was considered by Parliament but voted down and returned to the
Government for review. The Company now expects that Parliament will consider a new
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proposal for the level of state ownership in the project during its spring session which begins in
early April.
Further development of the Gatsuurt project will be subject to, among other things, receiving
Parliamentary approval of the Mongolia’s state ownership as well as the all required approvals
and regulatory commissioning from the Mongolian Government. There are no assurances that
the Company and the Mongolian Government will be able to finalize and agree upon the terms of
the Government’s involvement in the project, that the Mongolian Parliament will agree upon and
approve a level of ownership of the Gatsuurt project, and that applicable approvals and
regulatory commissions from the Mongolian Government are received (in a timely fashion or at
all). The inability to successfully resolve all such matters would have a material adverse impact
on the Company’s future cash flows, earnings, results of operations and financial condition.
Corporate
Enforcement Notice by Sistem
In March 2011, a Turkish company, Sistem Muhendislik Insaat Sanayi ve Ticaret A.S.
(“Sistem”) initiated a claim in an Ontario court which alleged that the shares in Centerra owned
by Kyrgyzaltyn are, in fact, beneficially owned by the Kyrgyz Republic. This claim was made
as part of court proceedings seeking to enforce in Ontario an arbitration award received by
Sistem against the Kyrgyz Republic in the amount of approximately $9 million plus interest. On
April 15, 2014, the Ontario Superior Court of Justice found in favour of Sistem, ruling that the
shares of Centerra owned by Kyrgyzaltyn could be seized to satisfy the arbitration award.
Kyrgyzaltyn appealed this ruling to the Ontario Court of Appeal where it was heard on October
29, 2014 (the “Sistem Appeal”). No decision has been issued as of the date of this disclosure.
Pursuant to a separate order issued by the Ontario Superior Court of Justice, Centerra was
ordered to hold in trust (for the credit of the Sistem court proceedings) dividends otherwise
payable to Kyrgyzaltyn in the amount of approximately Cdn$11.3 million. As a result of an
agreement reached between Sistem and Kyrgyzaltyn on September 8, 2014, the Ontario Court of
Appeal issued an order requiring Centerra to release to Kyrgyzaltyn all of the amounts held in
trust for the Sistem proceedings. However prior to receiving instructions from Kyrgyzaltyn with
respect to the transfer of the funds, a subsequent order of the Ontario Superior Court of Justice
on October 10, 2014 (as later amended) in relation to the Stans Application (as defined below)
was made that restricts Centerra from paying such monies to Kyrgyzaltyn. Centerra has advised
Kyrgyzaltyn that it will continue holding such funds in trust in accordance with this court order.
See “Enforcement Notice by Stans” below.
Enforcement Notice by Stans
On October 10, 2014, Centerra was served with a temporary order (the “Stans Order”) from the
Ontario Superior Court of Justice in favour of Stans Energy Corp. (“Stans”) which prohibits
Kyrgyzaltyn from, among other things: (i) selling, disposing or exchanging 47,000,000 shares
(the “Frozen Shares”) of the 77,401,766 shares it holds in the capital of Centerra; (ii) obtaining
share certificates in respect of such shares; or (iii) exercising its rights as a registered shareholder
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of Centerra in a manner that is inconsistent with or would undermine the terms of the Stans
Order. The order also prohibits Centerra from, among other things, registering the transfer of the
Frozen Shares, and requires Centerra to hold in trust for the proceeding under the Stans
Application (as defined below) any amounts payable to Kyrgyzaltyn in respect of dividends or
distributions that Centerra may declare or pay in the future.
Centerra was also served by Stans with a notice of application to the Ontario Superior Court of
Justice (the “Stans Application”) which seeks to enforce a June 30, 2014 arbitral award (the
“Stans Arbitration Award”) obtained by Stans against the Kyrgyz Republic from the arbitration
tribunal of the Moscow Chamber of Commerce in the amount of approximately $118 million.
The Stans Application seeks, among other things, an order declaring that the Kyrgyz Republic
has a beneficial interest in all of the shares in Centerra held by Kyrgyzaltyn and that monies,
interest, dividends and other rights of Kyrgyzaltyn in the stock of Centerra may be seized in
order to satisfy the Stans Arbitration Award. The notice of application was originally served in
October 2014, and was recently re-filed in January 2015 with new affidavits. We understand
that the Kyrgyz Republic is appealing the Stans Arbitration Award to Russian courts in Moscow
and that the hearing is expected to occur in the first quarter of 2015. The Kyrgyz Republic is
arguing that the Moscow Chamber of Commerce lacked the jurisdiction to hear the matter and
accordingly, the arbitration award must be revoked.
As noted above, in a separate proceeding Kyrgyzaltyn has appealed to the Ontario Court of
Appeal the decision of the Ontario Superior Court of Justice in the Sistem matter, which found
that the Kyrgyz Republic had a beneficial interest in the Centerra shares held by Kyrgyzaltyn.
There is no decision as of the date of this disclosure.
If the Kyrgyz Republic does not succeed in overturning the Stans Arbitration Award in the
Russian courts and the Ontario Court of Appeal rules that the Kyrgyz Republic has a beneficial
interest in the Centerra shares held by Kyrgyzaltyn, Stans would likely succeed in enforcing the
Stans Arbitration Award in Ontario and in seizing a sufficient number of the Centerra shares held
by Kyrgyzaltyn to satisfy the Stans Arbitration Award. If Stans ultimately seizes such shares,
Kyrgyzaltyn would no longer hold a sufficient number of Centerra shares to contribute to the
HOA restructuring transaction such that it could receive 50% of a new Kumtor joint venture. In
such circumstances, the Company believes that the restructuring of the Kumtor Project in
accordance with the HOA would be impossible.
Critical Accounting Estimates
Centerra prepares its consolidated financial 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 significant accounting policies as described in note 3 to the
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Consolidated Financial Statements management believes the following critical accounting
policies reflect its more significant estimates and judgments used in the preparation of the
consolidated financial statements. Actual results could differ from these estimates.
i.
Impairment of long-term assets and goodwill
The Company reviews and tests the carrying amounts of long-term assets and intangible
assets with definite 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 identified 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 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 dispose. The
estimated recoverable amount is calculated normally based upon a discounted cash flow
analysis, which requires management to make a number of significant 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 flows are reasonable, different assumptions regarding such cash flows could
materially affect the recoverable value of the long-term asset or cash generating unit
(“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.
ii. 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 finished
goods sold during the period and the value of the inventoried costs in the Company’s
Statements of Financial Position. Costs that are incurred in or benefit 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 verified by periodic surveys.
Changes in these estimates can result in a change in mine operating costs of future
periods and carrying amounts of inventories.
iii. 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
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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.
iv. 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 financial
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 financial 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 financial 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.
v. 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 significant
assumptions such as volatility, expected life, expected dividends, risk-free interest rate
and expected forfeiture rates.
vi. 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 flows they generate.
Changes to these estimates, which can be significant, 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.
Significant judgment is involved in the determination of useful lives 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 significantly from current
assumptions.
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vii. Mineral reserve and resources estimation
The Company estimates its ore reserves and mineral resources based on information
compiled by qualified persons as defined 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 difficult 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 financial results and financial position.
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 outflow 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
significant judgment of the potential outcome of future events.
Changes in Accounting Policies
Recently issued but not adopted accounting guidance are as follows:
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 significant components: establishes two primary measurement categories for financial
assets — amortized cost and fair value; establishes criteria for classification of financial assets
within the measurement category based on business model and cash flow characteristics; and
eliminates existing held to maturity, available-for-sale and loans and receivable categories. The
effective date of this standard is January 1, 2018, with earlier application permitted. The
Company has not adopted IFRS 9 in its financial statements for the current period, but will
continue to monitor and evaluate the impact of any required changes to its consolidated financial
statements based on the characteristics of its financial instruments at the date of adoption.
In May 2014, the IASB issued IFRS 15 “Revenue from Contracts with Customers” (“IFRS 15”).
IFRS 15 establishes principles for reporting the nature, amount, timing, and uncertainty of
revenue and cash flows arising from an entity’s contract with customers. This standard is
effective for annual periods beginning on or after January 1, 2017, and permits early adoption.
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The Company is currently assessing the impact of adopting this standard on its consolidated
financial statements.
In December 2014, the IASB issued amendments to IAS 1, Presentation of Financial Statements
(“IAS 1”) to clarify materiality, order of notes to financial statements, disclosure of accounting
policies as well as aggregation and disaggregation of items presented in the statement of
financial position, statement of income and statement of comprehensive income. These
amendments shall be applied to fiscal years beginning on or after January 1, 2016, with earlier
application permitted. The Company has not adopted the amendments to IAS 1 in its financial
statements for the current period, but will continue to monitor and evaluate the impact of any
required changes to its consolidated financial statements at the date of adoption.
Adoption of New Accounting Standards and Developments
Effective January 1, 2014, the Company adopted IFRIC 21, Levies (“IFRIC 21”). IFRIC 21 is an
interpretation of the accounting for levies imposed by governments which were accounted for
under IAS 37, Provisions, contingent liabilities and contingent assets (“IAS 37”). IAS 37 sets
out criteria for the recognition of a liability, one of which is the requirement for the entity to have
a present obligation as a result of a past event (known as an obligating event). The interpretation
clarifies that the obligating event that gives rise to a liability to pay a levy is the activity
described in the relevant legislation that triggers the payment of the levy. The adoption of this
standard did not have a material impact on the Company’s consolidated financial statements.
Disclosure Controls and Procedures and Internal Control Over Financial
Reporting
As of December 31, 2014, Centerra adopted COSO's revised 2013 Internal Control Framework
for the design of its internal controls over financial reporting.
The evaluation of disclosure controls and procedures and internal controls over financial
reporting under the new framework was carried out under the supervision of and with the
participation of management, including Centerra’s Chief Executive Officer and the Chief
Financial Officer. Based on these evaluations, the Chief Executive Officer and the Chief
Financial Officer concluded that the design and operation of these disclosure controls and
procedures and internal control over financial reporting were effective.
2015 Outlook
Kumtor’s forecast 2015 production and unit costs are provided on a 100% basis and the forecast
does not make any assumptions regarding possible changes in the structure and management of
the Kumtor Project, including without limitation the level of ownership resulting from ongoing
discussions with the Government of the Kyrgyz Republic and Kyrgyzaltyn JSC, Centerra’s
largest shareholder. See “Material Assumption and Risks” for other material assumptions or
factors used to forecast production and costs for 2015.
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Centerra’s 2015 gold production and unit costs are forecast as follows:
2015 Production
Forecast
(ounces of gold)
470,000 – 520,000
10,000 – 15,000
480,000 – 535,000
2015 Adjusted
Operating CostsNG
All-in CostsNG
($ per ounce sold)
$366 – $406
$1,092 – $1,639
$387 – $432
($ per ounce sold)
$869 – $963
$1,482 – $2,225
$1,003 – $1,121
Kumtor
Boroo
Consolidated
2015 Gold Production
Centerra’s 2015 consolidated gold production is expected to be 480,000 to 535,000 ounces. The
Kumtor mine is expected to produce between 470,000 and 520,000 ounces in 2015. Kumtor’s
2015 production guidance range is lower than that outlined in the life of mine plan set out in the
Kumtor technical report filed on December 20, 2012 primarily as a result of negative block
model reconciliation, as previously disclosed, timing of ore release due to deferral of capital for
mine haulage equipment and lower than expected metallurgical recovery. An updated technical
report and life of mine plan is expected to be filed on SEDAR by March 26, 2015.
At the Boroo mine, gold production is forecast to be 10,000 to 15,000 ounces. The forecast
annual production at Boroo represents ounces from the secondary leaching of the heap leach pad.
The 2015 forecast assumes no mining activities at Boroo or Gatsuurt, and no gold production
from Gatsuurt.
2015 All-in Unit Costs
Centerra’s 2015 all-in sustaining costs per ounce soldNG and all-in costs per ounce soldNG are
forecast as follows:
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Ounces sold forecast
US $ / gold ounces sold
Operating Costs
Changes in inventories
Operating Costs (on a sales basis)
Regional office administration
Social Development costs
Refining costs and by-product credits
Sub-Total (Adjusted Operating Costs) (1)
Corporate general & administrative costs
Accretion expense
Capitalized stripping costs – cash
Capital expenditures (sustaining)(1)
All-in Sustaining Costs (1)
Capital expenditures (growth) (1)
Other costs (2)
All-in Costs
Kumtor
470,000-
520,000
Boroo(4)
10,000-15,000
Consolidated
480,000-
535,000
368 – 408
(45) – (50)
$323 – 358
37 – 41
5 – 6
1
$366 – 406
-
2 – 3
356 – 394
95 – 105
$819 – 908
364 – 546
465 – 697
$829 – 1,243
241 – 362
24 – 36
(2)
$1,092 – 1,639
-
32 – 48
-
7 – 11
$1,131 – 1,698
368 – 411
(31) – (34)
$337 – 377
43 – 48
6
1
$387 – 432
69 – 77
3 – 4
346 – 386
93 – 104
$898 – 1,003
50 – 55
-
$869 – 963
-
351 – 527
$1,482 – 2,225
48 – 54
57 – 64
$1,003 – 1,121
Revenue-based tax and income taxes (3)
All-in Costs (including taxes) (1), (3)
164
$1,033 – 1,127
-
$1,482 – 2,225
160
$1,163 –1,281
(1) Adjusted operating costs per ounce sold, all-in sustaining costs per ounce sold, all-in costs per ounce sold, all-in costs
(including taxes) per ounce sold, as well as capital expenditures (sustaining and growth) are non-GAAP measures and
are discussed under “Non-GAAP Measures”.
(2) Other costs per ounce sold include costs to place the Boroo mill on care and maintenance, global exploration expenses,
business development expense and project development costs not related to current operations.
(3) Includes revenue-based tax that reflects a forecast gold price assumption of $1,175 per ounce sold.
(4) At the Boroo operation, all forecast production and sales are a result of secondary leaching and mill cleanup.
2015 Exploration Expenditures
Planned exploration expenditures for 2015 total approximately $11 million, which is $9 million
lower than the 2014 forecast of $20 million. The 2015 exploration plan includes $1.3 million for
further exploration work on the Öksüt property, $1.2 million in Portugal on the Lagares gold
property (a joint venture with Medgold Corp.), and $8 million to fund other ongoing projects and
generative exploration programs.
2015 Capital Expenditures
Centerra’s projected capital expenditures for 2015, excluding capitalized stripping, are estimated
to be $76 million, including $50 million of sustaining capitalNG and $26 million of growth
capitalNG.
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Projected capital expenditures (excluding capitalized stripping) include:
Projects
Kumtor
Mongolia (Boroo and Gatsuurt)
Consolidated Total
2015 Growth CapitalNG 2015 Sustaining CapitalNG
(millions of dollars)
$26
-
$26
(millions of dollars)
$49
$1
$50
Kumtor
At Kumtor, 2015 total capital expenditures, excluding capitalized stripping, are forecast to be
$75 million. Spending on sustaining capitalNG of $49 million relates primarily to the major
overhaul maintenance of the heavy duty mine equipment ($36 million), construction to raise the
tailings dam ($7 million) and other items ($6 million).
Growth capitalNG investment at Kumtor for 2015 is forecast at $26 million and includes the
relocation of certain infrastructure at Kumtor related to the KS-13 life-of-mine expansion plan
amounting to $25 million and dewatering projects ($1 million).
The projected cash component of capitalized stripping costs related to the development of the
open pit is expected to be $185 million of the $234 million total capitalized stripping forecast in
2015.
Mongolia (Boroo and Gatsuurt)
At Boroo, 2015 sustaining capitalNG expenditures are expected to be minimal and no growth
capitalNG is forecast for Boroo or Gatsuurt. In January 2015, Gatsuurt was designated as a
mineral deposit of strategic importance by the Mongolian Parliament which allows the project to
move forward within the application of the Mongolian Water and Forest Law. The Company
will continue to hold discussions with the Mongolian Government regarding the terms and
conditions of participation of the Mongolian Government in the Gatsuurt Project. See “Other
Corporate Developments – Mongolia”, “Risk Factors”, and “Cautionary Note Regarding
Forward-Looking Information”.
2015 Öksüt Project
The Company expects to complete the feasibility study for its Öksüt property in the middle of
2015. The total planned spending in 2015 of $11 million includes work for technical studies,
environmental and social impact assessment and project support (collectively, $10 million) and
$1.3 million for exploration (as noted earlier).
2015 Trans-Canada Project
As announced on February 5, 2015, Centerra has acquired a 50% interest in the Trans-Canada
Project from Premier Gold. The Company is currently working with Premier to close the
agreement which is expected to occur around March 6, 2015. In addition, Centerra is working
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with Premier to establish the inaugural budget and will report on the expected expenditures in its
first quarter report.
2015 Corporate Administration and Community Investment
Corporate and administration expense for 2015 is forecast to be $40 million, which includes $36
million for corporate and administration costs, and $4 million for business development
activities.
Total planned community investments for 2015 are forecast at $3 million for donations, and
sustainable development projects in the various communities in which Centerra operates.
2015 Depreciation, Depletion and Amortization
Consolidated depreciation, depletion and amortization expense included in costs of sales expense
for 2015 is forecasted to be between $208 million and $220 million, including between $204
million and $216 million at Kumtor and approximately $3 million at Boroo.
(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 adjustment (non-cash depreciation)
Subtotal for Kumtor
Boroo
Mine and mill assets
Administration assets and other
Inventory adjustment (non-cash depreciation)
Subtotal for Boroo
Subtotal for Other
Consolidated Total
2015 DD&A
Forecast
(Unaudited)
2014 DD&A
Actual
$
$
$
$
$
64
(49)
94 - 104
5
8 - 9
14
68 - 69
204 – 216
1
1
1
3
1
208 - 220
$ 95
(74)
246
3
7
11
(18)
$ 270
$ 5
5
3
$ 13
-
$ 283
(1) Use of the Company’s mining fleet for stripping activities results in a portion of the depreciation related to the mine
fleet to be allocated to capitalized stripping costs. In 2014, $74 million of depreciation costs was allocated to
capitalized stripping costs.
Kumtor
At Kumtor, depreciation, depletion and amortization expense included in costs of sales expense
for 2014 was $270 million which is $5 million lower than the guidance for 2014 provided in the
Company’s announcement of January 13, 2014. The decrease in the DD&A expense reflects
higher than forecasted levels of gold stockpile inventory at the end of 2014. Advanced
development of cut-back 16 in 2014 led to higher amortization of capitalized stripping costs for
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that cut-back in 2014. At the same time, higher than forecasted levels of gold stockpile inventory
as a result of more ore coming from cut-back 16 than planned, resulted in more DD&A costs
being charged to closing gold stockpile inventory.
The forecast for 2015 DD&A to be expensed as part of costs of sales is between $204 million
and $216 million. The amortization of capitalized stripping costs is the largest component of
depreciation expense in 2015 forecasted to be between $94 million to $104 million. Capitalized
stripping costs 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. The
capitalized stripping costs are amortized over the ounces contained in the ore body exposed by
the stripping campaign.
The mine equipment assets are depreciated on a straight-line basis over their estimated useful
lives. The total mine equipment depreciation for 2015 is forecasted at $64 million reflecting
reduced depreciation on aging mining equipment. The depreciation related to mine equipment
engaged in a stripping campaign and capitalized as stripping costs is forecasted to be $49 million
in 2015.
Boroo
At Boroo, depreciation, depletion and amortization expense included in costs of sales expense
for 2014 was $13 million which is $2 million lower than the guidance for 2014 provided in the
Company’s announcement of January 13, 2014. The decrease in the DD&A expense is mainly
due to higher than forecasted estimated levels of gold inventory in the heap leach facility at the
end of 2014.
The forecast for 2015 DD&A expensed as part of costs of sales is approximately $3 million
compared to $13 million in 2014. The decrease in 2015 reflects the winding down of Boroo’s
operations in 2015.
2015 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 simplified tax regime effective January 1, 2008. This simplified 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 on April 30, 2009.
The corporate income tax rate for Centerra’s Mongolian subsidiary, Boroo Gold LLC, is 25% for
taxable income over 3 billion Mongolian tugriks (approximately $1.6 million at the December
31, 2014 foreign exchange rate) with a tax rate of 10% for taxable income up to that amount.
Royalties payable to the Mongolian Government vary between 5% and 10% based on the price
of gold, to a maximum of 10% for gold prices at or above $1,300 an ounce and are currently set
at a fixed 2.5% for gold sold to the Bank of Mongolia. Since January 2014, Boroo has been
paying a royalty rate of 2.5% as all of its gold has been sold to the Bank of Mongolia during that
time.
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Sensitivities
Centerra’s revenues, earnings and cash flows for 2015 are sensitive to changes in certain
variables. The Company has estimated the impact of any such changes on revenues, net earnings
and cash from operations.
Change
$50/oz
10%
1 som
25 tugrik
10 cents
Gold Price
Diesel Fuel
Kyrgyz som(1)
Mongolian tugrik(1)
Canadian dollar(1)
Impact on
($ millions)
Costs Revenues Cash flow
3.3 - 3.7 24.0 - 26.7 20.7 - 23.0
-
-
-
-
2.6
1.9
0.2
3.6
9.4
2.2
0.2
3.6
Earnings before income
tax
20.7 - 23.0
2.6
1.9
0.2
3.6
(1)
appreciation of currency against the U.S. dollar will result in higher costs and lower cash flow and earnings,
depreciation of currency against the U.S. dollar results in decreased costs and increased cash flow and earnings
Material Assumptions and Risks
Material assumptions or factors used to forecast production and costs for 2015 include the
following:
• a gold price of $1,175 per ounce,
• exchange rates:
o $1USD:$1.10 CAD
o $1USD:58.0 Kyrgyz som
o $1USD:1,815 Mongolian tugriks
o $1USD:0.77 Euro
• diesel fuel price assumption:
o $0.70/litre at Kumtor
o $1.10/litre at Boroo
The assumed diesel price of $0.70/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 $77 per barrel.
Other material assumptions were used in forecasting production and costs for 2015. These
material assumptions include the following:
• That current discussions between the Government of the Kyrgyz Republic and Centerra
regarding a potential restructuring of the Kumtor Project will result in a mutually
satisfactory solution to the outstanding matters affecting the Kumtor Project, which is fair
to all of Centerra’s shareholders, and that such proposal will receive all necessary legal
and regulatory approvals under Kyrgyz law and/or Canadian law.
• All mine plans and related permits and authorizations at Kumtor receive timely approval
from all relevant governmental agencies.
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• The buttress constructed at the bottom of the Davidov glacier continues to function as
planned.
• 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 and/or power to the mine site.
