Centerra Gold Inc. (CGAU) Q3 2016 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the Centerra Gold 2016 Third Quarter Results Conference Call and webcast. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions]. As a reminder, this conference is being recorded, Monday, November 7, 2016. I would now like to turn the conference over to John Pearson, Vice President, Investor Relations. Please go ahead, sir.

Thank you, Jenifer. I’d like to welcome everyone to Centerra Gold’s third quarter conference call. Today’s conference call is open to all members of the investment community and the media first in listen-only mode and then we will take questions afterword. There are slides available on Centerra’s website, which the speakers will refer to during their remarks. After the formal remarks are given, the operator will give the instructions for asking a question, and we will the phone to questions. Please note that all figures are in US dollars, unless otherwise noted. Joining me on the call today is Scott Perry, Chief Executive Officer; Frank Herbert, President; Darren Millman, Chief Financial Officer; and Gordon Reid, Chief Operating Officer. I’d also like to caution everyone that certain statements made on this call today may be forward-looking statements, and as such, are subject to known and unknown risks and uncertainties, which may cause actual results to differ from those expressed or implied. Also, certain of these measures we will discuss today are non-GAAP measures, and I refer you to our description of the non-GAAP measures in the news release and the MD&A. For more detailed discussion of the material assumptions, risks and uncertainties please refer to the news release issued this morning along with the MD&A and the unaudited financial statements and notes. And to our other filings, which all can be found on SEDAR and the company’s website. And now I'll turn the call over to Scott.

