Le Lézard
Classified in: Mining industry, Ebola virus, Business
Subjects: EARNINGS, MISCELLANEOUS

Centerra Gold Achieves 2017 Consolidated Gold Production Guidance, Beats Cost Guidance, Records $210 Million Net Earnings and Generates $234 Million Free Cash Flow(NG) and Provides 2018 Outlook



This news release contains forward-looking information that is subject to the risk factors and assumptions set out under "Caution Regarding Forward-looking Information".  It should be read in conjunction with the Company's audited financial statements and the notes thereto for the year ended December 31, 2017.  The consolidated financial statements of Centerra Gold Inc. are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.  All figures are in United States dollars and all production figures are on a 100% basis unless otherwise stated.

All references in this document denoted with NG, indicate a non-GAAP term which is discussed under "Non-GAAP Measures" and reconciled to the most directly comparable GAAP measure.

TORONTO, Feb. 23, 2018 (GLOBE NEWSWIRE) --   Centerra Gold Inc. ("Centerra") (TSX:CG) today reported net earnings of $130.0 million or $0.45 per common share (basic) on revenues of $358.2 million in the fourth quarter of 2017.  The fourth quarter 2017 result includes a tax benefit of $21.3 million as a result of a change in tax legislation enacted in the U.S.  Excluding this item, adjusted earningsNG in the fourth quarter of 2017 were $108.7 million or $0.37 per common share (basic).  During the same period in 2016, the Company reported net earnings of $63.6 million or $0.23 per common share (basic) on revenues of $305.7 million and adjusted earningsNG of $68.6 million or $0.24 per common share (basic). 

For the full year 2017, the Company recorded net earnings of $209.5 million or $0.72 per share (basic) on revenues of $1.2 billion compared to $151.5 million or $0.60 per share (basic) on revenues of $757.7 million in 2016.  The increase in earnings in 2017 reflects a full-year of operations at Mount Milligan and increased production at Kumtor.  In addition in 2017, the Company recorded charges for a settlement reached with the Kyrgyz Republic Government of $60 million, an impairment charge of the Company's Mongolian assets of $41.3 million ($39.7 million net of tax), a tax benefit of $21.3 million resulting from the enactment of new tax legislation in the U.S. and a gain of $9.8 million ($6.9 million net of tax) on the sale of the ATO property in Mongolia.  Excluding these items, adjusted earningsNG in 2017 were $281 million or $0.96 per share (basic) compared to adjusted earnings of $160.9 million or $0.64 per share (basic) in the comparative year.

2017 Fourth Quarter and Full Year Highlights

Subsequent to December 31, 2017

Commentary
Scott Perry, President and Chief Executive Officer of Centerra stated, "I am pleased to report that we met our overall gold production guidance producing 785,316 ounces at an all-in sustaining costNG on a by-product basis  of $688 per ounce sold, beating the low-end of our all-in-sustaining cost guidance for the year.  Kumtor had another strong year exceeding its revised production guidance and beating its all-in-sustaining cost guidance, delivering 562,749 ounces of gold production at all-in-sustaining cost on a by-product basis of $698 per ounce sold in 2017.  In 2017, Mount Milligan met its all-in-sustaining cost guidance at all-in-sustaining cost on a by-product basis of $505 per ounce sold but fell short of its gold and copper production producing 222,567 ounces of gold and 53.6 million pounds of copper."

"Financially, both operations generated a significant amount of cash provided by operations before changes in working capitalNG during the year, Mount Milligan generated $138.6 million and Kumtor generated $424.3 million.  The lifting of the restrictions on Kumtor's cash along with the positive cash flow generated from both our operations during the year enabled the Company to aggressively pay down its debt by approximately $209 million.  In 2017, we generated $188 million of free cash flowNG from Kumtor and $127.4 million from Mount Milligan."

"For 2018, we are estimating consolidated gold production to be in the range of 645,000 to 715,000 ounces.  Additionally, we are expecting 47 million to 52 million pounds of payable copper production from Mount Milligan for the year.  At Kumtor, we are expecting gold production to be weighted more towards the back-half of the year with approximately 45% of the production expected in the fourth quarter of 2018.  At Mount Milligan we expect 60% of the production to be in the second half of the year.  Centerra's projected consolidated all-in sustaining cost per ounce soldNG on a by-product basis for 2018 is expected to be in the range of $799 to $885 per ounce."

"Our projected capital expenditures for 2018, excluding capitalized stripping, is estimated to be $242 million which includes $100 million of sustaining capitalNG and $142 million of growth capitalNG spending.  Growth capital spending includes $82 million for the Öksüt Project in Turkey where we expect to commence construction activity in April and $36 million to advance the Kemess Underground Project with pre-construction activities.  Öksüt represents the new generation of low-cost production and an important third source of cash flow for the Company."  See "2018 Outlook" for further details.

This Management Discussion and Analysis ("MD&A") has been prepared as of February 22, 2018, 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, 2017 in comparison with the corresponding periods ended December 31, 2016.  This discussion should be read in conjunction with the Company's audited financial statements and the notes thereto for the year ended December 31, 2017 prepared in accordance with International Financial Reporting Standards ("IFRS").  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 dollars ("USD"), except as otherwise indicated.  Additional information about Centerra, including the Company's most recently filed Annual Information Form, is available at www.centerragold.com and on the System for Electronic Document Analysis and Retrieval ("SEDAR") at www.sedar.com.

Overview

Centerra is a Canadian-based gold mining company focused on operating, developing, exploring and acquiring gold properties worldwide and is one of the largest Western-based gold producers in Central Asia. Centerra's principal operations are the Kumtor Gold Mine located in the Kyrgyz Republic and the Mount Milligan Gold-Copper Mine located in British Columbia, Canada.

Centerra's common shares are listed for trading on the Toronto Stock Exchange under the symbol CG. As of February 22, 2018, there are 291,785,970 common shares issued and outstanding and options to acquire 4,816,297 common shares outstanding under its stock option plan.

As of December 31, 2017, Centerra's significant subsidiaries are as follows:

   Property
  CurrentOwnership
EntityProperty - LocationStatus2017 2016 
Kumtor Gold Company ("KGC")Kumtor Mine - Kyrgyz RepublicOperation100%100%
Thompson Creek Metals Company Inc.Mount Milligan Mine - CanadaOperation100%100%
Langeloth Metallurgical Company LLC
(Molydbenum Processing Plant)
Langeloth - United StatesOperation100%100%
Boroo Gold LLC ("BGC")Boroo Mine - MongoliaStand-by100%100%
 

Centerra Gold Mongolia LLC
Gatsuurt Project - MongoliaPre-Development100%100%
Öksüt Madencilik A.S. ("OMAS")Öksüt Project - TurkeyPre-Development100%100%
Greenstone Gold Mines LP Greenstone Gold Property - CanadaPre-development50%50%
Thompson Creek Mining Co.Thompson Creek Mine - United StatesCare and Maintenance 100%100%
Thompson Creek Metals Company Inc.Endako Mine - CanadaCare and Maintenance 75%75%
     

On January 8, 2018, the Company completed the acquisition of AuRico Metals Inc. ("AMI"), thereby acquiring AMI's Kemess Underground and Kemess East properties as well as a royalty portfolio which includes a 1.5% net smelter return ("NSR") royalty on the Young-Davidson gold mine in Ontario and a 2.0% NSR royalty on the Fosterville mine in Australia.  See "Subsequent to December 31, 2017" for further information.

As at December 31, 2017, the Company has also entered into agreements to earn an interest in joint venture exploration properties located in Mexico, Sweden and Nicaragua.  In addition, the Company has exploration properties in Armenia, Canada and Turkey.

Substantially all of Centerra's revenues are derived from the sale of gold and copper.  The Company's revenues are derived from gold and gold/copper concentrate production from its mines and gold and copper prices realized upon the sale of these products. Gold doré production from the Kumtor mine is purchased by Kyrgyzaltyn JSC ("Kyrgyzaltyn"), a Kyrgyz Republic state owned refinery and significant shareholder of Centerra, for processing at its refinery in the Kyrgyz Republic while gold and copper concentrate produced by the Mount Milligan mine in Canada is sold to various smelters and off-take purchasers. 

The Mount Milligan Mine in Canada is subject to a streaming arrangement whereby RGLD Gold AG and Royal Gold Inc. (collectively "Royal Gold") is entitled to purchase 35% of the gold and 18.75% of the copper produced from the Mount Milligan Mine for $435 per ounce of gold delivered and 15% of the spot price per metric tonne of copper delivered (the "Mount Milligan Streaming Arrangement").

The Company's costs are comprised primarily of operating costs at the Kumtor and Mount Milligan mines and the Langeloth molybdenum processing facility, project development costs at the Öksüt Gold Project and the Greenstone Gold Property, closure and holding costs of the Boroo Mine (a majority of the Boroo infrastructure is on stand-by pending progress on the Gatsuurt Gold Project), care and maintenance costs at the Company's molybdenum mines (Endako Mine and Thompson Creek Mine), exploration expenses relating to the Company's own projects and its earn-in projects, administrative costs from offices worldwide and depreciation, depletion and amortization ("DD&A").

There are many operating variables that affect the cost of producing an ounce of gold and a pound of copper.  In the mine, unit 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 tonne of ore mined.  Ore grade refers to the amount of gold and/or copper contained in a tonne of ore.  The significant costs of mining include labour, diesel fuel and equipment maintenance.

At the mill, costs are impacted by the ore grade and the metallurgical characteristics of the ore, which can impact gold and copper recovery. For example, a higher grade ore would typically result in a lower unit production cost. The significant costs of milling are labour, energy, grinding media, reagents, consumables and mill maintenance.

Mining and milling costs are also affected by the cost of labour, which depends mostly on the availability of qualified personnel in the region 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 DD&A) 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.

Figure A is available at http://www.globenewswire.com/NewsRoom/AttachmentNg/8d8746c4-e1ce-4298-ae34-50e380159fa2

In Figure A, the Company's 2017 production costsNG at its two operating mines totaled $551 million, which includes a full year of production at Mount Milligan. Production costs at Kumtor were 3% lower than 2016 ($332 million in 2017 compared to $343 million in 2016).  The reduction reflects the impact of lower input prices (mainly for consumables) and the varying levels of production in both years. These impacts on costs are discussed in the operational sections of this MD&A.  There is no comparable data for Mount Milligan as the Company acquired the asset on October 20, 2016.

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 international 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 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. 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 during the mine closure phase after completion of the annual environmental commitments.  As required by Canadian provincial laws and US federal and state laws, the Company has provided reclamation bonds for mine closure obligations at its Canadian and U.S. sites, including the Mount Milligan Mine.

The Company reports the results of its operations in U.S. dollars, however not all of its costs are incurred in U.S. dollars. As such, the movement in exchange rates between currencies in which the Company incurs costs and the U.S. dollar also impact reported costs of the Company.

Economic Indicators

Gold Price

The average quarterly gold spot price of $1,275 in the fourth quarter was in-line with the 2017 quarterly high of $1,278 reached in third quarter. The average gold spot price for 2017 was $1,258 per ounce, an increase of 1% over the average in 2016.

Figure B is available at http://www.globenewswire.com/NewsRoom/AttachmentNg/ecb18240-fd66-4ded-aea5-907cab9a5527

Copper Price

The average quarterly copper spot price increased in the fourth quarter to $3.09 per pound, the highest quarterly average of 2017, from $2.88 per pound in the third quarter. The average copper spot price for 2017 was $2.80 per pound, an increase of 27% over the average in 2016.

Figure C is available at http://www.globenewswire.com/NewsRoom/AttachmentNg/e4ac226c-5f1d-4fb3-a2e9-6177ed002c49

Currency

??Figure D is available at http://www.globenewswire.com/NewsRoom/AttachmentNg/2f6fb51b-d585-4c39-af64-3194c394e2d0

Canadian Dollar

The Canadian dollar, despite starting the year under pressure, and facing the prospects of a widening rate disadvantage with the U.S., saw a 7% gain against the U.S. dollar during 2017 (1.34 to 1.25). With the exception of the U.S. dollar, the Canadian dollar underperformed against other major currencies.  In Canada, the Bank of Canada raised its overnight rate twice, from 0.5% to 1%, and suggested it is beginning a tightening phase although it continues to be cautious on concerns surrounding ongoing NAFTA negotiations.  The Canadian dollar is highly exposed to fluctuations in crude oil prices due to the country's status as a major exporter of oil. Energy prices are predicted to remain strong in the short term and interest rates to increase through 2018, which may help prevent potential depreciation of the Canadian dollar.

Kyrgyz Som

The Kyrgyz Som to U.S. dollar exchange rate appreciated 1% over 2017. The Som continues to be influenced by the strengthening of currencies of the Kyrgyz Republic's main trading partners, mainly Russia, and by economic growth in the Kyrgyz Republic. In 2017, the Russian Ruble and Kazak Tenge, strengthened against the U.S. dollar by 5% and 2%, respectively.  The strengthening in the Russian ruble reflects higher oil prices and Russia's improving economic situation. Independent of the performance of the Kyrgyz Republic's main trading partners, economic growth in the Kyrgyz Republic in 2017 can be attributed to increases in gold mining, manufacturing, electricity generation and construction.

Foreign Exchange Transactions

The Company receives its revenues through the sale of gold, copper and molybdenum in U.S. dollars.  The Company has operations in Canada, where the Mount Milligan Mine and its corporate head office are also located, the Kyrgyz Republic, Turkey, Mongolia and the United States of America.  During 2017, the Company incurred combined expenditures (including capital) totalling approximately $1,066 million.  Approximately $567 million of this (53%) was in currencies other than the U.S. dollar (Figure F).  The percentage of Centerra's non-U.S. dollar costs, by currency was, on average, as follows:

Figure F is available at http://www.globenewswire.com/NewsRoom/AttachmentNg/d07279a5-ba10-4e91-987d-e29147f8b7ba

In 2017, Centerra's non-U.S. dollar costs were incurred 51% in Canadian dollars, 40% in Kyrgyz soms, 5% in Euros, 2% in Mongolian tugrik and 1% in Turkish lira. The average value of the Turkish lira depreciated against the U.S. dollar over the year by approximately 3% from its value at December 31, 2016.  The Euro, Canadian dollar, Mongolian tugrik and Kyrgyz som appreciated against the U.S. dollar by approximately 7%, 3%, 2%, and 1%, respectively, from their value at December 31, 2016. The net impact of these movements in the year ended December 31, 2017, after taking into account currencies held at the beginning of the year, was to increase annual costs by $9.1 million (increase of $16 million in the year ended December 31, 2016), inclusive of a foreign exchange gain on Canadian dollars acquired in the fourth quarter of 2017 due to the anticipated closing of the acquisition of AMI in January 2018 ($3.0 million) and currency derivative gain of $1.2 million (nil for the year ended December 31, 2016).

Diesel Fuel Prices

One of the most significant movements in commodity prices in 2017 was the continued strengthening of oil prices.

According to the U.S. Energy Information Administration, based on the global benchmark North Sea Brent, crude oil prices ended 2017 at $65/bbl the highest end-of-year price since 2013. Brent prices have increased $10/bbl since the end of 2016. West Texas Intermediate ("WTI") crude oil prices averaged $51/bbl in 2017, up $7/bbl from the 2016 average, and ended the year $6/bbl higher than at the end of 2016.

Figure E is available at http://www.globenewswire.com/NewsRoom/AttachmentNg/8621c321-f8f4-4c77-af6e-ed49dadbb5f8

Fuel costs represent a significant cost component for Centerra's mining operations.  Prices for Kumtor diesel fuel in 2017 generally reflected the price movements of Brent crude oil, which dipped downward during summer months of 2017 and then gradually started increasing towards the end of the year. On average, the purchase prices for diesel fuel for Kumtor were up 8% in 2017 compared with 2016, averaging $0.41/l for the year. Kumtor sources its fuel from Russia either directly or through Kyrgyz distributors. Kumtor's diesel prices include added costs for other factors such as seasonal premiums for winterizing of diesel fuel and transportation costs from the Russian refineries.

To manage its exposure to fluctuations in diesel fuel prices, the Company has established a diesel fuel price hedge program.  See "Financial Instruments ? Fuel Hedges". 

Liquidity

Financial liquidity provides the Company with the ability to fund future operating activities and investments.  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.

Centerra generated $500.9 million in cash from operations in 2017 and has a balance of cash, cash equivalents and short-term investments of $415.9 million as at December 31, 2017.

As at December 31, 2017, the Centerra B.C. Facility, which was entered into as part of the acquisition of Thompson Creek, had an outstanding balance of $190 million at December 31, 2017, after repayments of $135 million in 2017 (outstanding balance as at December 31, 2016 - $325 million).   Subsequent to December 31, 2017, this facility was amended and restated to become a corporate facility (see Credit Facility - Centerra Revolving Term Corporate Facility).  

As at December 31, 2017, Centerra had drawn $76 million against its $150 million revolving line of credit with the European Bank for Reconstruction and Development ("EBRD").  Subsequent to December 31, 2017, the funds drawn were repaid and the credit facility with EBRD was cancelled.

The Company believes its cash on hand, cash flow from the Company's Kumtor and Mount Milligan operations and cash from the Company's existing credit facilities will be sufficient to fund its anticipated operating, construction and development cash requirements through to the end of 2018.

Capital Management

The Company's primary objective with respect to its capital management is to provide returns for shareholders  by ensuring that it has sufficient cash resources to maintain its ongoing operations, pursue and support growth opportunities, continue the development and exploration of its mineral properties, satisfying debt repayment requirements and other obligations, and certain  benefits for other stakeholders.

Management is aware that market conditions, driven primarily by metal prices, may limit the Company's ability to raise additional funds. The Company is also required to maintain a number of financial covenants as part of its credit facilities, which may limit the Company's ability to access future funding. These and other factors are considered when shaping the Company's capital management strategy.

Credit Facilities

Centerra was in compliance with the terms of all of its facilities at December 31, 2017.

Centerra EBRD Corporate Facility

In 2016, the Company entered into a five-year $150 million revolving credit facility (the "EBRD Facility") with EBRD.  The EBRD Facility included $50 million for the purpose of funding direct and indirect costs associated with the Gatsuurt Project.  At December 31, 2017, the Company had drawn $76 million under the EBRD Facility, after making $74 million of repayments in 2017.