• Any actions taken by the Kyrgyz Republic Parliament and Government do not have a
material impact on operations or financial results. This includes any action being taken
by the Parliament or Government to cancel the agreements governing the Kumtor Project,
or taking any actions which would be inconsistent with the rights of Centerra and Kumtor
Gold Company (KGC) under the project agreements.
• The previously disclosed environmental claims received from the Kyrgyz regulatory
authorities in the aggregate amount of approximately $470 million (at the then current
exchange rates) and the claims of the Kyrgyz Republic’s General Prosecutor’s Office
purporting to invalidate land use rights and/or seize land at Kumtor and to unwind the
$200 million inter-company dividend declared and paid by KGC to Centerra in December
2013, and any further claims, whether alleging environmental allegations or otherwise,
are resolved without material impact on Centerra’s operations or financial results.
• The movement in the Central Valley Waste Dump at Kumtor, referred to in the 2013
Annual Information Form, does not accelerate and will be managed to ensure continued
safe operations, without impact to gold production, including the successful demolition of
buildings and relocation of certain other infrastructure as planned.
• Grades and recoveries at Kumtor will remain consistent with the 2015 production plan to
achieve the forecast gold production.
• The Company is able to manage the risks associated with the increased height of the pit
walls at Kumtor.
• The dewatering program at Kumtor continues to produce the expected results and the
water management system works as planned.
• The Kumtor ball mill and the rotated ring gear or replacement ring gear continue to
operate as expected.
• The “strategic deposit” designation of the Gatsuurt deposit will not materially change the
capital forecasts for 2015.
• Prices of key consumables, costs of power and water usage fees are not significantly
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.
• All necessary permits, licenses and approvals are received in a timely manner.
The Company cannot give any assurances in this regard.
Production, cost and capital forecasts for 2015 are forward-looking information and are based on
key assumptions and subject to material risk factors that could cause actual results to differ
materially and which are discussed herein under the headings “Material Assumptions & Risks”
and “Cautionary Note Regarding Forward-Looking Information” and under the heading “Risk
Factors” in this MD&A.
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Non-GAAP Measures
This MD&A contains the following non-GAAP financial measures: all-in sustaining costs, all-in
costs, all-in costs including taxes and adjusted operating costs in dollars (millions) and per ounce
sold, as well as cost of sales per ounce sold, capital expenditures (sustaining), capital
expenditures (growth) and average realized gold price. These financial measures do not have
any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to
similar measures presented by other issuers, even as compared to other issuers who may also be
found at
applying
http://www.gold.org.
(“WGC”) guidelines, which can be
the World Gold Council
Management believes that the use of these non-GAAP measures will assist analysts, investors
and other stakeholders of the Company in understanding the costs associated with producing
gold, understanding the economics of gold mining, assessing our operating performance, our
ability to generate free cash flow from current operations and to generate free cash flow on an
overall Company basis, and for planning and forecasting of future periods. However, the
measures do have limitations as analytical tools as they may be influenced by the point in the life
cycle of a specific mine and the level of additional exploration or expenditures a company has to
make to fully develop its properties. Accordingly, these non-GAAP measures should not be
considered in isolation, or as a substitute for, analysis of our results as reported under GAAP.
Definitions
The following is a description of the non-GAAP measures used in this MD&A. The definitions
are consistent with the WGC’s Guidance Note on these non-GAAP measures:
• Operating costs (on a sales basis) include mine operating costs such as mining,
processing, site support, royalties and operating taxes (except at Kumtor where revenue-
based taxes are excluded), but exclude depreciation, depletion and amortization (DD&A),
reclamation costs, financing costs, capital development and exploration.
• Adjusted operating costs per ounce sold include operating costs (on a sales basis),
regional office administration, community costs related to current operations, refining
fees and by-product credits.
• All-in sustaining costs per ounce sold include adjusted operating costs, the cash
component of capitalized stripping costs, regional office administration costs, accretion
expenses, and sustaining capital. The measure incorporates costs related to sustaining
production.
• All-in costs per ounce sold include all-in sustaining costs and additional costs for growth
capital, corporate general and administrative expenses, global exploration expenses and
social development costs not related to current operations.
• All-in cost per ounce sold exclude the following:
o Working capital (except for adjustments to inventory on a sales basis).
o All financing charges (including capitalized interest).
o Costs related to business combinations, asset acquisitions and asset disposals.
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o Other non-operating income and expenses, including interest income, bank
charges, and foreign exchange gains and losses.
• All-in costs including taxes per ounce sold measure includes revenue-based taxes at
Kumtor and income taxes at Boroo.
• Capital expenditures (Sustaining) is a capital expenditure necessary to maintain existing
levels of production. The sustaining capital expenditures maintain the existing mine
fleet, mill and other facilities so that they function at levels consistent from year to year.
• Capital expenditures (Growth) is capital expended to expand the business or operations
by increasing productive capacity beyond current levels of performance.
• Average realized gold price is calculated by dividing revenue derived from gold sales by
the number of ounces sold.
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Adjusted Operating Cost, All-in Sustaining Costs and All-in Costs (including and excluding
taxes) are non-GAAP measures and can be reconciled as follows:
(1) By operation
Kumtor
(unaudited)
($ millions, unless otherwise specified)
Year ended December 31,(1)
2013
2014
Three months ended December 31,(1)
2014
2013
Cost of sales, as reported
Less: Non-cash component
Cost of sales, cash component
Adjust for:
Regional office administration
Refining fees
By-product credits
Community costs related to current operations
Adjusted Operating Costs
Accretion expense
Capitalized stripping and ice unload
Capital expenditures (sustaining)
All-in Sustaining Costs
Capital expenditures (growth)
Exploration
Other project costs not related to current operations
All-in Costs
Revenue-based taxes and income taxes
All-in Costs (including taxes)
Ounces sold (000)
Adjusted Operating Costs per ounce sold
All-in Sustaining Costs per ounce sold
All-in Costs per ounce sold
All-in Costs (including taxes) per ounce sold
(1) Results may not add due to rounding.
$
$
$
$
$
$
$
$
$
$
444.4 $
270.0
174.4 $
20.1
3.3
(3.0)
5.1
199.9 $
1.2
187.3
48.7
437.1 $
40.1
(0.1)
-
477.1 $
97.2
574.3 $
561
356 $
779 $
851 $
1,024 $
473.0 $
282.0
191.0 $
18.1
3.5
(3.8)
6.2
215.0 $
0.6
201.3
49.7
466.6 $
39.2
6.1
1.5
513.4 $
113.5
626.9 $
602
357 $
775 $
853 $
1,042 $
171.5 $
108.5
63.0 $
6.0
1.7
(1.5)
1.2
70.4 $
0.3
24.9
13.4
109.0 $
11.5
-
-
120.5 $
48.5
169.0 $
289
244 $
378 $
418 $
585 $
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255.1
185.0
70.1
4.8
2.0
(2.0)
1.9
76.8
0.2
50.6
9.6
137.2
5.8
0.8
0.1
143.9
62.9
206.8
353
217
388
407
585
54
Boroo
(unaudited)
($ millions, unless otherwise specified)
Year ended December 31,(1)
Three months ended December 31,(1)
2014
2013
2014
2013
Cost of sales, as reported
Less: Non-cash component
Cost of sales, cash component
Adjust for:
Regional office administration
Mine stand-by costs
Refining fees
By-product credits
Community costs related to current operations
Adjusted Operating Costs
Accretion expense
Capital expenditures (sustaining)
All-in Sustaining Costs
All-in Costs
Income taxes
All-in Costs (including taxes)
Ounces sold (000)
Adjusted Operating Costs per ounce sold
All-in Sustaining Costs per ounce sold
All-in Costs per ounce sold
All-in Costs (including taxes) per ounce sold
(1) Results may not add due to rounding.
$
$
$
$
$
$
$
$
$
$
58.1 $
12.7
45.4 $
5.1
1.1
0.1
(0.2)
0.3
51.8 $
0.5
0.3
52.6 $
52.6 $
2.8
55.4 $
54.1
959 $
973 $
973 $
1,025 $
86.3 $
27.2
59.1 $
5.7
-
0.3
(0.5)
0.1
64.7 $
0.3
7.4
72.4 $
72.4 $
12.8
85.2 $
94.9
683 $
765 $
765 $
899 $
11.9 $
2.1
9.8 $
1.6
0.9
-
-
0.1
12.4 $
0.1
-
12.5 $
12.5 $
(0.5)
12.0 $
11.5
1,072 $
1,083 $
1,083 $
1,043 $
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16.7
3.7
13.0
1.4
-
0.1
-
(0.2)
14.3
0.1
0.4
14.8
14.8
0.1
14.9
15.7
901
931
931
934
55
2) Consolidated
Centerra
(unaudited)
($ millions, unless otherwise specified)
Year ended December 31,(1)
2014
2013
Three months ended December 31,(1)
2014
2013
Cost of sales, as reported
Less: Non-cash component
Cost of sales, cash component
Adjust for:
Regional office administration
Mine stand-by costs
Refining fees
By-product credits
Community costs related to current operations
Adjusted Operating Costs
Corporate general administrative costs
Accretion expense
Capitalized stripping and ice unload
Capital expenditures (sustaining)
All-in Sustaining Costs
Capital expenditures (growth)
Exploration and business development
Other project costs not related to current operations
All-in Costs
Revenue-based taxes and income taxes
All-in Costs (including taxes)
Ounces sold (000)
Adjusted Operating Costs per ounce sold
All-in Sustaining Costs per ounce sold
All-in Costs per ounce sold
All-in Costs (including taxes) per ounce sold
(1) Results may not add due to rounding.
$
$
$
$
$
$
$
$
$
$
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502.5 $
282.6
219.9 $
25.2
1.1
3.4
(3.2)
5.4
251.8 $
34.4
1.7
187.3
49.2
524.4 $
40.9
15.7
6.4
587.4 $
100.1
687.5 $
615.2
409 $
852 $
955 $
559.2 $
309.0
250.2 $
23.7
-
3.8
(4.3)
6.4
279.8 $
30.3
0.9
201.3
57.7
570.0 $
39.9
29.6
1.9
641.4 $
126.3
767.7 $
696.8
402
818
920
$
$
$
$
1,118 $
1,102
183.5 $
110.6
72.9 $
7.6
0.9
1.7
(1.5)
1.3
82.9 $
10.4
0.4
24.9
13.4
271.8
188.7
83.1
6.1
-
2.1
(2.1)
1.7
90.9
8.0
0.2
50.6
10.0
132.0 $
159.7
11.8
4.1
2.5
150.4 $
48.0
198.4 $
300.4
276 $
439 $
501 $
661 $
5.9
8.8
0.2
174.6
62.9
237.5
369.0
247
433
474
644
56
Sustaining capital, growth capital and capitalized stripping presented in the All-in measures
can be reconciled as follows:
Year ended December 31,
($ millions) (Unaudited)
2014
Capitalized stripping –cash
Sustaining capital - cash
Growth capital - cash
Net increase in accruals included in additions to PP&E
Total - Additions to PP&E
2013
Capitalized stripping – cash
Sustaining capital – cash
Growth capital - cash
Net decrease in accruals included in additions to PP&E
Total - Additions to PP&E
Three months ended December 31,
($ millions) (Unaudited)
2014
Capitalized stripping –cash
Sustaining capital - cash
Growth capital - cash
Net decrease in accruals included in additions to PP&E
Total - Additions to PP&E
2013
Capitalized stripping – cash
Sustaining capital – cash
Growth capital - cash
Net decrease in accruals included in additions to PP&E
Kumtor
Boroo
All other Consolidated
187.3
48.7
40.1
(1.2)
274.9
201.3
49.7
39.2
9.8
300.0
-
0.3
-
-
0.3
-
7.4
-
-
7.4
-
0.2
0.8
-
1.0
-
0.6
0.7
-
1.3
187.3
49.2
40.9
(1.2)
276.2 (1)
201.3
57.7
39.9
9.8
308.7 (1)
Kumtor
Boroo
All other Consolidated
24.9
13.4
11.5
3.0
52.8
50.6
9.6
5.8
19.4
-
-
-
-
-
-
0.4
-
-
-
-
0.2
-
0.2
-
0.1
0.1
-
Total - Additions to PP&E
(1) As reported in the Company's Consolidated Statement of Cash Flows as "Investing Activities - Additions to property, plant & equipment".
85.4
0.4
0.2
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24.9
13.4
11.7
3.0
53.0 (1)
50.6
10.1
5.9
19.4
86.0 (1)
57
Qualified Person & QA/QC
All reserve and resource estimates, production information and other related scientific 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 and were prepared, reviewed, verified and
compiled by Centerra’s geological and mining staff under the supervision of Gordon Reid,
Professional Engineer and Centerra’s Vice-President and Chief Operating Officer, who is the
qualified 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 certified 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 2013 Annual Information Form and a technical
report dated December 20, 2012, which is filed on SEDAR at www.sedar.com. The technical
report is prepared in accordance with NI 43-101 and describes the exploration history, geology
and style of gold mineralization at the Kumtor deposit. Sample preparation, analytical
techniques, laboratories used and quality assurance-quality control protocols used during the
drilling programs at the Kumtor site are described in the technical report.
The Boroo deposit is described in Centerra’s 2013 Annual Information Form 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 Centerra’s 2013 Annual Information Form and a technical
report dated May 9, 2006 prepared in accordance with NI 43-101. The technical report has been
filed 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 profitability,
future cash flow, earnings, results of operations, stated reserves and financial condition of the
Company. If any event arising from these risks occurs, the Company’s business, prospects,
financial condition, results of operations or cash flows 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, financial condition, results of operations or cash flows.
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You should note that the following is not, however, a complete list of the potential risks we face.
Additional risks and uncertainties not currently known to us, or that are currently deemed
immaterial, may also materially and adversely affect our business operations, prospects, financial
condition, results of operations or cash flows.
STRATEGIC
Country, Political & Regulatory
Centerra’s principal operations and mineral resources are located in the Kyrgyz Republic,
Mongolia and Turkey and are subject to country risk
Our 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 the countries in which we operate, explore and develop
properties. Operations may also be affected in varying degrees by terrorism, military conflict or
repression, crime, extreme fluctuations in currency rates and high inflation. The relevant
governments have entered into contracts with us or granted permits, licenses or concessions that
enable us to conduct operations or exploration and development activities. Notwithstanding these
arrangements, our ability to conduct operations or exploration and development activities is
subject to obtaining and/or renewing permits or concessions (including a certificate 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 is subject to a further claim of
invalidation in 2013; annual mine plan approval in the Kyrgyz Republic; and permits and
licenses to begin mining activities at Gatsuurt), changes in laws or government regulations or
shifts in political attitudes beyond our control.
All of our current gold production and our principal mineral reserves and resources are derived
from assets located in the Kyrgyz Republic, Mongolia, and Turkey, countries that have
experienced political difficulties in recent years including, in the case of the Kyrgyz Republic,
civil unrest in April 2010 that resulted in the ouster of the incumbent President, in Mongolia, the
resignation of the Prime Minister and Government in 2014 and a history of fractious governing
coalitions comprised of many political parties, and, in the case of Turkey anti-government
protests as well as unrest following investigations initiated in December 2013 into alleged
government corruption. Accordingly, there continues to be a risk of future political instability.
We do not currently carry political risk insurance covering our investments in the Kyrgyz
Republic, Mongolia or Turkey. From time to time, we assess the costs and benefits of obtaining
and maintaining such insurance. There can be no assurance that, if we chose to obtain it,
political risk insurance would be available to us, or that particular losses we may suffer with
respect to our foreign investments will be covered by any insurance that we may obtain in the
future. Any such losses could have an adverse impact on our future cash flows, earnings, results
of operations and financial condition.
Resource nationalism could adversely impact Centerra’s business
Companies in the mining and metals sector continue to be targeted to raise government revenue,
particularly as governments struggled with deficits and concerns over the effects of depressed
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economies. Governments are continually assessing the fiscal 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 reflect increased government control or participation in the mining sector, including,
but not limited to, changes of laws or governmental regulations affecting foreign ownership,
mandatory government participation, taxation and royalties, labour mine safety, exchange rates,
exchange controls, permitting and licensing of exploration development and production, land use
restrictions, annual fees to maintain mineral properties in good standing, price controls, export
controls, export and import duties, restrictions on repatriation of income or return of capital,
environmental protection, as well as requirements for employment of local staff or contractors,
and contributions to infrastructure and social support systems. Our operations may be affected in
varying degrees by such laws and government regulations.
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 our assets will not be subject to nationalization, expropriation or confiscation,
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 our original investment or
that such restoration would occur within a reasonable timeframe. There also 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 we have 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 recent years, 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 which if approved and given full effect
by the Kyrgyz Government, would have, in substance, resulted in the nationalization of Kumtor.
In late June 2012, the Kyrgyz Parliament voted against the Draft Decree and instead adopted an
alternative resolution (2117-V). In addition, in February 2013, the Kyrgyz Parliament adopted
Decree 2805-V (described in greater detail below) which recommends that the Kyrgyz
Government conduct negotiations with Centerra with a view to revising the Kumtor Project
Agreements and, if the parties cannot agree on mutually acceptable terms within three months’
time, instructs the Kyrgyz Government to take certain actions with respect to the Kumtor project,
including among other things, to unilaterally terminate the Kumtor Project Agreements,
invalidate the legislation which provides for the tax regime set out in the Kumtor Project
Agreements, confiscate land plots granting surface rights in relation to the Kumtor Project and
authorizing measures to have Kumtor Operating Company pay fines and other charges for
violations of environmental, mining and geological and subsoil legislation. Such actions, in
substance, also would result in the nationalization of Kumtor. Furthermore, in April 2013, an
initiative group led by Mr. Beknazarov A.A. submitted a draft law “On Denunciation of the
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Agreement for the Kumtor Project” (“Law on Denunciation”) for consideration by the Kyrgyz
Parliament. The draft Law on Denunciation “denounces” the Agreement on New Terms for the
Kumtor Project (“ANT”) entered into on April 29, 2009 and recognizes as invalid all other
agreements associated with the ANT (namely, the agreements governing the Kumtor project) and
calls for the Government to bring all of its decisions in accordance with the Law on
Denunciation. Although, to date, the Draft Decree and the Law on Denunciation have not been
approved by Parliament and the Kyrgyz Government has not acted upon the actions threatened in
Decree 2805-V, there can be no assurance that subsequent resolutions will be brought before, or
adopted by, the Kyrgyz Parliament to nationalize Kumtor. Finally, in December 2014, the Ata
Meken faction of the Kyrgyz Republic Parliament submitted for public discussion a draft law on
nationalization of the Kumtor project following a public statement made by the Republic’s
president in which he suggested that nationalization may be the only course of action should
negotiations with Centerra on a new deal fail. The Company continues discussions with the
Kyrgyz Government with a view to reaching an agreement on a 50/50 joint venture arrangement
that would see the Kyrgyz Government, through its state-owned company Kyrgyzaltyn JSC,
exchange its 32.7% interest in Centerra Gold Inc. for a 50% direct interest in the Kumtor project.
There can be no assurance that Centerra and the Kyrgyz Government will reach an agreement or
that, should Centerra and the Kyrgyz Government fail to reach an agreement, or should a
proposed agreement fail to be ratified by the Parliament of the Kyrgyz Republic, the Kumtor
project will not be nationalized.
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 and development activities are
conducted and in the mining company’s home jurisdiction. These relate to production,
development, exploration, exports, imports, taxes and royalties, labour standards, suppliers and
contractors, 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, access to land, water, and power, and other effects associated with these laws and
regulations may impact our decision as to whether to continue to operate existing mines, ore
processing 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, we are unable to predict the ultimate cost of compliance
with these requirements or their effect on operations.
If the laws and regulations relating to our operations were to change, or the enforcement of such
laws and regulations were to become more rigorous, we could be required to incur significant
capital and operating expenditures to comply, which could have a material adverse effect on our
financial position and our ability to achieve operating and development targets. Changes to laws
and regulations may also impact the value of our reserves.
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Community activism may influence laws and regulations, result in increased contributory
demands, or in business interruption
Slow economic development in the countries in which the Company operates has resulted in an
increase in community activism and expectations by local governments for resource companies
to increase their contributions to local communities. Such activism and expectations have been
intensified as a result of the commodity price boom during the 2008 to 2012 period which also
increased the perception that resource companies have been taking an unfairly rich benefit from
the countries’ natural resources, while causing significant environmental damage. For example,
Kumtor has experienced a number of roadblocks in the past resulting from the discontent of
various community groups. Similarly, in Mongolia, community groups and NGOs have
vigorously campaigned against foreign mining companies. The Mongolian Forest and Water
Law, for example, was a response to heightened civil concern about the environmental impact of
mining enterprises. Heightened global concern for the environment and water in particular, as a
result of both climate change impacts as well as following certain significant industrial accidents,
has led to increased scrutiny of mining operations and a review of legislation aimed at
environmental protection. There can be no assurance that the company’s operations will not be
disrupted by civil action or be subject to restrictions or imposed demands that will impact future
cash flows, earnings, results of operation, financial condition, and reputation.
The Kyrgyz Government and Parliament may take actions in connection with the State
Commission Report and the Parliament Decree adopted on February 21, 2013
A State Commission was formed by the Kyrgyz Government in July 2012 for the purpose of
reviewing the report of a Parliamentary Commission on Kumtor which was issued in June 2012
and which made a number of assertions regarding the operation of the Kumtor project, including
non-compliance with Kyrgyz environmental and other laws. The State Commission was also
given the responsibility of inspecting and reviewing Kumtor’s compliance with Kyrgyz
operational and environmental laws and community standards.
The State Commission issued its own report in late December 2012 (the State Commission
Report). The State Commission Report included a large number of allegations in regard to prior
transactions relating to the Kumtor project and its 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 significant losses sustained by the Kyrgyz Republic; and
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(iv) that the Kumtor Project Agreements adopted in 2009 were improperly approved and violate
the Kyrgyz Republic constitution.
The State Commission Report recommended that the Kyrgyz Government open negotiations of
the arrangements 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 (as discussed below). The State Commission
Report also recommended various actions to be taken by Kyrgyzaltyn, by the Kyrgyz
Government, including revisions to Kyrgyz law, and the Kyrgyz Republic General Prosecutor’s
Office 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 inflicting 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 Kyrgyz Government received the State Commission Report and adopted 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 identified in the State Commission
Report.
Kyrgyz Republic Parliament received the State Commission Report on February 21, 2013 and
adopted decree 2805-V (Decree 2805-V) regarding the Kumtor project. Decree 2805-V
recommends that the Kyrgyz Republic Government ensure the continuous operation of the
Kumtor mine, and within three months of the date of the decree, conduct negotiations with
Centerra with a view to revising the Kumtor Project Agreements to return to conditions that
existed prior to the restructuring of the project in 2003, but subject to the application of current
Kyrgyz legislation, and to enter into new agreements on these terms.