Okay. Thank you, John and good morning ladies and gentlemen, and thank you for joining us on our earnings conference call. As John referenced we have an accompanying presentation deck just to walk you through our results and that’s available on the company website, I'm just starting on slide number five. Some of the key highlights during the quarter, first and foremost, just focusing in on safety Centerra company why we continue to roll out our company branded Work Safe, Home Safe program across the company. I think as I’ve mentioned previously this is a key initiative that’s very focused on creating leaders in safety at all levels within the organization and we continue to make great progress in that regard. Looking at some of the key operating highlights our cornerstone operation Kumtor had a very strong quarter, during the third quarter producing approximately 166,000 ounces of gold at very competitive all-in sustaining cost of approximately $555 per ounce at the mine side level. On the back of the strong production you would have noted in today’s release that we favorably revising our company-wide items, both in terms of gold production and all-in sustaining cost we’re looking at 5% to 7% favorable improvement. So in terms of gold output at Kumtor we’re now guiding for 520,000 to 560,000 ounces of gold per year in terms of the corresponding all-in sustaining cost per ounce. Our favorably revised by guidance is a new range of $716 to $772 per ounce. In terms of the financial highlights the next couple of bullet points Darren will touch on these further, but in terms of net earnings cash flow from operations, or even our free cash flow result I think it was a very strong quarter even outperforming our internal plans. We finished the quarter with $479 million of cash, this number excludes Kumtor’s restricted cash of $122 million you would have noted that this is a key subject of discussions between ourselves Centerra and the Kyrgyz government just in terms of looking to resolve these matters and see this cash being unencumbered moving forward. On October 20th post the quarter end obviously a key development for the company was the closing of the acquisition of Thompson Creek Metals the management team here at Centerra are now very busy and focused on integrating the new operations things are going pretty well in that regard. Just in terms of our development project pipeline the release today noted that during the quarter we received our forestry land use permit at our Turkey’s project called Oxford. We’re now just waiting to receive our pastureland land use permit and that was our last remaining key permit that will allow the company to make a construction decision. In Mongolia the company is in discussions with the Mongolian government around our Gatsuurt Project and those discussions are focusing on potential investment agreement and the positive development agreement. And then just lastly here in Canada in terms of our joint venture Greenstone Project the feasibility itself is primarily finalized if you will with the document currently being presented to both partners for approval. So I would like to think that very shortly here we’ll be publishing that document for the market review. Just moving on to the next slide on slide six, just some of the key highlights in terms of financials you can see in the top left of the slide is a typical sort of waterfall chart. We’re just looking to illustrate the company’s cash flow profile for the year-to-date period, you can see it’s been a very strong year in terms of building out the balance sheet, we commenced the year with $542 million in cash as at September 30th we had around $600 million in cash. Obviously you’d note the key increment there is the positive cash flow generation at Kumtor and the other increments and decrements just illustrate where those funds were appropriated, but a strong year-to-date period so far. Again that’s kind of reiterated and illustrated in the pie chart there on the top right, $600 million in cash we had a modest debt balance at the end of the quarter of around $100 million, so net cash position of around $500 million. I would note as you may have seen in the press release on a pro forma basis allowing for the Thompson Creek acquisition we actually -- we essentially finished the quarter with $227 million in cash, of that $227 million $122 million was the Kumtor’s cash balance that is currently under those restrictions that I mentioned earlier. You can see the share count in the bottom left, share count continues to be very stable over the timeline period there in the bottom right just in terms of the company’s retained earnings as you’re seeing with these financial statements year-to-date and you know it’s been another strong period in terms of profit and earnings generation and that’s obviously reflected in this chart here where you can see our retained earnings balance is just under $800 million as at the year-to-date period. Just move on to the next slide, on slide seven. Again one of the key highlights in our quarterly release was the positive favorable revision to guidance. This is obviously on the back of very strong performance at Kumtor, be it in terms of productivities or unit cost efficiencies but also some favorable sort of macro tailwinds in terms of exchange rates and oil prices et cetera. On the production side of the ledger, which is the bottom left hand chart and I am just referencing the midpoint of guidance. We have increased gold output guidance by approximately 5%, we’re now guiding for 520,000 to 565,000 ounces for the full year results. Obviously in terms of the all-in sustaining cost profile, which is the chart on the bottom right, just in terms of that growing gold production denominator, you can see that’s also favorably impacting our unit cost profile, which reduced our all-in sustaining cost guidance by about 7%, with the midpoint of such guidance now being a targeted $744 per ounce. Obviously, we think this is going to present very well in terms of growing earnings, growing cash flow as we make our way into Q4. Just given the growing gold output and the reducing cost we’re definitely looking at higher margins in Q4. Just moving to next slide, on slide eight. Just one slide on the Thompson Creek acquisition, as I mentioned we closed that post quarter end, the closing date was October 20th, this is a very transformative, easy transaction for Centerra Gold. This slide is a busy slide, if you will, but really the key point is the first bullet point where it talks about diversified operating platform. I think the transaction is going to very favorably recalibrate Centerra’s geopolitical risk profile just based on the analyst sort of consensus valuations that are described to our company. With this transaction we are now seeing just under 50% of our asset value being domiciled in North America. We think as we move forward that’s going to be favorable in terms of potentially resonating in the higher valuation multiples moving forward. Just the other bullet point I would highlight is the third bullet point, which is the maximized gold exposure at the underlying Mt. Milligan asset. Shareholders in Centerra would be familiar with the fact that we have restructured the gold stream at Mt. Milligan. We’re always very focused on maximizing the gold output to Centerra’s shareholders and I think we have achieved that whereby we’ve now modified the stream such that what was once the 52.25% gold stream has now being converted to a 35% gold stream and we did this in exchange for granting a new 18.75% copper stream moving forward. If you look at sort of consensus, metal price as per the bullet point, going forward revenues from Mt. Milligan to Centerra’s account in terms of the revenues split it’s around 70% gold the remaining 30% coming from copper. With that, I am now going to turn the call over to Gordon Reid, our Chief Operating Officer.