Subsequent to December 31, 2017 and in connection with the entering into of the Corporate Facility, the Company repaid the remaining $76 million principal amount outstanding under the EBRD Facility and subsequently cancelled the EBRD Facility.

Centerra B.C Holdings Credit Facility

As part of the acquisition of Thompson Creek in October 2016, Centerra B.C. Holdings Inc., a wholly-owned subsidiary of the Company, secured financing from a lending syndicate in the aggregate amount of $325 million (the "Centerra B.C. Facility"), consisting of a $250 million non-revolving term facility and a $75 million senior secured revolving credit facility. 

In July 2017, the Company entered into an amendment of the Centerra B.C. Facility to increase the senior secured revolving credit facility under the Centerra B.C. Facility from $75 million to $125 million.  The amendment also includes additional favourable terms such as permitting upstream distributions of up to $50 million without the matching pre-payment requirement of the original agreement.  Prior to the amendment, the Centerra B.C. Facility required Centerra B.C. Holdings to make a matching pre-payment on all distributions to Centerra.  The amendment became effective in August 2017, when the conditions precedents were satisfied, including the execution of hedges for 50% of the gold and 75% of the copper production covering Mount Milligan's production from July 2017 to June 2019. 

In September 2017, in addition to making the scheduled $12.5 million payment towards the non-revolving term facility, the Company repaid the outstanding balance on the revolving facility ($74.4 million). As at December 31, 2017, $190 million was drawn on the Centerra B.C. Facility ($190 million non-revolving term facility and nil from the revolving credit facility).  See also "Centerra Revolving Term Corporate Facility" below.

Subsequent to December 31, 2017, Centerra B.C. Facility was amended and restated in connection with the Company entering into the Corporate Facility.

OMAS Facility

In 2016, OMAS, a wholly-owned subsidiary of the Company, entered into a $150 million five-year revolving credit facility (the "OMAS Facility") that currently expires on December 30, 2021. The purpose of the OMAS Facility is to assist in financing the construction of the Company's Öksüt Project.

Availability of the OMAS Facility is subject to customary conditions precedent, including receipt of all necessary permits and approvals. If the conditions are not satisfied, waived or amended by the deadline (noted below), the commitments under the OMAS Facility will be cancelled. The original deadline for satisfaction of the conditions of June 30, 2017 has been extended several times given the delay in obtaining necessary permits for the Öksüt Project.  The current deadline is March 15, 2018, however OMAS and lenders are currently negotiating to further extend the deadline to June 30, 2018.  As part of these negotiations, it is expected that the term of the facility will be extended beyond December 30, 2021 and that Centerra will provide a guarantee of OMAS's obligations under the OMAS Facility but that such guarantee would only be effective if certain conditions relating to the tenure of the Öksüt mining license are not satisfied by August 22, 2022. 

As at December 31, 2017, $4.8 million (December 31, 2016 - $4.2 million) of OMAS Facility deferred financing fees were included in prepaid expenses (note 10) as the Company has yet to draw from the facility. The deferred financing fees are being amortized over the term of the OMAS Facility. The Company expects to be in a position to draw on the OMAS Facility in the second quarter of 2018. See "Caution Regarding Forward Looking information".

AuRico Metals Inc. Acquisition Facility

Subsequent to the end of the year, on January 8, 2018, the Company announced it had acquired all of the issued and outstanding common shares of AuRico Metals Inc. ("AMI").  The purchase was funded, in part, by a new $125 million acquisition facility ("AuRico Acquisition Facility") with the Bank of Nova Scotia, as administrative agent, lead arranger and lender. The AuRico Acquisition Facility was repaid and cancelled subsequent to December 31, 2017, after the Company entered into the Corporate Facility, as noted below.

Centerra Revolving Term Corporate Facility

On February 1, 2018, the Company entered into a $500 million four-year senior secured revolving credit facility (the "Corporate Facility") with a lending syndicate led by The Bank of Nova Scotia and National Bank of Canada.

The Corporate Facility is to be held at the corporate level and is an amendment and restatement of the Centerra B.C. Facility (discussed above), which had an outstanding balance owed of $190 million (continued under the Corporate Facility).  The Corporate Facility also replaced the EBRD Facility and the AuRico Acquisition Facility discussed above. The Corporate Facility is for general corporate purposes, including working capital, investments, acquisitions and capital expenditures and as at February 22, 2018, $315 million was drawn on the Corporate Facility.

Mineral Reserves and Mineral Resources

On February 8, 2018, the Company released the results of the updated mineral reserve and mineral resource estimates for the Kumtor mine, the Mount Milligan mine and re-iterated mineral reserve and mineral resource estimates for the Company's other projects, including the Hardrock deposit, all as of December 31, 2017.  The release also included the Kemess Project which was acquired on January 8, 2018 as part of the AuRico Metals Inc. acquisition.  For additional details, please see the news release "Centerra Gold 2017 Year-End Statement of Mineral Reserves and Resources and Fourth Quarter Exploration Update" filed on SEDAR and posted on the Company's website on February 8, 2018.

Mount Milligan's mineral reserves and mineral resources are presented on a 100% basis.  Sales of gold and copper from the Mount Milligan mine are subject to the Mount Milligan Streaming Arrangement whereby Royal Gold is entitled to 35% and 18.75% of gold and copper sales respectively.  Under the Mount Milligan Streaming Arrangement this streaming arrangement, Royal Gold pays Centerra $435 per ounce of gold delivered and 15% of the spot price per metric tonne of copper delivered. 

Highlights:

Gold Mineral Reserves

Gold Mineral Resources

 Gold (000s attributable ozs contained) (1)(4)(5)20172016 
 Total proven and probable mineral reserves 16,321  15,978  
 Total measured and indicated mineral resources (2)10,204  7,442  
 Total inferred mineral resources(2)(3)(4) 6,819  5,780  
 (1) Centerra's equity interests are as follows:  Mount Milligan 100%, Kumtor 100%, Gatsuurt 100%, Boroo 100%, Ulaan Bulag 100%, Öksüt 100%, Kemess Underground and Kemess East 100% and Greenstone Gold properties (Hardrock, Brookbank, Key Lake, Kailey) 50%.  The mineral reserves and mineral resources above reflect Centerra's equity interests in the applicable properties. 
 (2) Mineral resources are in addition to mineral reserves.  Mineral resources do not have demonstrated economic viability. 
 (3) 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 mineral resources will ever be upgraded to a higher category. 
 (4) Production at Mount Milligan is subject to a streaming agreement which entitles Royal Gold to 18.75% of copper sales from the Mount Milligan Mine.  Under the stream arrangement, Royal Gold will pay 15% of the spot price per metric tonne of copper delivered.  Mineral resources for the Mount Milligan property are presented on a 100% basis. 
 (5) As of January 8, 2018, Centerra Gold closed the acquisition of AuRico Metals Inc.  The Kemess Underground and Kemess East reserves and resources have been included in the Company's annual mineral reserves and mineral resources statement above. 

Copper Mineral Reserves

Copper Mineral Resources

 Copper (million pounds contained) (1)(4)(5)20172016 
 Total proven and probable mineral reserves(2)2,5682,049 
 Total measured and indicated mineral resources(2)5,5414,076 
 Total inferred mineral resources(2)(3)(4)1,427764 
 (1) Centerra's equity interests are as follows:  Mount Milligan 100%, Kemess Underground 100%, Kemess East 100%, Berg 100%, Thompson Creek 100%, and Endako 75%.  The mineral reserves and mineral resources above reflect Centerra's equity interest in the applicable properties. 
 (2) Mineral resources are in addition to mineral reserves.  Mineral resources do not have demonstrated economic viability. 
 (3) 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 mineral resources will ever be upgraded to a higher category. 
 (4) Production at Mount Milligan is subject to the Mount Milligan Streaming Arrangement.  Under the Mount Milligan Streaming Arrangement, Royal Gold will pay 15% of the spot price per metric tonne of copper delivered.  Mineral resources for the Mount Milligan property are presented on a 100% basis. 
 (5) As of January 8, 2018, Centerra Gold completed the purchase of AuRico Metals.  The Kemess Underground and Kemess East reserves and resources have been included in the Company's annual mineral reserves and mineral resources statement set out above. 

Molybdenum Mineral Resources

 Molybdenum (million pounds contained) (1)(3)(4)20172016 
 Total measured and indicated mineral resources(2)758557 
 Total inferred mineral resources(3)150108 
 (1) Centerra's equity interests are as follows:  Berg 100%, Thompson Creek 100%, and Endako 75%. 
 (2) Mineral resources are in addition to mineral reserves.  Mineral resources do not have demonstrated economic viability. 
 (3) 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 mineral resources will ever be upgraded to a higher category. 
 (4) Molybdenum mineral resources at Berg were estimated using a molybdenum price of $10.00 per pound, at Thompson Creek and a molybdenum price of $14.00 per pound was used. 


 Material assumptions used to determine mineral reserves and mineral resources are as follows: 
   2017  2016 
 Gold price    
 Gold mineral reserves ($/oz) (1)$1,250 $1,200 
 Gold mineral resources ($/oz) (2)$1,450 $1,450 
      
 Copper price    
 Copper mineral reserves ($/lb) (3)$3.00 $2.95 
 Copper mineral resources ($/lb) (4)$3.50 $3.50 
      
 Foreign exchange rates    
 1 USD : Cdn$ (5)  1.25   1.30 
 1 USD : Kyrgyz som  65   65 
 1 USD : Mongolian tugriks  2,200   1,900 
 1 USD : Turkish Lira 3.50  2.50 
 (1) Kumtor and Kemess Underground were estimated based on a gold price of $1,200.  At the Kumtor Mine estimating gold mineral reserves using a gold price of $1,250 per ounce would result in no material change to the contained ounces. 
 (2) Mineral resources at the Kemess Underground and Kemess East projects were estimated based on a gold price of $1,275, while resources at the Hardrock Project was estimated at Cdn$1,625. 
 (3) Copper mineral reserves at Kemess Underground were estimated using a copper price of $2.50 per pound. 
 (4) Copper mineral resources at the Kemess Underground and Kemess East projects were estimated using a copper price of $3.20 per pound while resources at the Berg property was estimated at $1.60 per pound. 
 (5) Cdn$ exchange rate used for Kemess Underground and Kemess East were 1USD:1.33CAD; at the Hardrock Project a rate of 1USD:1.30CAD was used; at the Berg property a rate of 1USD:1.00CAD was used. 


Consolidated Financial and Operational Highlights
           
Unaudited ($ millions, except as noted) Three months ended December
31,
 Year ended December 31,
Financial Highlights 2017  2016 (5)% Change 2017  2016 (5)% Change
Revenue$358.2 $305.717%$1,199.0 $757.858%
Cost of sales 180.8  167.28% 682.1  411.666%
Earnings from mine operations 170.4  132.029% 492.3  331.149%
Corporate administration 6.3  9.3(32%) 37.9  27.637%
Asset Impairment (net of tax) 0.7  -0% 39.7  -0%
Kyrgyz Republic settlement -  -0% 60.0  -0%
Gain on sale of ATO (net of tax) (6.9) -0% (6.9) -0%
           
Net earnings (loss)$130.0 $63.6104%$209.5 $151.538%
Adjusted earnings (3) 108.7  68.658% 281.0  160.975%
           
Cash provided by operations 170.4  170.4(0%) 500.9  371.435%
Cash provided by operations before changes in working capital (3) 159.9  133.420% 512.6  338.851%
Capital expenditures (sustaining) (3) 29.3  15.096% 92.2  65.241%
Capital expenditures (growth) (3) 7.2  4.560% 18.1  17.91%
Capital expenditures (stripping)  31.9  58.3(45%) 200.2  136.746%
           
Total assets$2,772.2 $2,654.84%$2,772.2 $2,654.84%
Long-term debt and lease obligation 211.6  422.8(50%) 211.6  422.8(50%)
Cash, cash equivalents and restricted cash 416.6  408.82% 416.6  408.82%
           
Per Share Data          
Earnings per common share - $ basic (1)$0.45 $0.2397%$0.72 $0.6019%
Earnings per common share - $ diluted (1)$0.43 $0.2392%$0.72 $0.6019%
Adjusted earnings per common share - $ basic (1)(3)$0.37 $0.2453%$0.96 $0.6451%
Adjusted earnings per common share - $ diluted (1)(3)$0.36 $0.2448%$0.96 $0.6451%
           
Per Ounce Data (except as noted)          
Average gold spot price - $/oz(2) 1,275  1,2224% 1,258  1,2481%
Average copper spot price - $/lbs(2) 3.10  2.4029% 2.80  2.2127%
Average realized gold price  (Kumtor) - $/oz(3) 1,262  1,2065% 1,245  1,251(0%)
Average realized gold price  (Mount Milligan - combined) - $/oz(3) 1,005  86117% 1,003  86117%
Average realized gold price (Consolidated) - $/oz(3) 1,197  1,1544% 1,171  1,228(5%)
           
Operating Highlights          
Gold produced ? ounces 216,752  248,479(13%) 785,316  598,67731%
Gold sold ? ounces 242,228  225,9967% 792,466  580,49637%
Payable Copper Produced (000's lbs) 12,261  10,39918% 53,596  10,399415%
Copper Sales  (000's payable lbs) 13,105  9,46738% 59,719  9,467531%
           
Operating costs (on a sales basis) (3) (4) 132.0  81.861% 487.1  209.2133%
           
Unit Costs          
Operating costs (on a sales basis) - $/oz sold (3) (4)$545 $36251%$615 $36071%
Adjusted operating costs on a by-product basis - $/oz sold(3)(4)$320 $28711%$331 $346(5%)
Gold - All-in sustaining costs on a by-product basis ? $/oz sold(3)(4)$571 $586(3%)$688 $6821%
Gold - All-in sustaining costs on a by-product basis (including taxes) ?
$/oz sold(3) (4)
$709 $733(3%)$816 $849(4%)
           
Gold - All-in sustaining costs on a co-product basis (before taxes) ? $/oz
sold(3)(4)
$593 $632(6%)$737 $7005%
Copper - All-in sustaining costs on a co-product basis (before taxes) ?
$/pound sold(3)(4)
$1.70 $1.653%$1.47 $1.65(11%)

(1)       As at December 31, 2017, the Company had 291,782,846 common shares issued and outstanding (291,785,970 common shares as of February 22, 2018).  As of February 22, 2018, Centerra had 4,816,297 share options outstanding under its share option plan with exercise prices ranging from Cdn$5.04 per share to US$36.74 per share, with expiry dates between 2018 and 2025.
(2)       Average for the period as reported by the London Bullion Market Association (US dollar Gold P.M. Fix Rate) and London Metal Exchange (LME).  This is a non-GAAP measure and is discussed under "Non-GAAP Measures".
(3)       Adjusted earnings, adjusted earnings per common shares (basic and diluted), capital expenditures (sustaining and growth), operating costs (on a sales basis), adjusted operating costs on a by-product basis per ounce sold, gold all-in sustaining costs on a by-product or co-product basis (excluding and including taxes) per ounce sold, copper all-in sustaining costs on a co-product basis (before taxes) per pound sold, cash provided by operation before changes in working capital, as well as average realized gold price per ounce (Kumtor, Mount Milligan ? combined and Consolidated) are non-GAAP measures and are discussed under "Non-GAAP Measures". 
(4)       Excludes Molybdenum business.
(5)       Comparative results for Thompson Creek operations (Mount Milligan and the Molybdenum group) have been presented from the date of acquisition (October 20, 2016) to December 31, 2016.

Overview of Consolidated Results

Year ended December 31, 2017 compared to 2016

The Company recorded net earnings of $210 million in 2017, compared to $152 million in 2016.  The increase in earnings in 2017 reflects full-year operations at Mount Milligan, increased gold production at Kumtor, due primarily to higher average mill gold head grades processed in the mill, partially offset by lower realized gold prices. In addition, the 2017 earnings include charges for a settlement reached with the Kyrgyz Republic Government of $60 million, an impairment charge relating to the Company's Mongolian assets of $41.3 million ($39.7 million net of tax), a tax benefit of $21.3 million due to new tax legislation enacted in the United States and a gain of $9.8 million ($6.9 million net of tax) on the sale of the ATO property in Mongolia.  Excluding these items, adjusted earningsNG in 2017 were $281.0 million compared to $160.9 million in the comparative year.

Production:
Gold production for 2017 totaled 785,316 ounces compared to 598,677 ounces for 2016.  Gold production at Kumtor was 562,749 ounces in 2017, 2% higher than the 550,960 ounces produced in 2016. The increase in ounces poured at Kumtor is a result of milling higher grade ore from stockpiles (3.58 g/t compared to 3.44 g/t) compared to 2016.  During the year ended December 31, 2017, Mount Milligan produced 222,567 ounces of gold and 53.6 million pounds of copper.

Safety and Environment:
Centerra had sixteen reportable injuries in 2017, including one fatal injury, eight lost time injuries, six medical aid injuries and one restricted work injury.  On April 11, 2017, an industrial accident near the Kumtor mobile maintenance shop resulted in an employee fatality.  Investigations involving the Kyrgyz State Inspectorate for Environmental and Technical Safety have been completed and no charges are expected to be filed. 

During 2017 there was one reportable release to the environment.  The incident occurred at Kumtor on July 9, 2017 when a diesel fuel truck rolled over a safety berm on the technical road on its way to the mine site, spilling 8.8 tonnes of diesel fuel that was immediately contained and, within the day, the contaminated soil was excavated and transported to a waste facility licensed for such material.  By the end of the third quarter of 2017, Kumtor and local authorities completed and closed their detailed investigations.

Financial Performance:
Revenue increased to $1,199 million in 2017 from $758 million in 2016, as a result of additional gold ounces sold (792,466 ounces compared to 580,496 ounces), the addition of copper sales $125.9 million at Mount Milligan and molybdenum sales of $145.0 million.  The increase in gold ounces sold in 2017 results from the addition of Mount Milligan which operated for the full year and recorded sales of 242,331 ounces of gold and contributed $242.9 million in gold revenues.  However, the increase in overall revenue was partially offset by a 6% lower combined average realized gold priceNG during the year ($1,171 per ounce compared to $1,228 per ounce in 2016).    

