Thank you for standing by. This is the conference operator. Welcome to Centerra Gold's conference call to discuss the company's strategic plan for the U.S. molybdenum operations. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press Star, then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing Star, then zero. I would now like to turn the conference over to Lisa Wilkinson, Vice President, Investor Relations and Corporate Communications with Centerra Gold. Please go ahead.
Thank you, operator, and good morning, everyone. Welcome to Centerra Gold's conference call to discuss the strategic plan for the U.S. molybdenum operations. Joining me on the call today is Paul Tomory, President and Chief Executive Officer. Other members of the management team are available for the Q&A session. All figures are in U.S. dollars, unless otherwise noted. Presentation slides accompanying this webcast are available on Centerra's website. Following the prepared remarks, we will open the call for questions. Before we begin, I would like to caution everyone that certain statements made today may be forward-looking and are subject to risks which may cause our actual results to differ from those expressed or implied. Please refer to the cautionary statements included in the presentation, as well as the risk factors set out in our Annual Information Form. Certain measures we will discuss are non-GAAP measures.
Please refer to the description of non-GAAP measures in our news release issued yesterday. I will now turn the call over to Paul Tomory.
Thanks very much, Lisa. Morning, everyone. Last night, we announced a decision to unlock significant value in our U.S. molybdenum operations through the restart of operations at Thompson Creek and progressive ramp-up production at Langeloth. Combined, the U.S. moly operations are expected to produce an after-tax NPV of $472 million, based in part on approximately $50 million a year of annual EBITDA at Langeloth. I'll get into the details of our U.S. moly strategy shortly, but first, I want to touch on molybdenum as a commodity and some of its supply-demand dynamics. Molybdenum is primarily a steel alloying metal known for its high strength, resistance to corrosion, and ability to withstand extremely high temperatures. Molybdenum alloy steels play a vital role in various industrial applications and has few substitutes.
Molybdenum concentrates are blended to meet metallurgical or chemical grade specifications, and metallurgical grade moly is a key input in the manufacturing of high-performance steels and is the main product manufactured by Langeloth. Chemical grade molybdenum, produced largely from high-quality concentrates such as our Thompson Creek mine, commands a higher premium. Last year, globally, six hundred and thirty million pounds of new moly was used, with 63% of that in engineered and stainless steels. Based on various commodity reports, molybdenum demand is forecasted to grow steadily at around 2% per year, which is on par with what has been seen over the last twenty-eight years. By 2030, it is expected that global demand for moly will exceed seven hundred and fifty million pounds, up 20% from last year's levels.
Notwithstanding the current weakening of the overall steel market, the fundamentals remain strong for molybdenum-bearing steels, and demand is forecast to continue growing. In addition, molybdenum is a strategic mineral that is also designated as critical in several countries, including Canada. The future demand growth for molybdenum's use in energy transition is significant. As you can see from the table in the center of slide five, moly, similar to copper, is a cross-cutting mineral that contributes to the development of multiple technologies necessary for the transition to a low-carbon future. As a result, we expect to see strong continued demand for molybdenum going forward. Shifting to the supply side, we see several key reasons why the supply of moly could be challenged for the next decade, leading to a sustained market deficit.
First, molybdenum supply is principally produced as a byproduct from copper mines, and existing copper mines, particularly in South America, have seen decreasing molybdenum production, in part due to investment challenges on the base copper studies. Plus, the cost of bringing on such mines is significant, leading to delays and deferrals of replacement production, and this has constrained moly supply in recent years. Next, there are only three primary ore mines that are not byproduct, high-quality molybdenum mines outside of China, and our Thompson Creek mine in Idaho is one of those. High-quality moly concentrate is scarce, creating a unique opportunity for Centerra. Finally, based on market data, there are currently no new primary molybdenum mines expected to start production in the next three years. Thompson Creek is expected to start production in the second half of twenty twenty-seven.