If the parties cannot agree on mutually acceptable terms within such three month time period, the
Parliament in Decree 2805-V instructs the Government to take certain actions with respect to the
Kumtor project, including among other things, to:
(i)
(ii)
invalidate the legislation enacted by Parliament in 2009 approving the Kumtor Project
Agreements, and to unilaterally terminate the Kumtor Project Agreements;
invalidate the legislation enacted by Parliament in 2009 amending the Kyrgyz Republic
Tax Code (which provides for the tax regime set out in the Kumtor Project Agreements);
(iii) confiscate land plots in connection with the adoption of Government Decree, “On abolition
of the Government Decree on allocation of lands to Kumtor Gold Company CJSC dated
March 25, 2010”, approved by the Government Decree dated July 5, 2012. (This March 25,
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2010 Decree granted Kumtor surface rights in relation to the Kumtor Project. See our news
release dated July 6, 2012.); and
(iv) authorize SIETS to take measures to have Kumtor Operating Company pay fines and other
charges for violations of environmental, mining and geological and subsoil legislation.
In Decree 2805-V, the Parliament also requests that the Government develop and submit to the
Parliament for consideration certain matters, including the following:
(i)
draft amendments to existing legislation or draft new legislation relating to biosphere
territories, the protection and preservation of glaciers, and prohibiting the placement of
pollutants on glaciers;
(ii) provide for the obligation of Kumtor to develop a technical plan on reclamation of the
Kumtor project in accordance with Kyrgyz legislation and to determine funding for
reclamation based on such plan and to enforce this obligation;
(iii) for the entire period of the Kumtor project, to invoice Kumtor for the use of water and
make Kumtor pay for changes in the glacial regime and disposal of waste; and
(iv) when negotiating with Centerra and Kumtor Operating Company, to require that goods and
services be purchased for the Kumtor Project in the domestic market.
Decree 2805-V also instructed the General Prosecutor’s Office and the National Security
Committee to investigate allegations that Kumtor deliberately understated reserves, including
silver and tellurium.
Decree 2805-V called on the Kyrgyz Republic Government, General Prosecutor’s Office and the
National Security Committee to report on the implementation of the instructions set out in the
Decree by June 1, 2013. This deadline was extended by Resolution #3169-V until September 1,
2013 for the Government to present final agreements incorporating a mutually acceptable
solution. Resolution #3169-V also provides that if a mutually acceptable solution has been
agreed to, the Government is instructed to develop and submit a draft Law on Denunciation
(discussed above) for review by the Kyrgyz Parliament.
Following discussions with the Government, in September 2013, Centerra entered into a non-
binding memorandum of understanding (“MOU”) with the Government in connection with a
potential restructuring transaction under which Kyrgyzaltyn would exchange its 32.7% equity
interest in Centerra for an interest in a joint venture company that would own the Kumtor
project. On October 23, 2013, the MOU was considered by the Kyrgyz Parliament and rejected
by a decree (“Decree”) which ordered the Government to (among other things) continue
negotiations with Centerra with a view to improving the Kyrgyz Republic’s position and
increasing its interest in the joint venture project to no less than 67%, to provide for the project to
develop the Kumtor mine using underground mining methods, and to provide for the
establishment and financing of a centre to monitor the preservation of glaciers. In the Decree,
Parliament also recommends that the Kyrgyz Republic General Prosecutor’s Office consider
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pursuing allegations that management of the former parent company of Centerra, Centerra,
Kumtor Operating Company, and Kumtor Gold Company violated environmental regulations
and committed “other offenses”, and that precious metal reserves (silver, tellurium, and other
associated components) at the Kumtor deposit were deliberately understated.
In the Decree, Parliament requested that the Government and the General Prosecutor’s Office
report to Parliament on these matters by December 23, 2013. The Decree provides that if a
mutually acceptable solution on the outstanding matters cannot be reached, the Government is
ordered to initiate a process to cancel the Kumtor Project Agreements.
Subsequently, on December 24, 2013, Centerra and the Government entered into a non-binding
heads of agreement (the “HOA”) which retained most of the material terms of the MOU and
which was submitted to the Kyrgyz Parliament for consideration. The HOA was revised and re-
executed on January 18, 2014. On February 6, 2014, the Kyrgyz Parliament adopted a resolution
that appears to support the concept of the restructuring described in the HOA. However, the
resolution also contains a number of recommendations that are materially inconsistent with the
terms of the HOA. Among other things, the resolution calls for further audits of the Kumtor
operation and for the Government and the General Prosecutor’s Office to continue pursuing
claims for environmental and economic damages, which the Company disputes. Centerra
expects to continue discussions with the Kyrgyz Government relating to the potential
restructuring transaction reflected in the HOA, but notes that there can be no certainty that any
definitive agreements for a potential restructuring will obtain required approvals in the Kyrgyz
Republic.
While we believe that the findings of the Parliamentary Commission Report and the State
Commission Report are without merit and that the Kumtor Project Agreements between us and
the Kyrgyz Republic are legal, valid and enforceable obligations, there can be no assurance that
we 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’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 our
future cash flows, earnings, results of operations and financial condition.
The purported cancellation of Kumtor’s land use rights could adversely impact the
Kumtor operations
On July 5, 2012 the Kyrgyz Government purported to cancel 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 certificate issued by the
local land office was also cancelled. This action was contemplated in Government Resolution
2117-V, which was adopted in late June 2012 after the Kyrgyz Republic Parliament received the
Parliamentary Commission report.
In the third quarter of 2012, we requested the issuance of a new land use certificate pursuant to
the Restated Investment Agreement dated June 6, 2009 between us and the Kyrgyz Republic.
Under the Restated Investment Agreement, the Kumtor project is guaranteed all necessary access
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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 conflicts with
our rights under that agreement.
Further, in November 2013, the Company received a claim from the Kyrgyz Republic General
Prosecutor’s Office requesting the Inter-District Court of the Issyk-Kul Province to invalidate the
Company’s land use certificate and seize certain lands within the Kumtor concession area. As of
the date of this disclosure, this matter remains before the Kyrgyz courts.
Although we believe, based on advice from Kyrgyz legal counsel, that the purported cancellation
of Kumtor’s land rights, invalidation of its land use certificate and seizure of lands are 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
our future cash flows, earnings, results of operations and financial condition.
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.
On January 23, 2015, the Mongolian Parliament designated the Gatsuurt project as a “mineral
deposit of strategic importance” which allows the Mongolian Government to take up to a 34%
interest in the project. The level of state involvement in the project and the applicable terms and
conditions of such participation remain subject to further discussions between the Company and
the Government of Mongolian. Such decision (and any further decisions regarding ownership
interest in any of our Mongolian deposits) could have a significant material adverse effect on our
future cash flows, earnings, results of operations, stated reserves and financial conditions.
The royalty payment for Centerra’s Mongolian operations may increase significantly
The royalty structure on mineral projects in Mongolia has fluctuated in recent years. In
November 2010, the Mongolian Parliament passed amendments to the Minerals Law of
Mongolia that modified the existing royalty structure on mineral projects. Pursuant to the
amended royalty structure, the royalty rate is no longer a fixed 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
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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.
In January 2014 the Mongolian Parliament amended the royalty regime to provide for a two-
tiered royalty structure. For producers selling gold to the Bank of Mongolia, Mongolia’s central
bank (“BoM”), or other commercial banks authorized by the BoM, the basic royalty fee is
reduced to 2.5% and the incremental royalty rate is annulled. While the Company is currently
selling gold to the BoM, the BoM has not entered into any agreements with any of the
Company’s subsidiaries relating to the sale of gold and there can be no assurance that the BoM
will continue to purchase any gold from the Company’s subsidiaries, that the royalty rate of
2.5% applicable to gold sales to the BoM will continue to apply to such sales or that the proceeds
of such sales can be converted to foreign currencies at favourable rates. For producers selling
gold to other parties, the graduated 5% to 10% royalty rate remains in place.
Increases in the royalty rates on any of our operations in Mongolia could have a significant
material adverse effect on Centerra’s future cash flows, earnings, results of operations, stated
mineral reserves and financial 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 our 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 deficiencies 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 continued to be discussed until they were resolved in January 2012. As part of this
resolution, we 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.
Final 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 and/or the Company’s other potential projects in Mongolia
(including Gatsuurt), will not occur. Such developments could have an adverse impact on our
future cash flows, earnings, results of operations, stated mineral reserves and financial condition.
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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 significant capital and operating expenditures
We are subject to environmental regulation in connection with our exploration, development and
operation activities in each of the jurisdictions in which we operate. The financial and
operational effects of our environmental protection requirements relate primarily to our
operations in the Kyrgyz Republic, where we operate the Kumtor project; in Mongolia, where we
operate the Boroo project, and have a 100% interest in the Gatsuurt, ATO and Ulaan Bulag
exploration and development properties; and in Turkey, where we have 100% interest in the
Öksüt exploration and development property. Local regulatory regimes in the Kyrgyz Republic,
Mongolia, and Turkey may be influenced by increased local community concern in respect of the
environmental footprint of mining operations as well as concerns over the management of water
resources, and the mine closure plans.
If the environmental laws and regulations relating to our operations, including our operations and
projects in the Kyrgyz Republic, Mongolia and Turkey, were to change, or the enforcement of
such laws and regulations were to become more rigorous, we could be required to incur
significant capital and operating expenditures to comply, which could have a material adverse
effect on our future cash flows, earnings, results of operations and financial condition, our ability
to develop projects further, and increase our reserves and resources.
Centerra may not be able to successfully negotiate an investment agreement for Gatsuurt
There can be no assurance that we 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 we commence development and mining operations at Gatsuurt, we believe that it is
important for the viability of the project. The Company is in discussions with the Government of
Mongolia regarding a potential investment agreement. Furthermore, even if an investment
agreement is successfully concluded with the Government of Mongolia for the Gatsuurt project,
there are no assurances that the Government will not later seek to re-negotiate its terms and
conditions.
Centerra may not be able to obtain all necessary permits and commissions for Gatsuurt
Mining activities at Gatsuurt are 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 us in a timely manner or at all, and on
terms acceptable to us. While we did receive several permits during the course of 2010 in
relation to the Gatsuurt project, in November 2010, we 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. While the Gatsuurt
deposit has been designated as a mineral deposit of strategic importance, there can be no
assurance that all necessary permits and commissions for the Gatsuurt project will be granted in
a timely manner or at all. Our inability to develop and operate the Gatsuurt project could have
an adverse effect on our future cash flows, earnings, results of operations and financial condition.
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Legal and Other
Current and future litigation may impact the revenue and profits of the Company
We may be subject to claims based on allegations of negligence, breach of statutory duty, public
nuisance or private nuisance or otherwise in connection with our operations or investigations
relating thereto. While we are presently unable to quantify our potential liability under any of the
above categories of damage, such liability may be material to us and may materially adversely
affect our ability to continue operations.
Centerra’s properties may be subject to defects in title
We have investigated our rights to explore and exploit all of our 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 significantly altered to our
detriment. There can also be no assurance that our 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 certificate issued by the
local land office was also cancelled. In addition, in November 2013, the Company received a
claim from the Kyrgyz Republic General Prosecutor’s Office requesting the Inter-District Court
of the Issyk-Kul Province to invalidate the Company’s land use certificate and seize certain lands
within the Kumtor concession area. Based on advice from Kyrgyz legal counsel, we believe that
the purported cancellation of our land use rights, invalidation of the land use certificate and
seizure of lands are 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), we would seek to enforce our 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 our 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. We 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. We later reached an agreement with Gatsuurt LLC to terminate
arbitration proceedings. Further to that agreement CGM paid $1.5 million to Gatsuurt LLC. On
signing of a definitive 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
definitive settlement agreement.
Although we are not currently aware of any existing title uncertainties with respect to any of our
properties except as discussed in the preceding paragraphs, there is no assurance that such
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uncertainties will not result in future losses or additional expenditures, which could have an
adverse impact on our future cash flows, earnings, results of operations and financial condition.
Centerra may be unable to enforce its legal rights in certain circumstances
In the event of a dispute arising at our foreign operations, we 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. We may also be hindered or prevented from enforcing our 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 (now expired) 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. Our inability to enforce our rights could
have an adverse effect on its future cash flows, earnings, results of operations and financial
condition.
Centerra’s largest shareholder is a state-owned entity of the Kyrgyz Government
Our largest shareholder is Kyrgyzaltyn, which is a state-owned entity. Kyrgyzaltyn owns
approximately 33% of the common shares of Centerra. Pursuant to the terms of the Restated
Investment Agreement, Kyrgyzaltyn has two nominees on our board of directors. There can be
no assurance that the Kyrgyz Government, through its ownership and control of Kyrgyzaltyn,
will not use its influence 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 our shareholders of a control premium that might otherwise be offered in
connection with such a change of control. We are aware that Kyrgyzaltyn has in the past
received inquiries regarding the potential acquisition of some or all of its common shares in the
Company 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 conflicts of interest
Certain of our directors also serve as directors and/or officers 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 conflict.
Centerra is subject to Anti-Corruption Legislation
Centerra is subject to Canada’s Corruption of Foreign Public Officials Act (the “Anti-Corruption
Legislation”), which prohibits Centerra or any officer, director, employee or agent of Centerra or
any shareholder of Centerra acting on its behalf from paying, offering to pay, or authorizing the
payment of anything of value to any foreign government official, government staff member,
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political party, or political candidate in an attempt to obtain or retain business or to otherwise
influence a person working in an official capacity. The Anti-Corruption Legislation also requires
public companies to make and keep books and records that accurately and fairly reflect their
transactions and to devise and maintain an adequate system of internal accounting controls.
Centerra’s international activities create the risk of unauthorized payments or offers of payments
by Centerra’s employees, consultants or agents, even though they may not always be subject to
Centerra’s control. Centerra discourages these practices by its employees and agents. However,
Centerra’s existing safeguards and any future improvements may prove to be less than effective,
and Centerra’s employees, consultants and agents may engage in conduct for which Centerra
might be held responsible. Any failure by us to adopt appropriate compliance procedures and
ensure that Centerra’s employees and agents comply with the Anti-Corruption Legislation and
applicable laws and regulations in foreign jurisdictions could result in substantial penalties or
restrictions on Centerra’s ability to conduct business in certain foreign jurisdictions, which may
have a material adverse impact on Centerra and its share price.
Concentration of Assets
The company’s operations and projects are all located in emerging countries of Central Asia,
with the exception of Turkey, a country that has seen significant development in the last decade.
This represents a concentration risk for the company limiting its ability to diversify country and
political risk to any material degree. Further, certain countries in the region that neighbour the
company’s countries of interest have experienced rising geopolitical risk, and there can be no
assurance that such geopolitical risk will not ultimately impact the countries in which we
operate, explore and develop projects.
Strategy and Planning
Centerra’s future exploration and development activities may not be successful
Exploration for and development of gold properties involve significant financial 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. We cannot ensure that our current exploration and
development programs will result in profitable 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 define mineral reserves that can be mined economically.
Our 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,
water consumption, importing and exporting, environmental protection; and gold prices, which
are highly volatile. Development projects are also subject to the successful completion of socio-
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environmental impact assessments, feasibility studies, issuance of necessary governmental
permits and availability of adequate financing.
Development projects have no operating history upon which to base estimates of future cash
flow. Estimates of proven and probable mineral reserves and cash operating costs are, to a large
extent, based upon detailed geological and engineering analysis. We also conduct feasibility
studies that derive estimates of capital and operating costs based upon many factors, including
access to required infrastructure, power and water, anticipated tonnage and grades of ore to be
mined and processed; the configuration 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 our 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 our future cash flows, earnings,
results of operations and financial condition.
Centerra’s mineral reserves may not be replaced
The Kumtor and Boroo projects are currently our 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 operations have ceased as of September 2012, and at the current
reserve gold price assumption, the Boroo operation is expected to f recover gold from the heap
leach into 2015.
If our 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 through the acquisition or development of an additional
producing mine, this could have an adverse impact on our future cash flows, earnings, results of
operations and financial condition, including as a result of requirements to expend funds for
reclamation and decommissioning. Although we are actively engaged in programs to increase
mineral reserves, there can be no assurance that these programs will be successful.
Centerra may experience difficulties with its exploration partners
We have a number of exploration partners and we may in the future enter into additional
exploration agreements with third party partners. We are subject to the risks normally associated
with the conduct of exploration arrangements with partners. These risks include disagreement
with a partner on how to develop, operate and finance a project and possible litigation between
us and a partner regarding matters in the agreement. This may be particularly the case when we
are not the operator on the property. These matters may have an adverse effect on our ability to
pursue the projects subject to the partner, which could affect its future cash flows, earnings,
results of operations and financial condition.
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Centerra’s mineral reserve and resource estimates may be imprecise
Mineral reserve and resource figures are estimates and no assurances can be given that the
indicated levels of gold will be produced or economically extracted, or that we will receive the
price assumed in determining our 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 significantly
change when new information becomes available or conditions change. While we believe that
the mineral reserve and resource estimates included are well established and reflect
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, fluctuations in the market price of gold, as well as increased capital or production
costs or reduced recovery rates may render mineral reserves uneconomic and may ultimately
result in a reduction of reserves. The extent to which mineral resources may ultimately be
reclassified as proven or probable mineral reserves is dependent upon the demonstration of their
profitable recovery. The evaluation of mineral reserves or resources is always influenced by
economic and technical factors, which may change over time.
No assurances can be given that any mineral resource estimate will ultimately be reclassified as
proven or probable mineral reserves.
If our mineral reserve or resource figures are inaccurate or are reduced in the future, this could
have an adverse impact on our future cash flows, earnings, results of operations and financial
condition.
Centerra’s production and cost estimates may be inaccurate
We prepare 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; metallurgical recoveries of metals from ore; equipment and mechanical
availability; labour availability; access to the mine, facilities and infrastructure; sufficient
materials and supplies on hand; and the accuracy of estimated rates and costs of mining and
processing, including environmental management costs, the cost of human and physical
resources required to carry out our activities, as well as the stability of the local taxation / royalty
regime. Failure to achieve production or cost estimates, or increases in costs, could have an
adverse impact on our future cash flows, earnings, results of operations and financial condition.
Our estimates on production and costs are, where applicable, based on historical costs and
productivity experience. Despite this, actual production and costs may vary from estimates for a
variety of reasons, including actual ore mined varying from estimates of grade, tonnage, dilution
and metallurgical and other characteristics; short-term operating factors relating to the ore
reserves, such as the need for sequential development of orebodies and the processing of new or
different ore grades; risks and hazards associated with mining; natural phenomena, such as
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inclement weather conditions, floods, earthquakes, ice or ground movements, pit wall failures
and cave-ins; equipment failures; unexpected labour shortages or strikes, and civil action; and
insufficient modelling robustness. 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 inflationary pressures and
currency exchange rates. Failure to achieve production estimates or production cost estimates
could have an adverse impact on our future cash flows, earnings, results of operations and
financial condition.
Natural Phenomena
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 our 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, we 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 first
quarter of 2007, minor slope movement was detected in the waste rock 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 rock 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. Depressurization and dewatering programs which were established at the mine in
2008 and continuously operated since, have reduced the hydrological content of the waste rock
dump and the till.
In 2013, sudden acceleration of ground movement within the central valley waste rock dump
impacted site facilities and required the design and construction of new infrastructure in a
different area of the site requiring allocation of additional significant capital. Furthermore, waste
rock dumping plans may require modification in an effort to manage waste rock dump movement
rates. In addition to continued dewatering efforts, further geotechnical drilling is expected to
provide further data to increase understanding of wall structural parameters, and pit wall design
may require modification to reduce slope angle in certain sections.
Although extensive efforts are employed by Centerra to prevent and anticipate further ground
movement, there is no guarantee that sudden unexpected ground movements will not recur. A
future ground movement could result in a significant interruption of operations. We may also
experience a loss of mineral reserves or a material increase in costs, if it is necessary to redesign
the open pit or waste rock dumps 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 significant magnitude or the mine experiences a
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significant loss of mineral reserves or materially higher costs of operation, this would have an
adverse impact on our future cash flows, earnings, results of operations and financial condition.
Centerra will experience further ice movement at the Kumtor project
Continued movement of ice from the South East Ice Wall into the Kumtor Central pit above the
high grade SB Zone section requires the mining of ice and waste to maintain our planned
production of ore. While management has implemented a plan to manage this movement (which
plan has seen positive results from 2011 to 2013), there is no guarantee that these efforts will
avert further negative impact on our expected production, costs and earnings.
During 2012, a substantial acceleration of ice movement, which was exacerbated by a 10-day
illegal strike which occurred in early February 2012, required us to revise our 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 pre-
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 us to revise our
2012 production and cost guidance.
In February 2014, increased movement of the South arm of the Davydov glacier required the
construction of a buttress to ensure continued safe mining in the open pit.
Although we are employing extensive efforts 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
significant interruption of operations, impede access to ore deposits, or require redeployment of
mobile equipment away from mining of ore. We 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 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 significant magnitude or the mine
experiences a significant loss of mineral reserves or materially higher costs of operation, this
would have an adverse impact on our future cash flows, earnings, results of operations and
financial condition.
Centerra’s operations and projects in the Kyrgyz Republic, Mongolia and Turkey are
located in areas of seismic activity
The areas surrounding our Kumtor, Boroo and Öksüt project are seismically active. While the
risks of seismic activity were taken into account when determining the design criteria for our
Kumtor and Boroo operations, there can be no assurance that our operations will not be
adversely affected by this kind of activity, all of which could have an adverse impact on our
future cash flows, earnings, results of operations and financial condition. Similarly, there can be
no assurance that the development of the Öksüt project will not be materially impacted by a
significant seismic event.
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Competition
Centerra’s future prospects may suffer due to increased competition for mineral
acquisition opportunities
Significant and increasing competition exists for mineral acquisition opportunities throughout the
world, particularly for opportunities in jurisdictions considered politically safer. As a result of
this competition, some of which is with large, better established mining companies with
substantial capabilities and greater financial and technical resources, we may be unable to
acquire rights to exploit additional attractive mining properties on terms we consider acceptable.
Accordingly, there can be no assurance that we will acquire any interest in additional operations
that would yield mineral reserves or result in commercial mining operations. Our inability to
acquire such interests could have an adverse impact on our future cash flows, earnings, results of
operations and financial condition. Even if we do acquire such interests, the resulting business
arrangements may not ultimately prove beneficial to our business.