Thanks, Scott. I’ll just touch on safety first, there were four reportable injuries during the quarter all at Kumtor, and there have been nine reportable injuries year-to-date. Our quarterly total reportable injury frequency rate is 0.47 and 0.37 for the year. As Scott noted, we have begun the rollout of our new safety leadership initiative Work Safe, Home Safe, which was started in the quarter. I’ll be speaking to slide 10 of the deck. At our Kumtor mine, Kumtor produced 166,000 ounces of gold in the quarter at an all-in sustaining cost of $585 per ounce. Year-to-date Kumtor produced 350,198 at an all-in sustaining cost of $695 an ounce. As Scott noted, we have increased Kumtor’s production guidance to 520,000 to 560,000 ounces and lowered our all-in sustaining cost guidance to $666 to $718. During the quarter, Kumtor benefited from several productivity improvement initiatives in the mill that have increased mill throughput by almost 10%, while maintaining budgeted grade and recovery. Kumtor continues to benefit from the low global fuel price environment. Mining at cut-back 17 was completed in October and mining is now focused on cut-back 18. At our Öksüt Project in Turkey, the forestry permit was received in July and we are waiting on approval of the pastureland land use permit. That is the last permit we require to begin construction. Detailed engineering is substantially complete and all major contractors have been selected. Construction of the power line by [indiscernible] the state power authority is well underway with 60% of the power poles installed. Major construction activity at site is not likely to begin before spring of 2017 with first gold production anticipated in Mid-2018. In Mongolia during the quarter, drilling continued at our Gatsuurt Project to gather information for the update to the technical economic study and to increase the resource-base. The newly elected government has expressed its desire to continue negotiations on the investment agreement, deposit development agreement and community development agreement and that work continues. In Ontario at our 50% owned Greenstone Project, work continues on the development of a bankable feasibility study. The feasibility study is essentially complete and will be released in the next couple of weeks following approval of the owners’ boards and publication of an NI43 101 compliant technical report. The final environmental assessment is scheduled to be made at the end of the first quarter of 2017. Greenstone continues to engage and consult with our local stakeholders including the township of Greenstone and the local First Nation's Communities. Subsequent to the quarter end the transaction for Thomson Creek Metals closed. At Mt. Milligan during the fourth quarter, we will continue to commission the permanent secondary crusher and review strategies to deliver on the opportunities that were recognized during the due diligence process. The molybdenum business will continue to operate on a cash flow neutral basis as revenues generated by toll processing at the Langeloth processing facility will offset the current maintenance cost at Adako [ph] and Thompson Creek mines. I'll now turn the discussion over to Darren.

Thanks, Scott good morning, everyone. For those following on the slides, I am on slide 13. Revenue for the third quarter was $220 million from selling 164,000 ounces reflecting almost 60% more ounces sold. The average realized gold price was $13.36 up almost 20% on last year and resulting in a $67 million net earnings or $0.28 per share. We generated $134.4 million of operating cash flow or $0.55 per share during the quarter. We produced just over 166,000 ounces, which is up 54% from last year. Other financial items to highlight on slide 14 is putting in place the $325 million revolver and term loan facility with the lending syndicate as part of the TCM transaction. As well as we closed the bought deal offering with Thompson Creek transaction for in total $185.7 million net proceeds. During the quarter EBRD also joined the Öksüt financing or the project financing facility that would highlight we're in current negotiations to extend the existing terms, but that do expire end of November. At the end of the quarter we favorably revised our guidance, lowering our all-in sustaining cost to $744 per ounce. As you can see on the bottom left hand corner, the magnitude was $37 an ounce on volume, $14 an ounce on lower our sustaining cost and $5 an ounce on lowering our stripping cost. While it’s not highlight on the slide, I’d just like to point out that the overall increase or decrease from the start of the year has been a 20% reduction in our all-in sustaining cost. With the start of the year the midpoint was at $925 an ounce. I just like to highlight that the key cost such as diesel and local Kyrgyz som continue to favorable at the Kumtor operation. Kumtor som realized 68.5 to $1 compared to previous assumptions at 71 to $1. Diesel is now at $0.47 at Kumtor versus our previous guidance of $0.43 a liter. But for the first nine months Kumtor averaged at $0.38 a liter. As you will notice in sensitivities on slide 20, both assumptions have significant impact on cash flow and cost as being trending down. Finally we are on track to meet our revised guidance with the significant amount of planned ore to be processed in the fourth quarter already on service evidenced by the higher level of stockpiles of the ore again in the quarter. I now turn it back to Scott.