Though there are several greenfield moly projects being contemplated, the risks in the development of these projects are significant, and we expect several of these will face challenges. The economics of our U.S. moly strategy is based on a flat $20 per pound assumption on molybdenum price, and this is somewhat lower than the average spot prices over the past two years. Based on the growing demand and constrained supply environment, the molybdenum market is expected to be in deficit until the end of the decade, which supports the moly price forecast over $20 a pound. Integrating roasting into the molybdenum supply chain offers producers several benefits, including cost savings, greater control over product quality, and flexibility in responding to market needs. It also provides opportunities for higher profit by capturing more of the value chain and enhancing market competitiveness.
Centerra has a unique strategic advantage in the molybdenum value chain based on the integration of high-quality concentrate supply from Thompson Creek and roasting capacity at Langeloth. Slide nine gives a brief overview of our molybdenum assets. Our U.S. moly operations consist of the Thompson Creek Mine in Idaho and the Langeloth facility just outside Pittsburgh. As I mentioned earlier, Thompson Creek is one of three primary moly mines outside of China, and Langeloth is one of only three molybdenum conversion facilities in the U.S. and is a strategic asset, given its proximity to North American steel producers. Yesterday, we published the highlights from the Thompson Creek FS, and it has a robust project economics with a conservative discount rate of 8%.
When using the assumed flat moly price of $20 per pound for the life of the mine, the project at the mine level has an NPV of $185 million and an IRR of 15%. Compared to the pre-feasibility study, production has increased by an additional 12 million pounds, one year of additional mine life was added, and more concentrate is expected to be produced in the first four years, coinciding with a time where we see constructive molybdenum prices. The all-in sustaining costs in 2028-2031 are expected to be lower than life of mine average, due to higher grades and more tons mined. This is expected to result in stronger cash flows in the early years of operation, especially considering the forecast in moly market deficits during most of this period.
Capital estimate to complete the Thompson Creek project is $397 million from September first onwards, which will be spent through mid-2027, with first production expected in the second half of 2027. With existing infrastructure already in place, the capital investment at Thompson Creek is largely de-risked. As you can see from the photos on slide 11, there's an existing pit, an existing process plant that only requires upgrades and refurbishment, and we are significantly advanced on mine mobile maintenance rebuilds and purchases. The majority of the anticipated capital spending going forward is focused on capital stripping, plant refurbishment, and fleet upgrades. In the second half of 2024, we expect to spend between $55 million and $65 million at Thompson Creek. Approximately $10 million of these costs will be expensed for accounting purposes, with the remainder treated as CapEx.
We will provide 2025 guidance for Thompson Creek Mine with our annual guidance that is expected to be published early next year. Langeloth is a unique and strategic asset in our portfolio, given its proximity to the North American steel market. It's been in operation for over a hundred years and provides significant value as an integrated converter. It also plays a critical role in the Made in America story for reshoring of steelmaking in the U.S. The facility is fully permitted, and as you can see from the photo on slide 12, it has a very small footprint. Our team on the ground has extensive experience in molybdenum conversion operations, and we benefit from a strong commercial network. Slide 13 shows several images of our Langeloth operations. The facility has six roasters. In addition to molybdenum, it also produces the salable byproducts rhenium and sulfuric acid.
It's currently operating at approximately one-third of its capacity, but it can be ramped up to full capacity of approximately 40 million pounds per year in a fairly straightforward manner. We recently completed a commercial optimization plan at Langeloth, geared at increasing profitability and maximize the future potential. Our U.S. moly operations are expected to produce a combined after-tax NPV of $472 million and a 22% IRR. A key contributor to this value is Langeloth, which at full capacity, with the benefit of high quality feed from Thompson Creek, has the potential to generate approximately $50 million of EBITDA annually. As a result of this compelling value opportunity, we are initiating a progressive ramp-up at Langeloth. There are two value drivers that allow that, Langeloth to potentially generate robust EBITDA. I'll speak to these in the next slides.
