Centerra Gold Inc. (CGAU) Q4 2019 Earnings Report, Transcript and Summary

Greetings and welcome to the Centerra Gold 2019 Fourth Quarter and Year End Results Conference Call and Webcast. [Operator Instructions] This conference is being recorded Thursday, March 26, 2020. And now, I would like to turn the conference over to John Pearson, Vice President, Investor Relations. Please go ahead.

Thank you operator. I would like to welcome everyone to Centerra Gold’s 2019 fourth quarter and 2019 year end conference call. Our summary slides are available on Centerra Gold’s website which will accompany each speaker’s remarks. Today’s call is open to all members of the investment community and media and following the formal remarks, the operator will give the instructions for asking a question and then we will then open the phone lines to those questions. Please note that all figures are in U.S. dollars unless otherwise noted. So today, all of us are dialing in remotely to this call. And joining me on the call is Scott Perry, President and Chief Executive Officer; Darren Millman, Chief Financial Officer; Dan Desjardins, Chief Operating Officer; and Yousef Rehman, our General Counsel. I would like to caution everyone that certain statements made on this call today maybe forward-looking statements and as such are subject to known and unknown risks which may cause actual results to differ from those expressed or implied. Also certain of the measures we will discuss today are non-GAAP measures and I refer you to our description of non-GAAP measures in our combined news release and MD&A. For a more detailed discussion of these material assumptions, risks, and uncertainties, please refer to our news release and the MD&A issued this morning, along with our audited financial statements and notes and to our other filings, which can all be found on SEDAR and the company’s website. And with that, I will turn the call over to Scott Perry.