Okay. Thank you, Darren. I’ll just move to our last quarter and then we’ll move into question-and-answer period. So just on slide 16, just in terms of wrapping up the call I think on the left here the real key highlight for the quarter was obviously the favorable revision to guidance as you’ve heard each of the speakers represent operations at Kumtor are going very well with incoming grades there to comfortably meet that new revised guidance of up to 560,000 ounces of gold. What really is a peer leading all-in sustaining cost profile of $716 to $772 per ounce. The other point I’d just highlight is our expanded operating asset base, which is illustrated in the bottom right hand corner. Here you can see our sort of two cornerstone assets in Kumtor and Mt. Milligan and each of the development projects moving forward. As I’ve mentioned, one of the key highlights was successfully closing the acquisition at Thompson Creek, I think this has really created a geographically diversifying high quality low cost gold producer with a very strong pipeline moving forward. I think again one the key benefit it’s going to diversify Centerra’s operating platform and at high quality low risk production and cash flow from the long lived Mt. Milligan mine. Centerra now have two cornerstone, high quality, low cost operating assets with both of these operations representing a more balanced operating asset based with a lower overall jurisdictional risk profile and we think we’ll increasingly showcase significant low cost production and that will underpin significant cash flows into the future. With that Jenifer, if I can just pass the call back over to you for any questions that have been poled from participants.

Thank you. [Operator Instructions] And our first question comes from the line of Stephen Walker with RBC Capital Markets. Please proceed with your question.

Thank you very much. Good morning, everybody. Scott and Frank just some questions on the restricted cash, setting in the Kyrgyz Republic, my understanding is this was first -- the situation was first made in June the 3rd with respect to the courts granting you original hold on the cash that was building up in the Kyrgyz Republic. And then subsequently there was two appeals that were rejected the most recent on October 19th, is this all the same initial court decision and a subsequent follow-up or is there another one that’s been filed in addition to the original June 3rd?

Stephen its Frank Herbert, your summary is correct.

Okay. Just with respect to that I guess there the two questions that are begged, now that you are going through again there have all the appeals process has been finalized in the Kyrgyz Republic and I gather this will have to go to international arbitration?

Yes that’s correct and the arbitration process is moving forward and we will be the initial procedure on meeting on the arbitration will take place at the end of this month.

And given the history of such processes, what timing do you expect before you could give a final answer or a resolution on this if it does go with the arbitration at the end of November?

I think, Stephen obviously the arbitration process is underway, but our strong expectation would be that we would be able to through ongoing discussion, negotiation with the Kyrgyz side to come to a mutually acceptable resolution of the issue. And -- but that would resolve that issue long before any arbitration procedure would unfold.

Right. I guess, Scott you visited Bishkek management has visited Bishkek certainly what the nature of those discussions is around this court decision, around resolving this as Frank suggests, what -- I guess Scott what is your sense on this being resolved ahead of an arbitration process coming to conclusion?

Steve absolutely, there has really been two subjects of discussions with Kyrgyz government. The first discussion was obviously the Thompson Creek transaction and just making sure that they were supportive of that transaction if you will. And I think more and more I don't want to be responsible for putting words in the government’s mouth, but I think they're very open to the various arguments and rationale that we've put forward to that transaction on why it should be beneficial to their shareholding in the company that was the one objective. The second objective was obviously with regard to these environmental matters and the restrictions that have been put in place on the cash balance that you're highlighting in your question. I personally think the progress is going very well. As you heard Frank say myself I reiterated, I think it's more likely than less likely that we should be able to come to some form of arrangement that will resolve all these matters and see us enjoying the economic benefits of the mine moving forward.

And just by way of follow-up if I might, on page 22 of the press release, there is a couple of claims have been made more recently this August 23rd claim for $600 million. Is that’s in addition to the $220 million claim that was filed on the June 3rd. Just can you summarize what the total claims are whether they're official or not I guess or actually court approved or not?

Yeah Stephen just to be clear on that the matter you just referred to which is the further claim filed on August of this year. That claim is for about $600,000. It's 40 million som, but only $600,000 not only, but just to be clear I know you said it a larger figure, but I want to be clear that’s under $1 million. As you've said the claim -- the key claim is the claim that relates to the cash it summarized in on page 22 of the press release. So I just refer those on the call to that page it can that quite complex of these claims. And I think while summarized them on this call I just refer you to that page, which I think accurately summarizes the total amount of those claims that have been made or have been subject of judgments in the Kyrgyz Republic.