The first of these value drivers is increased capacity utilization. Langeloth is well positioned to capitalize on the current supply deficit in the moly market and to grow the business to meet the market demand. In the recent past, Langeloth has operated slightly below its annual processing capacity of approximately 14 million pounds, and with a ramp-up to 40 million pounds, we envisage full capacity and better leveraging of fixed costs. At full capacity, the moly concentrate processed in Langeloth is expected to consist of approximately one-third supplied by Thompson Creek and approximately two-thirds purchased from third-party providers, noting that we are already purchasing third-party concentrate equal to approximately one-third of Langeloth's capacity. With increased capacity utilization, as I mentioned, Langeloth will leverage its fixed costs, which will increase profitability and cash flow. The second, and perhaps more important value driver, is vertical integration of Langeloth with Thompson Creek.
Thompson Creek will produce one of the highest quality concentrates in the world. Langeloth can then blend this concentrate with lower quality third-party concentrates, expected to lead to margin improvements. In addition, the high quality of Thompson Creek concentrate enables Langeloth to produce an increased volume at higher margin final moly products. Finally, the structure of commercial contracts at Langeloth helps to mitigate molybdenum price volatility. Concentrates are purchased at a discount to the prevailing market moly price, while final products are generally sold at prices at or above this benchmark. As a result, the integrated U.S. moly operations will be better positioned to withstand future fluctuations in moly prices. Over the last year, we've developed a value-enhancing strategy for our U.S. moly operations, which is supported by strong commodity price fundamentals.
Our announcement yesterday to restart operations at Thompson Creek and progressively ramp up production at Langeloth is a key milestone on the path to unlocking significant value in these assets, and with that, operator, I'll open the call to questions.
Thank you. We will now begin the question and answer session. To join the question queue, you may press star, then one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. First question comes from Raj Ray with BMO. Please go ahead.
Thank you, operator, and good morning, Paul and team. I've got three questions, if I may. First, on the current bandwidth, do you have within Centerra to undertake this project? And also whether you are looking to still bring in a partner to de-risk this project from a capital, and execution point of view. Second question is, with respect to the margin improvements you expect with the blending of the two concentrates, the high quality Thompson Creek, as well as the lower quality third-party concentrate, is it possible for you to give us some idea about what kind of a margin difference you're talking about here? Just to help us try and model it. And the third question is, more on a nuts and bolts.
Can you provide us some details on the strip ratio, the throughput, and the recoveries for Thompson Creek? And when you talk about the CapEx of $400 million, I'm assuming that includes... And as you have said, I mean, it's a predominant part of it that is gonna be the pre-strip. So if you can provide the breakdown for how much of that. But what's the operating strip after that CapEx is spent for the remainder of the mine? Thank you.
All right, Raj. Thanks for that. I'll, I'll take a couple of those and ask some of the other team members to jump in. With the first one, internal bandwidth, one of the things we've been doing here over the last year and a half is building up technical capability on project execution as it relates to advancing a major mining capital project. In terms of skill levels at both Langeloth and Thompson Creek, Langeloth has been operating over the past decade since Centerra acquired the asset, and we have deep expertise in the roasting operations there, so we're ready to go there. In terms of the mine, we've been ramping up the on-site talent, and that has been going very well. So we feel from a bandwidth perspective, this fits into what we're able to do.
Definitely, from a strategic point of view, you asked about whether we'd look for a partner. The answer is absolutely yes. I mean, fundamentally, what we're doing here with this study is we're taking an asset or a group of assets that were, in a way, drags on the company, with annual cash outlays going to care and maintenance with no foreseeable value at the end of it. We're turning this into a tangible value proposition, and as we've long said, one of our potential outcomes here is some sort of full or partial exit, and I think that having this feasibility study and having a go-forward decision here on the mine will now enable us to talk about the compelling value proposition as it relates to potential partners. In terms of margin improvements on blending, that was your second question there.
There is, in effect, as you know, once you have the clean con, you can then. One of the problems in the global roasting market for molybdenum right now is there's too much dirty con out there. In other words, there's too much con with copper in it. So roasters are all fighting for that, and, it's not a particularly constructive market for the roasters in that regard. Having the Thompson Creek feed in there really opens up our ability to purchase third-party cons with a higher copper concentrate at an improved margin. Now, in terms of quantifying that, it's difficult to put a number on that because everything will depend on individual contracts, individual copper spec, individual attributes of the cons that are being purchased. But definitely, as we look in our EBITDA build up for Langeloth, we built that in.