Thanks, John and good morning everyone and thanks for joining our call. I am just going to start off by referencing Slide #5 of the accompanying earnings conference call presentation that John mentioned is available on our website. So here on Slide 5 just starting off with safety as we usually do. Unfortunately, our performance in 2019 was overshadowed by two troubling safety incidents that we experienced at Kumtor in December 2019 and February of this year. This resulted in a loss of three of our employees. We, Centerra, sincerely apologize to the families, friends and colleagues in these tragic incidents and we are fully committed to understanding and learning from the contributing circumstances so that we can take all necessary steps to prevent such tragic accidents from happening in the future. Myself and the senior leadership team, we remain absolutely steadfast in our resolve to ensure that everyone who works at operations can do so safely and will return home safely each and everyday. There is nothing more important. Moving on to the second bullet point here, one of the key milestones during the year was closing the strategic agreement with the Government of Kyrgyzstan. That was closed in the month of August of 2019 and we think that’s going to result and really underpin a much improved business environment for Kumtor moving forward. On the back of this agreement closing, shareholders would note that we have been increasingly investing in exploration at Kumtor. We believe those exploration investments are paying dividends and we believe we are seeing the success of that in terms of some of the recent resource increases that we have announced at Kumtor. Third bullet point here, just on Öksüt, which is transitioning into being our third operating asset, very important for us strategically. Obviously, this is going to represent a third source of gold production in the company. It’s going to add to our diversification moving forward and we think it’s going to favorably complement our existing operating asset base. You can see at the end of the year, we are at 89% completion. We have actually – and then subsequently we actually called out our first goal in January this year. In terms of the operating results, we had a very strong year at both operating assets in terms of Kumtor and Mount Milligan. You can see in the fourth bullet point here we produced in excess of 780,000 ounces of gold company-wide and more than 70 million pounds of copper. At a company-wide level, gold production is higher than our level of guidance and so I think it really speaks to the strong operating momentum that we saw during the year. The next bullet point just in terms of our all-in sustaining cost. Given that strong level of company-wide gold output and just the economies of scale that that provides in terms of such a high denominator, we saw our all-in sustaining costs finish the year at $708 per ounce, which again was favorably lower than our company-wide guidance. Next bullet point here, just on Mount Milligan, shareholders may recall that back when we announced our Q3 financial results, one of the things that we had reassessed was the carrying value of the Mount Milligan operation. What we were seeing there was our productivities were lower our unitary costs were higher in our previous life-of-mine, 43-101 technical report in Mount Milligan and then we used that to reevaluate what is the economic cut-off grade at Mount Milligan. And once we had that lower economic cut-off grade what we saw was a contraction in terms of the size of the pit that shortened the mine life and that’s what underpinned us revising the carrying value back in Q3 by some $230 million. That’s a significant accounting charge. So when you look at the next bullet point in terms of our bottom line net loss obviously that reflects the Mount Milligan carrying value adjustment. And when we look at our adjusted earnings, you can see company-wide, we came in at $181.5 million. As I mentioned, the carrying value adjustment is an accounting adjustment and non-cash flow item. And so when you look at the last two bullet points here, we see in terms of the company-wide free cash flow performance is very strong. Company-wide, it was positive $35 million, which includes $240 million from Kumtor, $27 million from Mount Milligan. I think a strong level of performance given that for the entirety of the year, we were also funding construction at Öksüt, which is now our next operating gold mine in Turkey. Last bullet point here, just given the significant level of positive free cash flow that we have been generating in the business, we have been quite focused on increasing the strength of our balance sheet and paying down debt. You can see in totality here in 2019, we paid down $111 million worth of debt. Even subsequent to this, in January of this year, we have actually now retired and discharged the project construction finance facility that we had in Turkey on our Öksüt project. We have actually paid that down here in the new year. But in terms of the 2019 year end balance sheet, we actually finished with a debt net of cash position of $35 million. So I think that makes very strong sort of liquidity profile moving forward. I will just move on to the next slide here on Slide 6 and what we are looking to do at this slide is talk more to 2020, so the current year that we are in now. Obviously, first focus, number one priority is safety. Myself and the senior executive leadership team have been strategizing, deliberating quite a lot on what we need to do to improve our business to ensure that we are all doubling down on our commitments to work safe home safe and as best possible ensuring that we have a culture and an operating environment of zero harm. A number of initiatives and measures have been identified, and we’re getting going on each of those initiatives, and we’ll be reporting back on that in due course. The next bullet point here, the second bullet point, extraordinary times that we find ourselves in with regards to COVID-19. I just wanted to just spend a bit of time on this. First and foremost, the safety of our employees remains our top priority during this outbreak and we, Centerra, are taking action based on the best developable information we have. During these extraordinary times, Centerra is prioritizing the health, safety and wellbeing of all of their employees, contractors, communities and other stakeholders. To-date, Centerra has experienced no operating or production disruptions nor any supply chain interruptions or impact. However, one thing you will note in our MD&A and our news release is the company has voluntarily decided to undertake a significant reduction of manpower and operations at the Öksüt project in Turkey. This will commence on March 31 for an initial period of 2 weeks. This decision was taken in response to recent Turkish government sort of advisory initiatives aimed at reducing the spread of COVID-19. The reduction will result in a suspension of over bit mining activities, though limited crews will remain on-site to continue placing ore on the heap leach pad to continue operating the ADR plant and to perform other essential site services. At Öksüt, we have over 1 million tons of stockpiled ore and 150,000 tons of crushed ore material that is available for staffing. Öksüt has prepared detailed plans in case of further reduction or cessation of operations becomes necessary. Just with regard to Kumtor and Mount Milligan, these operations continue to run for the time being. And in the case of Kumtor, it’s actually with the specific support of the Kyrgyz Republic Government. Each site has implemented a number of proactive measures to prevent the spread of COVID-19 and to ensure the safety of our employees, contractors, communities and other stakeholders. Likewise, both Kumtor and Mount Milligan also have detailed plans in case the reduction or cessation in operations becomes necessary. In addition to these precautionary measures, our operating mine sites have been actively assessing the resiliency of their supply chain. They have been increasing their mine site inventories of key materials and developing contingency plans to allow the continued operations. We want to note that this situation is fluid and it’s been changing rapidly. The measures enacted reflect the company’s best assessment at this time. They will remain flexible and will be revised as necessary or advisable or as is recommended by the public health and government authorities. With that said, just moving on to the third bullet point here. You can see in terms of our recently released guidance, great guidance for gold production, company-wide basis as high as 780,000 ounces of gold, as well as copper production of 85 million pounds from Mount Milligan. In terms of that 780,000 ounces what we are looking to do this year is increasingly showcasing a higher level of diversity as Öksüt transitions from construction into operations. Fourth bullet point here I mentioned the first gold pour, at Öksüt, that was announced on – that took place on January 31. That was an important milestone. We are expecting to be declaring commercial production in Q2 of this year. I think what you are going to see in terms of the annual profile you see a modest level of gold production from Öksüt in Q1. But as we ramp up operations, you will see progressive increases quarter-over-quarter. As noted here, we have been – mining has been underway for sometime now for more than 9 months and we continue to see good reconciliations. We have been positive in terms of the underlying reconciliation of our ore tonnage and ore grade in the underlying reserve rock model. One of the announcements today with the Board’s declared a dividend of CAD0.04 per share. Again, that’s based on the strong cash flow performance and the strength of our balance sheet in 2019. We have also today announced that we have released our new comprehensive 43-101 technical report for Mount Milligan. A lot of detail there, that’s available on SEDAR now. Dan, our COO, will touch on it in a little bit more detail. But I’d note the commodity price assumptions that we employed in that document relative to the current market conditions that are somewhat conservative. Even so we are seeing meaningful sort of cash flow and ongoing profitability from the mine moving forward. One of the third bullet point here, one of the key highlights with our news flow is the significant increase in resources that we have had at Kumtor. You can see as illustrated here, our measured and indicated resources grew by 3.3 million ounces, which I think is attributable to the ongoing investment that we’ve been making in exploration at Kumtor in 2018, 2019. It’s a significant increase, and in terms of our finding costs, we have been delineating these resource ounces at cost as low as $6 per ounce. What we are now focused on is the second last bullet point here. We are going to be looking to finalize an updated 43-101 for Kumtor and hopefully we will be looking at bringing in a material amount of this new resource into reserve category. And hopefully, that could underpin a further extension in Kumtor’s open pit asset life moving forward. So I think that’s an important catalyst and an important development that we will be working on in the back half of this year. This is the last item of note, a lot of variability that we are seeing worldwide. Gold prices are strong. But in terms of our businesses, our assets in the jurisdictions that we operate in, we are benefiting from some favorable devaluations in terms of exchange rates, likewise, in terms of the world oil price, regime, if you will, like what we are paying in terms of our diesel fuel prices is significantly lower than what we were planning when we commenced the year, since it’s all making for – hopefully making for a favorable headwind – sorry tailwind. Just on Slide 7, just to be on financials, the waterfall chart on the top left is our 2019 results. So you can see Kumtor and Mount Milligan combined contributed $329 million positive free cash flow. The red columns of the commenced just illustrate how we deployed that cash during the year. You can see in terms of the first three red columns, the repayment of debt was a key priority. The second one, the $63 million, that was the settlement expense associated with the closing of the strategic agreement, and you can see that we funded $87 million worth of construction cost at Öksüt. When I look at this chart and I envision what this chart is going to look like in 2020, what I would like to note is the green column should be benefiting from the favorable gold price environment that we’re seeing. And when it comes to debt repayments, settlement expenses and Öksüt spend, these items largely are non-continuing when you think about our business moving forward. Lastly, the chart there on the bottom left is just our net debt sort of continuity profile and as you can see, just on the back of the significant cash flow and the dedicated debt repayments, we have been increasingly approaching a – transitioning into a positive net cash position. We are still in a net debt position, as at the end of 2019, it was some $35 million, but trending favorably. Just on Slide 8, just in terms of our environmental, social and governance profiles, you can see we have listed a number of attributes here. I’ve already spoken in detail of safety, the second bullet point in terms of the license to operate without any business interruption incidents for some 78 months. There was no environmental incidents during the quarter, increasingly, now we are rolling out different measures and initiatives focused on gender diversity in terms of our leading from within programs. Also this year we are rolling out our – looking to be a diverse and inclusive organization and we have got our internally branded People First program that we are rolling out this year. And the last bullet point, which I will use to transition on to Slide 9, we are a member of World Gold Council. The World Gold Council recently released their responsible gold mining principles. We are a signatory to these principles. And you’ve seen the third bullet point we actually volunteered to have Kumtor participate in a pilot walk-through of this program back in 2019. That was a very successful program in terms of there being no major gaps or non-compliances. And we’re now working on this in earnest. And here in 2020 we will be looking to roll this out to all of our other operating sites as well. With that, I am now going to look to pass the call over to our Chief Operating Officer, Dan Desjardins. So with that, Dan, please?