Okay. So $220 million and plus the $600,000 as you correcting point out, thank you for that. And just a final question, I guess the longer the cash is restricted, what are the implications for existing credit facilities, covenants on those credit facilities or restrictions that placed if this cash remains for an elected time into 2017?

There is no impact.

Okay.

And Steve this is Scott. I don't remember we mentioned at the start of your questioning, but all that cash is actually domiciled in a New York bank account. We continue to sell our gold every two weeks and the gold is monetized and the consideration on the proceeds. They're deposited directly into that New York City bank account as you are aware. That bank account the ownership of that bank account is our subsidiary Kumtor Gold Company.

That's helpful, thank you for that Scott and thank you Frank.

Our next question comes from the line of David Houghton with CIBC. Please proceed with your question.

Good morning Scott and team. Just following on with the freezing of this cash, to the extent that Kumtor generates cash until you’ve resolved this matter, should we be putting that cash into the restricted cash account? So to show that you can't actually access it until resolution.

It's Darren Millman here. So we classified as restricted cash by a court order on the financial statements. But just so it clear the Kumtor operations can use that cash for capital expenditure, operating expenditure. So just really the only restriction per se is moving it up to the Centerra entity.

Okay. But nevertheless as we go through time to the extent that this is not resolved we will see that restricted cash expand.

Yeah correct, yeah and that sort of how it classified it on them on the balance sheet.

Right. Just switching topics, Mt. Milligan are you going to offer any guidance as to what we should be thinking about for the balance of the year, with this mine in your hands?

Dave, so it’s Scott. Obviously we didn’t have time with this set of quarterly financials to provide guidance. So that is something that we’ll looking be at as part of our year-end release and there may even be an opportunity to just as part of our marketing and what have you during the quarter. But at a minimum definitely at year end.

Okay. So we have to forecast what’s remaining of the year. So should we just be running on the kind of numbers that we’ve got out of the previous owner then?

I think that’s what a lot of the analyst community is doing. So…

Okay. And then going over to Turkey, I know it’s difficult to know that the timing of the receipt of that last pastoral permit, obviously our expectation is for this quarter, is that correct?

Dave, I just want to be careful that’s kind of strong words. We would hope that we’re about to get it, the one thing I would highlight is what Gord mentioned in his update, which is that the national power utility company is currently constructing the power line to the project. So again that power company is effectively owned by the government, we are not contributing to that construction. That will ultimately be redeemed over the life of the project, we’ll pay back the capital. But just a little data points like that, is what gives us confidence that we’re close.

Okay. So the latest guidance for startup not before mid-2018, is with the expectation that we can go into the new year with the necessary permits?

Correct. Yeah.

Okay, right. Thank you very much guys.

Our next question comes from the line of Trevor Turnbull with Scotia Bank. Please proceed with your question.

Yeah, congratulations on getting that forestry permit in Turkey. I just wondered maybe if you could give us a little bit of color because often these permits are very critical and we just kind of wait and wait and wait and you find the received one. Can you just give us a bit of background was this one of these that just kind of have landed on your desk, kind of a bolt from the blue or has the ministry being going back and forth on questions. How was it that the forestry finally got resolved?

Trevor, I think from our perspective, when I -- in terms of our team on the ground, from day one they’ve always been very, very focused on establishing their social license. So they have always been working at the very grass root levels just in terms of getting buying an endorsement from the local townships if you will, the local community then at the sort of the provincial level, a state level and that makes its way all the way up to the sort of national level. So we have very strong advocates if you will for the Öksüt Project and we see that in terms of the mayor, the deputy mayor all of these stakeholders are very supportive of the project. I think one of the other strong -- in terms of advocacy just in terms of our credit facility there; we do have EBRD in the credit facility. $6 billion of our $21 billion loan book is investment in Turkey and they’re a strong advocates of the project and I think all these forms and endorsement have just assisted us along the way. I am not sure how to answer your question Trevor, but we have invested in this pretty heavily in terms of social license and I think we’re seeing the benefits of it.