In other words, our own self-provision of the clean concentrate allows us to then buy other cons at a more favorable set of terms for us, and those terms will vary. And I can't get into individual contracts, but the clean con allows us to drive better margins on those, third-party cons. Your third question was on some technical details around the mine, and I'll hand that over to Paul Chawrun, to discuss that.
Hi, Raj. So okay, well, first thing is, it won't be too long, and we'll have a detailed technical report on SEDAR, and so a lot of the nuts and bolts of the mine plan you can go through. But to summarize some of your questions. So the strip ratio. So we're moving in the range of 100 million tons through to commercial production through to 2027. So that's the CapEx part. And it varies year by year, but give or take around three to one strip ratio overall. But what we're doing in the mine plan is we're taking one side of the ore body and then the other, and then we're trying to balance the overall throughput of or production of moly concentrate with that.
In terms of plant production, it's around 30,000 tons a day, and that's consistent with what the plant did in the past, and it's in the range of 92% recovery. But happy to answer more detailed questions, but there'll be a detailed technical report that you can go through.
Okay, that's great, Paul. Thank you very much. I'll get back in the queue.
The next question comes from Brian MacArthur with Raymond James. Please go ahead.
Good morning. My question relates to Langeloth as well. I appreciate you're probably not going to have, hopefully, a challenge getting dirty con since there's lots of them. But if I try and look at the $50 million in EBITDA, some of it's fixed costs and some of it's obviously better contracts with better margins. Could you generally just comment on how much the fixed cost benefit would be, i.e., let's just say you never got any third-party cons, would your EBITDA be sort of ten million of that fifty better? Would it be five? I assume it's not forty.
Yeah. So, Ryan Snyder is here. He'll describe how we looked at profitability at Langeloth.
Yeah, thanks for the question, Brian. I mean, Langeloth is very fixed cost heavy. In today's world, where they're operating about 75% of their site costs are fixed costs. We have looked at the world where you don't get this extra concentrate. We think we're going to be able to achieve that. But if you just add the 12 million pounds that we produce today, plus the Thompson Creek feed, you're still looking at annual EBITDA in the range of $20 to $25 million instead of $50. So again, continuing to ramp that up and leverage your fixed costs and again, blend and purchase dirtier cons helps. But even if you just tack on Thompson Creek to today's environment, it becomes a profitable entity. And that's kind of the floor that we see for the business.
But every incremental pound that we can buy at good terms kind of helps the profitability. I hope that answered your question.
No, that, that's a great answer. That's very helpful. And that would probably be true, because one of the things I noticed a little bit is when you do the sensitivities, you know, adding together and individually aren't quite the same, and it's not quite linear. And I guess there were some tax benefits in as well. But if you say it was $17.50 instead of $20, would you still sort of generate, you know, just with the fixed cost, that $20 million? I mean, EBITDA, i.e., I assume that's pretty independent of, of, the, the contract in the sense that as long as you get the volume, you're, you're making a spread all the time, you're just doing it on a higher margin. Is, is that right to think of it that way?
Yes, it is. I mean, Langeloth is pretty insulated for the reasons that Paul outlined. You're buying at a discount and selling at market or at a premium. Most of those are on a kind of fixed dollar per pound basis in terms of your discounts and your premiums. There's a little bit that moves with moly price, but you're right to say it's fairly insulated, and it makes a pretty similar margin at $17.50 versus $20. I think, just to your first comment on the sensitivity tables and things not being linear, the one thing that impacts those is at lower prices, the cost of the working capital that Langeloth has to invest in and carry is lower.
And so, you know, their actual cash flows are a little bit better at lower moly prices than at higher moly prices, which is why you see a bit of an inverse relationship.
Brian, the dynamic that Ryan just described is what gives us the confidence to invest in this as an integrated whole. If this were just a mine approval, we'd be a lot more nervous about exposure to spot volatility and moly price. The dynamics of the way we do the agreements at Langeloth provide a substantial degree of insulation from moly price fluctuations, at least on the Langeloth component of the cash flows.