Thank you, Scott. Good morning, everyone. Before I refer to the slides, I would like to talk about safety. We continue to focus on our operational safety with work safe home safe, visible felt leadership, critical controls. And we had some successes in terms of substantially reducing our lost time incidents. But our safety performance was really hurt by the tragic events at Kumtor in December and then mid-February. We are working hard to understand where we are failing on this area and so everyone can go home safe everyday. In terms of safety milestones in 2019, even Kumtor last summer celebrated one year without a lost time incident. They approach 8 million man hours. At Mount Milligan, they had a similar achievement in October. Turkey, we were under construction for the whole year and they are now approaching 2.2 million man hours without a lost time accident and approaching 1 year LTI free. Moving to Slide 7, at Kumtor, in Q4, we produced 148,000 ounces at $657 an ounce and in the full year, we exceeded 600,000 ounces with [indiscernible] ounces at an all-in sustaining cost of $598 which bettered guidance. Notably, we moved forward a 2-week mill shutdown for maintenance from January 2020 into December of 2019. And we brought the plant backup fully online at December 30. Due to the tragic waste dump failure on December 1, we did no mining in December and not much in January, but we did receive all our necessary permits for 2020 operations and we did receive a restart order on January 22. For the year, Kumtor mined 13% less tons, but it still achieved an impressive dollar per ton cost of $1.26. In the plant, the recovery was also very good at 83.5% with a feed grade of 3.69, which was better than planned. Kumtor generated $104 million free cash flow in the fourth quarter and $240 million, which includes $63 million payment to the Kyrgyz Republic settlement. At Mount Milligan, the full year gold production was 183,000 ounces at $828 an ounce. This exceeded the gold guidance, and we met our copper guidance of 71 million pounds produced. The mill throughput had averaged 45,000 tons per day, calendar day, but we did do 51,000 tons per day, per operating day. We did generate $27 million of free cash flow in 2019 at Milligan. We did much better with water in the second half of 2019. And in 2020 to-date, we had a wetter fourth quarter as well as we did access additional underground aqua for water, which kept our inventory of water level quite level through the winter where we did not affect our ability to run the plant at full volumes. We have prepared to access our permitted service water, so we will be going after that starting April 1 when the spring melt starts in order to increase our water inventory. The plant maintenance of Milligan continues to improve, therefore, we’re giving steady throughput, and that is planned in 2020. At Öksüt, as Scott said, we are 89% completed at the end of the year and we did do our first gold pour in January. If you go to the next slide, Slide 12, at Öksüt, we are ramping up to commercial production with our second gold pour yesterday, and we are planning one more in the month. We are still working through issues in our primary crusher system, but we have supplemented that with portable crushers. The ADR is running as designed, and we continue to increase the irrigation on the heap. Unfortunately, we have had a number of severe weather delays caused by higher than normal levels of snow, and a large number of mining days were lost with zero visibility due to fog. This has put us slightly behind our plans but we have the equipment in place to make up the shortfall once we have drier weather. At Mount Milligan, we are working closely with our partners and regulators, and we expect to have ample water for the full production for the year. Mount Milligan is focused on achieving consistent and improved production through maintenance and operational controls. We have also begun to identify some substantial cost savings by converting generation-set power into BC Hydro power. We have flattened our management structure, and we’re saving on the fresh headwater pumping and other CI initiatives. With the $3 million increase in the open pit resources, we are now working on an updated Kumtor technical 43-101 and that should be completed in the second half of 2020. We continue to spend on brownfields exploration, a total of $32 million in 2020 is budgeted specifically $20 million at Kumtor. If you go to Slide 13, these are photos of the Öksüt facility pit, leach pad and ADR plants in the fourth quarter of 2019. Due to the COVID-19, we are planning a temporary shutdown, as Scott mentioned, for 2 weeks at Öksüt, but we will continue to have skeleton staff onsite to continue safe operations in the stacking ore in the heap irrigating and running the ADR plant as well as provide essential care and maintenance services. On the next slide, Slide 14, as announced, we have now completed the technical report and filed it today for Mount Milligan. The new plan now shows a 9-year mine life. The decrease in the reserves was driven by two main factors. First, we did identify escalating costs related to water sourcing, increased maintenance, increased labor component and lower processing throughput as compared to what was previously reported in the 2017 technical report. These factors have resulted in an estimated NSR cutoff increase to $9.55 a ton from $8.12. The second is the resource model was updated incorporating an additional 122 drill holes and metallurgical recoveries were re-estimated. This resulted in a revised ultimate open pit design and associated reserve decrease. Teams of the bid mobilized in Q3 2019 to target both cost reductions and improved recoveries. One example of potential future improvement is a small staged flotation reactor pilot plant that is planned to be commissioned in the second half of this year to validate some test work that we have taken to improve both copper and gold recoveries. It should be highlighted that Milligan’s open pit optimization plan used a gold price of $12.50 per ounce and copper at $3 and exchange rate of $1.25 in the mineral reserve estimate. Our technical team at Mount Milligan will continue to look for opportunities to further optimize the mine plan with a focus on gold ore content and with the objective to lower the strip ratio, which increased since the previous technical report. The cash flow over the 9 years, as you can see, is a net free cash flow undiscounted basis of $398 million. On Slide 15 for several of you on the call that have visited the Kumtor mine site with me in my previous role as President of Kumtor, you will be familiar that Kumtor’s specific objective back in 2018 was to extend the mine life. Thanks to the efforts of Kumtor’s team, exploration geologists, the corporate technical team, we are one step closer to achieving this goal. Kumtor’s measured and indicated resources increased by 3.3 million ounces to 6.3 million contained ounces. That’s exclusive of our reserves. This is from the inclusion of drilling results from 2018 and 2019. What is notable is that this represents an average finding cost of, as what Scott said, $6 per ounce. I would also draw your attention to the measured gold resource grade which is now an average of 4.1 grams. In 2019, Kumtor averaged our mill feed grade at 3.69 and we generated significant cash flow at an average gold price of $13.69. We are working on detailed mining plans now with a view of publishing an updated technical report on Kumtor in the second half of this year. Moving to Slide 16, a substantial amount of drilling was focused in the hockey stick area. This is on the east side of the pit and it extends the central pit to the south, as can be seen in that shaded area. On Slide 17, we also updated the resource model for the whole Central Pit and Sarytor Southwest. This further contributes to part of the resource increase. Now I will turn over the call to Darren.