Cost of sales increased in 2017 to $682 million compared to $412 million in 2016, mainly resulting from the addition of Mount Milligan gold and copper sales and the molybdenum business.  Depreciation, depletion and amortization associated with production was $195.0 million in 2017 as compared to $205.9 million in 2016 due to the impact of the positive stockpile reconciliation of cut-back 17 ore at Kumtor during 2017, which was partially offset by increased sales from the addition of Mount Milligan and the molybdenum business in 2017.

The Company reduced the carrying value of its Mongolian assets by $41.3 million (pre-tax) in the second quarter of 2017 to reflect the receipt of preliminary results from the ongoing technical and economic studies related to the Gatsuurt Gold Project.  As a result, the Company has reduced the carrying value of the Mongolian assets to their estimated recoverable value of approximately $60 million.  On December 22, 2017, the Company issued a new technical report relating to the Gatsuurt Gold Project which included the results of such technical and economic studies.

In the third quarter of 2017, the Company entered into a settlement agreement with the Kyrgyz Republic Government which resulted in a charge of $60 million.  The Company also recorded a gain on the sale of the ATO property in Mongolia of $9.8 million (or $6.9 million net of tax).

In the fourth quarter of 2017, the Company accrued a tax benefit of $21.3 million resulting from new tax legislation in the United States (the Tax Cuts and Jobs Act enacted on December 22, 2017, "the Act"). In addition to reducing the U.S. corporate tax rate from 35 percent to 21 percent, the new rules make other significant changes to the U.S. tax code, in particular the repeal of the Alternative Minimum Tax ("AMT").   Prior to the new tax legislation, the Company's molybdenum business had paid income tax under the AMT regime, which was deductible against income tax subsequently payable by the Company.  Due to the repeal of the AMT under the new tax legislation, the Company expects to receive a refund of $21.3 million of the AMT credit balance, in respect of its 2018 to 2021 income tax years.  The final impact of the Act may differ, possibly materially, due to changes in interpretations of the Act or due to any legislative action taken to address questions that arise because of the Act. As a result, the benefit as recorded could be adversely impacted in future periods.

Exploration expenditures in the year ended December 31, 2017 totalled $11.3 million compared to $12.5 million in 2016, reflecting lower spending on advanced projects, mainly at Gatsuurt, as compared to the prior year.

Corporate administration costs were $38 million in 2017, an increase of $10 million compared to the same period of 2016, mainly due to an increase in share-based compensation of $2.3 million as a result of increases in the Company's share price, additional costs for legal and consulting mainly in relation to the Kumtor settlement negotiations ($1.9 million), $1.6 million of costs associated with the acquisition of AuRico Metals Inc., and an increase in the Denver administration office costs of $1.7 million (formerly Thompson Creek Metals Company's corporate office).

Operating Costs:
Operating costs (on a sales basis)NG increased to $487 million in 2017 compared to $209 million in 2016, which includes full-year Mount Milligan costs of $209.7 million.    

Centerra's all-in sustaining costs on a by-product basis per ounce of gold soldNG, which excludes revenue-based tax and income tax, increased to $688 in 2017 from $682 in the comparative period mainly as a result of higher operating costs, higher capitalized stripping costs at Kumtor, higher sustaining capitalNG, increased administration costs, as a result of the Thompson Creek acquisition and the impact of the full year of Mount Milligan's operations in 2017 as compared to 2016.

A Consolidated All-in Sustaining Costs on a by-product basis (per ounce sold) graph is available at http://www.globenewswire.com/NewsRoom/AttachmentNg/0765b4e4-3b6a-4e69-ba31-38d9a7e21308

Cash generation and capital management:   
     
Cashflow   
     
 Unaudited ($ millions, except as noted)Year ended December 31,
 2017 2016 % Change
 Cash  provided by operating activities500.9 371.4 35%
 Cash used in investing activities:   
   - Capital additions (cash)(266.8)(212.8)25%
   - Short-term investment net redeemed (net purchased)- 181.6 (100%)
   - Payment to Thompson Creek debtholders- (881.0)(100%)
   - Cash received on Thompson Creek acquisition- 98.1 (100%)
   - Decrease (increase) in restricted cash248.0 (248.0)- 
   - Proceeds from sale of ATO Project9.8 - - 
   - Other investing items(1.6)(9.8)(84%)
 Cash used in investing activities(10.6)(1,072.0)(99%)
 Cash received from (used in) financing activities:   
   - Proceeds from (repayment of) debt(208.5)398.3 (152%)
   - Proceeds from equity offering (net)- 141.3 (100%)
   - Dividends paid- (22.9)(100%)
   - Payment of interest and borrowing costs and other(26.0)(16.7)55%
 Cash (used in) provided by financing activities(234.5)500.0 (147%)
 Increase in cash and cash equivalents255.8 (200.6(228%)

Cash provided by operations before working capital changesNG increased to $512.6 million in 2017, compared to $338.8 million in the prior period, as a result of higher earnings in the current year, reflecting one full year of operation at Mount Milligan.  Working capital movements in 2017 reflect a reduction in levels at Kumtor mainly due to timing, partially offset by increased levels at Mount Milligan and in the molybdenum business.

The Company generated $500.9 million in cash from operations in 2017, an increase of $129.5 million compared to 2016.  With a full year of operation in 2017, Mount Milligan contributed $150.6 million (compared to $92.3 million for the period from October 20 to December 31, 2016), while Kumtor generated $416.1 million, similar to its contribution in 2016. Kumtor's production and gold sales were slightly above the comparative year.

Cash used in investing activities decreased to $10.6 million in 2017 as compared to $1,072.0 million in 2016, reflecting in 2017 the release of Kumtor's restricted cash of $248.0 million, proceeds from the sale of the ATO project, a reduction in net purchases of short-term investments, partially offset by an increase in capital spending (mainly additional sustaining capitalNG and capitalized stripping at Kumtor) as compared to 2016. The comparative 2016 period reflected payments of $782.9 million on the acquisition of Thompson Creek (net of cash received) and the restriction of Kumtor's cash.

Cash used in financing activities of $234.5 million in 2017 represents debt repayments under the Company's credit facilities.  The Company made quarterly payments on the Centerra B.C. Facility non-revolving term loan of $12.5 million, in addition to a required prepayment of $10 million in connection with a $10 million distribution from Mount Milligan to its parent.   The Company also paid in full the balance under the revolving portion of the Centerra B.C. Facility of $74.4 million on the Centerra B.C. Facility at the end of the third quarter of 2017.  In addition, the Company re-paid $74 million under the EBRD Facility during 2017.  In 2016, the Company drew $325 million on the Centerra B.C. Facility and raised equity financing of $145.4 million in the form of subscription receipts in support of its acquisition of Thompson Creek Metals Inc., drew an additional $74 million on its EBRD Facility, paid interest on borrowings and paid dividends to its shareholders.

Cash, cash equivalents, restricted cash and short-term investments at December 31, 2017 increased to $416.6 million from $408.8 million at December 31, 2016 (including $247.8 million of restricted cash and investments at Kumtor).

Capital Expenditure (spent and accrued)   
 $ millionsYear ended December 31,
  20172016% Change
Consolidated:   
 Sustaining capitalNG92.265.241%
 Capitalized stripping (1)200.2136.746%
 Growth capitalNG18.117.91%
 Gatsuurt Project development1.87.2(75%)
 Öksüt Project development (2)9.012.0(25%)
 Greenstone Gold Property capital (3)5.08.7(43%)
 Total326.3247.732%
(1)Includes cash component of $149.4 million in the year ended December 31, 2017 (2016: $100.5 million).
(2)Year ended December 31, 2016 includes $3 million for the purchase of the net smelter royalty from Teck Resources Limited.
(3)In accordance with the Company's accounting policy, the 50% share paid on behalf of Premier Gold Mines Limited in the project is capitalized as part of mineral properties in Property, Plant & Equipment.

Capital expenditures in 2017 totaled $326.3 million compared to $247.7 million in 2016, resulting mainly from increased spending on capitalized stripping at Kumtor to develop cut-back 18 in the Central pit and in the Sarytor pit, higher sustaining capitalNG for equipment rebuilds and overhauls, partially offset by lower spending on the Company's development projects.

Financial Instruments

The Company seeks to manage its exposure to fluctuations in diesel fuel prices, commodity prices and foreign exchange rates by entering into derivative financial instruments from time-to-time.

Fuel Hedges:
In 2016, the Company established a diesel fuel price hedging strategy using derivative instruments to manage the risk associated with changes in diesel fuel prices to the cost of operations at the Kumtor Mine.  The diesel fuel hedging program is a 24-month rolling program and the Company targets to hedge up to 50% of monthly diesel purchases. The Company hedges its exposure with crude oil futures contracts, as the price of diesel fuel closely correlates to the price of crude oil.

Gold and Copper Derivative Contracts:
The Company must satisfy its obligation under the Mount Milligan Streaming Arrangement by delivering refined physical gold and LME copper warrants to Royal Gold after receiving payment from third-party purchasers who purchase concentrate from the Mount Milligan mine. In order to hedge the metal price risk that arises when physical purchase and concentrate sales pricing periods do not match, the Company has entered into certain forward gold and copper purchases and forward sales contracts pursuant to which it purchases gold or copper at an average price during a future quotational period and sells gold or copper at the current spot price.  These derivative contracts are not designated as hedging instruments.

Mount Milligan Gold and Copper Facility Hedges:
The Company entered into a hedging program required as part of an amendment to the Centerra B.C. Facility (see "Credit Facilities") to cover the period from July 2017 to June 2019.  The amendment required hedging 50% of future un-streamed gold and 75% of un-streamed copper production at the Mount Milligan mine at a minimum average floor price of $1,200 per gold ounce and minimum average floor price of $2.50 per copper pound.  

The hedge positions for each of these programs as at December 31, 2017 are summarized as follows:

     SettlementAs at December 31, 2017
ProgramInstrumentUnitAverage strike
price
Type20182019Total positionFair value gain
(loss) ('000')
Fuel HedgesCrude oil options(1)Barrels$64.60 Fixed288,00072,000360,000$1,324 
Fuel HedgesZero-cost collarsBarrels$46/$59Fixed-23,00023,000$135 
         
Centerra B.C. Facility Hedging Program (Strategic Hedges):      
Copper HedgesForward contracts(1)Pounds$2.90 Fixed6.7 million-6.7 million$(2,608)
Copper HedgesZero-cost collars(2)Pounds$2.47/$3.22Fixed38.6 million27.5 million66.1 million$(17,724)
Gold HedgesForward contracts(1)Ounces$1,285 Fixed39,097-39,097$(1,119)
Gold HedgesZero-cost collars(2)Ounces$1,247/$1,363Fixed47,90636,79984,705$(1,699)
         
Gold/Copper Hedges (Royal Gold deliverables):       
Gold Derivative ContractsForward contracts(1)OuncesNDFloat31,940-31,940$568 
Copper Derivative ContractsForward contracts(1)PoundsNDFloat5.3 million-5.3 million$467 
         
FX Hedges        
USD/CAD Derivative ContractsZero-cost collars(2)CAD Dollars1.2570/1.3000Fixed26 million-26 million$177 

ND = Royal Gold hedging program with floating terms, that are not defined as at December 31, 2017.
(1)     Under the forward contracts (including crude oil options), the Company can buy and sell specified assets, typically metals or currency, at a specified price at a certain future date.
(2)     Under the zero-cost collar: (i) the Company can put the number of gold ounces or copper pounds to the counterparty at the minimum price, if the price were to fall below the minimum, and (ii) the counterparty has the option to require the Company to sell to it the number of gold ounces or copper pounds at the maximum price, if the price were to rise above the maximum.

The gold hedging program in 2018 consists of 87,003 gold ounces, including 39,097 ounces sold under forward contracts at an average strike price of $1,285 per ounce and 47,906 ounces of zero-cost collars at an average strike price range of $1,245 to $1,359 per ounce.  The copper hedging program in 2018 consists of 45.3 million pounds of copper, including 6.7 million pounds sold under forward contracts at an average strike price of $2.90 per pound and 38.6 million pounds of zero-cost collars at an average strike price range of $2.45 to $3.14 per pound.   

The gold hedging program is more heavily weighted to zero cost collars in the second half of the program in 2018 and 2019 with 55% collars and 100%, collars respectively. This hedging strategy has also been adopted for copper hedges with 85% zero cost collars in 2018 and 100% in 2019.

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.

Operating Mines and Facilities

Kumtor Mine

The Kumtor open pit mine, located in the Kyrgyz Republic, is one of the largest gold mines in Central Asia operated by a Western-based gold producer.  It has been in production since 1997 and has produced over 11.5 million ounces of gold to December 31, 2017. 

Developments in 2017

Kumtor Operating Results          
           
($ millions, except as noted)Three months ended December 31, Year ended December 31,
2017 2016 % Change2017 2016 % Change
Financial Highlights:          
Revenue - $ millions 228.1  231.3 (1%) 685.2  683.4 0%
           
Cost of sales (cash) 44.9  43.1 4% 146.0  167.4 (13%)
Cost of sales (non-cash)  39.7  59.9 (34%) 145.7  180.0 (19%)
Cost of sales (total) 84.7  103.0 (18%) 291.7  347.4 (16%)
           
Cost of sales - $/oz sold (1) 468  537 (13%) 530  636 (17%)
           
Cash provided by operations 150.8  193.6 (22%) 414.0  416.1 (1%)
Cash provided by operations before changes in working capital(1) 145.0  151.3 (4%) 424.3  394.7 8%
           
Operating Highlights:          
Tonnes mined - 000s 50,770  35,543 43% 181,878  144,399 26%
Tonnes ore mined ? 000s 2,607  223 1068% 5,084  8,911 (43%)
Average mining grade - g/t 2.30  8.62 (73%) 2.12  3.45 (39%)
Tonnes milled - 000s 1,668  1,581 6% 6,246  6,303 (1%)
Average mill head grade - g/t 3.76  4.71 (20%) 3.58  3.44 4%
Mill Recovery - % 80.4% 83.5%(4%) 79.1% 79.2%(0%)
Mining costs - total ($/t mined material) 1.08  1.24 (13%) 1.10  1.27 (13%)
Milling costs ($/t milled material) 9.16  9.37 (2%) 10.69  9.87 8%
           
Gold  produced ? ounces 158,165  200,762 (21%) 562,749  550,960 2%
Gold  sold ? ounces 180,703  191,842 (6%) 550,134  546,342 1%
Average realized gold price (1) - $/oz sold$1,262 $1,206 5%$1,245 $1,251 (0%)
           
Capital Expenditures (sustaining) (1) - cash 16.5  11.5 44% 60.6  61.0 (1%)
Capital Expenditures (growth) (1)  - cash  7.1  1.4 399% 18.1  14.8 23%
Capital Expenditures (stripping)  - cash  24.4  42.9 (43%) 149.4  100.5 49%
Capital Expenditures (stripping)  - non-cash  7.5  15.4 (52%) 50.9  36.2 40%
Capital expenditures (total) 55.5  71.2 (22%) 279.0  212.5 31%
           
Operating Costs (on a sales basis)(2) 44.9  43.1 4% 146.0  167.4 (13%)
           
All-in sustaining costs (including taxes) (1) 95.1  103.1 (8%) 383.9  349.2 10%
           
Adjusted operating costs (1)- $/oz sold$297 $253 18%$313 $342 (8%)
Operating Costs (on a sales basis)- $/oz sold(1)$249 $224 11%$265 $306 (13%)
Gold - All-in sustaining costs on a by-product basis - $/oz sold(1)$526 $538 (2%)$698 $640 9%
Gold - All-in sustaining costs on a by-product basis (including taxes) - $/oz sold(1)$704 $707 (0%)$874 $815 7%
  1. Adjusted operating costs per ounce sold, operating costs (on a sales basis) ($ and per ounce sold), all-in sustaining costs (including taxes), gold all-in sustaining costs on a by-product basis per ounce sold (including and excluding taxes), as well as average realized gold price 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, 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 2017, Kumtor continued to develop both the Central pit through mining cut-back 18 and the Sarytor pit, which is approximately three kilometres south of the Central pit.  Ore production commenced in Sarytor in July 2017, was completed in November 2017 and has supplemented the previously stockpiled ore from the Central pit in advance of obtaining access to the higher-grade ore from cut-back 18 in 2018.  

Total waste and ore mined in 2017 was 181.9 million tonnes compared to 144.4 million tonnes in 2016, representing an increase of 26%. The main reasons for this increase were due to favourable weather conditions in 2017 compared to 2016, which resulted in fewer weather delays, 12% shorter average haulage distance compared to 2016 due to the shorter hauls required to mine at the Sarytor pit and various process improvements that increased truck payloads, average truck speeds and truck utilization hours.

Kumtor produced 562,749 ounces of gold in 2017 compared to 550,960 ounces of gold in 2016. The increase in ounces poured is a result of processing during the first half of 2017 higher grade ore from stockpiles containing ore from the lower benches of cut-back 17, whereas lower grade ore mined and processed from the initial benches in cut-back 17 was milled during the comparative period.  During 2017, Kumtor's average mill head grade was 3.58 g/t with a recovery of 79.1% compared to 3.44 g/t and a recovery of 79.2% for the same period in 2016.

Operating costs and All-in Measures:

Operating costs (on a sales basis)NG for 2017 decreased by $21 million to $146.0 million, as compared to 2016, reflecting 26% more tonnage moved including a significant amount of waste removal in cut-back 18 of the Central pit which was capitalized in 2017.  Including capitalized stripping, operating costs were $295.4 million compared to $267.9 million in 2016.  The increase in the major components of operating costs (mining, milling and site support) including capitalized stripping but before changes in inventory is explained below.

Mining Costs, including capitalized stripping (2017 compared to 2016):

http://www.globenewswire.com/NewsRoom/AttachmentNg/55c9405a-eb7d-4194-b0c4-491a694f9a7f

Mining costs, including capitalized stripping, totaled $200.9 million in 2017, which was $16.2 million higher than the comparative year. Increased costs for the year include higher maintenance costs ($6.9 million) resulting from additional repair work on the haul trucks, shovels and drills, higher labour cost ($4.2 million) due to a new collective bargaining agreement and strengthening of the local currency and higher diesel prices ($3.4 million). In addition, higher blasting costs ($1.7 million) resulted from increased blasting volumes.