Great, thanks. Sorry, my third question just relates. I'm glad you brought up the working capital portion. So you talked about $397 being the full CapEx for Thompson Creek Mine, but then you mentioned you have working capital build at Langeloth, as you ramp up the contracts. A, I assume that's in addition to the $395. B, I suspect it's price dependent, but is that a significant working capital build over those three years? I mean, I guess it depends how many contracts you get, but a magnitude of how much you think that might be. Is it possible to give us that number?
Yeah, maybe I'll answer with a few points there. I think the build on working capital between now and twenty twenty-eight will depend on how quickly we ramp up Langeloth. I mean, our goal is to be at that forty million pounds rate by twenty twenty-eight, but the path there will depend on market and how we approach contracts and how much volume we want year by year. I would say the working capital at Langeloth increase, if to go to forty million pounds, is about double where you sit today. So we're about a hundred million pound or a hundred million dollars of working capital at a $20 moly price.
That will about double, but at an operating level closer to 40 million pounds, you're making pretty good money over those years, and you're able to offset a lot of that with cash flows and margin. But that's kind of the world you're looking at on board.
And my final question, and that would all be included in your NPV analysis, right? Or...
Absolutely.
Absolutely.
All included in the cash flow analysis that supports the NPVs and the IRRs.
Great. Thank you very much. That's very, very helpful.
Once again, if you have a question, please press Star, then One. The next question comes from Mike Parkin with National Bank. Please go ahead.
Thanks, guys, for taking my questions. Could you speak to the mining cost of $2 per ton? Is that, I guess, on an average basis, seems a little low, but that's maybe because you're starting off with a heavy strip, so your haulage distance is probably pretty low for those years, so it's probably a little higher and more in line with like, kind of industry average when you're in that kind of three to one strip. Is that the right way of thinking that?
Yeah, a couple of things. So first of all, that's ton , so you can add 10% to that right off the bat, on a metric ton, which is what most companies use as unit costs, and so do we elsewhere. Second thing is it's pretty short hauls, and a decent amount of that is actually downhill hauls.
and lastly, we're actually on the early works. We're actually matching what we have in the plan, and you're absolutely right. It's quite a bit lower in some years than in others because it's all dependent on the truck hauls, but we're matching those metrics right now. We've put in the metrics that we're actually achieving right now today.
All right. All my other questions have been answered. Thanks.
The next question comes from Lawson Winder with Bank of America Securities. Please go ahead.
Thank you, operator. Good morning, Paul and team. Thank you for this update. Very intriguing. Wanted to ask just about the exploration upside at Thompson Creek. I mean, that historically, there hasn't been much exploration there, but in terms of thinking about longer term sources of supply for Langeloth, what is your thinking there? Is there the potential to expand at Thompson Creek, or would you be looking at Endako or other assets at that point?
Yeah, Lawson, it's a good question. Paul will speak to the exploration potential here in a moment, but the critical thing, as I said earlier, is the quality of the feed. We know that in terms of available moly concentrate supply globally, literally the two cleanest are Thompson Creek and Endako. So from a strictly industrial value point of view, Langeloth is a project that could run for decades. And as we look to the future, and this is where your question is going, is how do you keep that industrial concern operating for decades and decades? There is some exploration at Thompson Creek that would be, in a broader strategic context, the priority because the mine's already running.
Once Thompson Creek is exhausted in 10, 15 years or whatever, the logical plan would be to bring Endako in to replace that clean Thompson Creek feed with clean Endako feed. Paul, talk about some of the potential there.
Yeah. Okay, well, a couple things. Just physically, we are limited on tailings space in the LOM, and we're getting pretty close to the limit on the tailings space. So we would need to make some adjustments to the design there. And it's assuming you could regionally. It is a pretty standard porphyry, and there are some targets that weren't explored because Thompson Creek was operating with pretty narrow margins for quite a number of years. So there is regionally some upside. The other thing I'd like to point out is, more so than normal, you actually have some inferred ore as well, because for the same reason, the Thompson Creek mine hollowed out this pit, and then we're on either side of it.