Thanks, Dan and good morning everyone. For those following on our investor deck, I am going to be speaking to initially Slide 19. Centerra recorded $312 million in revenue during the quarter. This consisted of $238 million in gold sales, $32 million in copper sales and $42 million from the molybdenum business unit. For the full year, Centerra recorded $1.4 billion in revenue. This consisted of $1 billion in gold sales, $141 million in copper sales and $213 million from the molybdenum business unit. In 2019, we sold in excess of 780,000 ounces of gold, a 10% increase year-on-year. We also sold 67.4 million pounds of copper, a 52% increase as the Mount Milligan team were able to increase mill availability with 21% more tons processed during the year. This increase is attributable to preventative maintenance together with the increased water levels. The mill head grade was also 25% higher year-on-year at 0.26% copper grade. As Scott mentioned earlier, the company exceeded 2019 gold production and met copper production for the year. And net loss of $93 million was recorded for the year. This included three components the $231 million non-cash impairment recorded in Q3 on the Mount Milligan asset, noting no further adjustments required with the delivery of the Mount Milligan technical report. It also included the additional $10 million charge associated with the Kyrgyz Republic settlement also recorded in Q3. The final significant adjustment was the $34 million non-cash ARO adjustment at the Thompson Creek mine. The expenses associated with the movement in the underlying discount rate with reference to U.S. Treasury bond rates. There is no change to the underlying activities required to mediate this property. Just moving on to Slide 20, our adjusted net earnings after factoring in these three items resulted in a profit of $181 million, a 53% betterment year-on-year. This equates to an adjusted earnings per share of $0.62 for the year. From a cost perspective, Centerra ended the year with a final quarter recording an all-in sustaining cost of $799 per ounce. This equates to $708 all-in sustaining costs per ounce for the full year. It is important to highlight that both operations ended the year with a significant value on surface that will be realized in 2020. Kumtor finished the year with approximately 1 million contained gold ounces on surface in stockpiles, of which approximately 70% is planned to be processed in 2020. Mount Milligan ended the year with just under two shipments of copper-gold concentrate on hand, which contained 85,000 ounces of gold and 19.2 million pounds of copper. At an asset level, Kumtor recorded an all-in sustaining cost of $598 per ounce for the year, while Mount Milligan recorded all-in sustaining cost of $828 per ounce for the full year. Adjusted consolidated cash provided by – operating cash by operations was $397 million, a 78% increase in comparison to the prior year, the adjustment relating to the settlement of the Kyrgyz payment. For the 2019 year, Centerra generated $35 million in free cash flow. It is important to highlight that as Centerra moves into 2020, we are also adding Öksüt to our cash flow generation complementing both the established free cash flow operations of Kumtor and Mount Milligan with $303 million and $27 million of free cash flow respectively generated in 2019. This cash flow was achieved with an average gold price of $1,309 of gold and an average realized copper price of $2.09 per pound. As noted in the bottom left-hand table, Centerra finished the year with $35 million net debt position with $615 million liquidity, the main component being the $500 million un-drawn corporate facility at year end. The Centerra board, together with management, spent significant time and effort in evaluating whether to declare a dividend in light of the ever change in COVID-19 environment. The final conclusion was reached to declare a $0.04 dividend in consideration of several factors: the company’s strong financial position; the support of employees, the government and local communities in the countries we operate; the current status of COVID-19 in communities we operate and source of our workforce, together with preventive measures taken by both the government and the company, we ran various financial scenarios ranging from 1 week up to 4 months with impacting operations; and finally, our key cash generating assets continue to operate. We will obviously need to take careful consideration for future dividends in light of COVID-19. With that, I will pass it back to Scott.