Milling Costs (2017 compared to 2016):

http://www.globenewswire.com/NewsRoom/AttachmentNg/9683f5c8-7386-454d-afe6-9ca876df8210

Milling costs amounted to $66.7 million in 2017 compared to $62.2 million in the 2016.  The higher milling costs were mainly due to comprehensive maintenance work during the planned total shutdown for the SAG, ball and regrind mills liners and increased mill reliability projects performed in 2017. In addition, higher grinding balls costs ($1.2 million) was mainly due to the increased consumption rate resulting from harder ore type processed in 2017, and higher labour cost ($0.6 million) due to a new collective bargaining agreement and strengthening of the local currency.

Site support Costs (2017 compared to 2016):

http://www.globenewswire.com/NewsRoom/AttachmentNg/cc172645-5e4a-46a7-8a28-0d6136d4a9a3

Site support costs in 2017 totaled $45.1 million compared to $43.1 million in 2016. Site support costs increased slightly due to higher costs for light duty vehicle maintenance ($0.8 million), higher contracted equipment services costs ($0.7 million) for a major site clean-up initiative, higher labour costs ($0.7 million) due to a new collective bargaining agreement and strengthening of the local currency.

Other Cost movements

Depreciation, depletion and amortization ("DD&A") associated with sales decreased to $145.7 million in 2017 from $180.0 million in the comparative year, lower than the 2017 guidance of $153 million to $169 million. This is mainly due to the impact on non-cash costs resulting from the positive stockpile reconciliation of cut-back 17 ore during 2017, partially offset by increased sales volumes in 2017.

All-in sustaining costs on a by-product basis per ounce sold, which excludes revenue-based tax, was $698 for 2017 compared to $640 in 2016, representing an increase of 9%.  The increase resulted from higher capitalized stripping costs totaling $149.4 million compared to $100.5 million in 2016. The increased capitalization, was partially offset by 3,792 more ounces sold.

Including revenue-based taxes, all-in sustaining costs on a by-product basis per ounce sold was $874 for 2017 compared to $815 in 2016 representing an increase of 7%. The increase is mainly due to the higher all-in sustaining costs (explained above).

Mount Milligan Mine

The Mount Milligan Mine is an open pit mine located in north central British Columbia, Canada producing a gold and copper concentrate.  Production at Mount Milligan is subject to the Mount Milligan Streaming Arrangement pursuant to which Royal Gold is entitled to purchase 35% of the gold produced and 18.75% of the copper production at the Mount Milligan mine for $435 per ounce of gold delivered and 15% of the spot price per metric tonne of copper delivered.

During the year, Mount Milligan experienced unexpected maintenance issues that resulted in greater than anticipated downtime thereby negatively impacting average daily mill throughput.  Significant cost and effort was expended to minimize unplanned downtime and to improve the maintenance planning processes.  The maintenance function was further improved during the year by adding additional experienced maintenance personnel including a Maintenance Manager.

Developments in 2017

On December 27, 2017, the Company reported that, due to a lack of sufficient water resources, mill processing operations at the Mount Milligan mine had been temporarily suspended.  Mount Milligan experienced a drier than normal spring and summer during 2017 with a limited amount of spring snow melt. This resulted in lower than expected reclaim water volumes in the tailings storage Facility (TSF) at Mount Milligan which is used for mill processing operations. The water shortage was exacerbated by unanticipated extremely cold temperatures at Mount Milligan, which has resulted in a greater than expected loss of available water volumes in the TSF due to ice formation.

Subsequent to December 31, 2017

On February 5, 2018, the Company reported that its Mount Milligan operation restarted mill operations at a reduced capacity, utilizing one ball mill to minimize water requirements. Following a ramp-up period, mill operations achieved sustainable mill throughput levels of approximately 30,000 tonnes per day by mid-February.  The Company expects to return to full capacity when additional fresh water becomes available, restarting the second ball mill once the spring freshet (spring melt leading to surface run off) has commenced, typically in April.  Centerra anticipates steadily improving mill throughput, quarter over quarter, during 2018, as water becomes available and improvements are made to the milling and maintenance processes.  In the second half of 2018, the Company expects to achieve an average daily throughput of approximately 55,000 tonnes per calendar day.

The company has received an amendment to the Mount Milligan Environmental Assessment Certificate that allows for limited withdrawal of water from Philip Lake until October 2018.  The Company expects to commence drawing water by the end of February and expects to carry out the necessary studies, and to consult with affected First Nations groups to work toward a further, longer-term amendment to the Environmental Assessment Certificate.

Mount Milligan Operating Results
           
($ millions, except as noted)Three months ended December 31,Year ended December 31,
2017 2016 (1)% Change2017 2016 (1)% Change
Financial Highlights:          
Gold sales 61.7  29.4 110% 242.9  29.4 726%
Copper sales 29.2  26.0 13% 125.9  26.0 385%
Total Revenues 90.9  55.4 64% 368.8  55.4 566%
           
Cost of sales (cash) 51.6  38.8 33% 209.7  38.8 440%
Cost of sales (non-cash)  8.9  5.9 50% 43.9  5.9 645%
Cost of sales (total) 60.5  44.7 35% 253.6  44.7 467%
Cash provided by operations 29.2  92.3 (68%) 150.6  92.3 63%
Cash provided by operations before changes in working capital(2) 30.3  45.2 (33%) 138.6  45.2 206%
           
Operating Highlights:          
Tonnes mined - 000s 9,792  7,592 29% 41,966  7,592 453%
Tonnes ore mined ? 000s 4,776  3,910 22% 21,501  3,910 450%
           
Tonnes milled - 000s 3,840  3,904 (2%) 17,743  3,904 354%
Mill Head Grade Copper (%) 0.19% 0.19%0% 0.18% 0.19%(6%)
Mill Head Grade Gold (g/t) 0.75  0.58 30% 0.64  0.58 10%
Copper Recovery - % 78.4% 74.7%5% 79.0% 74.7%6%
Gold Recovery - % 64.3% 58.8%9% 62.4% 58.8%6%
Mining costs - total ($/t mined material)$2.12 $1.93 10%$1.86 $1.93 (4%)
Milling costs - total ($/t milled material)$5.70 $4.27 34%$5.41 $4.27 27%
Concentrate Produced (dmt) 28,158  23,022 22% 121,502  23,022 428%
Payable Copper Produced (000's lbs) (5) 12,261  10,399 18% 53,596  10,399 415%
Payable Gold Produced (oz) (5) 58,587  47,717 23% 222,567  47,717 366%
           
Gold Sales (payable oz)(5) 61,524  34,154 80% 242,331  34,154 610%
Copper Sales (000's payable lbs)(5) 13,105  9,467 38% 59,719  9,467 531%
Average Realized Price - Gold (combined) - $/oz (2) (4)$1,005 $861 17%$1,003 $861 17%
Average Realized Price - Copper (combined) - $/lb (2) (4)$2.23 $2.74 (19%)$2.11 $2.74 (23%)
           
Capital Expenditures (sustaining) (2) - cash 11.9  3.4 249% 30.0  3.4 782%
Capital Expenditures (growth) (2)  - cash  -  3.1 (100%) -  3.1 (100%)
Capital expenditures (total) 11.9  6.5 83% 30.0  6.5 361%
           
Operating Costs (on a sales basis) ('000s) (3) 51.6  38.8 33% 209.7  38.8 440%
           
Operating Costs- $/oz sold 839  1,137 (26%) 866  1,137 (24%)
Adjusted Operating costs- $/oz sold (2) 385  407 (5%) 370  407 (9%)
Gold - All in Sustaining  costs on a by-product basis - $/oz sold (2) 594  509 17% 505  509 (1%)
Gold - All in Sustaining  costs on a by-product basis (including taxes) - $/oz sold (2) 611  529 16% 525  529 (1%)
Gold - All in Sustaining  costs on a co-product basis - $/oz sold (2) 706  811 (13%) 663  811 (18%)
Copper - All in Sustaining  costs on a co-product basis - $/pound sold (2) 1.70  1.65 3% 1.47  1.65 (11%)

(1)       Comparative results for Mount Milligan have been presented from the date of acquisition (October 20, 2016) to December 31, 2016.
(2)       Adjusted operating costs per ounce sold, all-in sustaining costs (for gold and copper) on a by-product or co-product basis (excluding and including tax) per unit sold, cash provided by operations before changes in working capital, payable copper produced, payable gold produced, as well as average realized price per unit sold (gold and copper), and capital expenditures (sustaining and growth) ? cash are non-GAAP measures and are discussed under "Non-GAAP Measures".
(3)       Operating costs (on a sales basis) is comprised of mine operating costs such as mining, processing, site and regional office administration, royalties and production taxes, but excludes reclamation costs and depreciation, depletion and amortization..
(4)       The average realized price of gold is a combination of market price paid by third parties and $435 per ounce paid by Royal Gold, while the average realized price of copper is a combination of market price paid by third parties and 15% of the spot price per metric tonne of copper delivered paid by Royal Gold, in each case under the Mount Milligan Streaming Arrangement.
(5)       Mount Milligan payable production and sales are presented on a 100% basis (the Mount Milligan Streaming Agreement entitles it to 35% and 18.75% of gold and copper sales, respectively).  Under the Mount Milligan Streaming Arrangement, Royal Gold will pay $435 per ounce of gold delivered and 15% of the spot price per metric tonne of copper delivered. Payable production for copper and gold reflects estimated metallurgical losses resulting from handling of the concentrate and payable metal deductions, subject to metal content, levied by smelters. The current payable percentage applied is approximately 95% for copper and 97.5% for gold, which may be revised on a prospective basis after sufficient history of payable amounts is determined.

Revenue

In 2017, total revenues were $368.8 million, including gold sales of $242.9 million and copper sales of $125.9 million.  Gold ounces sold were 242,331 at an average realized priceNG of $1,003 per ounce, while 59.7 million pounds of copper were sold at an average realized priceNG of $2.11 per pound.  These figures include gold and copper sales to Royal Gold under the Mount Milligan Streaming Arrangement as described above and the impact of hedging transactions.

Production

During 2017, total payable gold production was 222,567 ounces while total payable copper production was 53.6 million pounds.  Total mill throughput was 17.7 million tonnes and averaged 48,612 tonnes per calendar day during 2017 (approximately 54,000 tonnes per operating day), impacted by significant unplanned downtime during the year and by the mill being shut down in late December.  Mine production was 42.0 million tonnes.  Mined total tonnes (ore and waste) were slightly behind plan due to the reduced mill throughput and increased focus on tailings dam core construction.

Operating costs and All-in Measures

Operating costs (on a sales basis)NG for 2017 was $209.7 million and included mining costs of $63.4 million, milling costs of $95.9 million, administration costs of $31.8 million and other costs (including transportation, royalties, inventory movements, net of silver credits) of $18.6 million.

Other Cost movements

DD&A associated with sales were $43.9 million in 2017, representing depreciation of assets related to production which is within the 2017 guidance of $40 million to $45 million.

All-in sustaining costs on a by-product basis per ounce sold, which excludes revenue-based tax, was $505 for 2017, which was in line with the Company's revised guidance of $483 to $523 per ounce sold. 

Including income taxes, all-in sustaining costs on a by-product basis per ounce sold was $525 for 2017 which was in line with the Company's revised guidance of $503 to $544 per ounce sold.

Production initiatives

After several months of intensive data generation and analysis, a geometallurgical (GeoMet) program was able to identify significant relationships and trends between various complex ore types to mill throughput and recovery. From these studies, short and long-term block models have been built to predict mill throughput, metal content, alteration, float speed, copper and gold recoveries, and concentrate production. These models are being monitored, validated and beginning to be used in mine planning and scheduling forecasts. Mineralogical limits of single-feed ore have been defined, and resulting ore blend parameters have been put into practice. As a result of these on-going projects, Mount Milligan expects to be able to more accurately predict and maximize future metal production.

Mine engineering initiatives in drilling and blasting continued in the fourth quarter to target optimum fragmentation and particle size distribution for mill feed, based on specific rock types and geological domains. This data will be used in conjunction with the GeoMet program, which aims to optimize recovery and throughput for targeted ore types.

Mount Milligan is working closely with consultants to develop and prioritize projects to improve comminution performance and simplify the flotation circuits to improve recovery.  Continuous improvement initiatives to improve mill circuit efficiencies were undertaken such as improved process control through froth crowder installations, equipment sizing, and reagent control strategies. Primary cyclone surveys were conducted in conjunction with the manufacturer to find the optimum apex size, feed density and pressure for the installed cyclones.

Molybdenum Business

The molybdenum business includes two North American primary molybdenum mines that are currently on care and maintenance: the Thompson Creek Mine ("TC Mine") (mine and mill) in Idaho, U.S.A. and the 75%-owned Endako Mine (mine, mill and roaster) is in British Columbia, Canada.  The molybdenum business also includes the Langeloth metallurgical roasting facility (the "Langeloth Facility") in Pennsylvania, U.S.A.  TC Mine operates a commercial molybdenum beneficiation circuit to treat molybdenum concentrates to supplement the concentrate feed sourced directly for the Langeloth Facility.  This beneficiation process at the TC Mine has allowed the Company to process high copper molybdenum concentrate, which is then transported to the Langeloth Facility for processing.

The molybdenum business provides tolling services for customers by converting molybdenum concentrates to molybdenum oxide powder and briquettes and ferromolybdenum products. Additionally, molybdenum concentrates are also purchased to convert to upgraded products which are then sold in the metallurgical and chemical markets.

Molybdenum Operating Results
           
($ millions, except as noted)Three months ended December 31,Year ended December 31,
2017 2016 (1)% Change2017 2016 (1)% Change
Financial Highlights:          
Molybdenum (Mo) Sales - $ millions 36.9  16.8 120% 136.8  16.8 715%
Tolling, Calcining and Other 2.4  2.2 9% 8.2  2.2 273%
Total Revenues and Other Income 39.3  19.0 107% 145.0  19.0 664%
           
Cost of sales - cash 35.5  18.1 96% 131.5  18.1 626%
Cost of sales - non-cash 0.1  1.5 (93%) 5.3  1.5 250%
Cost of Sales - Total 35.6  19.6 81% 136.8  19.6 597%
           
Care & Maintenance costs - Molybdenum mines 3.3  1.8 85% 13.2  1.8 647%
           
Total capital expenditure 0.4  0.3 23% 0.9  0.3 182%
           
Cash provided by operations (0.1) (2.2)(93%) (8.3) (2.2)279%
Cash provided by operations before changes in working capital(2) 0.6  (1.0)(157%) 1.0  (1.0)(202%)
           
Production Highlights:          
Mo purchased 3,516  3,378 4% 15,513  3,378 359%
Mo oxide roasted 4,825  4,198 15% 18,555  4,198 342%
Mo sold 3,831  2,188 75% 14,946  2,188 583%
Toll roasted and upgraded Mo 1,145  1,584 (28%) 4,736  1,584 199%

(1)  Comparative results for the Molybdenum business have been presented from the date of acquisition (October 20, 2016) to December 31, 2016.
(2) Cash (used in) provided by operations before changes in working capital, is a non-GAAP measure and is discussed under "Non-GAAP Measures". 

Production:

A total of 14.9 million pounds of molybdenum were sold and 4.7 million pounds were tolled during 2017 resulting in sales revenue of $145.0 million. Net of $13.2 million in care and maintenance expenses at the two molybdenum mines, as well as total capital spending of $0.9 million, the molybdenum business generated $1.0 million of cash from the operations before changes in working capitalNG.

Consolidated Fourth Quarter Results - 2017 compared to 2016

Net earnings in the fourth quarter of 2017 were $130.0 million ($0.45 per common share - basic), compared to $63.6 million in the same period of 2016. The fourth quarter 2017 result includes a tax benefit of $21.3 million as a result of a change in tax legislation enacted in the U.S.  Excluding this item, adjusted earningsNG in the fourth quarter of 2017 were $108.7 million or $0.37 per common share (basic).  During the same period in 2016, the Company reported net earnings of $63.6 million or $0.23 per common share (basic) and adjusted earningsNG of $68.6 million or $0.24 per common share (basic).  The following provides an overview of the major items impacting the fourth quarter in 2017 as compared to 2016:

Development Projects

Öksüt Project:

At the Öksüt Project in Turkey, the Company spent $8.9 million during the year ended December 31, 2017 ($12.0 million the year ended December 31, 2016) on development activities to advance access and site preparation and to progress detailed engineering plans which are 96% complete, as well as spending on administration and financing costs.

Subsequent to December 31, 2017

On January 11, 2018, the Company announced that its wholly-owned Turkish subsidiary, Öksüt Madencilik Sanayi ve Ticaret A.S. received approval of its pastureland permit for the Öksüt Project located in central Turkey.  OMAS also received notice from the Kayseri Directorate of Food, Agriculture and Livestock ("Directorate") for payment of the necessary "grass fee" (approximately $4 million) and a refundable deposit to the Directorate to commence the land delivery process which converts the pastureland to industrial usage land.  It is expected that the land delivery process may take upwards of 45 days.

On February 12, 2018, the Company also announced that it had received an investment incentive certificate from the Turkish Ministry of Economy.  The investment incentive certificate provides OMAS with certain anticipated tax incentives. 

Centerra's Board of Directors approved the development of the Öksüt Project subject to continued availability of the OMAS Facility. The Company expects to start construction in April 2018.  See "2018 Outlook".

Gatsuurt Project:

In December 2017, the Company filed an updated technical report for the Gatsuurt Project located in central northern Mongolia.  The technical report incorporates results from the technical and economic studies initiated in 2016, further optimization studies completed in 2017, updated capital and operating costs and the current Mongolian tax and royalty regime.  The Company has not made a development or construction decision on the Gatsuurt Project and expects to restart negotiations with the Mongolian Government based on the results of the new technical report.

Greenstone Gold Property:

As previously disclosed, the Greenstone Partnership has not made a development or construction decision on the Hardrock Project.  During 2017 the partnership continued programs to minimize the risk profile of the project. The Company completed and submitted the Environmental Impact Study and Environmental Assessment ("EIS/EA") to CEAA and MOECC in July 2017, anticipating a decision in the fall of 2018.