FINANCIAL
Commodity Market
Centerra’s business is sensitive to the volatility of gold prices
Our 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 our control. These
factors include: global supply and demand; central bank lending, sales and purchases;
expectations for the future rate of inflation; the level of interest rates; the strength of, and
confidence in, the U.S. dollar; market speculative activities; and global or regional political and
economic events, including the performance of Asia’s economies.
The market price of gold decreased significantly in 2013, followed by a moderate increase in
2014. If the market price of gold falls and remains below production costs of any of our mining
operations for an extended period, losses would be sustained, and, under certain circumstances,
there may be a curtailment or suspension of some or all of our mining and exploration activities.
We would also have to assess the economic impact of any sustained lower gold prices on
recoverability and, therefore, the cut-off grade and level of our gold mineral reserves and
resources. These factors could have an adverse impact on our future cash flows, earnings, results
of operations, stated mineral reserves and financial condition.
Centerra’s operations are sensitive to fuel price volatility
The company is also exposed to price volatility in respect of key inputs, the most significant of
which is fuel. Increases in global fuel prices can materially increase operating costs, erode
operating margins and project investment returns, and potentially reduce viable reserves.
Conversely, a significant and sustained decline in world oil prices may offset other costs and
improve returns.
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Currency Volatility
Currency fluctuations
Our earnings and cash flow may also be affected by fluctuations in the exchange rate between
the U.S. dollar and other currencies, such as the Kyrgyz som, the Mongolian tugrik, the Canadian
dollar, the Euro, and the Turkish Lira. Our consolidated financial statements are expressed in
U.S. dollars. Our 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,
Turkish Lira, 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
financial results. Although from time to time we enter into short-term forward contracts to
purchase Canadian dollars and Euros, we do not utilize a hedging program to limit the adverse
effects of foreign exchange rate fluctuations in other currencies. In the case of the Kyrgyz som
and the Mongolian tugrik, we cannot hedge currency exchange risk because such currencies are
not freely traded.
Economy, Credit and Liquidity
Global financial conditions
The financial crisis which began in the latter part of 2007 has resulted in global financial
conditions which are characterized by continued high volatility, and financial institutions are still
recovering from significant losses. Access to public financing and bank credit has been
negatively impacted by the liquidity crisis as financial institutions saw their balance sheet
impaired. Notwithstanding some improvement in the financial health of major financial
institutions, continued concern over the pace of sustainable economic recovery in both developed
and key developing nations has kept liquidity conditions constrained. Further, the significant
decrease in the price of metals during 2013 along with sustained depressed prices over 2014 has
affected investor interest in the sector. Global financial conditions may affect our ability to
obtain equity or debt financing in the future on favourable terms. Additionally, these factors, as
well as other related factors, may cause decreases in our asset values that may be other than
temporary, which may result in impairment losses. These factors may also increase our exposure
to financial counterparty risk. If such increased levels of volatility and market turmoil continue,
or if more extensive disruptions of the global financial markets occur, our operations could be
adversely impacted and the trading price of our common shares may be adversely affected.
Centerra may experience reduced liquidity and difficulty in obtaining future financing
The further development and exploration of mineral properties in which we hold or acquire
interests may depend upon our ability to obtain financing through earn-in arrangements, debt
financing, equity financing or other means. While we successfully negotiated a three-year $150
million revolving credit facility in 2010, the term of which was extended to 2016, there is no
assurance that Centerra will be successful in obtaining required financing as and when needed in
the future.
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Volatile gold markets and/or capital markets, reduced global financial liquidity, and increased
restrictions on capital reserves of financial institutions, may make it difficult or impossible for us
to obtain further debt financing or equity financing on favourable terms or at all. Our principal
operations are located in, and our strategic focus is on, Central Asia and other markets
worldwide each of which are developing areas that may have experienced past economic and
political difficulties and may be perceived as unstable. This perceived increased country or
political risk may make it more difficult for us to obtain debt financing. Failure to obtain
additional financing on a timely basis may cause us to postpone development plans, forfeit rights
in our properties or partners or reduce or terminate our operations. Reduced liquidity or difficulty
in obtaining future financing could have an adverse impact on our future cash flows, earnings,
results of operations and financial condition.
Restrictive covenants in Centerra’s revolving credit facility may prevent the Company
from pursuing business activities
Pursuant to our Credit Facility with EBRD, we must maintain certain financial ratios and satisfy
other non-financial maintenance covenants. Centerra and our material subsidiaries are also
subject to other restrictive and affirmative covenants in respect of our respective operations.
Compliance with these covenants and financial ratios may impair our ability to finance our future
operations or capital needs or to take advantage of other favourable business opportunities. Our
ability to comply with these covenants and financial ratios will depend on our future
performance, which may be affected by events beyond our control. Our failure to comply with
any of these covenants or financial 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 we are 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.
Counterparty
Short-term investment risks
We 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 and certain financial 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 financial institutions will not have a
negative effect on the liquidity of our investments.
Concentration Risk
As a holding company, Centerra’s ability to make payments depends on the cash flows of
its subsidiaries
We are a holding company that conducts substantially all of its operations through subsidiaries,
many of which are incorporated outside North America. We have no direct operations and no
significant assets other than the shares of our subsidiaries. Therefore, we are dependent on the
cash flows of our subsidiaries to meet our obligations, including payment of principal and
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interest on any debt we incur. The ability of our subsidiaries to provide the parent company with
payments may be constrained by the following factors: (i) the cash flows generated by
operations, investment activities and financing activities; (ii) the level of taxation, particularly
corporate profits 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. As at December 31, 2014, a significant majority of the
company’s cash flows were generated by its operations in the Kyrgyz Republic. Further, should
the Gatsuurt deposit in Mongolia not receive the necessary governmental approvals to allow
development and operation, cash flows from the company’s Mongolian operations will cease in
2015, at which time 100% of all cash flows will depend on successful and ongoing operations in
the Kyrgyz Republic.
If we are unable to receive sufficient cash from our subsidiaries, we may be required to refinance
our indebtedness, raise funds in a public or private equity or debt offering or sell some or all of
our assets. We can provide no assurances that an offering of our debt or equity or a refinancing
of our debt can or will be completed on satisfactory terms or that it would be sufficient to enable
us to make payment with respect to our debt. The foregoing events could have an adverse impact
on our future cash flows, earnings, results of operations and financial condition.
OPERATIONAL
Health, Safety and Environment
Centerra is subject to environmental, health and safety risks
We expend significant financial 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. We
believe we are in material compliance with these laws. The historical trend that we observe is
toward stricter laws, and we expect this trend 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, consumption and
treatment of water, and other environmental matters, each of which could have a material
adverse effect on our exploration activities, operations and the cost or the viability of a particular
project.
Our facilities operate under various operating and environmental permits, licenses and approvals
that contain conditions that must be met and our right to continue operating our 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 fines or penalties, all of which could have an adverse impact on our future
cash flows, earnings, results of operations, financial condition, and reputation. We are unable to
quantify the costs of such a failure.
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Centerra’s workforce may be exposed to widespread pandemic
Centerra’s operations are located in areas relatively remote from local towns and villages and
represent a concentration of personnel working and residing in close proximity to one another.
Further, the sites receive frequent visitors from all over the world, and a number of employees
travel frequently abroad. Should an employee or visitor become infected with a serious illness
that has the potential to spread rapidly, this could place Centerra’s workforce at risk. The 2014
outbreak of the Ebola virus in several African countries is one example of such an illness. We
take every precaution to strictly follow industrial hygiene and occupational health guidelines,
and medical services are in place along with pandemic management protocols. There can be no
assurance that this virus or another infectious illness will not impact Centerra personnel and
ultimately its operations.
The Kumtor project is subject to significant claims of environmental damage
In December 2012, we received five claims from SIETS and a claim from SAEPF (which was
subsequently withdrawn) relating to alleged environmental damages at the Kumtor project. The
SIETS claims are for an aggregate amount of approximately $150 million (all figures are at then
current exchange rates) 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 $0.3 million for unaccounted industrial and household waste;
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 SIETS requiring that actions be taken to
correct various alleged environmental and technical violations discovered in its review.
Each of these claims were dismissed by the Bishkek Inter-District Court and, on appeal, by the
Bishkek City Court on the basis that the arbitration clause in the Restated Investment Agreement
require that all such disputes be resolved through international arbitration. After a further appeal
to the Kyrgyz Supreme Court, each of these claims were returned to the Bishkek Inter-District
Court for “new consideration”.
In addition to the original four claims of SIETS discussed above, SIETS has filed the following
additional claims against KOC: (i) on October 12, 2013, a claim in the amount of approximately
$485,000 for damages caused to land resources due to disturbance of land at the Kumtor project
(similar to the claim in the fourth bullet above but involving a different area of the Kumtor
concession); (ii) on January 21, 2014, a claim for approximately $8.5 million for lost agricultural
production and lost profits from 1994 to 2012; and (iii) on November 17, 2014, a further claim
for approximately $540,000 for damages caused to land resources (covering a different area of
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the Kumtor mine). Kumtor has responded in writing to SIETS disputing all of these additional
claims.
On February 21, 2013, we received a claim from the State Agency for Environmental Protection
and Forestry under the Government of the Kyrgyz Republic (SAEPF) relating to alleged
environmental damages at the Kumtor Project. The claim issued by SAEPF is for approximately
$315 million (at then current exchange rates) for alleged damage in relation to waste placed in
the tailings management facility, waste rock dumps, and for the generation, management and
treatment of other types of wastes. The claim covers the period from 1996 to 2011. Proceedings
have been commenced by SAEPF in the Bishkek Inter-District Court.
On October 11, 2013, Centerra received a statement of claim from the Green Party of
Kyrgyzstan in the Bishkek Inter-District Court which seeks damages of approximately $9 billion
for alleged environmental damages arising from the Kumtor operations since 1996. In February
2014, the claim was withdrawn and re-filed, together with certain resident of the village of
Saruu, in the Jety-Oguz District Court, which returned the claim indicating that its proper
jurisdiction is the Bishkek Inter-District Court. The Green Party unsuccessfully appealed this
decision in April 2014. There are no assurances that the Green Party and/or other interested
individuals will not seek to commence another claim on similar grounds.
While we believe that the allegations contained in these 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
SIETS, SAEPF or the Green Party of Kyrgyzstan will not be upheld and enforced. If such
claims should be upheld and enforced against us, it could have an adverse impact on our future
cash flows, earnings, results of operations and financial 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.
The Öksüt and Gatsuurt projects, if they proceeds to production, may also employ a heap leach
operation. There is inherent risk of unintended discharge of hazardous materials in the operation
of leach pads.
If any spills or discharges of sodium cyanide were to occur (at site or during transport), we could
become subject to liability for remediation costs, which could be significant 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 flow. Finally, increased sensitivity in respect to the use of
cyanide and the potential and perceived environmental impacts of cyanide use in mining
operations could exacerbate potential reputational damage to the company in the event of a
cyanide release. While we take appropriate steps to prevent discharges and accidental releases of
sodium cyanide and other hazardous materials into the ground water, surface water and the
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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.
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 3,667 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 raise is scheduled for 2016. Further
tailings dam increases may also be required in the future, subject to Kumtor’s life of mine plan
which is being reviewed by management and expected to be released by March 26, 2015.
While we have 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 us. If all necessary permits and
authorizations are not obtained, delays in, or interruptions or cessation of our production from
the Kumtor project may occur, which may have an adverse impact on our future cash flows,
earnings, results of operations or financial condition.
We may also be subject to liability or sustain losses in relation to certain risks and hazards
against which we cannot insure or for which we 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 our future cash flows, earnings, results of operations and financial condition.
Centerra faces substantial decommissioning and reclamation costs
We are required to establish at each of our mine sites and development projects a
decommissioning and reclamation plan. Provision must be made for the cost of decommissioning
and reclamation for operating sites. These costs can be significant and are subject to change. We
cannot predict what level of decommissioning and reclamation may be required in the future by
regulators. If we are required to comply with significant additional regulations or if the actual
cost of future decommissioning and reclamation is significantly higher than current estimates,
this could have an adverse impact on our future cash flows, earnings, results of operations and
financial condition.
Asset Management
Centerra may experience mechanical breakdowns
Our 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 we conduct extensive
preventive maintenance programs at Kumtor and Boroo, there can be no assurance that we will
not experience mechanical breakdowns of mining and processing equipment.
In the past, we have experienced such mechanical breakdowns at Kumtor and Boroo, which have
resulted in unplanned mill shutdowns and reduced mill capacity. In addition, obtaining
replacement components for the equipment can take considerable time which may also impact
production.
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Any extended breakdown in mining or processing equipment could have an adverse impact on
our future cash flows, earnings, results of operations and financial conditions.
Human Resources
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 office) are unionized
and subject to collective agreements. At Kumtor, the collective bargaining agreement expired on
December 31, 2014. Subsequently, in January 2015, a new 2-year collective bargaining
agreement was approved and ratified. At Boroo, the collective bargaining agreement expired on
June 30, 2014. A new 2-year collective bargaining agreement was approved and ratified. 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 difficult 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 flows, earnings, results of operations and financial
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 us.
Centerra’s success depends on its ability to attract and retain qualified personnel
Recruiting and retaining qualified personnel is critical to our 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 our business activity grows, it will require additional
key financial, administrative and mining personnel as well as additional operations staff. The
Restated Concession Agreement relating to the 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 our operations in Mongolia and, to a lesser extent, the
Kyrgyz Republic because of the shortage locally of trained personnel. Although we believe that
we will be successful in attracting, training and retaining qualified personnel, there can be no
assurance of such success. If we are not successful in attracting and training qualified personnel,
the efficiency of our operations could be affected, which could have an adverse impact on our
future cash flows, earnings, results of operations and financial condition. Further, the planned
closure of Boroo operations, in 2015, combined with ongoing delays in receiving necessary
approvals to develop the Gatsuurt deposit and prolong operations in Mongolia has resulted in
personnel departures. There is no assurance that we will be able to re-hire required personnel,
should Gatsuurt proceed to development. This risk is heightened by the increased presence of
new companies in the country seeking qualified personnel. Further, the increased risk associated
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with potential reduced company control over its Kyrgyz operation with increased control therein
by the Kyrgyz Government may have an adverse effect on employee morale potentially leading
to the departure of some employees.
Supply Chain
Centerra’s properties are located in remote locations and require a long lead time for
equipment and supplies
We operate in remote locations and depend on an uninterrupted flow 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. Access to the Kumtor project
has been restricted on several occasions by illegal roadblocks. Should the Gatsuurt deposit
receive the necessary approvals for development and operation, existing milling equipment may
need to be purchased to replace ageing equipment at the Boroo mill. Any interruptions to the
procurement of equipment, or the flow of materials, supplies and services to our properties could
have an adverse impact on our future cash flows, earnings, results of operations and financial
condition.
Centerra’s operations may be impacted by supply chain disruptions
Our 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. Recent and potential future economic sanctions imposed on Russia by the U.S. and
European Union in 2014, may impact delivery of goods and services to the Kumtor operation.
The accession of the Kyrgyz Republic to the Eurasian Economic Union may also impact Kumtor
supply chains. Any disruption in the transportation of or restriction in the flow of these goods or
the imposition of customs clearance requirements may result in production delays.
Security
Illegal trespass and illegal mining has occurred and may continue to occur, on Centerra’s
properties
Illegal mining is widespread in Mongolia. Illegal miners have and may continue to trespass on
our properties and engage in very dangerous practices, including climbing inside caves and old
exploration shafts without any safety devices. We are unable to continuously monitor the full
extent of our 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 our properties or personal injury or death, or conflict with local communities for
which we could potentially be held responsible, all of which could have an adverse impact on
our future cash flows, earnings, results of operations and financial condition.
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While our Kyrgyz operations are located in a remote area, attempts have been made by protesters
and other groups, in the past, to access the site. These rare events have not resulted in harm to
personnel, business interruption or damage to property, however there can be no assurance that
future attempts to access the site will not cause harm to employees or property, or result in
business interruption.
Information Technology Systems
Centerra’s critical operating systems may be compromised
Cyber threats have evolved in severity, frequency and sophistication in recent years, and target
entities are no longer primarily from the financial or retail sectors. Individuals engaging in cyber
crime may target corruption of systems or data, or theft of sensitive data. While we invest in
robust security systems to detect and block inappropriate or illegal access to its key systems,
including SCADA operating systems at our operations, and regularly review policies, procedures
and protocols to ensure data and system integrity, there can be no assurance that a critical system
is not inadvertently or intentionally breached and compromised. This may result in business
interruption losses, equipment damage, or loss of critical or sensitive information.
Insurance
Centerra may not be adequately insured for certain risks
Although we maintain insurance to cover some of the operational risks and hazards in amounts
we believe to be reasonable, insurance may not provide adequate coverage or may not be
available in all circumstances. No assurance can be given that insurance will continue to be
available at economically feasible premiums or that it will provide sufficient coverage for losses
related to these or other risks and hazards.
We may also be subject to liability or sustain losses in relation to certain risks and hazards
against which the company 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 our future cash flows, earnings, results of operations and financial condition.
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Caution Regarding Forward-Looking Information
Information contained in this 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 and timely closing of the transaction contemplated with Premier Gold
Mines Limited to develop in partnership the Trans-Canada project; the general economic
indicators for 2015, including the Company’s expectations for gold in 2015; the Company’s
ability to fund all planned capital and operating expenditures in 2015 through operating cash
flow; timing for filing of an updated Kumtor technical report; the continuation of gold
production from the heap leach operations at Boroo into 2015; expectations that the Boroo mill
will be shut down by the end of February 2015 and thereafter put into stand-by awaiting the
finalization of agreements and permits with the Mongolian Government for the development of
the Gatsuurt project; the Company’s plans to keep future gold production unhedged; the
successful resolution of any of the items discussed under the heading, “Other Corporate
Developments”, including without limitation, the successful resolution of outstanding matters in
the Kyrgyz Republic to the benefit of all shareholders including matters relating to the State
Commission report, government resolutions and decrees, discussions with the Kyrgyz
Government on the Kumtor Project Agreements and a possible restructuring of the Kumtor
Project into a joint venture pursuant to the terms of the HOA, the potential effects of the Stans
Application and the Stans Order on the proposed restructuring of the Kumtor Project in
accordance with the HOA, the claims of the Kyrgyz General Prosecutor’s Office’s purporting to
invalidate Kumtor’s land use certificate and to seize certain lands within the Kumtor concession
area, and to unwind an inter-corporate dividend declared and paid by KGC to Centerra, the
timely receipt of all approvals and consents required for the continued operation of the Kumtor
mine, and continued discussions with the Mongolian Government regarding the level of
ownership in the Gatsuurt project (up to 34%) and the terms and conditions of such participation;
all disclosure under the heading, “2015 Outlook” including planned production in 2015 and
expected costs; 2015 exploration expenditures; 2015 capital expenditures; 2015 corporate
administration and community investments; and planned activities at the Öksüt project including
expectations regarding planned expenditures and completing a feasibility study by the middle of
2015.
Forward-looking information is necessarily based upon a number of estimates and assumptions
that, while considered reasonable by Centerra, are inherently subject to significant 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. 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
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the Company’s ability
operates, the impact of any actions taken by the Government and Parliament relating to the
Kumtor Project Agreement, any impact on the purported cancellation of Kumtor’s land use rights
at the Kumtor Project, the impact of the failure of relevant Kyrgyz Government agencies to
provide approvals required permits and authorizations, the impact of the Stans Application and
the Stans Order on the ability of Stans to seize Centerra shares held by Kyrgyzaltyn and the
ability of the Company to complete the proposed restructuring of the Kumtor Project in
accordance with the HOA, the effect of the Water and Forest Law on the Company’s operations
in Mongolia, the impact of continued scrutiny from Mongolian regulatory authorities on the
Company’s Boroo project, the impact of changes to, the increased enforcement of,
environmental laws and regulations relating to the Company’s operations; the impact of any
sanctions imposed by Canada, the United States or other jurisdictions against various Russian
individuals and entities; (B) risks related to operational matters and geotechnical issues,
including the movement of the Davidov Glacier and the Davidov Waste-rock Dump (Central
Valley Waste Dump), the waste and ice movement at the Kumtor Project and the Company’s
continued ability to successfully manage such matters, including by the building of a buttress at
the bottom of the Davidov Glacier, the occurrence of further ground movements at the Kumtor
Project, the timing of the infrastructure move potentially impacting the maintenance of the
mobile fleet and its availability, the success of the Company’s future exploration and
development activities, including the financial and political risks inherent in carrying out
exploration activities, the adequacy of the Company’s insurance to mitigate operational risks,
the necessary permits and
mechanical breakdowns,
authorizations to (among other things) 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 qualified personnel, competition for
mineral acquisition opportunities, and risks associated with the conduct of joint ventures; (C)
risks relating to financial 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 financing, the impact of global financial conditions, the
impact of currency fluctuations, 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 flow 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
significant environmental claims made since 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 significant shareholder, and possible
to obtain
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director conflicts 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 2013 Annual Information Form
available on SEDAR at www.sedar.com.
Furthermore, market price fluctuations 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 reclassified as proven or probable reserves is dependent upon the
demonstration of their profitable recovery. Economic and technological factors which may
change over time always influence the evaluation of reserves or resources. Centerra has not
adjusted mineral resource figures in consideration of these risks and, therefore, Centerra can give
no assurances that any mineral resource estimate will ultimately be reclassified as proven and
probable reserves.
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
sufficiently well defined 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 sufficient 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 19, 2015. Centerra assumes no obligation to update or revise forward looking
information to reflect changes in assumptions, changes in circumstances or any other events
affecting such forward-looking information, except as required by applicable law.
1 University Avenue, Suite 1500
Toronto, ON
M5J 2P1
tel 416-204-1953
fax 416-204-1954
www.centerragold.com
88
Centerra Gold Inc.
Consolidated Financial Statements
For the Years Ended December 31, 2014 and 2013
(Expressed in thousands of United States Dollars)
89
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 finalized 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 significant 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 financial information, management maintains and relies
on a comprehensive system of internal controls and 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 and tested in a
manner consistent with National Instrument 52-109.
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’s
report, which appears on page ii, outlines the scope of their examination and their opinion.
The Company’s Directors, through its Audit Committee, are responsible for ensuring that management
fulfills its responsibilities for financial 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 findings as to the integrity of the financial reporting.
The Company's President and Chief Executive Officer and the Company’s Vice President and Chief
Financial Officer have evaluated the design and operating effectiveness of related disclosure controls and
procedures and internal controls over financial reporting based on criteria established in “Internal
Control-Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
Original signed by:
Ian Atkinson
President and Chief Executive Officer
February 19, 2015
Original signed by:
Jeffrey S. Parr
Vice President and Chief Financial Officer
90
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of Centerra Gold Inc.