Okay. Thanks, Darren. I am just on Slide 22. Just again, just reflecting on our full year guidance for calendar year 2020, you can see the column on the far right. We are guiding for what should be another strong year just given the prevailing macro environment. So in terms of company-wide gold outlook, we are guiding for as high as 820,000 ounces of gold. And in terms of our all-in sustaining costs, we are looking to produce that gold as low as $820 per ounce. With regard to the current gold price environment, this is an indicative all-in sustaining cost margin of more than $700 per ounce. This, together with some of the exchange rate devaluations we’ve seen, the lower diesel fuel pricing environment should make for a good year in terms of strong profitability and ongoing strong financial performance. I think it’s important to note though, due to the rapidly evolving risks relating to COVID-19, this guidance will not reflect the company’s estimates of its performance, if there are any further significant disruptions to any of our operations. Just moving to the next slide, on Slide 23, with our financials today, we also filed our year-end reserves and resources as well as the comprehensive 43-101 technical life-of-mine plants in Mount Milligan. Just referencing the table here at the top of this slide, you can see we are reporting a year-end inventory of some 11 million ounces of gold reserves across the company. And the table at the bottom, which is our copper reserve inventory, finishing the year at 1.6 billion pounds of copper. Just my final slide, on Slide 24, again, just looking to use the world industry all-in sustaining costs as a backdrop. And therein, we are just illustrating where each of our assets are located on the world cost curves. I think we, as a company, with our business plan, our strategy, what we are targeting for is to be showcasing or demonstrating that this is a portfolio that can – hopefully, we can get this down into lower cost quartile. I think that’s what’s always served Centerra very well, just the high margins in our business. And that way, in regards where we are in this prevailing gold price environment, we are always going to be in the best position for maximum profitability and maximum free cash flow. With that, operator, I would now like to pass the call back to you just to see if we have any questions on the line.

