Centerra cuts Kumtor forecast

Centerra Gold (CG-T, CAGDF-O) expects to produce up to 17% fewer ounces than originally planned from its Kumtor mine in 2007 owing to a rock slide at the open pit mine in Kyrgyzstan earlier this summer.

The company, which is 52.7% owned by uranium giant Cameco (CCO-T, CCJ-N), says production next year will ring in at around 440,000 oz. to 475,000 oz., down from the previous estimate of 533,000 oz.

Production forecasts for 2008 and 2009 remain unchanged at 674,000 oz. and 843,000 oz. The company expects to recover production lost in 2006 and 2007 in subsequent years.

The rock slide in mid-July involved a “significant portion” of the northeast wall of the Kumtor pit. A slope monitoring system allowed for the advance evacuation of the mining area. The mine’s reserves are unaffected, as the slide is completely contained by the ultimate pit design.

The movement occurred above the higher-grade stockwork area that Centerra planned to mine later this year and into 2007. Soon after the incident Centerra lowered its 2006 production forecast to around 300,000 oz. at a cash cost of about US$530 per oz. from its previous projection of 410,000 to 420,000 oz. at US$370 to US$380 per oz.

The mining plan for 2007 includes accelerating production from the high-grade SB zone, at the south end of the Kumtor pit, which is expected to deliver between 280,000 and 315,000 oz. Another 150,000 oz. is to come from the Southwest Zone pit, and some 10,000 oz. from stockpiled material. Centerra also intends to fast track permitting and development of the Sarytor pit, 5 km southwest of the mill, though that pit is not expected to contribute in 2007.

The new mine plan requires new capital equipment and approval by Kyrgyz authorities.

During the three months ended June 30, Kumtor produced 99,743 oz. of gold at a total cash cost of US$402 per oz. A year earlier, the mine churned out 138,084 oz. at US$253 apiece. Production in 2005 came to 501,000 oz., off 24% from a year earlier thanks to lower head grades. Total cash costs increased US$74 per oz. to US$274 per oz.

At the end of 2005 reserves at Kumtor had significantly increased to 40.2 million tonnes grading 3.8 grams gold per tonne, mostly owing to the newly defined high-grade mineralization at the south end of the Kumtor pit.

More recently, exploration drilling has extended the SB zone another 40 metres along strike to the south. The zone has been delineated over 360 metres of strike, and remains open along the strike and down dip. A single hole to test for extensions at the north end of the pit was abandoned; it is currently being re-drilled.

Ongoing delineation and infill drilling at Sarytor indicates that while mineralization is continuous, its grade and thickness is very variable along strike and down dip.

During the recent second quarter, Centerra nearly doubled its net earnings to US$29 million (or US13 per share) as higher spot and realized gold prices helped offset lower production. Revenue between the two periods jumped by 12% to US$106.8 million.

Combined gold production from Kumtor and the 95%-owned Boroo mine in Mongolia weighed in at 164,252 oz., up from 153,811 in the first quarter, but off from the 213,225 oz. during the year-earlier period. Year-over-year cash costs climbed by 47% to US$325 owing mostly to lower head grades and lower production at Kumtor.

At quarter’s end, Centerra had US$224 million in cash, with no long-term debt.

Centerra owns 100% of the Kumtor gold mine through its wholly owned subsidiary Kumtor Gold. State-owned Kyrgyzaltyn has a 15.7% stake in Centerra.

Shares in Centerra were unchanged at $11.43 in late-afternoon trading in Toronto following the news on Sept. 6; Cameco was off $1.47, or around 3%, at $45.55.