In 2017, the Company spent $9.8 million on project development activities ($19.4 million in 2016). The focus areas included completing the EIS/EA, advancing public infrastructure engineering, and supporting local communities in their review of the EIS/EA. The Company continues to engage and consult with local communities of interest, including First Nations, and is seeking to enter into mutually beneficial impact benefit agreements in 2018. 

Centerra's funding to date of its C$185 million commitment in the Greenstone Partnership totals C$67.2 million ($51.6 million).

Balance Sheet

Inventory
Total inventory at December 31, 2017 was $507.9 million (2016 - $542.5 million) including product inventory of $298.9 million (2016 - $338.4 million) and supplies inventory of $209.0 million (2016 - $204.1 million).  The consolidated decrease year over year of $34.6 million reflects a 17.4% decrease in product inventories at Kumtor as the mill processed stockpiled material in 2017 due to lower tonnage of mined ore from the pit.  Product inventories at Mount Milligan were also lower, partially offset by higher inventory levels at the Langeloth processing facility due to the timing of receipt of molybdenum feed material.

Property, Plant and Equipment
The aggregate book value of property, plant and equipment at December 31, 2017 was $1.7 billion, which compares to $1.6 billion at the end of 2016. The increase in 2017 of $109.6 million is attributed to an increase of $145.1 million at Kumtor representing additions of $279.7 million mainly consisting of capitalized stripping costs related to cut-back 18 and Sarytor, mobile equipment re-build programs and tailings dam construction net of depreciation of $134.5 million.  However, such increases were partially offset by a decrease of $41.3 million due to the impairment of Mongolian assets and a decrease of $6.6 million at Mount Milligan due to depreciation of $38.5 million net of additions of $32.2 million mainly consisting of tailings storage facility construction.

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 $167.0 million as at December 31, 2017 (2016 - $158.4 million).  The increase in 2017 reflects changes from the regularly scheduled updates to the Company's closure costs estimates at its various properties. These payments are expected to commence over the next 1 to 20 years.

The Company's future undiscounted decommissioning and reclamation costs have been estimated to be $232.8 million at December 31, 2017 before salvage value.

These liabilities are secured by a combination of reclamation bonds, cash on deposit and a reclamation trust fund as prescribed by the regulatory bodies in the jurisdictions where these mines operate and project agreements with relevant governments.  For further details, refer to note 17 in the Company's 2017 Consolidated Financial Statements.

Share capital and share options
As of February 22, 2018, Centerra had 291,785,970 common shares outstanding and options to acquire 4,816,297 common shares outstanding under its stock option plan with exercise prices ranging between Cdn$5.04 and US$36.74 per share, with expiry dates ranging between 2018 and 2025.

Contractual Obligations

The following table summarizes Centerra's contractual obligations as of December 31, 2017, including payments due over the next five years and thereafter:

$ millionsTotalDue in Less
than One
Year
Due in 1 to 3
Years
Due in 4 to 5
Years
Due After 5
Years
Kumtor     
 Reclamation trust fund (1)$42.6$6.0$18.0$12.0$6.6
 Capital equipment (2) 1.2 1.2 - - -
 Operational supplies 36.0 36.0 - - -
Mount Milligan     
 Operational supplies 15.2 15.2 - - -
 B.C. Hydro liability 6.9 6.9 - - -
 Equipment leases (principal + interest) (3) 34.1 34.1 - - -
Öksüt and Greenstone     
 Project development 48.9 21.0 27.9 - -
 Operational supplies 0.1 0.1 - - -
Corporate and other     
 Loan repayment (principal only) 266.0 50.0 100.0 116.0 -
 Operational supplies 1.4 1.4 - - -
 Lease of premises (4) 3.2 0.8 1.0 0.7 0.7
 Derivative liability 23.3 16.0 7.3 - -
Total contractual obligations (5)$478.9$188.7$154.2$128.7$7.3
       

(1)       Centerra's future decommissioning and reclamation costs for the Kumtor mine are estimated to be $66.2 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 ($39.8 million). The settlement agreement with the Kyrgyz Republic Government requires this restricted cash to be funded at a rate of $6 million per year until the Reclamation Trust Fund reaches a balance of $69 million.  On December 31, 2017 the balance in the Reclamation Trust Fund was $26.4 million (2016 - $22.0 million), with the remaining $39.8 million to be funded over the life of the mine.
(2)       Agreements as at December 31, 2017 to purchase capital equipment.
(3)       In January 2017, this lease was renegotiated and converted into a financing with a one-year term.
(4)       Lease of the Toronto corporate office premises expiring in November 2021.
(5)       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 to Kyrgyzaltyn and the amounts paid and accrued by Kyrgyzaltyn to KGC according to the terms of a Restated Gold and Silver Sale Agreement ("Sales Agreement") between KGC, Kyrgyzaltyn and the Government of the Kyrgyz Republic dated June 6, 2009.

 2017  2016 
       
Sales:     
Gross gold and silver sales to Kyrgyzaltyn$ 695,288  $ 691,630 
Deduct: refinery and financing charges  (4,364)   (3,825)
Net sales revenue received from Kyrgyzaltyn$ 690,924  $ 687,805 
Expenses:     
Contracting services provided by Kyrgyzaltyn$ 1,250  $ 1,543 
Management fees payable to Kyrgyzaltyn  550    546 
Expenses paid to Kyrgyzaltyn$ 1,800  $ 2,089 
Dividends:     
Dividends declared to Kyrgyzaltyn$ -    $ 7,097 
Withholding taxes  -      (355)
Net dividends payable to Kyrgyzaltyn$ -    $ 6,742 

Related party balances

The assets and liabilities of the Company include the following amounts receivable from and payable to Kyrgyzaltyn:

 2017 2016
      
Amounts receivable (a)$ 20 $ 11,611
      
Amount payable$ 1,160 $ 1,218
  1. Subsequent to December 31, 2017, the balance receivable from Kyrgyzaltyn was paid in full.

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 the 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.

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).

For 2017, key management personnel are defined as the executive officers of the Company including the Chief Executive Officer, the President, the Vice President and Chief Financial Officer, the Vice President and Chief Operating Officer and the Vice President, Business Development & Exploration.

In the year ended December 31, 2017, compensation of directors was $2.2 million, including share-based compensation expense of $1.1 million (December 31, 2016 - $1.5 million, including share-based compensation credit of $0.6 million). Compensation of key management personnel in 2017 was $8.1 million, including shared-based compensation of $2.6 million, (December 31, 2016 - $7.2 million, including share-based compensation of $2.1 million).

Disclosure regarding related party transactions is included in Note 27 of the Company's December 31, 2017 Annual Financial Statements.

Quarterly Results ? Previous Eight Quarters

Over the last eight quarters, Centerra's results reflect the impact of decreasing input costs (mainly for consumables) which have seen a continued decrease since 2015, except for diesel prices which increased in 2017. Over the same periods, gold prices progressively increased over the first three quarters of 2016, until dropping in the fourth quarter following the 2016 U.S. election and resumed a steady increase over the 2017 year.  In 2017, the Euro, Canadian dollar, Mongolian tugrik and Kyrgyz som appreciated against the U.S. dollar thereby putting pressure on operating costs spent in these currencies.  Comparatively, most currencies weakened in 2016 as compared to the U.S. dollar which had a positive impact on foreign-denominated costs (such as labour). The Company reduced its carrying value of its Mongolian assets by $41.3 million (pre-tax) in the second quarter of 2017 and provided $60 million regarding the Strategic Agreement in the third quarter of 2017.  The quarterly production profile at Kumtor for 2017 was more consistent across each quarter, while the production profile in 2016 was more concentrated in the last nine months of the year. Non-cash costs have progressively increased at Kumtor due to its expanded mining fleet and the increased amortization of capitalized stripping resulting from increased stripping as the Central pit has become larger.  The addition of Mount Milligan's results began with the closing of the acquisition of Thompson Creek on October 20, 2016.  The quarterly financial results for the last eight quarters are shown below:

 

$ million, except per share data20172016
Quarterly data unaudited        
 Q4Q3Q2Q1Q4Q3Q2Q1
Revenue358276 279 285  306  220  162  73 
Net earnings (loss)130(1)23 57 6467 3  18 
Basic earnings (loss) per share0.45- 0.08 0.20 0.230.28 0.01  0.08 
Diluted earnings (loss) per share0.43- 0.08 0.20 0.230.28 -  0.07 
         
         

Other Corporate Developments

The following is a summary of corporate developments with respect to matters affecting the Company and its subsidiaries. Readers are cautioned that there are a number of legal and regulatory matters that are currently affecting the Company and that the following is only a brief summary of such matters. For a more complete discussion of these matters, see the Company's news releases and its 2016 Annual Information Form and specifically the section entitled "Risks that can affect our business" therein available on SEDAR at www.sedar.com. The following summary also contains forward-looking statements and readers are referred to "Caution Regarding Forward-looking Information".

Kyrgyz Republic  

Strategic Agreement

As previously disclosed, Centerra and its Kyrgyz subsidiaries (Kumtor Gold Company ("KGC") and Kumtor Operating Company) entered into a comprehensive settlement agreement (the "Strategic Agreement") with the Government of the Kyrgyz Republic (the "Government") on behalf of the Kyrgyz Republic on September 11, 2017.  The Strategic Agreement includes, among other things:

  1. full and final reciprocal releases and resolution of all existing arbitral and environmental claims, disputes, proceedings and court orders, and releases of the Company and its Kyrgyz subsidiaries from future claims covering the same subject matter as the existing environmental claims arising from approved mine activities;
     
  2. the agreement of KGC to:
     
    1. make a one-time lump sum payment totaling $57 million to a new, government-administered Nature Development Fund ($50 million) and to a new, government administered Cancer Care Support Fund ($7 million);
       
    2. within 12 months of closing make a further one-time payment of $3 million to the new, government administered Cancer Care Support Fund;
       
    3. make annual payments of $2.7 million to the Nature Development Fund, conditional on the Government continuing to comply with its obligations under the Strategic Agreement; and
       
    4. accelerate its annual payments to Kumtor's Reclamation Trust Fund in the amount of $6 million a year until the total amount contributed by KGC reaches the total estimated reclamation cost for the Kumtor Project (representing the independent assessment of Kumtor's current reclamation costs) subject to a minimum total reclamation cost of $69 million (which is broadly in line with KGC's current estimated reclamation cost for the Kumtor Project);

The releases of liability and all payments are subject to a range of initial conditions precedent designed to protect Centerra, KGC and KOC, including (i) the approval by the Government of various outstanding items, including the Kumtor life-of-mine (LOM) plan, official reserves report and the tailings dam expansion, (ii) compliance by the Government with its obligations under the Kumtor Project Agreements, (iii) continued operation of the Kumtor Mine by KGC and KOC with all necessary permits, (iv) no expropriatory action having been taken by the Government, and (v) termination of the environmental disputes and the civil and criminal proceedings instigated by the Kyrgyz General Prosecutor's Office on terms satisfactory to Centerra.  The Government approvals conditions noted in (i) above all been obtained and the Company is continuing to work closely with the Government to expeditiously satisfy the remaining conditions precedent to the Strategic Agreement, which are expected to be completed in the first quarter of 2018.  The initial longstop date for the satisfaction of all of the conditions precedent to completion of the Strategic Agreement has been extended to April 20, 2018. 

In connection with the Strategic Agreement, the arbitration previously commenced by Centerra, KGC and KOC against the Government of the Kyrgyz Republic and Kyrgyzaltyn will be suspended until April 20, 2018.  During the suspension, the parties will work towards completing the Strategic Agreement and the resolution of all outstanding matters affecting the Kumtor Project.

Kyrgyz Republic Claims

The following is a summary of the claims in the Kyrgyz Republic against the Kumtor Project, including those made by Kyrgyz Republic state environmental agencies and the General Prosecutor's office.  As noted above, the Strategic Agreement provides a pathway to the resolution of all such claims, disputes, proceedings and court orders, except as noted below.

SAEPF Claims

On September 4, 2017, the Bishkek Inter-District Court terminated a claim made bythe Chui-Bishkek-Talas Local Fund of Nature Protection and Forestry Development (the "Local Fund") of the Kyrgyz Republic State Agency for Environmental Protection and Forestry ("SAEPF") which sought compensation for alleged environmental pollution in the amount of 40,340,819 Kyrgyz soms (approximately $580,000 based on the exchange rate of 69.6105 Kyrgyz soms per US$1.00).   

On September 4, 2017, the Bishkek Inter-District Court also terminated the claim made by SAEPF which had alleged that Kumtor owes additional environmental pollution fees in the amount of approximately $220 million. The court also lifted the interim court order which prohibited KGC from taking any actions relating to certain financial transactions including, transferring property or assets, declaring or paying dividends, pledging assets or making loans. As a result, KGC transferred cash balances over and above its ordinary working capital requirements to Centerra on September 15, 2017, when the lifting of the interim court order became effective.

SIETS Claims

As previously disclosed, on May 25, 2016, the Bishkek Inter-District Court in the Kyrgyz Republic ruled against Kumtor Operating Company ("KOC"), Centerra's wholly-owned subsidiary, on two claims made by the State Inspectorate Office for Environmental and Technical Safety of the Kyrgyz Republic ("SIETS") in relation to the placement of waste rock at the Kumtor waste dumps and unrecorded wastes from Kumtor's effluent and sewage treatment plants. The Inter-District Court awarded damages of 6,698,878,290 Kyrgyz soms (approximately $94.4 million at current exchange rates) and 663,839 Kyrgyz soms (approximately $9,300 at current exchange rates), respectively. On June 1, 2016, the Inter-District Court ruled against KOC on two other claims made by SIETS in relation to alleged land damage and failure to pay for water use. The Inter-District Court awarded damages of 161,840,109 Kyrgyz soms (approximately $2.3 million) and 188,533,730 Kyrgyz soms (approximately $2.7 million), respectively.  Centerra, KOC and KGC strongly dispute the SIETS claims and have appealed the decisions to the Bishkek City Court and will, if necessary, appeal to the Kyrgyz Republic Supreme Court.  Such claims are expected to be terminated upon completion of the Strategic Agreement.

Kyrgyz Republic General Prosecutor's Office Proceedings

The Company is subject to a number of other criminal proceedings commenced by the Kyrgyz Republic General Prosecutor's Office and other Kyrgyz Republic state agencies as described below.  However, the Strategic Agreement provides a pathway to the resolution of claims, except as noted below.

Criminal Proceedings Against Unnamed KGC Managers

On May 30, 2016, a criminal case was opened by the Kyrgyz Republic General Prosecutor's Office ("GPO") against unnamed KGC managers alleging that such managers engaged in transactions that deprived KGC of its assets or otherwise abused their authority, causing damage to the Kyrgyz Republic. Specifically, the case appears to be focused on the reasonableness of certain of KGC's commercial transactions and in particular, the purchase of goods and supplies in the normal course of its business operations and the expenses relating to the relocation of the Kumtor Project's camp in 2014 and 2015. Further to such investigation, the GPO has carried out searches of KGC's offices and seized documents and records.

2013 KGC Dividend Civil and Criminal Proceeding

On June 3, 2016, the Inter-District Court renewed a claim previously commenced by the GPO seeking to unwind the $200 million dividend paid by KGC to Centerra in December 2013 (the "2013 Dividend").  On September 14, 2017, the Bishkek Inter-District Court determined to leave the claim without review and, accordingly, the claim has been terminated.

The Company understands that the GPO has also initiated a criminal investigation of executives of the Company and KGC in respect of the 2013 Dividend but that investigation is currently suspended.

Land Use Claim

As previously noted, KGC had challenged the purported 2012 cancellation of its land use (surface) rights over the Kumtor concession areas in the Kyrgyz Republic courts as well as in its arbitration claim (described above).  On August 28, 2017, the Bishkek Inter-District Court terminated the proceeding commenced by the GPO in respect of Kumtor's land use rights over the Kumtor concession area.

KGC Employee Movement Restrictions

In connection with certain of the foregoing criminal investigations, restrictions had been imposed by the Kyrgyz Republic on certain KGC managers and employees, which prohibit them from leaving the Kyrgyz Republic.  The Company understands that all such movement restrictions have now been lifted.

GPO Review of Kumtor Project Agreements

On June 14, 2016, according to reports in the Kyrgyz Republic, the Kyrgyz Republic President instructed the GPO to investigate the legality of the agreements relating to the Kumtor Project which were entered into in 2003, 2004 and 2009. The 2009 Restated Investment Agreement governing the Kumtor Project which was entered into in 2009 superseded entirely the 2003 and 2004 agreements. The 2009 Restated Investment Agreement was negotiated with the Kyrgyz Republic Government, Kyrgyzaltyn and their international advisers, and approved by all relevant Kyrgyz Republic state authorities, including the Kyrgyz Republic Parliament and any disputes under the 2009 Restated Investment Agreement are subject to resolution by international arbitration.  The Company understands that this investigation has been closed with respect to certain individuals.

Criminal Charges Regarding 2016 Casualty at Kumtor Mill

On June 16, 2016, the Investigator of the Jety-Oguz District Department of Interior Affairs initiated criminal proceedings against two KGC managers in relation to the previously disclosed death of a KGC employee due to an industrial accident which occurred in January 2016.  On July 11, 2017, the criminal proceedings were dismissed by the Kyrgyz courts but were later sent for new consideration by the courts upon the request of the deceased's family.  This claim is not expected to be resolved in connection with the Strategic Agreement.

Management Assessment of Outstanding Kumtor Matters

As noted above, the Strategic Agreement contained no admission on the part of Centerra or its Kyrgyz subsidiaries of: (i) any environmental wrongdoing, (ii) any non-compliance with Kyrgyz law or the Kumtor Project Agreements or (iii) any pre-existing obligation to make additional environmental or Reclamation Trust Fund payments or environmental remediation efforts.  The Company and KGC continue to dispute all of the allegations noted above.

While the Strategic Agreement provides a pathway for the resolution of all outstanding matters affecting the Kumtor Project, there are no assurances that all of the conditions precedent to the completion of the settlement contained in the Strategic Agreement will be satisfied.  If the settlement contained in the Strategic Agreement is not completed, there are no assurances that (i) the Company will be able to successfully resolve any or all of the outstanding matters affecting the Kumtor Project or that any future discussions between the Kyrgyz Republic Government and Centerra will result in a mutually acceptable resolution; or (ii) the Kyrgyz Republic Government and/or Parliament will not take actions that are inconsistent with the Government's obligations under the Strategic Agreement or Kumtor Project Agreements, including adopting a law "denouncing" or purporting to cancel or invalidate the Kumtor Project Agreements or laws enacted in relation thereto which have the effect of nationalization of the Kumtor Project.