[Operator Instructions] We have a question from Trevor Turnbull with Scotiabank. Please go ahead.

Yes, excuse me. I was just wondering about the new mine plan that you are working on with respect to Kumtor and the resource increases you have had there. And as you work through that this year, I was just wondering, can you give us a little bit of color on what you’re thinking with respect to the waste dumps? Is it likely you’re going to end up reusing some of the existing dumps or are you looking at having to put in a new location for the new mine plant?

Thanks, Trevor. It’s Scott. Dan, are you happy to take that question?

Yes, I can take that, Scott. Thanks, Trevor. Currently, we have 3 waste dumps. We have the Central Valley, which we are presently doing the stripping for cut-back 20 and replacing on the material in Central Valley. Further along, we have the Sarytor Valley, which is right below the Sarytor and Southwest Pit. Where we had the waste dump failure was the Lysii Valley. We are not dumping in there right now. We are currently working with the Kyrgyz engineering firm and as well as the Kyrgyz government on how to safely rebuild the waste dump in that valley. Our intention is to go back in that valley by – in the second half of the year as that is the most appropriate place to place the cutback 20 and cutback 21 waste.

Okay, great. Thank you. And I guess just the other question with respect to those resource increases. You’ve mentioned that those were from 2018 and 2019 drilling. Does drilling – and maybe this was in the press release, I just didn’t get a chance to get through it that closely, but is drilling continuing this year? Are you still looking to – is there still opportunity for further resource growth from programs this year and going forward at the main pits there?

Dan, do you want to?

Scott, I can – yes, I can take that, Scott. Where we’re now focusing our drilling is the area between the Hockey Stick Zone and our Southwest Pit. There – that’s where we were focusing, and that’s in 2019, slowly in the Hockey Stick Zone, and it’s a continuation of the trend towards the Sarytor and Southwest Pit.

Okay, yes and I think maybe you did – yes, go ahead.

Sorry, Trevor, it’s Scott. So the actual budget this year is approximately $20 million, so it’s a significant budget, and that budget was underpinned on success of the prior 2 years.

Okay, great. That’s all I had. Thank you.

We have a question from Daniel McConvey with Rossport Investments. Please go ahead.