We have audited the accompanying consolidated financial statements of Centerra Gold Inc., which
comprise the consolidated statements of financial position as at December 31, 2014 and December
31, 2013, the consolidated statements of earnings (loss) and comprehensive income (loss),
shareholders’ equity and cash flows for the years then ended, and notes, comprising a summary of
significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards, and for such internal
control as management determines is necessary to enable the preparation of consolidated financial
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 financial 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 financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the consolidated financial statements. The procedures selected depend on our judgment, including
the assessment of the risks of material misstatement of the consolidated financial 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 financial 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 financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to
provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
consolidated financial position of Centerra Gold Inc. as at December 31, 2014 and December 31,
2013, and its consolidated financial performance and its consolidated cash flows for the years then
ended in accordance with International Financial Reporting Standards.
Original Signed by:
KPMG LLP
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Canada
February 19, 2015
91
Centerra Gold Inc.
Consolidated Statements of Financial Position
(Expressed in Thousands of United States Dollars)
Notes
Assets
Current assets
Cash and cash equivalents
Short-term investments
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 provision
Dividend payable
Provision
Deferred income tax liability
Shareholders' equity
Share capital
Contributed surplus
Retained earnings
Total liabilities and shareholders' equity
8
9
10
11
12
7
13
9
14
15
16(a)
16(d)
17
26
17
16(c)
24
December 31,
2014
December 31,
2013
$
$
$
$
$
$
$
300,514
261,503
66,214
408,050
12,888
1,049,169
524,699
18,705
12,437
23,723
349
579,913
1,629,082
45,883
76,000
24,605
1,515
2,598
150,601
12,254
65,318
2,266
79,838
343,108
158,358
78,707
373,289
29,191
982,653
539,070
129,705
10,731
20,276
5,229
705,011
1,687,664
32,109
75,582
30,742
2,108
1,194
141,735
10,636
58,826
2,157
71,619
660,554
22,556
715,533
1,398,643
1,629,082
$
660,486
20,087
793,737
1,474,310
1,687,664
Commitments and contingencies (note 25)
Subsequent events (note 31)
The accompanying notes form an integral part of these consolidated financial statements.
Approved by the Board of Directors
Original signed by:
Stephen Lang
Chairman
Richard Connor
Director
92
Centerra Gold Inc.
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
Mine standby costs
Regional office administration
Earnings from mine operations
Revenue based taxes
Other operating expenses
Impairment of goodwill
Exploration and business development
Corporate administration
Earnings (loss) from operations
Other expenses, net
Finance costs
Earnings (loss) before income tax
Income tax expense
Net earnings (loss) and comprehensive income (loss)
Basic and diluted earnings (loss) per common share
Basic
Diluted
Notes
18
16(a)
19
12
20
21
22
23
16(b)
24(b)
2014
2013
$
763,345
$
944,373
502,577
2,385
25,189
233,194
97,243
9,854
111,000
15,724
34,759
(35,386)
1,184
4,962
(41,532)
2,577
(44,109) $
559,236
-
23,746
361,391
113,532
8,259
-
29,572
30,642
179,386
3,568
4,989
170,829
13,153
157,676
(0.19) $
(0.19) $
0.67
0.64
$
$
$
The accompanying notes form an integral part of these consolidated financial statements.
93
Centerra Gold Inc.
Consolidated Statements of Cash Flows
For the years ended December 31,
(Expressed in Thousands of United States Dollars)
Notes
2014
2013
Operating activities
Net earnings (loss)
Items not requiring (providing) cash:
Depreciation, depletion and amortization
Finance costs
Loss on disposal of equipment
Compensation expense on stock options
Impairment of goodwill
Change in provision for office closing costs
Income tax expense
Other operating items
Change in operating working capital
Change in long-term inventory
Revenue-based taxes applied
Income taxes paid
Cash provided by operations
Investing activities
Additions to property, plant and equipment
Net purchase of short-term investments
Purchase of interest in Öksüt Gold Project-net of cash
acquired
Net increase in restricted cash
Decrease (increase) in other assets
Proceeds from disposition of fixed assets
Cash used in investing
Financing activities
Dividends paid
Payment of interest and borrowing costs
Cash used in financing
Increase in cash during the year
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year
Cash and cash equivalents consist of:
Cash
Cash equivalents
11
23
24(d)
12
16(b)
30(a)
16(a)
30(b)
6
$
(44,109) $
157,676
284,281
4,962
1,138
2,469
111,000
-
2,577
(1,565)
360,753
4,370
4,880
10,000
(3,608)
376,395
309,389
4,989
2,818
2,830
-
(613)
13,153
15
490,257
(15,463)
4,865
20,000
(15,746)
483,913
(276,285)
(103,145)
(308,682)
(110,374)
-
(1,706)
(3,447)
3
(384,580)
(19,742)
(4,644)
2,222
205
(441,015)
(31,499)
(2,910)
(34,409)
(42,594)
343,108
300,514 $
(31,085)
(2,820)
(33,905)
8,993
334,115
343,108
85,097 $
215,417
300,514 $
57,087
286,021
343,108
$
$
$
The accompanying notes form an integral part of these consolidated financial statements.
94
Centerra Gold Inc.
Consolidated Statements of Shareholders' Equity
(Expressed in Thousands of United States Dollars, except share information)
Balance at January 1, 2013
236,376,011 $ 660,420 $
36,243 $ 672,430 $
1,369,093
Number of
Common
Shares
Share
Capital Contributed Retained
Surplus
Amount
Earnings
Total
Share-based compensation expense
Adjustment for acquisition of 30% non-controlling
interest
Shares issued on redemption of restricted share units
Dividend declared
Net earnings for the year
Balance at December 31, 2013
-
-
14,208
-
-
-
-
66
-
-
236,390,219 $ 660,486 $
Share-based compensation expense
Shares issued on redemption of restricted share units
Dividend declared
Net loss for the year
Balance at December 31, 2014
-
13,739
-
-
-
68
-
-
236,403,958 $ 660,554 $
The accompanying notes form an integral part of these consolidated financial statements.
2,830
-
2,830
(18,986)
-
-
-
(18,986)
66
(36,369)
157,676
20,087 $ 793,737 $ 1,474,310
-
-
(36,369)
157,676
2,469
-
-
-
2,469
68
(34,095)
(44,109)
22,556 $ 715,533 $ 1,398,643
-
-
(34,095)
(44,109)
95
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
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. The Company is domiciled in Canada and the registered office 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 and Canada.
2. Basis of Preparation and Statement of Compliance
a. Statement of Compliance
These consolidated financial 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 financial statements were authorized for issuance by the Board of Directors of the
Company on February 19, 2015.
b. Basis of measurement
These financial statements were prepared under the historical cost basis, except for liabilities for
cash settled share-based compensation, cash and cash equivalents which are measured at fair
value and inventories which are measured at the lower of cost or net realizable value.
These financial statements are presented in U.S. dollars with all amounts rounded to the
nearest thousand, except for share and per share data, or as otherwise noted.
96
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
3. Summary of Significant Accounting Policies
The significant accounting policies summarized below have been applied consistently to all
periods presented in these consolidated financial statements.
a. Consolidation principles
These consolidated financial statements include the accounts of Centerra and its subsidiaries.
Subsidiaries consist of entities over which the Company is exposed to, or has rights to, variable
returns as well as the ability to affect those returns through the power to direct the relevant
activities of the entity. 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.
Centerra’s significant subsidiaries include its wholly-owned subsidiaries, Kumtor Gold Company
in the Kyrgyz Republic, Boroo Gold LLC and Centerra Gold Mongolia LLC (owner of the
Gatsuurt property and Altan Tsagaan Ovoo (“ATO”) property) in Mongolia and Öksüt
Madencilik A.S. in Turkey. Additionally, the Company has entered into an agreement to earn an
interest in a joint venture exploration property located in Portugal. The Öksüt property and the
Gatsuurt property are in the development phase and the ATO and Portugal properties are in the
exploration phase.
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 financial 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
Statements of Earnings (Loss) and Comprehensive Income (Loss). Non-monetary assets and
liabilities, arising from transactions denominated in foreign currencies, are translated at the
historical exchange rates prevailing at each transaction date.
c. Cash and cash equivalents
Cash and cash equivalents comprise cash balances and short-term investments with original
maturities of 90 days or less. Cash and cash equivalents are classified as financial instruments
carried at fair value through profit or loss.
97
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
d. Restricted Cash
Cash which is subject to legal or contractual restrictions on its use is classified 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 classified as
financial instruments carried at fair value through profit 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 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 and heap leach ore not expected to
be processed in the next twelve months are classified as long-term.
In-circuit inventories represent materials that are in the process of being converted to 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 that 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.
98
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
Consumable supplies and spare parts are valued at the lower of weighted-average cost and NRV,
which approximates 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 specific stock items identified as obsolete. A regular
and ongoing review is undertaken to establish the extent of surplus items and a provision is made
for any potential loss on their disposal.
g. Property, plant and equipment
i. General
Property, plant and equipment are recorded at cost less accumulated depreciation,
depletion and impairment charges. Where an item of property, plant and equipment
comprises major components with different useful lives, the components are depreciated
separately but are grouped for disclosure purposes as property, 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.
Directly attributable costs, including capitalized borrowing 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
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.
the estimated useful
All direct costs related to the acquisition of mineral property interests are capitalized at
the date of acquisition.
An item of property, plant and equipment is de-recognized upon disposal or when no
further future economic benefits 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 profit or loss in the year the
asset is de-recognized.
99
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
ii. Exploration, evaluation and pre-development expenditure
All exploration and evaluation expenditures of the Company within an area of interest are
expensed until management and board of directors concludes that the technical feasibility
and commercial viability of extracting a mineral resource are demonstrable and that
future economic benefits are probable. In making this determination, the extent of
exploration, as well as the degree of confidence 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 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 classified as a development property when
a mine plan has been prepared and a decision is made to commercially develop the
property. Development expenditures are accumulated separately for each area of interest
for which economically recoverable mineral reserves and resources have been identified.
All expenditures incurred prior to the commencement of commercial levels of production
from each development property are capitalized. In addition, capitalized costs are
assessed for impairment when there is an indicator of impairment.
Development properties are not amortized until they are reclassified 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 capitalized and then amortized on a unit-of-production
basis.
v. Deferred Stripping costs
Stripping costs incurred in the production phase of a mining operation are accounted for
as production costs and are included in the costs of inventory produced. Stripping activity
100
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
that improves access to ore in future periods is accounted for as an addition to or
enhancement of an existing asset. The Company recognizes stripping activity assets when
the following three criteria are met:
(cid:1)
(cid:1)
(cid:1)
it is probable that the future economic benefit associated with the stripping
activity will flow to the Company;
the Company can identify the component of the ore body for which access has
been improved; and
the costs relating to the stripping activity associated with that component can
be measured reliably by the Company.
Stripping activity assets are amortized on a unit of production basis in subsequent periods
over the proven and probable reserves to which they relate.
vi. Depreciation and depletion
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 final 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, office 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.
h. Goodwill
Goodwill represents the difference between the sum of the cost of a business acquisition and the
fair value of the identifiable net assets acquired. Subsequently, goodwill is measured at cost less
accumulated impairment losses and is not amortized.
Goodwill, upon acquisition, is allocated to the cash-generating units (“CGU”) expected to benefit
from the related business combination. A CGU, in accordance with IAS 36, Impairment of
Assets, is identified as the smallest identifiable group of assets that generates cash inflows, which
are largely independent of the cash inflows 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.
101
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
i. Impairment
Long term assets, including goodwill, are reviewed for impairment if there is any indication that
the carrying amount may be impaired. In addition, goodwill is tested for impairment annually on
September 1. Impairment is assessed for an individual asset unless the asset does not generate
cash inflows 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.
To accomplish this impairment testing, the Company compares the recoverable amount (which is
the greater of value-in-use and fair value less costs of disposal (“FVLCD”) of the CGU to its
carrying amount. If the carrying amount of a CGU exceeds its recoverable amount, the Company
first applies 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 estimate of recoverable value are subject to risks and uncertainties.
The best evidence of FVLCD is the value obtained from an active market or binding sale
agreement. Where neither exists, FVLCD is based on the best information available to reflect the
amount the Company could receive for the CGU in an arm’s length transaction, which the
Company typically estimates using discounted cash flow techniques.
Where the recoverable amount is assessed using discounted cash flow techniques, the resulting
estimates are based on detailed mine and/or production plans.
Expected future cash flows reflect 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 flow forecasts are based on estimates of future commodity prices which are
derived from the general consensus gathered from third-party financial analysts’ expectations.
These assessments can differ from current price levels and are updated periodically.
The discount rates applied to the future cash flow forecasts represent a real after tax discount rate
based on the Company’s estimated weighted-average cost of capital adjusted for the risks
specific to the CGU. 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 profile of the
countries in which the individual CGUs operate.
102
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
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 flow 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.
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
profit 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.
Deferred tax is recognized in respect of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
Deferred tax is not recognized for:
(cid:1)
(cid:1)
(cid:1)
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
profit 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 reflects 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 profits 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 benefit will be realized.
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Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
k. Provisions
Provisions are recorded when a legal or constructive obligation exists as a result of past events
where it is probable that an outflow of resources embodying economic benefits 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 amount 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
flows estimated to settle the present obligation.
l. Asset retirement and reclamation obligations
Asset retirement and reclamation costs include the dismantling and demolition of infrastructure
and the removal of residual materials and remediation of disturbed areas. Estimated asset
retirement and reclamation 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.
Provision for asset retirement and reclamation costs 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 flows.
Asset retirement and reclamation obligations relating to operating mines and development
projects are initially recorded with a corresponding increase to the carrying amounts of related
mining properties. Changes to the obligations which may arise as a result of changes in discount
rates and timing or amounts of the costs to be incurred are also accounted for as changes in the
carrying amounts of related mining properties, except where a reduction in the obligation is
greater than the capitalized Asset retirement and reclamation costs, in which case, the capitalized
reclamation and closure costs are reduced to nil and the remaining adjustment is included in
production costs in the Consolidated Statements of Earnings (Loss) and Comprehensive Income
(Loss). Asset retirement and reclamation obligations related to inactive and closed mines are
included in production costs in the Consolidated Statements of Earnings (Loss) and
Comprehensive Income (Loss) on initial recognition and subsequently when remeasured.
m. Earnings per share
Basic net earnings (loss) per share is computed by dividing the net earnings (loss) 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, after adjusting for the effect of performance share units as though they were
accounted for as an equity instrument, by the weighted average number of common shares
outstanding during the year, plus the effects of dilutive common share equivalents such as stock
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Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
options and restricted share units. Diluted net earnings (loss) per share is calculated using the
treasury method, where the exercise of stock options and restricted share units are assumed to be
at the beginning of the period, the proceeds from the exercise of stock options 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.
n. Revenue recognition
Revenue associated with the sale of gold is recognized when all significant risks and rewards of
ownership are transferred to the customer and the amount of revenue can be measured reliably.
Usually the transfer of risks and rewards associated with ownership occurs when the customer
has taken delivery and the consideration is received, or to be received.
o. Share-based compensation
The Company has four share-based compensation plans: the Stock Option Plan, Performance
Share Unit Plan, Deferred Share Unit Plan, and Restricted Share Unit Plan, which are all
described in note 24.
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 contributed surplus. When options are exercised,
the proceeds received by the Company, together with the amount in contributed surplus, are
credited to common shares.
Performance Share Unit Plan
Under this plan, 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, the fair value of the estimated
number performance share units awarded, after adjusting for forfeitures, 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 cash paid to
employees on exercise of these performance share units is recorded as a reduction of the
accrued obligation.
105
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
Deferred Share Unit Plan
Deferred share units granted to eligible members of the Board of Directors are settled in cash
and are 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 Unit Plan
Restricted share units (“RSU”) granted to eligible members of the Board of Directors and
designated officers 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 or common shares issued on exercise of these restricted
share units is recorded as a reduction of the accrued obligation.
p. Financial Instruments
Financial assets are classified as either financial assets at fair value through profit or loss, loans
and receivables, held-to-maturity investments, or available-for-sale financial assets. The
Company determines the classification of its financial 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 reclassified into the available-for-sale category. All financial
liabilities are initially recognized at their fair value and designated upon inception as either
financial liabilities measured at fair value through profit or loss or other financial liabilities.
Transaction costs associated with financial instruments, carried at fair value through profit or
loss, are expensed as incurred, while transaction costs associated with all other financial
instruments are included in the initial carrying amount of the asset or the liability.
Financial assets
Financial assets recorded at fair value through profit or loss
Financial assets are classified 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 profit or loss.
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Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
The Company’s cash and cash equivalents, restricted cash, reclamation trust fund and short-
term investments are classified as financial assets measured at fair value through profit or
loss.
Loans and receivables
The Company’s amounts receivable and long-term receivables are classified 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.
Financial liabilities
Financial liabilities at fair value through profit or loss
Financial liabilities classified as fair value through profit or loss include financial liabilities
designated as held-for-trading and financial liabilities designated upon initial recognition as a
fair value through profit or loss financial liability. Fair value changes on financial liabilities
classified as fair value through profit or loss are recognized in the Statements of Earnings
(Loss) and Comprehensive Income (Loss).
From time to time, the Company may utilize forward foreign exchange contracts to
economically hedge certain anticipated cash flows. Furthermore, the Company may enter
into “good until cancelled” contract to sell gold at a specific price; these are short-term
contracts that are normally closed before the end of the reporting date. These contracts are
classified and accounted for as instruments “held-for-trading” because they have not been
designated as hedges for accounting purpose. The contracts are recorded at fair value at the
reporting date with the resulting gain or loss recognized in the Statements of Earnings (Loss)
and Comprehensive Income (Loss).
Other financial liabilities
Borrowings and other financial liabilities, excluding derivative liabilities, are recognized
initially at fair value, net of transaction costs incurred and are subsequently measured at
amortized cost. Borrowings and other financial liabilities are classified 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 Financial Position.
The Company’s trade and other payables and short-term debt are classified as other financial
liabilities.
107
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
4. Critical Accounting Estimates And Judgments
The preparation of consolidated financial statements in accordance with 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 financial
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. 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 financial statements that have a significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities and earnings within the next financial year, are
discussed below:
i. Impairment of long-term assets and goodwill
The Company reviews and tests the carrying amounts of long-term assets and goodwill when an
indicator of impairment is considered to exist and for goodwill on September 1 of each year. 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.
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 of disposal. Management performed its annual goodwill
impairment test for the Kumtor CGU as at September 1, 2014 and calculated the fair value less
cost of disposal using a discounted cash flow model which required management to estimate the
future cash flows, future operating plans, gold prices and discount rates. A further assessment of
goodwill impairment was performed as at December 31, 2014.
Expected gold production levels, which comprise proven and probable reserves and an estimated
recoverable amount of resources, are used to estimate expected future cash flows. Management
108
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
also estimates future operating and capital costs based on the most recently approved life of mine
plan. The discount rate applied is reviewed for each assessment.
While management believes that estimates of future cash flows are reasonable, different
assumptions regarding such cash flows could materially affect the recoverable amount 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 amount of the CGU could
affect the carrying amounts of assets and result in an impairment charge. During the year ended
December 31, 2014, the Company recognized an impairment charge of $111.0 million in respect
of the carrying amount of Goodwill in the Kygyz Republic (see note 12).
The carrying amount of goodwill in the consolidated financial statements at December 31, 2014
was $18.7 million (2013 - $129.7 million). The carrying amount of long-term assets (property
plant and equipment, restricted cash, other assets and long-term inventories), other than goodwill
at December 31, 2014 was $561.2 million (2013 - $575.3 million).
ii. 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 finished goods sold during the
period and the value of inventories in the Company’s Statements of Financial Position. Net
realizable value tests are performed at each reporting period 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 verified 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.
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 refined based on actual results over time.
As at December 31, 2014 the carrying amount of inventories (excluding gold doré and supplies
inventories) was $228.9 million (2013 - $201.9 million).
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Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
iii. 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 amortized and accreted over the life of the mine.
The carrying amount of the asset retirement obligations as at December 31, 2014, was $67.9
million (2013 - $60.0 million).
iv. 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 financial 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 financial 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 financial 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 in future periods in these estimates, and changes in the
amount of the deferred tax assets recognized may be required, which could materially impact the
financial position and the income for the period. At December 31, 2014, the total deductible
temporary differences for which a deferred tax asset was not recognized amounted to $323.8
million (2013- $311.6 million). Most of the unrecognized amount relates to unused loss carry
forwards. Deferred tax assets of $7.8 million (2013-$7.0 million) were recognized in the
Company’s statement of financial position.
110
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
At December 31, 2014, the total taxable temporary differences for which a deferred tax liability
was not recognized amounted to $747.0 million (2013 - $779.0 million). Most of the
unrecognized amounts relate to investments in subsidiaries, which the Company controls, and are
not expected to reverse for the foreseeable future. Deferred tax liabilities of $10.1 million (2013 -
$9.1 million) were recognized in the Company’s statement of financial position.
v. Share-based Compensation
Cash-settled share-based payments are measured at fair value at each reporting period, while
equity-settled share-based payments are measured at grant date. The fair value determined using
the Black-Scholes option pricing model or Monte Carlo simulation model, is based on significant
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’ performance.
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 expense and the carrying value of the share-based
compensation liabilities.
Total share-based compensation cost expense recorded in the Statement of Earnings (Loss) and
Comprehensive Income (Loss) for the year ended December 31, 2014 was $11.3 million (2013 -
$2.4 million) and carrying amount of the associated liabilities was $9.1 million as at December
31, 2014 (2013 - $1.6 million).
vi. 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-defined 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 reserves. This would generally arise when there are significant changes
in any of the factors or assumptions used in estimating ore reserves.
Changes to these estimates, which can be significant, 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
111
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
other factors impacting mineral reserves or the expected life of the mining operation.
vii. Mineral reserve and resources estimation
The Company estimates its ore reserves and mineral resources based on information compiled by
qualified persons as defined in accordance with the 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 and may change significantly 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 revised.
Estimates of mineral reserves and resources impact the following items in the financial
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 CGUs
• Estimated timing of reclamation activities
• Expected future economic benefit 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 25, 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 outflow 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
significant judgment of the potential outcome of future events. Disclosure of other contingent
liabilities is made unless the possibility that a loss may occur is considered remote.
112
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
5. Changes in accounting policies
Recently issued but not adopted accounting guidance are as follows:
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 significant components: establishes two primary measurement categories for financial
assets — amortized cost and fair value; establishes criteria for classification of financial assets
within the measurement category based on business model and cash flow characteristics; and
eliminates existing held to maturity, available-for-sale and loans and receivable categories. The
effective date of this standard is January 1, 2018, with earlier application permitted. The
Company has not adopted IFRS 9 in its financial statements for the current period, but will
continue to monitor and evaluate the impact of any required changes to its consolidated financial
statements based on the characteristics of its financial instruments at the date of adoption.