The inability to successfully resolve all such matters, whether through the Strategic Agreement or otherwise,  could lead to suspension of operations of the Kumtor Project and would have a material adverse impact on the Company's future cash flows, earnings, results of operations and financial condition. 

Furthermore, if all such claims are not resolved as provided for in the Strategic Agreement and despite the Company's view that all disputes related to the 2009 Restated Investment Agreement should be determined in arbitration, there are risks that the arbitrator may (i) reject the Company's claims; (ii) determine it does not have jurisdiction; and/or (iii) stay the arbitration pending determination of certain issues by the Kyrgyz Republic courts. Even if the Company receives an arbitral award in its favour against the Kyrgyz Republic and/or Kyrgyzaltyn, there are no assurances that it will be recognized or enforced in the Kyrgyz Republic.  Accordingly, the Company may be obligated to pay part of or the full amounts of, among others, the SIETS and SAEPF claims regardless of the action taken by the arbitrator.  The Company does not have insurance or litigation reserves to cover these costs. If the Company were obligated to pay these amounts, it would have a material adverse impact on the Company's future cash flows, earnings, results of operations and financial condition.

Kyrgyzaltyn Purchaser Bank

As previously disclosed, beginning in September 2017, Kumtor began to limit shipments to Kyrgyzaltyn due to concerns about the financial stability at Bank Otkritie Financial ("Bank Otkritie"), which is the bank that previously purchased Kyrgyzaltyn's refined gold.  In November 2017, Kyrgyzaltyn appointed a new purchaser for its refined gold, Auramet International LLC ("Auramet").  All gold doré produced at Kumtor is purchased at the mine site by Kyrgyzaltyn for processing at its refinery in the Kyrgyz Republic pursuant to the Restated Gold and Silver Sale Agreement dated June 6, 2009 entered into between KGC, Kyrgyzaltyn and the Kyrgyz Government. Auramet now purchases refined gold from Kyrgyzaltyn and pays Kumtor directly.

Following the appointment of Auramet as Kyrgyzaltyn's purchaser bank at the end of November 2017, KGC resumed full shipments of gold doré to Kyrgyzaltyn and completed the sale of all gold doré accumulated in inventory due to the concerns about Bank Otkritie's financial condition.

Mongolia

Gatsuurt ? Illegal Mining

CGM and Centerra continue to work with appropriate Mongolian federal and aimag (local) governments, relevant state bodies and police to clear the Gatsuurt site from artisanal miners and to restrict their access to the site. Centerra does not condone any violence or use of force by Mongolian authorities and has communicated to Mongolian authorities that matters are to be resolved in a peaceful manner. 

Claim Against the Mongolian Mineral Resources Authority to Annul Certain Administrative Decisions Related to Gatsuurt Mining Licenses.

In the first quarter of 2016, a non-governmental organization called "Movement to Save Mt. Noyon" filed a claim in Mongolian court against the Mongolian Mineral Resources Authority (MRAM) requesting that MRAM annul two administrative decisions related to the mining licenses underlying the Gatsuurt Project. Centerra Gold Mongolia ("CGM"), the wholly owned subsidiary of Centerra and the holder of these mining licenses, is involved in the claim as a third party.  One administrative decision related to a routine approval of a change of name of the Gatsuurt license holder.  That administrative decision does not affect the validity of the Gatsuurt licenses.  The second decision related to a non-material license. The claimant's request has previously been granted twice (in May 2016 and May 2017) by the lower court and overturned both times on appeal.  On July 26, 2017, the Mongolian lower court granted the claimant's request to suspend the two administrative acts and that decision has subsequently been upheld by an appellate court.  While Centerra believes that this claim is without merit, there are no assurances that the claim will be resolved in favour of CGM.  Subsequent adverse rulings of the Mongolian courts which may otherwise relate to the Gatsuurt licenses or delays in the court process may have a material adverse impact on the Company's future cash flows, earnings, results of operations or financial condition.

Sale of ATO

On January 31, 2017, Centerra Gold's Mongolian subsidiary, CGM entered into definitive agreements to sell the ATO Project, located in Eastern Mongolia, to Steppe Gold LLC and Steppe Gold Limited for gross proceed of $20.0 million.  CGM received $0.8 million upon signing of the definitive agreements and $9 million at closing, which occurred on September 15, 2017. CGM is to receive additional $5 million cash payments on each of September 30, 2018 and September 30, 2019.

Accounting Estimates, Policies and Changes

Accounting Estimates

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 of the consolidated financial statements, 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. Changes to these critical accounting estimates could have a material impact on the consolidated financial statements.

The key sources of estimation uncertainty and judgment used in the preparation of the 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 outlined in detail in note 4 of the December 31, 2017 financial statements. 

Recently issued but not adopted accounting guidance

Note 5 in the consolidated financial statements for the year ended December 31, 2017 presents a list of recently issued accounting standards not yet adopted by the Company, provides a brief description on the nature of these changes and potential impact on the Company.  The recently issued accounting standards and amendments are as follows:  IFRS 15, Revenue from Contracts with Customers and IFRS 16, Leases.

The Company has assessed the impact of adopting IFRS 15 and determined that IFRS 15 does not have an impact on revenue recognized related to the sales of gold doré, gold and copper concentrate and molybdenum.  The Company is in the process of determining the impact of IFRS 16 on its financial statements.

Disclosure Controls and Procedures and Internal Control Over Financial Reporting ("ICFR")

The Company's management, including the CEO and CFO, is responsible for the design of disclosure controls and procedures ("DC&P") and internal controls over financial reporting ("ICFR"). Centerra adheres to the Committee of Sponsoring Organizations of the Treadway Commission's (COSO) revised 2013 Internal Control Framework for the design of its ICFR. 

The evaluation of DC&P and ICFR was carried out under the supervision of and with the participation of management, including Centerra's CEO and CFO.  Based on these evaluations, the CEO and the CFO concluded that the design and operation of these DC&P and ICFR were effective throughout 2017.

2018 Outlook

Production, cost and capital forecasts for 2018 are forward-looking information and are based on key assumptions and subject to material risk factors that could cause actual results to differ materially.  These risks are discussed herein under the headings "Risks That Can Affect Our Business", "Material Assumptions & Risks" and "Caution Regarding Forward-Looking Information" in this document.  Also refer to the Company's most recent Annual Information Form and specifically the section entitled "Risks That Can Affect Our Business" therein available on SEDAR.

Mount Milligan Update

As noted previously, the mill throughput levels at Mount Milligan reached approximately 30,000 tonnes per day by mid-February. The Company expects to return to full capacity when additional fresh water becomes available, restarting the second ball mill once the spring freshet has commenced, typically in April. Centerra anticipates steadily improving mill throughput, quarter over quarter, during 2018, as water becomes available and improvements are made to the milling and maintenance processes. In the second half of 2018, the Company expects to achieve an average daily throughput of approximately 55,000 tonnes per calendar day.

2018 Gold Production

Centerra's 2018 gold production is expected to be between 645,000 to 715,000 ounces.  Kumtor's gold production forecast is expected to be in the range of 450,000 ounces to 500,000 ounces with about 45% of the production expected to be in the fourth quarter.  At Mount Milligan, the Company expects payable gold production to be in the range of 195,000 to 215,000 ounces.

2018 Copper Production

Payable copper production is expected to be in the range of 47 million pounds to 52 million pounds. 

Centerra's 2018 production is forecast as follows:

2018 Production  GuidanceUnitsKumtorMount Milligan(1)Centerra
Gold    
Unstreamed Gold Payable Production(Koz)450 ? 500127 ? 140577 ? 640
Streamed Gold Payable Production(1)(Koz)?  68 ? 75  68 ? 75
Total Gold Payable Production(2)(Koz)450 ? 500195 ? 215645 ? 715
     
Copper    
Unstreamed Copper Payable Production(Mlb)?38 ? 4238 ? 42
Streamed Copper Payable Production(1)(Mlb)?9 ? 109 ? 10
Total Copper Payable Production(3)(Mlb)?47 ? 5247 ? 52
  1. The Royal Gold Stream Arrangement entitles Royal Gold to 35% and 18.75% of gold and copper sales, respectively, from the Mount Milligan Mine and Royal Gold will pay $435 per ounce of gold delivered and 15% of the spot price per metric tonne of copper delivered. 
  2. Gold production assumes 79% recovery at Kumtor and 61% recovery at Mount Milligan.
  3. Copper production assumes 79% recovery for copper at Mount Milligan.

2018 All-in Sustaining Unit Costs NG

Centerra's 2018 all-in sustaining costs per ounce sold NG are calculated on a by-product basis and are forecast as follows:

2018 All-in Sustaining Unit Costs NGKumtorMount Milligan(2)Centerra(2)
Ounces sold forecast 450,000 ? 500,000  195,000 ? 215,000645,000-715,000
All-in sustaining costs on a by-product basis(1), (2)$733 ? $815$806 ? $888$799 ? $885
  Revenue-based tax(3) and taxes(3)171 ? 190 19 ? 21 125 ? 139
All-in sustaining costs on a by-product basis,
including taxes (1), (2), (3)
$904 ? $1,005$825 ? $909$924 ? $1,024
    
Gold - All-in sustaining costs on a co-product basis
($/ounce) (1),(2)
$733 ? $815$847 ? $932$812 ? $900
Copper - All-in sustaining costs on a co-product
basis ($/pound) (1),(2)
?$1.90 ? $2.10$1.90 ? $2.10

1)        All-in sustaining costs per ounce sold, all-in sustaining costs per ounce sold on a by-product basis, all-in sustaining costs on a by-product basis including taxes per ounce sold and all-in sustaining costs on a co-product basis (gold and copper) on a per unit basis are non-GAAP measures and are discussed under "Non-GAAP Measures".
2)        Mount Milligan payable production and ounces sold are on a 100% basis (the Mount Milligan Streaming Arrangement entitles Royal Gold to 35% and 18.75% of gold and copper sales, respectively).  Unit costs and consolidated unit costs include a credit for forecasted copper sales treated as by-product for all-in sustaining costs and all-in sustaining costs plus taxes. The copper sales are based on a copper price assumption of $2.90 per pound sold for Centerra's 81.25% share of copper production and the remaining 18.75% of copper revenue at $0.435 per pound (15% of spot price, assuming spot at $2.90 per pound), representing the Mount Milligan Streaming Arrangement.  Payable production for copper and gold reflects estimated metallurgical losses resulting from handling of the concentrate and payable metal deductions, subject to metal content, levied by smelters.
3)        Includes revenue-based tax at Kumtor and the British Columbia mineral tax at Mount Milligan based on a forecast gold price assumption of $1,275 per ounce sold.

Results in chart may not add due to rounding.

2018 Royalty Revenue

Based on the mid-point of the operator's guidance of the Company's royalty portfolio, royalty revenue is estimated for 2018 to be in the range of $11.5 million to $12.7 million.

2018 Exploration Expenditures

Planned exploration expenditures for 2018 are expected to be $16.7 million, including $14.4 million to fund ongoing projects and $2.3 million for generative and other exploration programs.

2018 Capital Expenditures

Centerra's projected capital expenditures for 2018, excluding capitalized stripping, are estimated to be $242 million, including $100 million of sustaining capitalNG and $142 million of growth capitalNG

Projected capital expenditures (excluding capitalized stripping) include:

Projects2018 Sustaining Capital(1)
($ millions)
2018 Growth Capital(1)
($ millions)
Kumtor mine 49 14
Mount Milligan mine 44 -
Öksüt project - 82
Kemess Underground project - 36
Greenstone Gold property - 10
Other (Thompson Creek mine,
Endako mine (75%), Langeloth
facility and Corporate)
 7 -
Consolidated Total$100$142

(1) Sustaining capital and growth are non-GAAP measures and are discussed under "Non-GAAP Measures".

Kumtor

At Kumtor, 2018 total capital expenditures, excluding capitalized stripping, are forecast to be $63 million.  Spending on sustaining capitalNG of $49 million relates primarily to major overhauls and replacements of the heavy duty mine equipment ($42 million).

Growth capitalNG investment at Kumtor for 2018 is forecast at $14 million primarily related to tailings dam construction ($9 million). 

The cash component of capitalized stripping costs related to the development of the open pit is expected to be $122 million of the $168 million total capitalized stripping estimated in 2018.

Mount Milligan

At Mount Milligan, 2018 sustaining capital expenditures are forecast to be $44 million and relates primarily to tailing dam construction ($17 million), mine equipment rebuilds ($11 million) and water supply improvement projects ($3 million).  

Öksüt Project

On February 22, 2018, Centerra's Board of Directors approved construction of the Öksüt project.  The total cost of construction is expected to be approximately $220 million (including contingency) to first gold pour which is anticipated in the first quarter of 2020.  Currently 96% of the engineering has been completed for the project and the Company expects to commence construction in April 2018. Planned spending in 2018 is expected to be approximately $82 million at the Öksüt property which includes initiation of haul road construction, waste dump preparation, main access road construction, purchase of crusher equipment and initiation of crusher construction, and various earthworks activities for the heap leach pad, ADR plant, administration and truck shop campus, and electrical substation.  Additional details related to the Öksüt project can be found in the Technical Report dated September 3, 2015 filed on SEDAR.

Kemess Underground Project

In 2018, spending on pre-construction activities at the Kemess Underground Project (KUG) is estimated at $36 million.  Pre-construction activities include the purchase of a water treatment and water discharge system.  The Company continues to prioritize receipt of all critical permits, and other approvals required in advance of a potential construction decision later in the year.  Additional details related to the KUG project is described in the technical report dated July 14, 2017 and filed on SEDAR by AuRico Metals Inc.

Greenstone Gold Property

Centerra's guidance for 2018 expenditures in connection with the Greenstone Gold Property (50-50 joint venture with Premier Gold) is approximately $20 million (Cdn$25 million), on a 100% basis, which is forecast to be spent on project de-risking including negotiations for advancing long-term relationship agreements with local aboriginal groups, permitting, project optimization and project support. The forecast spending for 2018 will be fully funded by Centerra with 50% of spending accounted for as pre-development project spending or exploration and expensed through Centerra's income statement. The remaining 50% of spending will be capitalized on Centerra's balance sheet and be accounted for as an acquisition cost of the Greenstone Gold Property ($10 million).

2018 Corporate Administration

Corporate and administration expense for 2018 is forecast to be $32 million (including $9 million of stock-based compensation expense).   

2018 Depreciation, Depletion and Amortization

Consolidated depreciation, depletion and amortization expense included in costs of sales expense for 2018 is forecasted to be between $188 million and $216 million including Kumtor's DD&A expense of between $149 million and $166 million and Mount Milligan's DD&A expense of between $33 million and $41 million.

 (In millions)2018 DD&A
Forecast
(Unaudited)
2017 DD&A
Actual
 Kumtor   
 Mine equipment$ 65 ? 75 67 
 Less DD&A capitalized to stripping costs(1)   (36) ? (46)(51)
 Capitalized stripping costs amortized 129 ? 15646 
 Other mining assets   3 
 Mill assets 12  
 Administration assets and other 13 12 
 Inventory adjustment (non-cash depreciation) (37) ? (47)  62 
 Subtotal for Kumtor$  149 ? 166146 
 Mount Milligan   
 Plant & equipment$17 ? 2021 
 Mineral properties 5 ? 66 
 Buildings and other 5 ? 67 
 Tailings storage facility 2 ? 34 
 Inventory adjustment (non-cash depreciation) 4 ? 6  6 
 Subtotal for Mount Milligan$  33 ? 4144 
 Langeloth   
 Plant & equipment$5 ? 74 
 Buildings and other 1 ? 21 
 Subtotal for Langeloth$  6 ? 95 
 Consolidated Total$  188 ? 216195 

(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 2017, $51 million of depreciation costs was allocated to capitalized stripping costs.

2018 Taxes

Pursuant to the Restated Investment Agreement, Kumtor's operations are not subject to corporate income taxes. Instead, the Restated Investment Agreement imposes a tax of 13% on gross revenue (plus 1% for the Issyk-Kul Oblast Development Fund).

The Mount Milligan operations are subject to corporate income tax and British Columbia mineral tax.  Corporate income tax for 2018 is forecast to be nil, while British Columbia mineral tax is forecast to be between $3.5 million and $4.2 million.

Kumtor Settlement Agreement

The Company expects the settlement agreement with the Kyrgyz Government to close in the first quarter of 2018 at which time the payment of $50 million is expected to be made.

Sensitivities

Centerra's revenues, earnings and cash flows for 2018 are sensitive to changes in certain key inputs or currencies.  The Company has estimated the impact of any such changes on revenues, net earnings and cash from operations.

 ChangeImpact on
($ millions)
Impact on
($ per ounce sold)
 CostsRevenuesCash flowsNet Earnings
(after tax)
AISC(3) on by-
product basis
Gold price(1)$50/oz3.2 ? 3.722.0 ? 25.218.8 ? 21.518.8 ? 21.50 - 1
Copper price(1)10%1.9 ? 2.36.6 ? 7.94.7 ? 5.64.7 ? 5.610 ? 11
Diesel fuel10%4.5 - 5.0-6.0 - 7.04.5 - 5.09 ? 10
Kyrgyz som(2)1 som1.0 - 2.0-1.0 - 2.01.0 - 2.01 - 2
Canadian dollar(2)10 cents30.0 - 32.0-30.0 - 32.025.0 - 27.035 ? 40

(1)        Gold and copper price sensitivities include the impact of the hedging program set up in order to mitigate gold and copper price risks.
(2)        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.

(3)        All-in sustaining costs per ounce sold ("AISC") on a by-product basis is a non-GAAP measure and is discussed under "Non-GAAP Measures".