Yeah, so it sounds likely it’s more just steady advocacy and support as oppose to any particular issues that the government had to get its head around, it was more just percolating away with like you say with steady endorsement from local community?

Well I think that’s absolutely that really is it and I think just being humble. It’s also advantageous where the project is located; it’s somewhat remote if you will it’s not in a region that’s not familiar with mining or the extractive industry. So that’s obviously a benefit as well.

And then just changing gears a bit and referencing one of David’s question with respect to Thompson Creek and the guidance. You said that a lot of the analyst continue to kind of work off the Thompson Creek guidance, can you help us in the sense of Q4 is that intended to be a bit of a backend loaded quarter for or cap off a backend loaded quarter for the year? Do we get a sense it’s going to be one of your better quarters, can you just give us kind of some directional help there?

Trevor let me come back to you on that. We’ve been in on data with our whole sort of Board, sub-committee process we’ve just closed the transaction, I don’t have a good feel for it yet not does the company right now. Let me come back to you on that.

Okay. And then just I guess a final question with respect to the talks that you’re having with the government in the Kyrgyz Republic. Wondering I know you’ve -- it sounds like you’ve got a couple of parallel pass you’ve obviously pursued things to the court to a certain degree, you’re pursuing things with international arbitration as well, and then speaking to the government. The reason I wonder if they’re a bit parallel is that in the MD&A you mentioned that the courts in the Kyrgyz Republic have held that some of the claims are not within the scope of arbitration provisions anyway. So it kind of makes me wonder if international arbitration really can be expected to do that much for you or if really the past has to be through face-to-face negotiations with the government?

Trevor its Frank Herbert. I think just to be clear you’re correct that certain Kyrgyz courts have taken the views of that they have jurisdiction over these claims, we think that’s wrong. We think and I think we’re pretty comfortable in saying that those are claims all of the disputes are clearly come under the jurisdiction of the dispute resolution provisions in our agreements with the Kyrgyz Republic and all of that belongs in front of an arbitrator. So we were very comfortable and ultimately an arbitrator would agree that she should, she has the jurisdiction to deal with those. Having said all of that, just to reiterate what I said earlier and what Scott said earlier which is that we will pursue their arbitration path but ultimately our expectation and our hope would be that through discussions and open communication with the Kyrgyz government as we’ve done for many-many years that we’re able to resolve the issues and move forward on a more solid footing that’s ultimately the path that we would very much hope to follow. And I think it would be -- we certainly don’t want to suggest or indicate that somehow an our arbitration is the preferred path or the path to the positive outcome here. We recognized that this is a matter that we have to work out with our partner in Kyrgyzstan.

It sounds like a bit of a catch 22 thought that if while the arbitrator may agree with you if they don’t fully accept the arbitration on the face of it, it seems a tough spot. But with the respect to the government you feel comfortable obviously that the people you’re talking to have the mandate to get this resolved. We see these things like the draft bill that was proposed earlier about nationalization, but I suspect that doesn’t have broad government support or they wouldn’t be kind of willing to speak to you at the same time is I assume if the government talks go well then you don’t have to worry about things like those bills.

Trevor its Scott. I would say that in terms of the dialog and discussions it’s been we’ve top echelon of the government, so the Prime Minister’s office, the President’s office. So I'm comfortable in that regard.

And so would you characterize that these bills that have been -- these draft bills are more like back bencher and kind of in a sense almost off market type of situations that aren’t as threatening as they may appear to be on the face of it?

Trevor its Frank, I think that’s a fair characterization. We don’t believe that ultimately this is the decision that parliament is going to get in front of the government arm this is the decision making here in our view sits with as Scott has said the government and with the President and we feel confident that when we are able to come to agreement with them on resolution of these issues that will ultimately be the basis for a permanent and binding settlement going forward.

Okay. Thanks Frank, I appreciate it.

Our next question comes from the line of Robert Reynolds with Credit Suisse. Please proceed with your question.

Good morning, couple of questions here. The first one just Kumtor, in the quarter you mined about 4 million tons at over 5 grams a ton processed about 1.5 million of 1.6 million tons, does that mean you have a little over two quarters left of the higher grade material is that the right way to think about it?