In May 2014, the IASB issued IFRS 15 “Revenue from Contracts with Customers” (“IFRS 15”).
IFRS 15 establishes principles for reporting the nature, amount, timing, and uncertainty of
revenue and cash flows arising from an entity’s contract with customers. This standard is
effective for annual periods beginning on or after January 1, 2017, and permits early adoption.
The Company is currently assessing the impact of adopting this standard on its consolidated
financial statements.
In December 2014, the IASB issued amendments to IAS 1, Presentation of Financial Statements
(“IAS 1”) to clarify materiality, order of notes to financial statements, disclosure of accounting
policies as well as aggregation and disaggregation of items presented in the statement of
financial position, statement of income and statement of comprehensive income. These
amendments shall be applied to fiscal years beginning on or after January 1, 2016, with earlier
application permitted. The Company has not adopted the amendments to IAS 1 in its financial
statements for the current period, but will continue to monitor and evaluate the impact of any
required changes to its consolidated financial statements at the date of adoption.
Adoption of New Accounting Standards and Developments
Effective January 1, 2014, the Company adopted IFRIC 21, Levies (“IFRIC 21”). IFRIC 21 is an
interpretation of the accounting for levies imposed by governments which were accounted for
under IAS 37, Provisions, contingent liabilities and contingent assets (“IAS 37”). IAS 37 sets
out criteria for the recognition of a liability, one of which is the requirement for the entity to have
a present obligation as a result of a past event (known as an obligating event). The interpretation
clarifies that the obligating event that gives rise to a liability to pay a levy is the activity
described in the relevant legislation that triggers the payment of the levy. The adoption of this
standard did not have a material impact on the Company’s consolidated financial statements.
113
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
6. Acquisition of interest in Öksüt Gold Project
On January 24, 2013 the Company acquired the remaining 30% interest that it did not own in the
Öksüt Gold Project located in the Kayseri region of central Turkey. The Company paid $20.2
million, (including transaction costs of $0.2 million), and granted a 1% Net Smelter Return
royalty on the project, subject to a maximum of $20 million, as consideration for the 30%
interest acquired. The net assets acquired included $0.4 million of cash.
The acquisition was accounted for as an equity transaction as the Company controlled the entity
before the acquisition of the additional interest.
7. Restricted cash
Dividend trust accounts
2014
12,437
$
2013
10,731
$
Pursuant to an Ontario court order updated on June 5, 2013, a maximum of approximately
Cdn$11.3 million of Centerra dividends otherwise payable to Kyrgyzaltyn was to be held in trust
for the benefit of the court proceedings commenced by a Turkish company, Sistem Muhendislik
Insaat Sanayi ve Ticaret AS (“Sistem”).
On September 8, 2014, a decision of the Ontario Court of Appeal required Centerra to pay to
Kyrgyzaltyn all of the amounts held in trust for the Sistem proceedings, subject to the
satisfaction of certain conditions. These conditions were satisfied on September 23, 2014.
However prior to receiving instructions from Kyrgyzaltyn with respect to the transfer of the
funds, a subsequent order of the Ontario Superior Court of Justice on October 10, 2014 (the
“Stans Order” see note 25) was made to restrict Centerra from paying such monies and future
dividends to Kyrgyzaltyn.
As at December 31, 2014 the full amount required under the original court order of Cdn$11.3
million (equivalent of $9.7 million) together with interest earned of $0.1 million is held in trust.
In addition, dividends otherwise payable to Kyrgyzaltyn subsequent to receiving the Stans Order
in the amount of Cdn$2.9 million (equivalent of $2.6 million) are also held in trust as of
December 31, 2014.
The dividend payable and restricted cash held in trust for these court proceedings have been
classified as long-term since the timing of the resolution of the court proceedings is unknown.
114
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
8. Amounts receivable
Gold sales receivable from related party (note 26)
Gold sales receivable from third party
Other receivables
2014
62,143
-
4,071
66,214
$
$
The aging of the gross amounts receivable at each reporting date was as follows:
Less than 1 month
1 to 3 months
Over 3 months
2014
63,372
-
2,842
66,214
$
$
2013
69,382
4,777
4,548
78,707
2013
75,389
144
3,174
78,707
$
$
$
$
The Company has not recorded any allowance for credit losses for the periods presented above.
9. Inventories
Stockpiles of ore
Gold in-circuit
Heap leach in circuit
Gold doré
Supplies
Total Inventories (net of provisions)
Less: Long-term inventory (heap leach gold inventories)
Total Inventories-current portion
2014
200,751
24,725
3,393
5,512
234,381
174,018
408,399
(349)
408,050
$
$
2013
161,818
27,212
12,860
2,699
204,589
173,929
378,518
(5,229)
373,289
$
$
The amount of inventories recognized as an expense during the year ended December 31, 2014,
was $500.7 million (2013- $549.8 million) and is included in cost of sales. As at December 31,
2014, the carrying values of the inventories were below their net realizable value (2013- $3.2
million write down was charged to cost of sales).
The provision for mine supplies obsolescence was increased for the year ended December 31,
2014 by $1.3 million (December 31, 2013- $0.9 million). The increase in the provision was
charged to cost of sales.
The table below summarizes inventories adjusted for the provision for obsolescence:
115
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
Total inventories
Less : Provisions for supplies obsolescence
Total Inventories (net of provisions)
Less: Long-term inventory (heap leach stockpiles)
Total Inventories-current portion
10. Prepaid expenses
Revenue based taxes
Insurance
Rent
Deposits for consumable supplies
Other
Total
2014
413,537
(5,138)
408,399
(349)
408,050
2014
-
4,734
369
5,355
2,430
12,888
$
$
$
$
2013
382,404
(3,886)
378,518
(5,229)
373,289
2013
10,000
6,488
399
9,823
2,481
29,191
$
$
$
$
116
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
11. Property, plant and equipment
The following is a summary of the carrying value of property, plant and equipment:
Cost
January 1, 2013
Additions
Disposals
Reclassification
Balance December 31, 2013
Additions
Disposals
Reclassification
Balance December 31, 2014
Accumulated depreciation
January 1, 2013
Charge for the year
Disposals
Balance December 31, 2013
Charge for the year
Disposals
Balance December 31, 2014
Net book Value
Balance December 31, 2013
Balance December 31, 2014
Buildings,
Capitalized
Plant and
Mineral
Stripping
Mobile
Equipment
Properties
Costs
Equipment
Construction
In Progress
("CIP")
$
$
382,494 $
318
(21,473)
31,098
392,437 $
146
(3,070)
18,359
188,893 $
5,215
(545)
3,376
196,939 $
7,325
-
4,667
367,898 $
278,638
-
-
646,536 $
261,078
-
-
452,644 $
277
(68,554)
80,994
465,361 $
31
(53,371)
46,197
69,946 $
97,401
-
(115,468)
51,879 $
89,935
-
(69,223)
Total
1,461,875
381,849
(90,572)
-
1,753,152
358,515
(56,441)
-
$
407,872 $
208,931 $
907,614 $
458,218 $
72,591 $
2,055,226
$
$
249,414 $
17,277
(19,581)
247,110 $
17,665
(2,536)
132,565 $
15,236
(153)
147,648 $
9,172
-
219,154 $
330,993
-
550,147 $
245,639
-
234,819 $
102,173
(67,815)
269,177 $
99,269
(52,764)
$
262,239 $
156,820 $
795,786 $
315,682 $
- $
-
-
- $
-
-
- $
835,952
465,679
(87,549)
1,214,082
371,745
(55,300)
1,530,527
$
$
145,327 $
49,291 $
96,389 $
196,184 $
51,879 $
145,633 $
52,111 $
111,828 $
142,536 $
72,591 $
539,070
524,699
117
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
The following is an analysis of the depreciation, depletion and amortization charge recorded in
the Statements of Financial Position and Statements of Earnings (Loss) and Comprehensive
Income (Loss):
Amount recorded in cost of sales (note 18)
Amount recorded in corporate administration (note 21)
Amount recorded in mine standby costs
Total included in Statements of Cash flows
Recorded in inventory (note 30(a))
Capitalised in property, plant and equipment (note 30(b))
Total
$
$
2014
282,603
372
1,306
284,281
13,717
73,747
371,745
$
$
2013
309,037
352
-
309,389
78,503
77,787
465,679
12. Goodwill
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 was $18.7 million as at December 31, 2014 and $129.7 million as at December 31,
2013.
Impairment testing:
The net asset value (“NAV”) of the Kyrgyz CGU is determined based on a discounted cash flow
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 consider future resources, including any expansion projects
over the life-of-mine (“LOM”) in determining fair value, the Company has also included the fair
value of known resources in the recoverable value, based on an estimated amount per ounce of
resources that an arm’s length party would be willing to pay based on comparable market
transactions. 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 resulting
valuation model includes the cash flows which management expects to generate over the mine’s
life, using various business and economic assumptions.
The Company performed its annual test for goodwill impairment as at September 1, in
accordance with its policy described in note 3 and assessed for impairment indicators up to
December 31, 2014.
118
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
Annual impairment test – September 1, 2014
The discounted cash flow analysis conducted as of that date concluded that the fair value less
cost of disposal exceeded carrying amount of the Kyrgyz CGU as at September 1, 2014 and thus
no impairment charge was recognized.
Indicators of impairment (Post September 1, 2014)
The Company completed its regular update to its reserves and resources in early 2015 and the
result of this update indicated a significant reduction in reserves and resources. The reserve
decrease is a result of the negative production reconciliation in 2014 and the impact from the
construction of the buttress at Kumtor, development of a new resource model for the Kumtor
Central Pit and design changes to the Kumtor Central Pit resulting from the new resource model
and flattening of certain pit slopes. The significant decrease in reserves was the primary reason
for the need to revise the Kumtor life of mine plan. The Company determined that the impact of
this reserve reduction was considered an indicator of impairment.
Key assumptions used in the discounted cash flow model and for calculating the Kyrgyz CGU
recoverable amount used in the December 31, 2014 test and annual tests of September 1, 2014
and 2013 were as follows:
Gold price:
2013
2014
2015
2016
2017
2018
2019 and onwards
December 31,
2014
September 1,
2014
September 1,
2013
$
$
$
$
$
$
$
- $
- $
1,225 $
1,250 $
1,275 $
1,225 $
1,300 $
- $
1,250 $
1,254 $
1,307 $
1,242 $
1,162 $
1,308 $
1,320
1,330
1,349
1,378
1,350
1,350
1,350
Discount rate
Reserves - contained ounces
Resources -contained ounces
Life of mine
11.6%
6.1 million
4.6 million
2026
10.3%
7.9 million
5.6 million
2027
11.7%
9.1 million
5.3 million
2026
Gold prices
Management estimated gold prices based on the average of the most recent market
commodity price forecasts consensus from a number of recognized financial analysts.
119
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
Resources
For the impairment test, a fair value of $25 per ounce was included for contained ounces of
resources based on comparable historic market transactions.
Production
Management determined its planned production profile and total life of mine production based
on its development activity and its mine and processing plans for each period the impairment
test was performed.
Discount rate
A real after tax discount rate was based on the Company’s estimated weighted-average cost of
capital adjusted for the risks associated with the Kyrgyz CGU cash flow.
Life of mine
The life of mine represents the final year of processing of reserves as is contemplated in the
life of mine plan.
At December 31, 2014, the Company performed a re-assessment of the recoverable amount of its
Kyrgyz CGU, and production for the last four months of 2014 that incorporated the results of the
2014 year end reserve and resource update which reduced available reserves and resources by
23% and 18% respectively, as compared to the September 1, 2014 annual test. Assumptions in
the discounted cash flow model were updated as of December 31, 2014 resulting in a reduction
of the consensus gold prices and an increase in the risk-adjusted discount rate for the Kyrgyz
Republic, a reflection of increasing country risk and higher bond yield rates, as compared to the
September 1, 2014 annual test.
The recoverable amount of the Kumtor CGU using the discounted cash flow method was
determined to be $841.0 million, which was lower than the carrying value by $111.0 million.
The $111.0 million was recognized as an impairment charge in the Consolidated Statements of
Earnings (Loss) and Comprehensive Income (Loss). The fair value is categorized as a non-
recurring level 3 hierarchy in accordance with IFRS 13.
13. Other assets
Reclamation trust fund (note 17)
Other long term receivables
Other assets
Total
$
$
2014
15,951
1,607
6,165
23,723
$
$
2013
13,523
1,754
4,999
20,276
120
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
14. Accounts payable and accrued liabilities
Trade creditors and accruals
Liability for share-based compensation
Total
15. Short-term debt
2014
37,575
8,308
45,883
$
$
2013
30,541
1,568
32,109
$
$
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”), with option to extend. On December 19, 2014 the
Company extended the Facility term to February 17, 2016.
As at December 31, 2014, the Company had $76 million outstanding under the Facility for
repayment on February 11, 2015. The $76 million drawn amount was subsequently redrawn on
February 10, 2015 and is due to be repaid on August 11, 2015.
The amounts drawn on the Facility bear interest at the six-month LIBOR rate plus 2.9% (3.23%
at December 31, 2014 and 3.37% at December 31, 2013). Interest is payable at the end of the
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 when less than 50%
of the Facility amount is drawn, or 0.50% when more than 50% of the Facility amount is drawn.
The terms of the Facility requires the Company to pledge certain mobile equipment at Kumtor,
with a net book value of $162.3 million as security and maintain compliance with specified
covenants, including financial covenants. The Company was in compliance with the covenants at
December 31, 2014.
The amount of the short-term debt is net of deferred financing fees as shown below:
Revolver credit facility
Deferred financing fees (a)
Total
(a) Deferred financing fees were fully amortized to expense in 2014.
$
$
2014
76,000
-
76,000
$
$
2013
76,000
(418)
75,582
121
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
16. Taxes
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 year ended December 31, 2014, the 13% revenue-based tax expense recorded by
Kumtor was $90.3 million ($105.4 million in 2013), while the Issyk-Kul Oblast Development
Fund contribution of 1% of gross revenue totaled $6.9 million ($8.1 million in 2013).
As at December 31, 2014, $24.6 million of revenue-based tax is payable to the Kyrgyz
Government (December 31, 2013– $30.7 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. $20 million of
this interest-free advance was applied against revenue-based taxes otherwise payable during the
year ended December 31, 2013. The remaining balance was applied against revenue-based taxes
otherwise payable during 2014.
122
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
b. Income Tax Expense
Current tax
Deferred tax
Total Income Tax Expense
2014
2,876
(299)
2,577
$
$
2013
12,775
378
13,153
$
$
No entities, other than those in the Mongolian segment, recorded income tax expense during
the years ended December 31, 2014 and December 31, 2013.
The provision for income tax differs from the amount that would arise using the weighted
average tax rate applicable to profits of the consolidated entities as follows:
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 (a)
Change in unrecognized deductible temporary differences
Impact of foreign currency movements
Non-deductible employee costs
Other non-deductible expenses or non-taxable items
2014
2013
$
(41,532)
$
170,829
(11,006)
45,270
(3,229)
13,088
1,837
742
1,145
2,577
$
(50,769)
10,533
2,736
1,057
4,326
13,153
$
(a) Included in the 2014 figure is the tax impact related to the $111.0 million Kumtor impairment
charge, for which there is no income tax impact.
123
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
c. Deferred Income Tax
The significant components of deferred income tax assets and liabilities are as follows:
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
Total deferred tax liabilities
Net deferred tax assets/(liabilities)
2014
2013
$
$
$
$
$
20
7,802
7,822
(3,062)
(930)
(6,096)
(10,088)
(2,266)
$
$
$
$
$
651
6,336
6,987
(2,251)
(930)
(5,963)
(9,144)
(2,157)
The Company has the following positions in respect of which no deferred income tax asset
has been recognized:
Tax losses
income
Tax losses
capital
Exploration
Non
Deductibles
Reserves
Other
Total
December 31, 2014
Expiring within one to five years
Expiring after five years
No expiry date
December 31, 2013
Expiring within one to five years
Expiring after five years
No expiry date
$
$
$
$
29,603 $
221,654
323
251,580 $
- $
-
30,355
30,355 $
- $
-
34,987
34,987 $
27,213 $
210,905
323
238,441 $
- $
-
34,939
34,939 $
- $
-
33,103
33,103 $
- $
-
-
- $
- $
-
-
- $
- $
-
6,846
6,846 $
29,603
221,654
72,511
323,768
- $
-
5,133
5,133 $
27,213
210,905
73,498
311,616
At December 31, 2014, no deferred tax liabilities have been recognized in respect of the
aggregate amount of $747.0 million (2013 - $779.0 million) of taxable temporary differences
associated with investments in subsidiaries, 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.
124
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
d. Taxes payable
Other taxes payable
Income taxes payable
Total taxes payable
17. Provision
Asset Retirement Obligations
Kumtor gold mine
Gatsuurt project
Boroo gold mine
Total asset retirement obligations
Less: current portion
2014
1,246
269
1,515
$
$
2013
1,106
1,002
2,108
2014
41,211
1,802
24,903
67,916
(2,598)
65,318
$
$
2013
37,033
-
22,987
60,020
(1,194)
58,826
$
$
$
$
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, 2014 to be $87.5 million (December 31, 2013 - $79.6 million). The following is a
summary of the key assumptions on which the carrying amount of the asset retirement
obligations is based:
Expected timing of payment of the cash flows is based on the life of mine plans.
i.
ii. Ongoing reclamation spending continues at Boroo, while at Kumtor and Gatsuurt
reclamation is expected to start in 2026 and 2025 respectively.
iii. Risk-free discount rates of 2.23% at Kumtor, 2.26% at Boroo and 2.23% at Gatsuurt as at
December 31, 2014 (December 31, 2013 - 3.0% at Kumtor and 2.2% at Boroo).
125
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
The following is a reconciliation of the total discounted liability for asset retirement obligations:
Balance at January 1
Liabilities paid
Revisions in estimated timing and amount of cash flows
Accretion expense
Total asset retirement obligations
Less: current portion
Balance at December 31
$
$
2014
60,020
(1,086)
7,325
1,657
67,916
(2,598)
65,318
$
$
2013
54,554
(675)
5,215
926
60,020
(1,194)
58,826
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 using the units of
production method, annually in arrears, over the life of the mine. On December 31, 2014 this
fund had a balance of $16.0 million (December 31, 2013 - $13.5 million).
The Company completed its regularly scheduled update to its closure costs estimates at Boroo
and a new closure study at Gatsuurt in 2014, reflecting development work already completed at
the Gatsuurt site. The latest update at Boroo and new estimates at Gatsuurt resulted in an
increase in the reclamation provision of $2.5 million at Boroo and an increase of $1.8 million at
Gatsuurt. Similarly, a completed revision to the closure costs at Kumtor resulted in an increase of
$3.0 million at Kumtor. The last regularly scheduled closure cost update at Kumtor was
completed in 2013.
126
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
18. Cost of sales
Operating costs:
Salaries and benefits
Consumables
Third party services
Other operating costs
Royalties, levies and production taxes
Inventory impairment (note 9)
Changes in inventories
Depreciation, depletion and amortization (note 11)
19. Other Operating expenses
Social development contributions
Öksüt Project pre-development expenses
Sundry income
Gatsuurt Project care and maintenance
Kumtor underground Project closure
2014
2013
75,126
133,541
4,734
16,969
2,193
-
(12,589)
219,974
282,603
502,577
$
$
76,356
130,168
5,515
18,423
9,754
3,198
6,785
250,199
309,037
559,236
2014
5,385 $
6,022
(1,912)
359
-
9,854 $
2013
6,378
-
-
352
1,529
8,259
$
$
$
$
127
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
20. Exploration and business development costs
2014
2013
Exploration:
Mine site exploration
Advanced projects
Generative exploration and other projects
Exploration administration
Total exploration
Business development
21. Corporate Administration
Administration and office costs
Professional fees
Salaries and benefits
Share-based compensation
Depreciation and amortization (note 11)
22. Other expenses, net
Interest income
Loss on disposal of assets
Bank charges
Miscellaneous income
Foreign exchange loss
23. Finance costs
$
$
$
$
$
$
-
5,489
7,533
1,734
14,756
968
15,724
2014
5,249
5,168
14,675
9,295
372
34,759
2014
(1,030)
1,158
55
(1,760)
2,761
1,184
$
$
$
$
$
$
Revolving credit facility:
Amortization of deferred financing costs
Interest expense
Commitment fees and other revolving credit facility costs
Accretion expense (note 17)
2014
418 $
2,499
388
1,657
4,962 $
$
$
6,115
11,092
10,344
1,998
29,549
23
29,572
2013
6,426
7,322
13,985
2,557
352
30,642
2013
(559)
2,664
61
(1,251)
2,653
3,568
2013
1,091
2,593
379
926
4,989
128
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
24. 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
For the year ended December 31, 2014 all potentially dilutive securities were excluded from the
calculation of diluted earnings (loss) per share as they would have been antidilutive as a result of
the net loss recorded for the period.
For the year ended December 31, 2013 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.
Basic and diluted earnings (loss) per share computation:
Net earnings (loss)
Adjustment to earnings (loss):
2014
2013
$
(44,109)
$
157,676
Impact of performance share units accounted for as equity
settled
Net earnings (loss) for the purposes of diluted earnings (loss)
per share
-
(5,172)
$
(44,109)
$
152,504
(Thousands of common shares)
Weighted average number of common shares outstanding
Effect of potentially dilutive securities:
Stock options
Restricted share units
Diluted weighted average number of common shares
outstanding
236,396
236,382
-
-
23
258
236,396
236,663
Basic earnings (loss) per common share
Diluted earnings (loss) per common share
$
$
(0.19)
(0.19)
$
$
0.67
0.64
Potentially dilutive securities, including stock options and restricted share units, summarized
below were excluded in the calculation of the diluted earnings (loss) per share:
129
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
(Thousands of units)
Stock options
Restricted share units
c. Dividends
2014
3,720
239
3,959
2013
1,953
-
1,953
Dividends are declared in Canadian dollars and paid in Canadian dollars. At December 31, 2014,
accrued dividends, in United States Dollars, payable to Kyrgyzaltyn were $12.3 million (2013 -
$10.6 million) (see note 26). The details of dividends distribution in 2014 and 2013 are as
follows:
2014
2013
Dividends declared (United States Dollars)
$
34,095
Dividends declared (Canadian Dollar per share amount) $
0.16
$
$
36,369
0.16
d. Share-Based Compensation
The impact of Share-Based Compensation as of and for the years ended December 31, 2014 and
2013 is summarized as follows:
(Millions of U.S. dollars
except as indicated)
(i) Stock options
(ii) PSUs
(iii) Deferred share units
(iv) Restricted share units
Number
outstanding
Dec 31, 2014
3,868,334 $
1,813,811
187,807
239,336
$
Expense/(Income)
Liability
2014
2013
Dec 31, 2014 Dec 31, 2013
2.5 $
7.2
0.4
1.2
11.3 $
2.8 $
-
(0.7)
0.3
2.4 $
- $
7.1
0.9
1.1
9.1 $
-
-
0.6
1.0
1.6
130
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
(i) Stock Options
Centerra has established a stock option plan under which options to purchase common shares
may be granted to officers 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 five trading days prior to the date of the grant. Options granted vest over 3
years and expire after eight years from the date granted.