Material Assumptions and Risks

Material assumptions or factors used to forecast production and costs for 2018 include the following:

The assumed diesel price of $0.45/litre at Kumtor assumes that no Russian export duty will be paid on the fuel exports from Russia to the Kyrgyz Republic. Diesel fuel for Kumtor is sourced from separate Russian suppliers. The diesel fuel price assumptions were made when the price of oil was approximately $63 per barrel.  Crude oil is a component of diesel fuel purchased by the Company, such that changes in the price of Brent crude oil generally impacts diesel fuel prices. The Company established a hedging strategy to manage changes in diesel fuel prices on the cost of operations at the Kumtor mine.  The diesel fuel hedging program is a 24-month rolling program. The Company targets to hedge up to 50% of crude oil component of monthly diesel purchases exposure.

Other material assumptions were used in forecasting production and costs for 2018.  These material assumptions include the following:

The Company cannot give any assurances in this regard.

Production, cost and capital forecasts for 2018 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 "Risks That Can Affect Our Business", "Material Assumptions & Risks" and "Caution Regarding Forward-Looking Information" in this document and under the heading "Risks That Can Affect Our Business"  in the Company's 2017 MD&A and in the Company's most recent Annual Information Form.

Non-GAAP Measures

This document contains the following non-GAAP financial measures: all-in sustaining costs per ounce sold on a by-product basis, all-in sustaining costs per ounce sold on a by-product basis including taxes, and all-in sustaining costs per ounce sold on a co-product basis. In addition, non-GAAP financial measures include operating costs (on a sales basis), adjusted operating costs and adjusted operating costs per ounce sold, as well as capital expenditures (sustaining) and capital expenditures (growth) and cash provided by operations before changes in working capital. 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 be applying the World Gold Council ("WGC") guidelines, which can be found at http://www.gold.org.

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 similar to the WGC's Guidance Note on these non-GAAP measures:

Adjusted Operating Cost and All-in Sustaining Costs on a by-product basis (including and excluding taxes) per ounce of gold are non-GAAP measures and can be reconciled as follows:

 Three months ended December 31,Year ended December 31,
(Unaudited - $ millions, unless otherwise specified)Consolidated (1) Kumtor(1) Mount Milligan(1)Consolidated (1) Kumtor(1) Mount Milligan(1)
 2017 2016  20172016 2017 2016 2017 2016  20172016 2017 2016 
                 
Cost of sales excluding molybdenum segment, as reported145.2 147.6  84.7103.0 60.5 44.7 545.4 392.1  291.7347.4 253.6 44.7 
Less: Non-cash component48.6 65.8  39.759.9 8.9 5.9 189.6 185.9  145.7180.0 43.9 5.9 
Cost of sales, cash component96.6 81.8  44.943.1 51.6 38.8 355.8 206.2  146.0167.4 209.7 38.8 
Adjust for:                  
Regional office administration5.8 4.0  5.83.8 - - 18.2 14.7  18.214.5 - - 
Standby costs- 2.5  -- - - - 0.3  -- - - 
Selling and marketing0.9 0.9  -- 0.9 1.0 4.7 0.9  -- 4.7 1.0 
Refining fees1.9 1.4  1.61.3 0.3 0.2 5.5 4.0  4.43.8 1.1 0.2 
By-product credits - copper(29.2)(26.0) -- (29.2)(26.0)(125.9)(26.0) -- (125.9)(26.0)
Community costs related to current operations1.4 0.1  1.40.3 - - 3.7 1.1  3.71.2 - - 
Adjusted Operating Costs77.4 64.8  53.748.5 23.7 14.0 262.0 201.1  172.3186.8 89.7 13.9 
Corporate general administrative and other costs7.1 9.3  0.1- 0.8 - 40.0 27.6  0.3- 2.2 - 
Accretion expense0.5 0.7  0.30.2 0.2 0.1 2.4 1.9  1.30.9 0.6 0.1 
Capitalized stripping and ice unload24.4 42.9  24.442.9 - - 149.4 100.5  149.4100.5 - - 
Capital expenditures (sustaining)28.9 14.8  16.511.5 11.9 3.4 91.3 64.8  60.661.0 30.0 3.4 
All-in Sustaining Costs on a by-product basis138.4 132.5  95.1103.1 36.6 17.5 545.1 395.8  383.9349.2 122.5 17.4 
Revenue-based taxes32.2 32.6  32.232.6 - - 96.7 96.3  96.796.3 - - 
Income and mining taxes1.1 0.6  -- 1.1 0.6 4.7 0.6  -- 4.7 0.6 
All-in Sustaining Costs on a by-product basis (including taxes)171.6 165.7  127.3135.7 37.6 18.1 646.5 492.8  480.6445.5 127.2 18.0 
Ounces sold  (000)242.2 226.0  180.7191.8 61.5 34.2 792.5 580.5  550.1546.4 242.3 34.2 
Adjusted Operating Costs - $ /oz sold320 287  297253 385 410 331 346  313342 370 407 
Gold - All-in Sustaining Costs on a by-product basis - $ /oz sold571 586  526538 594 512 688 682  698640 505 509 
Gold - All-in Sustaining Costs on a by-product basis (including taxes) - $ /oz sold709 733  704707 611 531 816 849  874815 525 528 
Gold - All-in Sustaining Costs on a co-product basis (before taxes) - $ /oz sold593 632  526538 706 811 737 700  698640 663 811 
Copper - All-in Sustaining Costs on a co-product basis (before taxes) - $ /pound sold1.70 1.65  n/an/a 1.70 1.65 1.47 1.65  n/an/a 1.47 1.65 
  (1) Results may not add due to rounding                


Adjusted earnings can be reconciled as follows:

Adjusted earnings is intended to provide investors with information about the Company's continuing income generating capabilities.  Hence, this measure adjusts for the earnings impact of non-recurring items.

  Three months ended December 31,Year ended December 31,
($ millions, except as noted)2017 20162017 2016
          
Net earnings (loss)$130.0 $63.6$209.5 $151.5
          
Adjust for non-recurring items:        
 Impairment of Mongolia CGU (net of tax) -  - 39.7  -
 Kyrgyz Republic settlement -  - 60.0  -
 Gain on sale of ATO (net of tax) -  - (6.9) -
 Thompson Creek Metals acquisition expenses -  5.0 -  9.4
 Income tax benefit from US tax reform (21.3) - (21.3) -
          
Adjusted net earnings$108.7 $68.6$281.0 $160.9
          
Net earnings (loss) per share - basic$0.45 $0.23$0.72 $0.60
Net earnings (loss) per share - diluted$0.43 $0.23$0.72 $0.60
Adjusted net earnings per share - basic$0.37 $0.24$0.96 $0.64
Adjusted net earnings per share - diluted$0.36 $0.24$0.96 $0.64
          


Free cash flow (unlevered) is calculated as follows:
         
 Three months ended December 31,Year ended December 31,
($ millions, except as noted)2017 2016 2017 2016 
         
Cash provided by operations (1)$170.4 $170.4 $500.9 $371.4 
         
Adjust for:        
Additions to property, plant and equipment (1) (63.1) (81.8) (266.9) (212.8)
         
Free cash flow$107.3 $88.6 $234.0 $158.6 
         
(1) as presented in the Company's Consolidated Statements of Cash Flows.


Sustaining capital, growth capital and capitalized stripping presented in the All-in Sustaining cost measures can be reconciled as follows: 
       
Three months ended December 31,KumtorMount
Milligan
TurkeyMongoliaAll otherConsolidated
($ millions)   (Unaudited)      
2017      
Capitalized stripping ?cash24.4 - -- -24.4 
Sustaining capital - cash16.5 11.9 -- 0.528.9 
Growth capital - cash7.1 - -- -7.1 
Gatsuurt project development capital cash- - -- -- 
Greenstone Gold Property pre-development capital cash- - -- 1.21.2 
Öksüt project development capital - cash- - 2.4- -2.4 
Molybdenum business capital - cash- - -- 0.40.4 
Adjustment for changes in accruals and other non-cash items included in additions to PP&E3.2 (4.8)0.3- (0.1)(1.4) 
Greenstone Gold Property translation adjustment- - -- 0.10.1 
Total - Additions to PP&E (1)51.2 7.1 2.7- 2.163.1 
2016      
($ millions)   (Unaudited)      
Capitalized stripping ?cash42.9 - -- -42.9 
Sustaining capital - cash11.5 3.4 -- 0.115.0 
Growth capital - cash1.4 3.1 --  4.5 
Gatsuurt project development capital cash- - -- 2.42.4 
Greenstone Gold Property pre-development capital cash- - -- 3.63.6 
Öksüt project development capital - cash- - 2.1- -2.1 
Molybdenum business capital - cash- - -- 0.30.3 
Adjustment for changes in accruals and other non-cash items included in additions to PP&E11.0 - -- -11.0 
Total - Additions to PP&E (1)66.8 6.5 2.1- 6.481.8 
       
Year ended December 31,KumtorMount
Milligan
TurkeyMongoliaAll otherConsolidated
($ millions)   (Unaudited)      
2017      
Capitalized stripping ?cash149.4 - -- -149.4 
Sustaining capital - cash60.6 30.0 -- 0.791.3 
Growth capital - cash18.1 - -- -18.1 
Gatsuurt project development capital cash- - -1.8 -1.8 
Greenstone Gold Property pre-development capital cash- - -- 5.05.0 
Öksüt project development capital - cash- - 9.0- -9.0 
Molybdenum business capital - cash- - -- 0.90.9 
Adjustment for changes in accruals and other non-cash items included in additions to PP&E- (6.8) (1.5)(0.3)(0.1)(8.7)
Greenstone Gold Property translation adjustment- - -- 0.10.1 
Total - Additions to PP&E (1)228.1 23.2 7.51.5 6.6266.9 
2016      
($ millions)   (Unaudited)      
Capitalized stripping ?cash100.5 - -- -100.5 
Sustaining capital - cash61.0 3.4 -- 0.464.8 
Growth capital - cash14.8 3.1 -- -17.9 
Gatsuurt project development capital cash- - -- 7.27.2 
Greenstone Gold Property pre-development capital cash- - -- 11.411.4 
Öksüt project development capital - cash- - 12.0- -12.0 
Molybdenum business capital - cash- - -- 0.30.3 
Adjustment for changes in accruals and other non-cash items included in additions to PP&E(1.3)- -- -(1.3)
Total - Additions to PP&E (1)175.0 6.5 12.0- 19.3212.8 


Reconciliation of Cash Provided by Operations Before Changes in Working Capital:
       
  Three months ended December 31, 2017
  KumtorMount MilliganMolybdenumOtherConsolidated
Cash provided by (used in) operations150,952 29,183 (148)(9,603)170,384 
Add back (deduct):      
 Change in operating working capital(5,908)1,079 721 (6,405)(10,513)
Net cash provided by (used in) operations before
changes in working capital
145,044 30,262 573 (16,008)159,871 
       
  Three months ended December 31, 2016
  KumtorMount MilliganMolybdenumOtherConsolidated
Cash provided by (used in) operations193,810 92,251 (2,185)(113,479)170,397 
Add back (deduct):      
 Change in operating working capital(42,504)(47,010)1,172 51,320 (37,022)
Net cash provided by (used in) operations before
changes in working capital
151,306 45,241 (1,013)(62,159)133,375 
       
  Year ended December 31, 2017
  KumtorMount MilliganMolybdenumOtherConsolidated
Cash provided by (used in) operations416,082 150,567 (8,281)(57,472)500,896 
Add back (deduct):      
 Change in operating working capital8,209 (11,973)9,310 6,147 11,693 
Net cash provided by (used in) operations before
changes in working capital
424,291 138,594 1,029 (51,325)512,589 
       
  Year ended December 31, 2016
  KumtorMount MilliganMolybdenumOtherConsolidated
Cash provided by (used in) operations416,355 92,251 (2,185)(134,977)371,444 
Add back (deduct):      
 Change in operating working capital(21,697)(47,010)1,172 34,877 (32,658)
Net cash provided by (used in) operations before
changes in working capital
394,658 45,241 (1,013)(100,100)338,786 

Average realized sales price for gold

The average realized gold price per ounce sold is calculated by dividing gold sales revenue, gross together with the final pricing adjustments and mark-to-market adjustments by the ounces sold, as shown in the table below:

Average realized sales price for goldThree months ended December 31,Year ended December 31,
 2017 2016 2017 2016 
     
Gold sales reconciliation ($ millions)    
Gold sales - Kumtor228.1 231.3 685.2 683.4 
     
Gold sales - Mt. Milligan    
Gold sales related to cash portion of Royal Gold stream9.3 5.3 37.0 5.3 
Mark-to-market adjustments on sales to Royal Gold(1.1)3.7 (1.4)3.7 
Final adjustments on sales to Royal Gold(0.2)0.9 (0.2)0.9 
Total gold sales under Royal Gold stream8.0 9.9 35.4 9.9 
     
Gold sales to third party customers48.8 25.7 199.9 25.7 
Mark-to-market adjustments4.1 1.3 2.7 1.3 
Final pricing adjustments1.3 (7.3)6.1 (7.3)
Total gold sales to third party customers54.1 19.7 208.6 19.7 
Gold sales, net of adjustments62.1 29.6 244.0 29.6 
Refining and treatment costs(0.3)(0.2)(1.1)(0.2)
Total gold sales61.8 29.4 242.9 29.4 
     
Total gold revenue - Consolidated289.9 260.7 928.1 712.8 
     
Ounces of gold sold    
Gold ounces sold -  Kumtor180,703 191,842 550,134 546,342 
Ounces sold to Royal Gold - Mt. Milligan21,266 12,249 85,059 12,249 
Ounces sold to Royal Gold - Mt. Milligan - Final adjustments- (711)(7,556)(711)
Ounces sold to third party customers - Mt. Milligan40,258 22,616 164,828 22,616 
     
Total ounces sold - Consolidated242,228 225,996 792,466 580,496 
     
Average realized sales price for gold on a per ounce basis    
Average realized sales price -  Kumtor1,262 1,206 1,245 1,251 
     
Average realized gold price - Royal Gold435 435 435 435 
Average realized gold price - Mark-to-market adjustments(54)316 (18)316 
Average realized gold price - Final pricing adjustments(8)76 (3)76 
Average realized gold price - Mt. Milligan - Royal Gold374 827 414 827 
     
Average realized gold price - Third party1,211 1,136 1,212 1,136 
Average realized gold price - Mark-to-market adjustments102 58 17 58 
Average realized gold price - Final pricing adjustments32 (323)37 (323)
Average realized gold price - Mt. Milligan - Third party1,345 872 1,266 872 
Average realized gold price - Mt. Milligan - Combined1,005 861 1,003 861 
     
Average realized sales price for gold - Consolidated1,197 1,154 1,171 1,228 
     

Average realized sales price for Copper - Mount Milligan

The average realized copper price per pound is calculated by dividing copper sales revenue, gross together with the final pricing adjustments and mark-to-market adjustments per pound, as shown in the table below:

Average realized sales price for Copper - Mount MilliganThree months ended December 31,Year ended December 31,
 2017 2016 2017 2016 
     
Copper sales reconciliation ($ millions)    
Copper sales related to cash portion of Royal Gold stream1.3 0.7 5.0 0.7 
Mark-to-market adjustments on Royal Gold stream0.2 0.1 (0.5)0.1 
Final adjustments on sales to Royal Gold0.2 - 0.7 - 
Total copper sales under Royal Gold stream1.8 0.8 5.2 0.8 
     
Copper sales to third party customers31.2 19.6 133.9 19.6 
Mark-to-market adjustments(2.0)1.3 (1.5)1.3 
Final price adjustments2.1 7.0 5.7 7.0 
Total copper sales to third party customers31.3 27.9 138.1 27.9 
Copper sales, net of adjustments33.1 28.7 143.3 28.7 
Refining and treatment costs(3.9)(2.7)(17.4)(2.7)
Copper sales29.2 26.0 125.9 26.0 
     
Pounds of copper sold (000's lbs)    
Pounds sold to Royal Gold2,506 1,775 11,232 1,775 
Pounds sold to third party customers10,599 7,693 48,487 7,693 
Total pounds sold13,105 9,468 59,719 9,468 
     
Average realized sales price for copper on a per pound basis    
Copper sales related to cash portion of Royal Gold stream0.53 0.38 0.45 0.38 
Mark-to-market adjustments on Royal Gold stream0.08 0.05 (0.05)0.05 
Final pricing adjustments on Royal Gold stream0.09 - 0.06 - 
Average realized copper price - Royal Gold0.71 0.43 0.46 0.43 
     
Average realized copper price - Third party2.94 2.55 2.76 2.55 
Average realized copper price - Mark-to-market adjustments(0.19)0.17 (0.03)0.17 
Average realized copper price - Final pricing adjustments0.20 0.90 0.12 0.90 
Average realized copper price - Third party2.95 3.63 2.85 3.63 
     
Average realized copper price - Combined2.23 2.74 2.11 2.74 
     

Qualified Person & QA/QC

The scientific and technical information in this document, including the production estimates were prepared in accordance with the standards of the Canadian Institute of Mining, Metallurgy and Petroleum and National Instrument 43-101 ? Standards of Disclosure for Mineral Projects ("NI 43-101") and were prepared, reviewed, verified and compiled by Centerra's geological and mining staff under the supervision of Mr. 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.

The Kumtor deposit is described in Centerra's most recently filed Annual Information Form and a technical report dated March 20, 2015 (with an effective date of December 31, 2014), which are both 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 Mount Milligan deposit is described in Centerra's most recently filed Annual Information Form and a technical report dated March 22, 2017 (with an effective date of December 31, 2016) prepared in accordance win NI 43-101, both of which are available on SEDAR at www.sedar.com.  The technical report describes the exploration history, geology and style of gold mineralization at the Mount Milligan deposit.  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.

The Boroo deposit is described in Centerra's most recently filed Annual Information Form and a technical report dated December 17, 2009 prepared in accordance with NI 43-101, both of which are 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 most recently filed Annual Information Form and a technical report dated December 22, 2017 (with an effective date of October 31, 2017) prepared in accordance with NI 43-101 both of which are available on SEDAR at www.sedar.com. The technical report describes the exploration history, geology and style of gold mineralization at the Gatsuurt deposit.  Sample preparation, analytical techniques, laboratories used and quality assurance-quality control protocols used during the drilling programs at the Gatsuurt Project are the same as, or similar to, those described in the technical report.