Yes, good morning Scott, Dan and everyone. A question on Mount Milligan, just looking at the costs and the disclosure you did just on what happened from 2018 to 2019, just it’s – I realize it’s a water issue, there is a throughput issue, everything else. But how much of a concern is that cost escalation to you and do you think – how much of that can be undone as you get throughput going this year? And that’s my first question. I’ll let you go ahead.

Yes, thanks for the question, Dan. I would categorize it as a significant concern. It’s something that myself and the leadership team are quite focused on right now. We’ve spoken about this previously in terms – the shortfalls in mill productivity, the challenges we’ve had there, the lower productivity has resulted in higher unitary costs. Originally, we are having challenges in terms of mechanical availability. So we added a lot of resources in that regard. And I think we’ve been successful in terms of establishing more of a consistent run rate in the mill facility there in terms of sort of averaging around 55,000 tons per day. So in terms of all the additional costs and the resourcing that we added, it’s achieved its objective. But what we as a management team now need to work on is how do we get more leaner, how do we optimize our cost structure there, pullback some of these costs that we’ve added into the business model as such that we can get down the result in unitary cost in terms of the all-in sustaining costs. So that’s going to be a key objective for this year and moving forward. And I think we are also seeing some opportunity just in terms of the pit optimization itself, the mine plan, everything that went into that 43-101 study, it was comprehensive, but it was a short time line there in terms of what we could incorporate into that study. But I think with the passing of time here, as there is some action items for us in terms of where we see some further value enhancing opportunities, we will be working on that throughout the course of this year.

Okay, great. Thanks. Second question is kind of related. You have two projects, Kemess and Hardrock and I know you are taking action with Hard Rock. And I just – maybe this – if you could elaborate on your position with both of those somewhat because I knew you were looking at studies due around now for each one. And I just wonder, given the escalation at Kemess, if there’s cost escalations in Canada that we don’t fully appreciate are taking place right now, despite the dollar?

Yes. So right now what we are seeing in our – for the Canadian business which is predominantly Western Canada, we are seeing a favorable macro environment in terms of the exchange rate devaluation, which I know you mentioned, but also world oil prices have gone through a significant devaluation. And we see that translating into lower diesel fuel prices in terms of what we are paying out in our mine site locations, including Mount Milligan. In terms of our sort of organic growth pipeline, as you know, we’ve got two Canadian domiciled, organic growth opportunities. Obviously, the Kemess project in British Columbia, and then we’ve got the Greenstone joint venture here in Ontario. Right now, when we’ve been discussing our opportunity as we move forward with the business, I think this year, in terms of having those discussions with the Board, and this is constant, we’re always strategizing on this, but quite consistently, what we’ve been really focusing in on is let’s just make sure we are maximizing the value of our existing operating assets. And with regards to Öksüt, our new project in Turkey, we have only just kind of finished construction of that asset. We’re just, as we speak, really transitioning more and more into operations mode, and the big focus right now is to achieve commercial production in Q2 of this year. But even thereafter, I’d be comfortable saying that from the Board’s perspective, they’re still going to want to see at least three to six months of consistent sustained operations where we’re operating a design achieving our targets, etcetera, in the forward months, you’ll see us delivering those sort of catalysts, if you will, just in terms of demonstrating proof-of-concept on the asset. And I think it’s only as and when we’ve achieved that, that the board management will start shifting into a different gear and start strategizing around, okay, what are we going to do next in terms of growing the company? So it – coming back to your question in terms of that organic growth pipeline, which one represents the more stronger risk reward sort of value proposition for Centerra in terms of Kemess versus Greenstone? Each asset has different attributes, so it’s really going to depend on the underlying sort of business environment or macro environment. It will depend on the value proposition, is it compelling? I’m giving you a long answer here, Dan, but right now, it’s not – there’s no decision that is imminent. I think right now, we are still quite focused on executing in Turkey on Öksüt.

Okay. Appreciate the answer. Like the dividend, like the free cash flow and investors are after that. It’s just on the flip side, the coin is probably, if you believe, if cost escalation isn’t going to be a huge concern right now. And of course, with the dearth of new produce going ahead and what’s taking place in the macro level, like we’ve just seen – if you believe these gold prices can stay anywhere near where they are, it’s a great time to develop produce in Canada. Thank you.

Yes, thanks.

We have a question from Adam Graf with B. Riley. Please go ahead.

Thanks. Scott, I skimmed through the 268 page technical report and the releases you put out today, and maybe I missed it, but how did the current cut-off grade that you guys determined in Canadian dollars compare with the 2017 cut-off grade?

Yes. So the…

I’m sorry I’m asking like that.