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 cannot exceed
5% of the outstanding common shares.
Centerra’s stock options transactions during the year were as follows:
2014
2013
Weighted
Average
Number of Exercise
Options
Number of
Price-Cdn$ Options
Balance, January 1
Granted
Forfeited
Balance, December 31
2,511,500 $
1,474,762
(117,928)
3,868,334 $
10.04
5.07
(7.69)
8.21
1,674,194
986,811
(149,505)
2,511,500
Weighted
Average
Exercise
Price-Cdn$
$
$
11.88
6.70
(8.68)
10.04
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 2014:
Grant date
Number of
Grant Expected Share price Dividend Risk free Fair value
Options Price-Cdn$
life Volatility (i)
Yield
rate Price-Cdn$
March 3, 2014
March 17, 2014
May 16, 2014
1,391,907
63,086
19,769
1,474,762
5.04
5.62
5.21
5.07
3 years
3 years
3 years
72.89 % 2.88 % 1.25 %
72.93 % 2.88 % 1.29 %
72.61 % 2.37 % 1.23 %
3 years
72.89 % 2.87 % 1.25 %
2.21
2.14
2.09
2.21
(i) Expected volatility is measured as the annualized daily standard deviation of share price returns, based
on the historical movement in the price of the Company’s shares.
131
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
The terms of the options outstanding at December 31, 2014 are as follows:
Award
Date
Award
Price
Expiry
Number of
Options
date Outstanding
Number of
Options
Vested
19-Mar-08
18-Feb-09
20-Aug-10
8-Mar-11
15-Sep-11
7-Mar-12
15-Aug-12
15-Aug-12
20-Nov-12
5-Mar-13
21-May-13
14-Aug-13
12-Nov-13
3-Mar-14
18-Mar-14
16-May-14
March 18, 2016
$14.29 (Cdn)
February 17, 2017
$4.81 (Cdn)
August 19, 2018
$14.37 (Cdn)
$18.31 (Cdn)
March 7, 2019
$22.28 (Cdn) September 14, 2019
$19.48 (Cdn)
March 6, 2020
August 14, 2020
$7.29 (Cdn)
$7.29 (Cdn)
August 14, 2020
$9.31 (Cdn) November 19, 2020
March 4, 2021
$6.78 (Cdn)
$3.96 (Cdn)
May 20, 2021
$4.49 (Cdn)
August 13, 2021
$3.82 (Cdn) November 11, 2021
March 2, 2022
$5.04 (Cdn)
March 17, 2022
$5.62 (Cdn)
May 15, 2022
$5.21 (Cdn)
38,030
265,560
100,000
295,600
2,029
291,661
83,403
435,000
50,000
852,078
5,377
5,740
7,751
1,353,250
63,086
19,769
3,868,334
38,030
265,560
100,000
295,600
2,029
194,438
55,602
435,000
50,000
284,026
1,792
5,740
2,584
-
-
-
1,730,401
(ii) Performance share unit plan
Centerra has established a performance share unit plan for employees and officers 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 open market.
Performance share units granted 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 multiplying the
number of units granted to the participant by the adjustment factor, which ranges from 0 to
2.0. 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.
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.
132
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
During 2014, the Company implemented changes to the annual performance share unit plan for
eligible employees at its mine sites. The new plan, now includes the same terms as the corporate
performance share units.
In transitioning to the new plan, a special transition series of performance share units were
issued to eligible employees at the Company’s mine sites on January 2, 2014, with 50% vesting
at the end of 2014 and 50% at the end of 2015.
Centerra’s performance share unit plan transactions during the years ended December 31, 2014
and 2013 were as follows:
Balance, January 1
Granted-regular
Granted-special series
Exercised
Cancelled
Balance, December 31
2014
2013
609,312
1,350,579
76,633
(181,198)
(41,515)
1,813,811
603,126
405,505
-
(345,682)
(53,637)
609,312
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
S&P/TSX Global Gold Index
Expected life (years)
Expected volatility- Centerra’s share price
Expected volatility- S&P/TSX Global Gold Index
Risk-free rate of return
Forfeiture rate
2014
$
5.89
$ 165.72
1.09
2013
4.21
$
$ 171.48
1.40
79.3 %
40.7 %
1.5 %
4.9 %
54.31 %
30.55 %
1.12 %
3.84 %
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 $5.37 and weighted adjustment factor of 1.131 (December 31, 2013-
share price of $3.83 and adjustment factor of Nil).
133
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
The vested number of units outstanding as at December 31, 2014 are 386,466 (December 31,
2013 – 165,644). The fair value of the vested units at December 31, 2014 is $2.0 million
(December 31, 2013– Nil).
At December 31, 2014, the total number of units outstanding (vested and unvested) was
1,813,811, with a related liability of $ 7.1 million (December 31, 2013 – 609,312, with a related
liability of Nil).
(iii) 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’s 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.
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 by the unit holder or by the Company.
Centerra’s deferred share unit plan transactions during the year were as follows:
Balance, January 1
Granted
Redeemed
Balance, December 31
2014
150,207
43,482
(5,882)
187,807
2013
209,690
53,549
(113,032)
150,207
At December 31, 2014, the number of units outstanding was 187,807 with a related liability of
$0.9 million (December 31, 2013 – 150,207 with a related liability of $0.6 million). In 2014, a
compensation cost of $0.4 million was recorded for this plan (recovery of $0.7 million in 2013).
(iv) 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.
The restricted share units vest immediately upon grant and are redeemed on a date chosen by the
134
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
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
Redeemed
Balance, December 31
2014
2013
252,538
166,226
(179,428)
239,336
112,397
203,426
(63,285)
252,538
At December 31, 2014, the number of units outstanding was 239,336 with a related liability of
$1.1 million (December 31, 2013-252,538 with a related liability of $1.0 million). Compensation
expense for the plan was $1.2 million in 2014 ($0.3 million for 2013).
135
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
25. Commitments and Contingencies
Commitments
As at December 31, 2014, the Company had entered into contracts to purchase capital equipment
and operational supplies totalling $45.2 million ($44.9 million at Kumtor and $0.3 million at
Boroo) which 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 offices and facilities around the world. Payments under these leases represent contractual
obligations as scheduled in each agreement. The significant operating lease payments, including
operating costs, are for its corporate offices in Toronto, which amounted to $0.9 million in 2014
(2013 - $0.9 million). The future aggregate minimum lease payments for the non-cancellable
operating lease of the Toronto Corporate office are as follows:
(Thousands of Cdn$)
2014
2015
2016
2017
2018
2019 to 2021
Contingencies
2014
-
478
478
497
501
1,611
3,565
$
$
2013
438
478
478
-
-
-
1,394
$
$
Various legal and tax matters are outstanding from time to time due to the nature of the
Company’s operations. While the final outcome with respect to actions outstanding or pending at
December 31, 2014 cannot be predicted with certainty, it is management’s opinion that, except
as noted below, their resolution will not have a material impact on the Company’s financial
statements.
Kyrgyz Republic
(a) Negotiations between Kyrgyz Republic and Centerra
Following discussions with representatives of the Kyrgyz Government in the second half of
2013, Centerra announced on December 24, 2013 that it had entered into a non-binding heads
of agreement with the Government of the Kyrgyz Republic in connection with a potential
restructuring transaction under which Kyrgyzaltyn would exchange its 32.7% equity interest
in Centerra for an interest of equivalent value in a joint venture company that would own the
136
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
Kumtor Project. The agreement was revised and re-executed on January 18, 2014 (the
“HOA”). On February 6, 2014, after its review of the HOA, the Kyrgyz Parliament
adopted a resolution related to the restructuring described in the HOA.
Centerra is continuing its discussions with the Government regarding a potential
restructuring transaction to resolve all outstanding concerns relating to the Kumtor
Project. Any agreement
to all of Centerra’s
shareholders. Any definitive agreement for a potential restructuring remains subject to
required approvals in the Kyrgyz Republic, including the Government and Parliament of the
Kyrgyz Republic, Centerra Special Committee and Board approval, as well as compliance
with all applicable legal and regulatory requirements and approvals, including an
independent formal valuation and shareholder approval.
to resolve matters must be fair
Centerra notes that if the Kyrgyz Republic does not succeed in overturning the Stans
Arbitration Award (as defined below) in the Russian courts and Kyrgyzaltyn is unsuccessful
in the Sistem Appeal (as defined below), Centerra expects that Stans would likely succeed in
enforcing the Stans Arbitration Award in Ontario and in seizing a sufficient number of the
Centerra shares held by Kyrgyzaltyn to satisfy the Stans Arbitration Award. If Stans
ultimately seizes such shares, Kyrgyzaltyn would no longer hold a sufficient number of
Centerra shares to contribute to the HOA restructuring transaction such that it could receive
50% of a new Kumtor joint venture.
(b) Kyrgyz Permitting and Regulatory Matters
In the normal course of operations at Kumtor, KGC prepares annual mine plans and other
documents for approval for the Kumtor project which are considered and approved by,
among others, the State Agency for Environmental and Forestry under the Government of the
Kyrgyz Republic (“SAEPF”) and the State Agency for Geology and Mineral Resources
(“SAGMR”).
In the fourth quarter of 2014, Kumtor submitted to SAEPF, SAGMR and other relevant
agencies various documents for approval, including its 2015 annual mine plan and its
ecological passport, which provides for, among other things, allowable environmental
emissions and discharges. Similar to 2014, Kumtor received correspondence from such
agencies declining to review such documents and expressing concern regarding the mining of
ice at Kumtor.
The Parliament of the Kyrgyz Republic passed a law prohibiting activities which affect
glaciers in the Kyrgyz Republic. This law passed by Parliament on April 23, 2014, but was
not approved by the President of the Kyrgyz Republic who returned it to Parliament for
revision. Centerra understands that this matter is still being reviewed by Kyrgyz Parliament.
In addition, Kyrgyz regulators have also referred to older legislation, the 2005 Law of Water
(the “Water Law”), which purports to prohibit the mining of ice by Kumtor. Centerra
disputes the reasons stated by the regulatory authorities and have urged the relevant agencies
137
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
and the Kyrgyz Government to provide the approvals and permits which are necessary for the
operation of the Kumtor Project, including the 2015 annual mine plan and ecological
passport. Centerra believes that the stabilization and non-discrimination provisions
contained in the Kumtor Agreements (the “Kumtor Project Agreements”) and the laws of the
Kyrgyz Republic which implemented the Kumtor Project Agreements support the view that
the Water Law and any new law which could purport to prohibit the mining of ice would not
apply to Kumtor operations. Centerra believes that any disagreement in relation to the
application of the Water Law to Kumtor would be subject to the international arbitration
provisions of the Kumtor Project Agreements. Centerra has also explained that (i) the
Kumtor Project Agreements require the relevant Government authorities to be reasonable in
their consideration of such approvals; (ii) the mining of ice has been a constant feature of the
Kumtor Project since its inception; and (iii) that the continued mining of ice is critical to
ensuring efficient and stable mining operations. In addition, Centerra also notes that with
respect to permits and approvals, Kumtor is entitled to maintain, have renewed and receive
such licenses, consents, permissions and approvals as are from time to time necessary or
convenient for the operation of the Kumtor Project.
While Centerra and KGC expect to continue discussions with the Government and the
relevant Kyrgyz authorities in relation to the approval of the 2015 annual mine plan and other
related approvals and permits, there can be no assurance that any such approvals and permits
will be received or that a suspension of mining operations will not occur. The inability to
successfully resolve matters, including obtaining all necessary approvals, and/or further
actions of the Kyrgyz Republic Government and/or Parliament, could have a material impact
on Centerra’s future cash flows, earnings, results of operations and financial conditions.
(c) Environmental Claims
Kumtor has received very substantial claims from various Kyrgyz Republic state agencies in
relation to alleged environmental offences and other matters. In aggregate, these claims are
approximately $470.0 million at the then current exchange rates. Such claims continue to be
before the Kyrgyz courts.
Kumtor believes the claims are exaggerated and without merit. The Kumtor Project has been
the subject of systematic audits and investigations over the years by Kyrgyz and international
experts, including by an independent internationally recognized expert who carried out a due
diligence review of Kumtor’s performance on environmental matters at the request of
Centerra’s Board of Directors.
(d) Land Use Claim
On November 11, 2013, the Company received a claim from the Kyrgyz Republic General
Prosecutor’s Office requesting the Inter-District Court of the Issyk-Kul Province to invalidate
the Company’s land use certificate and seize certain lands within Kumtor’s concession area.
Kumtor challenges this claim and the matter is currently before the Kyrgyz courts.
138
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
There are several important outstanding issues affecting the Kumtor Project, which require
consultation and co-operation between the Company and Kyrgyz regulatory authorities. The
Company has benefited from a close and constructive dialogue with Kyrgyz authorities during
project operations and remains committed to working with them to resolve these issues in
accordance with the Kumtor Project Agreements, which provide for all disputes to be resolved
by international arbitration, if necessary. However, there are no assurances that the Company
will be able to successfully resolve any or all of the outstanding matters affecting the Kumtor
Project. There are also no assurances that continued discussions between the Kyrgyz
Government and Centerra will result in a mutually acceptable solution regarding the Kumtor
Project, that any agreed upon proposal for restructuring would receive the necessary legal and
regulatory approvals under Kyrgyz law and/or Canadian law and that the Kyrgyz Republic
Government and/or Parliament will not take actions that are inconsistent with the Government’s
obligations under the Kumtor Project Agreements, including adopting a law “denouncing” or
purporting to cancel or invalidate the Kumtor Project Agreements or laws enacted in relation
thereto. The inability to successfully resolve all such matters would have a material impact on
the Company’s future cash flows, earnings, results of operations and financial condition.
Mongolia
Gatsuurt
The Company announced on January 23, 2015 that the Gatsuurt project, has been designated as a
mineral deposit of strategic importance by the Mongolian Parliament. This designation allows
the Gatsuurt project to move forward within the application of the Water and Forest Law and
also allows Mongolia to acquire up to a 34% interest in the project. The terms of such
participation are subject to continued discussions between the Company and the Mongolian
Government. Further development of the Gatsuurt project will be subject to, among other things,
receiving Parliamentary approval of the Mongolia’s state ownership as well as the all required
approvals and regulatory commissioning from the Mongolian Government. On February 17,
2015, the Government’s proposal on state ownership of 20% was considered by Parliament but
voted down and returned to the Government for review.
Corporate
Enforcement Notice by Stans
On October 10, 2014, Centerra was served with a temporary order (the “Stans Order”) from the
Ontario Superior Court of Justice in favour of Stans Energy Corp. (“Stans”) which prohibits
Kyrgyzaltyn from, among other things: (i) selling, disposing or exchanging 47,000,000 shares
(the “Frozen Shares”) of the 77,401,766 shares it holds in the capital of Centerra; (ii) obtaining
share certificates in respect of such shares; or (iii) exercising its rights as a registered shareholder
of Centerra in a manner that is inconsistent with or would undermine the terms of the Stans
Order. The order also prohibits Centerra from, among other things, registering the transfer of the
Frozen Shares, and requires Centerra to hold in trust for the proceeding under the Stans
139
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
Application (as defined below) any amounts payable to Kyrgyzaltyn in respect of dividends or
distributions that Centerra may declare or pay in the future.
Centerra was also served by Stans with a notice of application to the Ontario Superior Court of
Justice (the “Stans Application”) which seeks to enforce a June 30, 2014 arbitral award (the
“Stans Arbitration Award”) obtained by Stans against the Kyrgyz Republic from the arbitration
tribunal of the Moscow Chamber of Commerce in the amount of approximately $118 million.
The Stans Application seeks, among other things, an order declaring that the Kyrgyz Republic
has a beneficial interest in all of the shares in Centerra held by Kyrgyzaltyn and that monies,
interest, dividends and other rights of Kyrgyzaltyn in the stock of Centerra may be seized in
order to satisfy the Stans Arbitration Award. The Kyrgyz Republic is appealing the Stans
Arbitration Award to Russian courts in Moscow. The Kyrgyz Republic is arguing that the
Moscow Chamber of Commerce lacked the jurisdiction to hear the matter and accordingly, the
arbitration award must be revoked.
As noted above, in a separate proceeding Kyrgyzaltyn has appealed to the Ontario Court of
Appeal the decision of the Ontario Superior Court of Justice in the Sistem matter, which found
that the Kyrgyz Republic had a beneficial interest in the Centerra shares held by Kyrgyzaltyn.
140
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
26. 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 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:
Included in sales:
Gross gold and silver sales to Kyrgyzaltyn
Deduct: refinery and financing charges
Net sales revenue received from Kyrgyzaltyn
Included in expenses:
Management fees to Kyrgyzaltyn
Contracting services
Expenses paid to Kyrgyzaltyn
Dividend:
Dividends declared to Kyrgyzaltyn
Withholding taxes
Net dividends declared to Kyrgyzaltyn
Realized exchange difference
Net dividends transferred to restricted cash
Net dividends paid to Kyrgyzaltyn
2014
2013
$
$
$
$
$
$
697,903
(3,313)
694,590
561
1,628
2,189
2014
11,164
(558)
10,606
(9)
(2,596)
8,001
$
$
$
$
$
$
814,416
(3,472)
810,944
602
1,762
2,364
2013
11,915
(599)
11,316
-
(5,284)
6,032
141
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
Related party balances
The assets and liabilities of the Company include the following amounts receivable from and
payable to Kyrgyzaltyn:
Amounts receivable
Dividend payable (net of withholding taxes)
Net unrealized foreign exchange gain
Dividend payable (net of withholding taxes)(a)
Amount payable
Total related party liabilities
2014
2013
62,143
13,828
(1,574)
12,254
616
12,870
$
$
$
69,382
11,233
(597)
10,636
157
10,793
$
$
$
(a) Equivalent of Cdn $14.2 million as at December 31, 2014 ( 2013 - Cdn $11.3 million).
Gold produced by the Kumtor mine is purchased at the mine site by Kyrgyzaltyn for processing
at its refinery 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. Subsequent to December 31, 2014, the balance receivable from
Kyrgyzaltyn was paid in full.
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,
benefits and share-based payments).
Key management personnel are defined as the executive officers of the Company including the
President and Chief Executive Officer, Vice President and Chief Financial Officer, Vice
President and Chief Operating Officer, Vice President Global Exploration, General Counsel and
Corporate Secretary, Vice President Business Development and Vice President Human
Resources.
During 2014 and 2013, remuneration to directors and key management personnel were as
follows:
142
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
Compensation of Directors
Fees earned and other compensation
Share-based compensation expense (recovery)
Total expensed (recovered)
2014
937
863
1,800
$
$
2013
890
(1,560)
(670)
$
$
Fees earned and other compensation
These amounts represent fees earned by the non-executive chairman and the non-executive
directors during the financial year.
Share-based compensation
A portion of the directors’ compensation is in the form of participation in the Company’s share-
based payment plans (Deferred Share Unit plan and Restricted Share Unit plan) according to the
election of the directors.
Compensation of Key Management Personnel
Compensation of key management personnel comprised:
Salaries and benefits
Share-based compensation expense
Total expensed
2014
6,935
5,335
12,270
$
$
$
$
2013
5,518
1,998
7,516
Salaries and benefits
These amounts represent salary, supplementary executive retirement plan contributions, and
benefits earned during the year, plus cash bonuses awarded for the year.
Share-based compensation
A portion of the senior management’s compensation is in the form of participation in the
Company’s share-based payment plans (Stock Option plan and Performance Share Unit plan).
27. Capital Management
The Company’s primary objective with respect to its capital management is to ensure that it has
sufficient cash resources to maintain its ongoing operations, continue the development and
exploration of its mineral properties, to provide returns for shareholders and benefits for other
stakeholders and to pursue and support growth opportunities. The overall objectives for
managing capital remained unchanged in 2014 from the prior comparative period.
The Company manages its capital structure and makes adjustments in light of changes in its
economic and operating environment and the risk characteristics of the Company’s assets. For
143
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
effective capital management, the Company implemented planning, budgeting and forecasting
processes to help determine the funds required to ensure the Company has the appropriate
liquidity to meet its operating and growth objectives. The Company ensures that there is
sufficient credit facility to meet its short-term business operating and financing requirements,
taking into account its anticipated cash flows from operations and its holdings of cash and cash
equivalents and short term investments.
At December 31, 2014, the Company expects its capital resources and projected future cash
flows from operations to support its normal operating requirements on an ongoing basis, and
planned development and exploration of its mineral properties and other expansionary plans. To
secure additional capital to pursue these plans, the Company may attempt to raise additional
funds through borrowing and/or the issuance of equity or debt.
The Company’s capital structure consists of short-term debt (net of cash and cash equivalents
and short-term investments) and shareholders’ equity, comprising issued common shares,
contributed surplus and retained earnings as shown below:
Shareholders' equity
Short-term debt
Less:
Cash and cash equivalent
Short-term investments
Total invested capital
28. Financial Instruments
2014
2013
$
$
1,398,643
76,000
1,474,643
(300,514)
(261,503)
912,626
$
$
1,474,310
76,000
1,550,310
(343,108)
(158,358)
1,048,844
The Company has various financial instruments comprised of cash and cash equivalents, short-
term investments, restricted cash, amounts receivables, a reclamation trust fund, short-term debt,
dividends payable, revenue-based taxes payable, accounts payable and accrued liabilities.
The fair value of a financial instrument is the amount at which the financial instrument could be
exchanged in an arm’s-length transaction between knowledgeable and willing parties under no
compulsion to act. Fair values of identical instruments traded in active markets are determined
by reference to the last quoted prices, in the most advantageous active market for that instrument.
In the absence of an active market, the Company determines fair values based on quoted prices
for instruments with similar characteristics and risk profiles. Fair values of financial instruments
determined using valuation models require the use of inputs. In determining those inputs, the
Company looks primarily to external, readily observable market inputs, when available, include
factors such as interest rate yield curves, currency rates, total gold index returns, share price and
historical volatilities, as applicable.
144
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
Cash and cash equivalents consist of cash on hand, with financial 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.