The Öksüt deposit is described in Centerra's most recently filed Annual Information Form and in a technical report dated September 3, 2015 (with an effective date of June 30, 2015) prepared in accordance with NI 43-101 both of which are available on SEDAR at www.sedar.com. The technical report describes the exploration history, geology and style of gold mineralization at the Öksüt deposit. Sample preparation, analytical techniques, laboratories used and quality assurance-quality control protocols used during the drilling programs at the Öksüt Project are the same as, or similar to, those described in the technical report.

The Hardrock deposit is described in a technical report dated December 21, 2016 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 Hardrock deposit. Sample preparation, analytical techniques, laboratories used and quality assurance-quality control protocols used during the drilling programs at the Hardrock Project are the same as, or similar to, those described in the technical report.

The Kemess project is described in a technical report dated July 14, 2017 prepared in accordance with NI 43-101. The technical report has been filed on SEDAR at www.sedar.com by AuRico Metals Inc. The technical report describes the exploration history, geology and style of gold mineralization at the Kemess Underground deposit and the Kemess East project. Sample preparation, analytical techniques, laboratories used and quality assurance-quality control protocols used during the drilling programs at the Kemess Project are the same as, or similar to, those described in the technical report.

Risks That Can Affect Our Business

Below are the risk factors that Centerra believes can have a material effect on the profitability, future cash flows, earnings, results of operations, stated mineral reserves and mineral resources 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 in Centerra may be lost. 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 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. 

Strategic Risks

Country, Political & Regulatory

Centerra's operations and mineral resources are subject to country political and regulatory risks

Centerra's mining operations and exploration activities are affected in varying degrees by the political stability and government regulations relating to investment, corporate activity, and the mining business in the countries in which it operates, explores and develops properties.  Operations may also be affected in varying degrees by terrorism; military conflict or repression; crime; populism; activism; labour unrest; attempts to renegotiate or nullify existing concessions, licenses, permits and contracts; unstable or unreliable legal systems; changes in fiscal regimes including taxation, and other risks arising out of sovereignty issues. 

Relevant governments have entered into contracts with Centerra and/or granted mining claims, permits, licenses or concessions that enable us to conduct operations or exploration and development activities. Notwithstanding these arrangements, Centerra's ability to conduct operations, exploration and/or development activities at any of its properties is subject to obtaining and/or renewing permits or concessions, changes in laws or government regulations or shifts in political attitudes beyond its control.  

A significant portion of the Company's gold production and its mineral reserves and mineral resources are derived from assets located in the Kyrgyz Republic and Turkey, countries that have experienced political difficulties in recent years.  There continues to be a risk of future political instability in these jurisdictions. 

The Company does not currently carry political risk insurance covering its investments in any of the countries where it operates.  From time to time, it assesses the costs and benefits of obtaining and maintaining such insurance.  There can be no assurance that, if the Company chose to obtain it, political risk insurance would be available to it, or that particular losses the Company may suffer with respect to its foreign investments will be covered by any insurance that we may obtain in the future. Any such losses could have an adverse impact on the Company's future business operations, prospects, financial condition, results of operations and cash flows.

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 struggle with deficits and concerns over the effects of depressed economies. Many 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, Mongolia and Turkey 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, requirements for local processing of mineral products, environmental protection, as well as requirements for employment of local staff or contractors, and contributions to infrastructure and social support systems. The Company's 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 the Company's 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 the Company's 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 the Company has with the governments of these countries will prove to be enforceable or provide adequate protection against any or all of the risks described above. 

Centerra's ability to make payments depends on the cash flows of its subsidiaries.

Centerra conducts substantially all of its operations through subsidiaries, some of which are incorporated outside North America. The Company has no direct operations and no significant assets other than the shares of its subsidiaries. Therefore, the Company is dependent on the cash flows of its subsidiaries to meet its obligations, including payment of dividends, principal and interest on any debt it incurs. The ability of Centerra's 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, repatriation restrictions (including those that may be ordered by courts) or the availability of hard currency to be repatriated. 

Changes in, or more aggressive enforcement of, laws, regulations and government practices could adversely impact Centerra's business.

Mining operations, development activities, 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. Centerra's lenders may also impose similar requirements to Centerra's operations.  These regulations 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, regulations and lender requirements 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 the Company's decision as to whether to continue with operating its 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, the Company is unable to predict the ultimate cost of compliance with these requirements or their effect on operations.

In particular, globally there has been an increasing level of local community concerns in respect of the environmental footprint of mining operations as well as concerns over the management of water resources, and the mine closure plans.  This may lead to governments and lenders becoming increasing rigorous in their laws, regulations or lender's requirements.

If the laws, regulations or lender requirements relating to the Company's operations were to change, or the enforcement of such requirements were to become more rigorous, the Company could be required to incur significant capital and operating expenditures to comply, which could have a material adverse effect on its financial position and its ability to achieve operating and development targets.  Changes to laws and regulations may also impact the value of the Company's reserves.

Community activism may influence laws and regulations, result in increased contributory demands, or in business interruption or delay

Slow economic development in some of 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.  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.  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, review of laws aimed at environmental protection, and delays in the issuance of required permits and licenses for development and operation activities.  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.

There is a risk that the Strategic Agreement with the Government of the Kyrgyz Republic will not be successfully completed 

The Company entered into the Strategic Agreement with the Government of the Kyrgyz Republic on September 11, 2017 which sets out the pathway for the resolution of substantially all the outstanding claims, disputes, court proceedings and court orders affecting the Kumtor Project.  A fulsome discussion of the Strategic Agreement is found elsewhere in this document. Completion of the Strategic Agreement is subject to various conditions precedents which are expected to be completed by the deadline of April 20, 2018.  While the Company has been working closely with the Government of the Kyrgyz Republic to expeditiously satisfy the remaining conditions precedents, there are no assurances that all of the conditions precedent to the completion of the settlement contained in the Strategic Agreement will be satisfied.  If the settlement contained in the Strategic Agreement is not completed, there are no assurances that (i) the Company will be able to successfully resolve any or all of the outstanding matters affecting the Kumtor Mine or that any future discussions between us and the Kyrgyz Republic Government will result in a mutually acceptable resolution; or (ii) the Kyrgyz Republic Government and/or Parliament will not take actions that are inconsistent with the Government's obligations under the Strategic Agreement or Kumtor Project Agreements, including adopting a law "denouncing" or purporting to cancel or invalidate the Kumtor Project Agreements or laws enacted in relation thereto which have the effect of nationalization of the Kumtor Project.  Furthermore, if all such claims are not resolved as provided for in the Strategic Agreement and despite the Company's view that all disputes related to the 2009 Restated Investment Agreement should be determined in arbitration, there are risks that the arbitrator may (i) reject the Company's claims; (ii) determine it does not have jurisdiction; and/or (iii) stay the arbitration pending determination of certain issues by the Kyrgyz Republic courts. Even if the Company receives an arbitral award in its favour against the Kyrgyz Republic and/or Kyrgyzaltyn, there are no assurances that it will be recognized or enforced in the Kyrgyz Republic. Accordingly, the Company may be obligated to pay part of or the full amounts of such claims regardless of the action taken by the arbitrator. The Company does not have insurance or litigation reserves to cover these costs. If the Company were obligated to pay these amounts, it would have a material adverse impact on the Company's future cash flows, earnings, results of operations and financial condition.

The Company's planned activities are dependent upon receipt and/or renewal of numerous permits and licenses

A number of approvals, licenses and permits are required for various aspects of exploration, mine development, and operations.  This includes licenses and permits, which include or cover without limitation air quality, water quality, water rights, dam safety, emergency preparedness, hazardous materials (including the transportation thereof), waste rock management, solid waste disposal and tailings operations. Changes in a mine's design, production rates, quality of material mined, milling processes or circuits, and many other matters often require submission of the proposed changes for agency approval prior to implementation (including consultations with First Nations), and these may not be obtained. In addition, changes in operating conditions beyond our control, changes in agency policy and federal, provincial and state laws, litigation or community opposition could further affect the successful permitting of operations.

Obtaining and maintaining the various permits for the Company's exploration, mine development, and operations is complex, time-consuming and expensive. The Company has in place processes and personnel designed to obtain all necessary permits and licenses.  However, its efforts are contingent upon many variables outside of its control.  The Company cannot be certain that all necessary permits and licenses will be maintained or obtained on acceptable terms or in a timely manner.  Any failure to obtain or maintain permits or licenses, even if inadvertent, could result in the interruption of production, exploration or development, or material fines, penalties or other liabilities. Any inability to obtain and maintain required approvals, licenses and permits could have an adverse effect on the Company's future cash flows, earnings, results of operations and financial condition. 

The Company's relationships with local communities may affect our existing operations and development projects

Having positive and constructive relationship with the communities in which the Company operates is critical to ensure the future success of its existing operations and the construction and development of our development projects. There is an increasing level of public concern relating to the real and perceived effect of mining activities on the environment and on communities impacted by such activities. Adverse publicity relating to the mining industry or the Company could have an adverse effect on the Company's reputation or financial condition and may impact its relationship with the communities in which it operates. Reputation loss may also result in decreased investor confidence, increased challenges in developing and maintaining community relations and serve as an impediment to the Company's overall ability to advance its projects, which could have a material adverse impact on the Company's results of operations, financial condition and prospects. While the Company is committed to operating in a socially responsible manner, there is no guarantee that its efforts in this regard will mitigate this potential risk.

The inability of the Company to maintain positive relationships with local communities may also result in additional obstacles to permitting, increased legal challenges, or other disruptive operational issues at any of its operating mines, and could have a significant adverse impact on the Company's ability to generate cash flow, with a corresponding adverse impact to our share price and financial condition.

Centerra may not be able to successfully negotiate an investment agreement, a deposit development agreement, and/or a community development agreement for Gatsuurt

There can be no assurance that Centerra will be able to successfully negotiate with the Government of Mongolia a mutually acceptable investment agreement, deposit development agreement, and/or community development agreement, in all cases for the development and operation of the Gatsuurt project.  The Company is in discussions with the Government of Mongolia regarding these potential agreements.  Furthermore, even if these agreements are 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.

Aboriginal Claims and Consultation Issues

Certain of Centerra's properties are subject to rights or the asserted rights of various community stakeholders, including First Nations and other Indigenous groups.   These interests of such community stakeholders and rights as well as related consultation issues may impact the Company's ability to pursue exploration, development and mining at certain of its properties.  Governments in many jurisdictions must consult with, or require the Company to consult with, affected First Nations and other indigenous groups with respect to grants of mineral rights, the issuance or amendment of project authorizations, and the grant of necessary licenses and permits. Consultation and other rights of First Nations and indigenous groups may require accommodation including undertakings regarding employment, royalty payments and other matters. This may affect the Company's ability to acquire within a reasonable time frame effective mineral titles, permits or licenses in these jurisdictions in which title or other rights are claimed by First Nations and other indigenous peoples, and may affect the timetable and costs of development and operation of mineral properties in these jurisdictions, particularly if the Company is required to, or chooses to, enter into community development, impact benefits agreements, or other similar agreements with affected communities. These legal requirements may also affect the Company's ability to expand or transfer existing operations or to develop new projects.

Any failure to comply with applicable laws and regulations or licences and permits, even if inadvertent, could result in interruption or closure of exploration, development or mining operations or material fines, penalties or other liabilities.

Legal and Other

Current and future litigation may impact the revenue and profits of the Company

The Company is from time to time involved in or subject to legal proceedings related to its business. These claims can be based on allegations of breach of contract, negligence, breach of statutory duty, public nuisance or private nuisance or otherwise in connection with our operations or investigations relating thereto.  Such legal proceedings can be complex, costly, and highly disruptive to business operations by diverting the attention and energies of management and other key personnel. The assessment of the outcome of legal proceedings, including its potential liability, if any, is a highly subjective process that requires judgments about future events that are not within our control. The outcome of litigation, arbitration or other legal proceedings, including amounts ultimately received or paid upon judgment or settlement, may differ materially from management's outlook or estimates, including any amounts accrued in the financial statements. Actual outcomes, including judgments, awards, settlements or orders, could have a material adverse effect on our business, financial condition, operating results, or cash flows.

Centerra's properties may be subject to defects in title

Centerra has investigated its rights to explore and exploit all of its material properties, and, except as described below, to the best of its knowledge, those rights are in good standing. However, no assurance can be given that such rights will not be revoked or significantly altered to its detriment. There can also be no assurance that the Company's rights will not be challenged or impugned by third parties, including local governments and Aboriginal groups.  As a result, the Company may be constrained in its ability to operate its properties or unable to enforce its rights with respect to its properties. An impairment to, or defect in, title to its properties could have a material adverse effect on the Company's business, financial condition or results of operations.

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, the Company believes that the purported cancellation of Kumtor's land use rights is invalid.  The court proceedings commenced by the GPO were terminated by the GPO in August 2017 as part of the Strategic Agreement.  The matter of Kumtor's land use certificate is expected to be resolved as part of the Strategic Agreement which is scheduled to close by April 20, 2018. 

On December 6, 2006, Gatsuurt LLC commenced arbitration before the Mongolian National Arbitration Court (MNAC) alleging non-compliance by its 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. CGM 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. CGM 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.

In the first quarter of 2016, a non-governmental organization called "Movement to Save Mt. Noyon" filed a claim against the Mongolian Mineral Resources Authority (MRAM) requesting that MRAM revoke the two principal mining licenses underlying the Gatsuurt Project.  CGM, the holder of these two mining licenses, is involved in the claim as a third party. Centerra believes that such claims are without merit, however, such proceedings are ongoing. 

Although the Company is not currently aware of any existing title uncertainties with respect to any of its properties except as discussed in the preceding paragraphs, there is no assurance that such uncertainties will not result in future losses or additional expenditures, which could have an adverse impact on the Company's 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 its foreign operations, the Company 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 or in arbitration. The Company may also be hindered or prevented from enforcing its rights with respect to a governmental entity or instrumentality because of the doctrine of sovereign immunity.

The dispute resolution provisions of the Restated Investment Agreement for the Kumtor project 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. The Company's inability to enforce its 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

Centerra's largest shareholder is Kyrgyzaltyn, which is a state-owned entity.  Kyrgyzaltyn owns approximately 27% of the common shares of Centerra. Pursuant to the terms of the Restated Shareholders Agreement, to which Centerra and Kyrgyzaltyn are parties, Kyrgyzaltyn has two nominees on its board of directors.  In addition, and in light of various considerations including the importance of the Kumtor project to Centerra, Centerra included in its proposed nominees for election at the most recent annual general shareholders' meeting a third nominee of Kyrgyzaltyn who was elected to the Board.

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 its shareholders of a control premium that might otherwise be offered in connection with such a change of control. The Company is aware that Kyrgyzaltyn has in the past received inquiries regarding the potential acquisition of some or all of its common shares 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.

Artisanal mining is occurring and may continue to occur illegally on the Gatsuurt property

Artisanal mining is widespread in Mongolia and a significant number of artisanal miners have entered into the Gatsuurt property.  The Company is unable to continuously monitor the full extent of the artisanal miners on the Gatsuurt property however it understands that the numbers have reached up to 200-400 artisanal miners at a single time.  In addition to potential health and safety concerns for Centerra's employee and of the artisanal miners, the presence of artisanal 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 also cause environmental damage (including environmental damage from the use of mercury by these miners) or other damage to the Company's property, equipment, personal injury or death, or conflict with local communities. The Company has advised appropriate Mongolian federal and aimag (local) governments, relevant state bodies and police of the issues relating to the activities of artisanal miners and have requested their assistance to clear the Gatsuurt site.  Centerra does not support any violence or use of force in encounters between Mongolian authorities and artisanal miners and have made this explicitly clear to Mongolian authorities.  Centerra will continue to work with relevant authorities in Mongolia, but to the extent that there are adverse consequences from the presence of these artisanal miners, the Company could potentially be held responsible and this could have an adverse impact on the Company's future cash flows, earnings, results of operations and financial condition.

Centerra's directors may have conflicts of interest

Certain of Centerra's 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 anti-corruption and anti-bribery laws, including 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, 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 prohibits these practices and provides training and education to its employees and seeks confirmation of compliance from its consultants and agents. However, Centerra's existing safeguards 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.

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. 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-environmental impact assessments, feasibility studies, issuance of necessary governmental permits and availability of adequate financing.

The Company's ability to sustain or increase present levels of gold production is dependent on the successful acquisition or discovery and development of new orebodies and/or expansion of existing mining operations.  The Company cannot ensure that its 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.

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 the Company's future cash flows, earnings, results of operations and financial condition.

Centerra's mineral reserves may not be replaced

Centerra has two projects that provide revenue ? the Kumtor project located in the Kyrgyz Republic and the Mount Milligan project located in British Columbia, Canada.  Current life-of-mine plans for Kumtor contemplate mining until 2023 and milling operations until 2026.  Based on the current life-of-mine plan for Mount Milligan, there is approximately 20 years remaining (to 2038)

If the Company's existing mineral reserves are not replaced either by the development or discovery of additional reserves and/or extension of the life-of-mine at its operations or through the acquisition or development of an additional producing mine, this could have an adverse impact on its future cash flows, earnings, results of operations and financial condition, including as a result of requirements to expend funds for reclamation and decommissioning. Although the Company is 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 partners

As a result of having partners in the exploration, development and operation of the Company's projects (Endako, Greenstone, and exploration option arrangements), the Company is subject to the risks normally associated with any partnership/joint venture arrangements. These risks include disagreement with a partner on how to explore, develop, operate and finance a project, possible litigation between us and a partner regarding matters in the agreement, and failure by the Company's partners to abide by Centerra's policies and procedures. This may be particularly the case when the Company is not the operator on the property.  These matters may have an adverse effect on the Company's ability to pursue the projects subject to the partner, which could affect its future cash flows, earnings, results of operations and financial condition.

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 its mineral reserves. These estimates are expressions of judgment based on knowledge, mining experience, analysis of drilling results and industry practices. Valid estimates and the assumptions such estimates rely on may significantly change when new information becomes available or conditions change. While the Company believes 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, copper and other commodities 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 the Company's mineral reserve or mineral resource figures are inaccurate or are reduced in the future, this could have an adverse impact on the Company's future cash flows, earnings, results of operations and financial condition.

Centerra's production and cost estimates may be inaccurate

Centerra prepares estimates of future production and future production costs for particular operations. No assurance can be given that production and cost estimates will be achieved. These production and cost estimates are based on historical costs and productivity experience.