We mined cut-back 17 by middle of October, we have enough material to mine at mine -- to process at mine grade through the mid-year of next year before we would have to go into the lower grade stuff.

Okay. And then just a clarification question, on the $106 million pro forma after affecting the close of the tops Thompson Creek deal, does that exclude the $75 million that you drew or intended to draw in your two credit facilities?

It only relates to the $300 million drown on the 325 facility with the lending syndicate.

Okay. So the remaining a 25 on that one is not included in the number. And then just looking at a scenario where this I guess the restriction on intercompany payments from the Kumtor bank account continues, at what point do you think the Thompson Creek assets would generate sufficient cash flow to keep the company I guess at a cash flow breakeven or better position excluding Kumtor if you wanted to include spending on your development projects in that. Like I don’t know if you can provide any color if you looked at that scenario?

I would rather hold up until we provide guidance on Mt. Milligan, but as we stated in the press release we’re comfortable out to 2017 from our cash position perspective.

Okay, that’s all my questions. Thanks.

[Operator Instructions]. Our next question comes from the line of Michael Siperco with Macquarie. Please proceed with your question.

Thanks. At Kumtor maybe just a clarification of the previous question on the stockpiles, can you give us any specific matrices around the size and the grade of the stockpiles that you have now? And maybe as a follow-up to that it could still be early, but can we start to read anything into 2017 in terms of what the quarterly production profile looks like will it be lumpier along the lines of 2016 or maybe a little smother like 2015?

Well they won’t be perfectly flat quarter-over-quarter, we will be processing ore from stockpiles for the first half of next year before we start mining ore again coming from the Sarytor deposit. So, we will see mine grade material earlier in the year degrading slightly until we get into the Sarytor ore, which will start coming in, in June timeframe.

Can you give any metrics around where your stockpiles are at exciting the quarter?

Certainly, I don’t have the exact number, but we have in the range of two years production in stockpiles over 12 million tons.

12 million tons at what grade?

One -- I don’t know the exact number, but it’s something around…

Okay. We can follow…

And then Mike, just to be careful the 12 million tons that’s what we consider at lower grade most sort of inventory that stockpiles and was always in vision that we process that at the end of the mine life, from memory I think the average grades around sort of 1.7 to 1.8 but we can confirm that with you.

But a portion of that is at higher grade that you mined in Q3 at the 5 plus gram material, right?

Exactly, that’s way I wanted to come back to that. So, I think we’re going to finish the year with just under six months' worth of higher grade stockpile inventory, which is a subset obviously of that.

Okay. And then maybe just one follow-up again going back to this issue with the restricted cash from Kumtor at what point or is there a point at which the situation with the government starts to change your thinking on development and capital spending at Kumtor? Is there an opportunity to perhaps even optimize the spending profile over the next couple of years? Given the fact that you’re restricted in terms of using that cash only in Kurdistan?

I understand the content of your question Mike, but it’s kind of difficult because we would take the view, our management team would take the view that the mine is optimized in terms of the way you are running and in terms of our operating cost spend, capital intensity, et cetera and I think you see that in terms of the free cash flow generation. Scott and I put differently, we don’t see a lot of low lying fruit at Kumtor it’s a very well-run lean operations. I don’t know if that addresses your question.

Yeah, I guess I’m thinking and I know the mine plan is fairly well established and you have a solid handle on what it should look like over the next 10 years, but given this impact short-term or maybe longer-term in terms of cash flow, is there a potential change that we could expect going forward in terms of cut-backs, in terms of CapEx spending, but it sound like for now steadier she goes is the order of the day?

I think that’s correct, so I would not except to change moving forward and again one of the reasons for that is Kumtor is in a positive cash flow profile. So, the positive cash flow from operation is more than sufficient to fund the capital associated with good expansions using your example. So, there is no need to rationalize any of the business plans. If I am articulating myself well.

Yeah. Understood, thank you.

And we are showing no further questions at this time. I’ll turn the conference back over to you.

Okay. Thank you very much for your interest and your questions today. We’ll end the call right now, but numbers of management will be around and open for further calls if you have any questions. Thank you very much.

Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation, and ask that you please disconnect your lines.