The fair value of amounts receivable and accounts payable approximates the carrying value due
to the short-term nature of the receivables and payables.
The Company has a credit facility available with EBRD whereby borrowings bear interest at a
fixed premium over the variable London Interbank Offered Rate (“LIBOR”). The fair value of
borrowings under this facility approximate their carrying amount given the floating component
of the interest rate.
Classification of the financial assets and liabilities in the statement of financial position were as
follows:
145
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
December 31, 2014
Financial Assets
Cash and cash equivalents
Short-term investments
Restricted cash
Amounts receivable
Reclamation trust fund
Long-term receivables
Financial Liabilities
Trade creditors and accruals
Short-term debt
Dividend payable
Revenue-based taxes payable
December 31, 2013
Financial Assets
Cash and cash equivalents
Short-term investments
Restricted cash
Amounts receivable
Reclamation trust fund
Long-term receivables
Financial Liabilities
Trade creditors and accruals
Borrowings
Dividend payable
Revenue-based taxes payable
Loans and
receivables
Other financial at fair value
liabilities
through earnings
Assets/liabilities
$
$
$
$
$
$
$
$
- $
-
-
66,214
-
1,607
67,821 $
- $
-
-
-
-
-
- $
300,514
261,503
12,437
-
15,951
-
590,405
- $
-
-
-
- $
37,575 $
76,000
12,254
24,605
150,434 $
-
-
-
-
-
Loans and Other financial at fair value
receivables liabilities
through earnings
Assets/liabilities
- $
-
-
78,707
-
1,754
80,461 $
- $
-
-
-
-
-
- $
343,108
158,358
10,731
-
13,523
-
525,720
- $
-
-
-
- $
30,541 $
76,000
10,636
30,742
147,919 $
-
-
-
-
-
146
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
All financial instruments measured at fair value are categorized into one of three hierarchy levels
for which the financial instruments must be grouped based on whether the inputs to those
valuation techniques are observable or unobservable. Observable inputs reflect market data
obtained from independent sources, while unobservable inputs reflect 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, 2014, and
December 31, 2013 for assets and liabilities measured at fair value on a recurring basis:
Financial Assets
Cash and cash equivalents
Short-term investments
Restricted cash
Reclamation trust fund
December 31, 2014
December 31, 2013
Level 1
Level 2
Level 1
Level 2
$
$
300,514 $
261,503
12,437
15,951
590,405 $
- $
-
-
-
- $
343,108 $
158,358
10,731
13,523
525,720 $
-
-
-
-
-
147
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
29. Financial Risk Exposure and Risk Management
The Company is exposed in varying degrees to certain financial risks by virtue of its activities.
The overall financial risk management program focuses on preservation of capital, and
protecting current and future Company assets and cash flows by reducing exposure to risks posed
by the uncertainties and volatilities of financial markets.
The Board of Directors has a responsibility to ensure that an adequate financial 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 identifies and evaluates financial risks, establishes controls and procedures
to ensure financial 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
financial risk management policy, approves financial 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 financial 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 financial
instruments and transactions are denominated in currencies other than the U.S. Dollar. The
results of the Company’s operations are subject to currency translation risk. The operating
results and financial position of the Company are reported in U.S. Dollars in the Company’s
consolidated financial statements.
The fluctuation of the U.S. dollar in relation to other currencies will consequently have an
impact upon the profitability of the Company and may also affect the value of the Company’s
assets.
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, 2014, total Canadian dollars and Euro purchased
were $160.3 million and Euro 23.5 million (2013 - Canadian dollars and Euro purchased were
$71.0 million and Euro 31.5 million), including executed forward contracts of Canadian dollar
$27.5 million and Euro 1.0 million (2013 - executed forward contracts of Canadian dollar $0.5
million and Euro 4.0 million). There were no outstanding Canadian dollars forward contracts
and no outstanding Euro contracts outstanding at December 31, 2014 and 2013.
The exposure of the Company’s financial assets and liabilities to currency risk is as follows:
148
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
December 31, 2014
Financial Assets
Cash and cash equivalents
Restricted cash
Amounts receivable
Financial Liabilities
Accounts payable and
accrued liabilities
Taxes payable
Dividend payable
December 31, 2013
$
$
$
Financial Assets
Cash and cash equivalents
Restricted cash
Amounts receivable
Financial Liabilities
Accounts payable and
accrued liabilities
Taxes payable
Dividend payable
$
$
$
Kyrgyz Mongolian Canadian Russian European Turkish Australian
Rubles
Dollar
Tugrik
Dollar
Euro
Som
Lira
239 $
-
199
438 $
4,604 $
-
1,500
6,104 $
72,817 $
12,437
423
85,677 $
97 $
-
28
125 $
1,408 $
-
23
1,431 $
612 $
-
2,272
2,884 $
-
-
-
-
10,055 $
955
-
$
11,010 $
3,162 $
1,196
-
4,358 $
14,486 $
-
12,254
26,740 $
130 $
-
-
130 $
319 $
-
-
319 $
535 $
204
-
739 $
100
-
-
100
Kyrgyz Mongolian Canadian Russian European Turkish Australian
Rubles
Dollar
Tugrik
Dollar
Euro
Som
Lira
291 $
-
275
566 $
333 $
2
2,876
3,211 $
11,752 $
10,729
333
22,814 $
280 $
-
87
367 $
1,655 $
-
-
1,655 $
295 $
-
2,272
2,567 $
9,778 $
955
-
$
10,733 $
1,813 $
1,190
-
3,003 $
9,191 $
-
10,636
19,827 $
160 $
-
-
160 $
615 $
-
-
615 $
231 $
77
-
308 $
-
-
-
-
52
-
-
52
149
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
During the year ended December 31, 2014, the Company recognized a loss of $ 2.8 million on
foreign exchange (2013 - loss of $ 2.7 million).
Based on the above net exposures at December 31, 2014, a 10% depreciation or appreciation of
the above currencies against the US dollar, with all other variables held constant would have led
to additional income or loss before tax of $5.3 million (2013 - $3.4 million) as a result of a
change in value of the financial 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
fluctuations in interest rates.
Financial assets and financial liabilities with variable interest rates expose the Company to risk
of changes in cash flow 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, 2014, the majority of the $562.0 million in cash and cash
equivalents and short-term investments (2013- $501.4 million) were comprised of interest-
bearing assets. Based on amounts as at December 31, 2014, a 100 basis point change in interest
rates would change net annual interest income by approximately $5.6 million (2013 - $5.0
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, 2014, a 100 basis point change in LIBOR would change net annual interest
expenses by approximately $0.8 million (2013- $0.8 million).
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 financial loss to the Company if a gold sales customer or counterparty
to a financial instrument fails to meet its contractual obligation. Credit risk arises principally
from the Company’s receivables from customers and on cash and cash equivalents and short-
term investments.
The Company’s exposure to credit risk, in respect of gold sales, is influenced mainly by the
individual characteristics of each customer. The Company’s revenues are directly attributable to
sales transactions with two customers. Boroo sells the gold and silver content of its doré to Bank
of Mongolia. Kyrgyzaltyn JSC, a state-owned company that operates a refinery in the Kyrgyz
150
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
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 (see note
26).
Based on movements of Centerra’s share price and the value of individual or unsettled gold
shipments over the course of 2014, the maximum exposure during the year, reflecting the
shortfall in the value of the security as compared to the value of any unsettled shipments, was
approximately $57.9 million (2013 - $70.1 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 financial institutions and corporate direct credit issues that can be promptly
liquidated.
d. Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as
they fall due.
The Company manages its liquidity risk by ensuring that there is sufficient capital to meet short
and long-term business requirements, after taking into account cash flows from operations and
the Company’s holdings of cash and cash equivalents and short-term investments. In addition,
$74 million of the credit facility financing remains available. The Company believes that these
sources will be sufficient to cover its anticipated short and long-term cash requirements.
At December 31, 2014, the Company had cash and cash equivalents and short-term investments
totaling $562.0 million (2013 - $501.4 million). A maturity analysis of the Company’s financial
liabilities, contractual obligations, other fixed operating and capital commitments is set out
below:
151
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
Year ended December 31, 2014
(Millions of US$)
Account payable and
accrued liabilities
Short-term debt
Reclamation trust deed
Capital equipment
Operational supplies
Lease of premises (corporate offices)
Total contractual obligations
Year ended December 31, 2013
(Millions of US$)
Account payable and
accrued liabilities
Short-term debt and accrued interest
payable
Reclamation trust deed
Capital equipment
Operation supplies
Lease of premises(corporate offices)
Total contractual obligations
Total
Due in
Less than
One year
Due in
1 to 3
Years
Due in
4 to 5
Years
Due in
After 5
Years
$
45.9 $
76.0
27.9
7.6
37.6
3.6
45.9 $
76.0
2.7
7.6
37.6
0.5
$
198.6 $ 170.3 $
- $
-
8.8
-
-
1.0
9.8 $
- $
-
5.8
-
-
1.0
6.8 $
-
-
10.6
-
-
1.1
11.7
Total
Due in
Less than
One year
Due in
1 to 3
Years
Due in
4 to 5
Years
Due in
After 5
Years
$
32.1 $
32.1 $
- $
- $
-
77.0
47.8
1.8
57.6
1.4
77.0
4.2
1.8
57.6
0.4
$
217.7 $ 173.1 $
-
13.5
-
-
1.0
14.5 $
-
9.1
-
-
-
9.1 $
-
21.0
-
-
-
21.0
The Company believes it has sufficient cash and cash equivalents and liquid short-term
investments to meet its current obligations.
e. Commodity Price Risk
The value of the Company’s revenues and mineral resource properties is related to the price of
gold, and the outlook for this mineral. Adverse changes in the price of certain raw materials can
also significantly affect the Company’s cash flows.
Gold prices historically have fluctuated 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
152
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
production, short-term changes in supply and demand due to speculative or hedging activities,
macro-economic variables, and certain other factors related specifically to gold.
The profitability 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 flows will improve; conversely, declines in the price of gold will
reduce the fair value of mineral assets and cash flows. A protracted period of depressed prices
could impair the Company’s operations and development opportunities, and significantly erode
shareholder value.
To the extent there are adverse changes to the price of certain raw materials (e.g. diesel fuel), the
Company’s profitability and cash flows may be impacted.
The Company does not enter into any hedging arrangements to mitigate commodity price risk.
30. Supplemental disclosure
a. Changes in operating working capital
(Thousands of U.S. Dollars)
Decrease (increase) in amounts receivable
$
Increase in inventory- ore and metal
Decrease (increase)in inventory- supplies
Decrease in prepaid expenses
Increase (decrease) in accounts payable and accrued
liabilities
(Decrease) Increase in revenue-based tax payable
Reduction in depreciation and
amortization included in inventory (note 11)
(Increase) reduction in accruals included in
additions to PP&E
Revenue - based tax utilized
Increase (Decrease) in other taxes payable
$
2014
12,493
(34,672)
(89)
16,303
13,774
(6,137)
2013
(3,369)
(82,225)
1,501
20,126
(31,831)
12,099
13,717
78,503
(1,158)
(10,000)
139
4,370
$
9,835
(20,000)
(102)
(15,463)
$
153
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
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 11)
Impact of revisions to asset retirement obligation
included in PP&E (note 17)
Depreciation and amortization included in
additions to PP&E (note 11)
Increase (decrease) in accruals related to additions to
PP&E
2014
2013
$
(358,515)
$
(381,849)
7,325
5,215
73,747
77,787
1,158
(276,285)
$
(9,835)
(308,682)
$
c. Adjusted cost of sales
Earnings from mine operations includes the following expenses presented by function:
Cost of sales
Impairment of goodwill (note 12)
Total adjusted costs of sales
31. Subsequent events
2014
$
$
502,577
111,000
613,577
$
$
2013
559,236
-
559,236
50/50 partnership with Premier Gold Mines Ltd.
On February 5, 2015, the Company announced signing a definitive agreement to form a 50/50
partnership with Premier Gold Mines Ltd.(“Premier”) for the joint ownership and development
of Premier Gold ’s Trans-Canada Property including the Hardrock Gold Project located in the
Geraldton-Beardmore Greenstone Belt in Ontario. Under the terms of the partnership agreement,
Premier will contribute all of its interests in the Project and related assets to the Partnership and
Centerra will contribute Cdn$85 million to the Partnership and in return, each partner shall
receive a 50% interest in the Partnership. Centerra has also agreed to commit up to an additional
Cdn$185.0 million to fund the project, subject to certain feasibility and project advancement
criteria, and up to Cdn$30.0 million contingent on the results of the updated mineral resource
calculation.
The transaction is expected to close on or about March 6, 2015, subject to the receipt of
applicable regulatory approvals and the satisfaction of customary conditions precedent.
154
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
Dividends
On February 19, 2015, the Company announced that its Board of Directors approved a quarterly
dividend of Cdn$0.04 per common share. The dividend is payable March 19, 2015 to
shareholders of record on March 5, 2015.
32. Segmented Information
In accordance with IFRS 8, Operating Segments, the Company’s operations are segmented on a
regional basis and are reported in a manner consistent with the internal reporting provided to the
chief operating decision-maker (“CODM”). The Chief Executive Officer 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 reviewed by the
CODM in his decision making process.
The Kyrgyz Republic segment includes the operations of the Kumtor Gold project 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 include the
head office located in Toronto, the Öksüt Turkish project and other international exploration
projects. The segments’ accounting policies are the same as those described in the summary of
significant accounting policies in the Company’s 2014 annual financial 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 refinery
in the Kyrgyz Republic while production from the Boroo Gold project is sold to Bank of
Mongolia.
The following table reconciles segment operating profit per the reportable segment information
to operating profit per the consolidated statements of earnings (loss) and comprehensive income
(loss).
155
Centerra Gold Inc.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and December 31, 2013
(Expressed in thousands of United States Dollars, except where otherwise indicated)
Year ended December 31, 2014
(Millions of U.S. Dollars)
Revenue from Gold Sales
Cost of sales
Mine standby costs
Regional office administration
Earnings from mine operations
Revenue based taxes
Other operating expenses
Impairment of goodwill
Exploration and business development
Corporate administration
Earnings (loss) from operations
Other expenses, net
Finance costs
Loss before income tax
Income tax expense
Loss and comprehensive loss
Capital expenditure for the year
Goodwill
Assets (excluding Goodwill)
Total liabilities
Year ended December 31, 2013
(Millions of U.S. Dollars)
Revenue from Gold Sales
Cost of sales
Regional office administration
Earnings from mine operations
Revenue based taxes
Other operating expenses
Exploration and business development
Corporate administration
Earnings (loss) from operations
Other expenses, net
Finance costs
Earnings before income tax
Income tax expense
Net earnings and comprehensive income
Capital expenditure for the year
Goodwill
Assets (excluding Goodwill)
Total liabilities
Kyrgyz
Republic
Mongolia
Corporate
and other
Total
$
$
$
$
$
$
694.6
444.4
-
20.1
230.1
97.2
5.1
111.0
0.4
0.2
16.2
$
68.7
58.1
2.4
5.1
3.1
-
(1.3)
-
4.2
0.5
(0.3)
-
-
-
-
-
-
6.0
-
11.1
34.1
(51.2)
349.9
18.7
936.3
92.0
$
$
$
$
1.1
-
179.6
34.5
$
$
$
$
0.2
-
494.5
103.9
Kyrgyz
Republic
Mongolia
Corporate
and other
$
$
$
$
$
$
$
811.0
473.0
18.1
319.9
113.5
7.8
6.4
0.1
192.1
133.4
86.2
5.7
41.5
-
0.5
5.5
0.4
35.1
-
-
-
-
-
-
17.7
30.1
(47.8)
367.4
129.7
919.0
87.0
$
$
$
$
8.6
-
175.3
30.5
$
$
$
$
0.6
-
463.7
95.9
$
$
$
$
$
$
$
$
$
$
$
$
763.3
502.5
2.4
25.2
233.2
97.2
9.8
111.0
15.7
34.8
(35.3)
1.2
5.0
(41.5)
2.6
(44.1)
351.2
18.7
1,610.4
230.4
Total
944.4
559.2
23.8
361.4
113.5
8.3
29.6
30.6
179.4
3.6
5.0
170.8
13.1
157.7
376.6
129.7
1,558.0
213.4
156
50762 Centerra Cover_Layout 1 2015-03-31 3:48 PM Page 2
C O R P O R AT E P R O F I L E
Centerra is a North American-based gold mining company engaged in operating, developing, acquiring and exploring gold
properties in Asia, Canada and other markets worldwide. The Company is the largest Western-based gold producer in Central
Asia with two operating gold mines, one located in the Kyrgyz Republic and one in Mongolia. In 2014, Centerra produced
620,821 ounces of gold from its two operations.
Centerra’s objectives are to build shareholder value by maximizing the potential of its current properties, expand its portfolio
of gold mining operations, add additional exploration properties and continue to increase its reserves and resources.
Centerra’s shares trade on the Toronto Stock Exchange (TSX) under the symbol CG. The Company is headquartered in Toronto,
Ontario, Canada.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Information contained in this annual report
involves risks, uncertainties and other factors
Mr. Reid is a Qualified Person within the
which are not statements of historical facts,
that could cause actual results, performance,
meaning of NI 43-101. For more information,
and the documents incorporated by reference
prospects and opportunities to differ materially
please refer to the Company’s MD&A included
herein, may be “forward-looking information”
from those expressed or implied by such
in this Annual Report and the Company’s most
for the purposes of Canadian securities laws.
forward-looking information. For a detailed
recent Annual Information Form which is
These forward-looking statements relate to,
discussion of such risks and other factors, see
available on SEDAR.
among other things, the Company’s
the Management’s Discussion and Analysis
Although Centerra believes that the
expectations for 2015 gold production, costs,
(MD&A) included in this Annual Report and the
assumptions inherent in these forward-looking
exploration, capital and corporate expenditures;
Company’s most recent Annual Information
statements are reasonable, the reader should
the Company’s pipeline of exploration and
Form which is available on SEDAR.
not place undue reliance on these statements.
development properties and their potential,
Mineral resources are not mineral reserves and
Forward-looking information is as of March 27,
including expectations for exploration,
do not have demonstrated economic viability.
2015. For a detailed discussion of the key
development; estimates of production and
Inferred mineral resources have a greater
assumptions and risk factors, please refer to
costs at Kumtor and Boroo and consolidated
amount of uncertainty as to whether they can
the MD&A included in this Annual Report.
production and costs; expectations regarding
be mined economically. It cannot be assumed
Centerra disclaims any intention or obligation
the Gatsuurt Project, including as to the level
that all or part of the inferred resources will
to update or revise any forward-looking
of Mongolian state ownership therein, the
ever be upgraded to a higher category. There is
statements whether as a result of new
entering into a deposit development
no certainty that mineral resources of any
information, future events or otherwise, except
agreement; expectations regarding further
category can be upgraded to mineral reserves
to the extent required by applicable laws.
progress on the Öksüt Project, including the
through continued exploration. Reserves and
schedule for completion of a feasibility study;
Resources are as of December 31, 2014.
All dollar amounts are expressed in U.S. dollars
and expectations regarding the completion of a
Please refer to page 11 of the MD&A included
in this report, except as otherwise indicated.
restructuring of the Kumtor Project in
in this Annual Report. Except as otherwise
accordance with the Heads of Agreement on
noted herein, Gordon Reid, Professional
(1) Non-GAAP measure, see discussion under
the Kumtor Restructuring dated January 18,
Engineer and Centerra’s Vice President and
“Non-GAAP Measures” in the MD&A.
2014. Such forward-looking information
Chief Operating Officer, has reviewed and
approved the scientific and technical
information contained in this Annual Report.
C O R P O R AT E I N F O R M A T I O N
DIRECTORS
Stephen A. Lang, Chair
Ian Atkinson
Richard W. Connor
Raphael A. Girard
Emil Orozbaev
Michael S. Parrett
Sheryl K. Pressler
Terry V. Rogers, Lead Director
Kalinur Sadyrov
Kylychbek Shakirov
Bruce V. Walter, Vice-Chair
OFFICERS AND MANAGEMENT
Ian Atkinson
President and
Chief Executive Officer
Jeffrey S. Parr
Vice President and
Chief Financial Officer
Gordon D. Reid
Vice President and
Chief Operating Officer
Ronald Burk
Vice President, Exploration
Frank H. Herbert
General Counsel and
Corporate Secretary
Dennis C. Kwong
Vice President,
John W. Pearson
Vice President, Investor Relations
Darren J. Millman
Vice President, Finance and Treasurer
Kevin D’Souza
Vice President,
Sustainability and Environment
John M. Kazakoff
President, Boroo Gold Company
Daniel R. Desjardins (1)
President, Kumtor Gold Company
Michael M. Fischer
General Manager,
Öksüt Madencilik A.S.
Business Development
(1) Mr. Desjardins joined Centerra
Anthony J. Meade
Vice President, Human Resources
and Administration
on January 20, 2015
TRANSFER AGENT
AUDITORS
For information on common
KPMG LLP
share holdings, lost share
Suite 4600
OPERATIONS OFFICES
EXPLORATION OFFICES
Boroo Gold LLC
P.O. Box 223
Centerra Gold Mongolia LLC
Bodi Tower, 12th Floor
certificates and address
Bay Adelaide Centre
Bodi Tower, 11th Floor
Chinggis Khaan Square
changes, contact:
CST Trust Company
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
333 Bay Street
Suite 4600
Toronto, Ontario
Canada M5H 2S5
Chinggis Khaan Square
Chingeltei Duureg
Chingeltei Duureg
Ulaanbaatar, Mongolia
Ulaanbaatar, Mongolia
15160
15160
Centerra Madencilik A.S.
STOCK EXCHANGE LISTING
Kumtor Gold Company
Buyukesat Mahallesi
Toronto Stock Exchange
24 Ibraimov Street, 10th Floor
Cayhane Sokak No. 47/9
Symbol: CG
Bishkek, Kyrgyz Republic
06700 Gaziosmanpasa
720031
Cankaya, Ankara, Turkey
INVESTOR RELATIONS
CONTACT
John W. Pearson
Öksüt Madencilik A.S.
Turan Gunes Bulvari
Vice President Investor Relations
Hollanda Caddesi No. 3/5
investor@centerragold.com
Cankaya, Ankara, Turkey
CORPORATE HEADQUARTERS
06550
Suite 1500
1 University Avenue
Toronto, Ontario
Canada M5J 2P1
T 416.204.1953
F 416.204.1954
www.centerragold.com
C E N T E R R A G O L D I N C .
Printed in Canada
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C E N T E R R A G O L D I N C .
www.centerragold.com
CENTERRA GOLD INC.
Suite 1500
1 University Avenue
Toronto, Ontario
Canada M5J 2P1
T 416.204.1953
F 416.204.1954