Yes, sorry. The NSR sort of cut-off grade, what we were using was CAD9.55 or $7.64. I just – I don’t have it in front of me right now what we were using previously. I don’t know if you have it Dan, in front of you?

Yes, it was CAD8.12.

Canadian?

Canadian.

CAD8.12, yes.

And then maybe it – I’m assuming you guys floated a bunch of cones at different gold prices. Do you have a feel for – obviously, there’s a large component of marginal ore. Do you have a feel for what the Mount Milligan reserves and resources would do at $1,600 gold?

I don’t, Adam. We used the commodity price assumptions of $12.50 gold and $3 for copper. And in terms of what we published in that 43-101, we did not provide any sensitivity in terms of gold or pip.

Yes, I noticed that.

And they’re having the – most of the price.

And then one last question. What was the diesel price assumption that you guys used?

I don’t have any currently. Dan or Darren, do you have that reference?

I don’t, sorry.

No problem. Maybe you will follow-up offline then?

Yes.

Yes, yes. Sorry about that, Adam.

We have a question from Terence Ortslan from TSO Mining Analyst. Please go ahead.

Thanks, thanks. Good morning. Just a question on the – I thank you for the model on the Mount Milligan, by the way, for the next many years. Can you just tell me in 2020 have you finished or completed your TC/RC discussions on the copper and what they are?

Darren, do you want to take that?

Yes. We have – we set those in basically November every year. I don’t think we have given public disclosure on that. So I’m not comfortable just given that it is confidential, but it is basically the market rate, sort of set every, virtually, November and then March. So it is just basically the industry’s – the industry levels.

But a lot of the contracts are not completed in the industry, and you’re making assumptions in the model. What are your assumptions in the model that you have in 2020 on TC/RC? You gave a million dollar number. What’s the TC/RC in the model? For [indiscernible] price of copper, but you got $23 million, I think, for the year?

Yes. So what we’ll do is, John Pearson, our Vice President of Investor Relations, he’ll get back to you after this call with some of those more granular details.

Okay. Second question is that with on your treasury functions with the financial stress in many locations that you operate and also international banking system. Turkey and Kyrgyzstan, how are you moving the cash around? Where is the cash? And are you controlling the flow and where are you keeping the cash at the end of the day in terms of your treasury functions?

Darren?

Yes, sure. All of our cash or any excess cash is basically retained in North America. At Kumtor, for example, every shipment, for every two weeks at the moment, we are paid directly into a New York bank account. So it doesn’t actually touch Kyrgyzstan. In Turkey, there – when a sale occurs we are paid in Turkish lira, we can convert that, that same-day or within 24 hours and then once again, any excess cash is distributed back to North America. So we are not seeing any constraints being put in place by the government. And as I said, our main asset in Kumtor, it doesn’t even touch the local country bank accounts.

Okay, alright. Thanks very much for that. Thank you. Looking forward from John to get the answer on TC/RC. Thank you.

[Operator Instructions] We have a question from Bryce Adams with CIBC. Please go ahead.

Hi, good morning. Thanks for taking my questions. Just one question from me actually and it’s on Mount Milligan and on the throughput rate, the 60,000 tons per day. I was just wondering if you could discuss what the optimizations or initiatives are that you expect that will enable you to hit that 60,000 ton a day rate?

Okay. Dan, do you want to take that?

I certainly can. The number one thing that we are working on is the plant mechanical availability. We regularly have days in the high 60,000. And what we are working on is trying to make sure that we can consistently operate up in that area. So there is a number of initiatives on the maintenance side and de-bottlenecking both the primary, secondary crushing before the SAG. So that’s certainly one main one that we are working on. It’s difficult there for blending, so we can get a consistent type of feed because of the strip ratio being slow, but mostly, yes, mechanical availability and then seeing where we can find ways to debottleneck the upper end of the plant.

Got it. Thanks. So is there a portion of the CapEx spend that’s allocated towards that availability work?

In terms of the life-of-mine capital, this is in the 43-101.

Yes. That’s right. I was just wondering if – what the costs associated with that with improving the availability, have been factored out?

We’ve incorporated – any sustaining capital requirement in the process is [indiscernible] There’s a line item processing client sustaining capital.

I see that one. So that is directly related to availability?

Not directly, but a portion of that would be.

Thanks for answering the question.

Thanks Bryce.

And there are no further questions at this time.

Okay. Thank you all for joining the call today. And with that, I think we will end the call.

That does conclude the call for today. We thank you for your participation and ask that you please disconnect your line.