So the actual ore body itself, as we mine through, has some inferred, and we've elected not to drill that, and then maybe in future years, we will. So that will actually be upside as well. And then putting that together, you may have some long-term potential, but it's not enormous. And then Endako needs to come into the fray when you're starting to look at bigger picture.
Okay, that's great context. And then just thinking strategically in the balance of metal in the portfolio, obviously the idea is to either get a partner or monetize this at some point. You know, there is a chance that that doesn't happen for some period of time. And with this asset running, you know, Centerra starts to look as much as a base metal company as a gold company. So with the cash you have remaining, how do you think about the capital allocation priorities versus growing in gold and then this capital allocation to molybdenum? And then just your thoughts on M&A at this point, too. Thank you.
Yeah, Lawson, that is, that goes to the heart of what we've been thinking about as we approve this, because from a certain point of view, you might ask, "Well, why is Centerra approving a project in molybdenum, where we're at $2,500 gold, and that's what investors want right now, is leverage?" At the heart of it, we have assets here that have value. They have significant value, and we think that the best way to monetize, I think you mentioned this in your note this morning as well, the best way to monetize is to actually have a concrete plan, and that's what we're doing. We think we have a very good plan. But you're quite correct, this starts to skew us too much towards base metals and molybdenum.
And so our focus of activity on the corporate development and organic side will be almost completely in gold from this point forward. Another thing I should point out is that we will be able to fund the Thompson Creek build, take your pick on spot price for gold and copper, largely out of free cash flow over the next two years. So this does not dip into our cash pile. That cash pile remains available for acquisitions in gold, and that is what we are focused on strategically. So very specifically to capital allocation, those dollars will be going to gold, whether it's exploration, organic, if we can make something happen at Goldfield or acquisitions using cash, they will be gold-focused acquisitions.
I stress the point, we will fund Thompson Creek, at least for the next couple of years, through ongoing cash flow from Milligan and Öksüt. But your question is the question to ask: What is Centerra doing here in molybdenum? What we're doing is here, we're looking to create value in an asset we think has legitimate upside and legitimate marketability once it's up and running.
Now, if I could just follow up then, and thank you very much for that response. It's extremely helpful for sort of framing this investment and this decision to allocate capital to moly. When you're thinking about growing in gold, how is the environment today? Are you seeing opportunities to invest in M&A or, and how are valuations in your point of view?
Valuations are very high, as you know, and where we would look is a combination of, first, internally in the portfolio, where we continue to assess the potential of Milligan, Goldfield, Kemess. So those are easy places to put, and we're gonna be putting out an update on Goldfield in the coming months here. But we would also look to deploy the cash into assets that are in our areas of expertise and geographically as well. But, I mean, where you're getting at, is valuations are very high right now, and we have to be disciplined in how we might look at M&A.
Okay. All right. That's great context. Thank you so much and really intriguing update. Thank you.
Once again, if you have a question, please press star, then one. The next question comes from Brian MacArthur with Raymond James. Please go ahead.
Thanks for taking my follow-up. Just following up on Lawson's question there and looking for gold regionally. But you also talked about Endako being a long-term value potential asset to the moly business and need it. How do you think about potentially using that mill? Because it may have some value in a gold thing you did as well regionally, versus using it for moly. Do you sort of just have to keep it for the moly long term, or could you, you know, do something else with it before, say, 15 years from now?
Brian, you're prompting a very interesting question, and this goes to strategically what we're trying to do with Centerra. Centerra had a bunch of assets whose future was not clear, and they were significant assets, Endako, Kemess, Thompson Creek, Langeloth. These are big assets that were drags on the portfolio. We're turning them into value production assets. And your question here relates to Endako. Number one, I want to be clear, we don't have any near-term plan to reopen Endako. It's strategically where that fits in is post Thompson Creek. But you know, and maybe most people don't know this, there is a state-of-the-art, nearly brand new mill at Endako that rivals with the nicest new mills in Canada, and it's very high throughput. In terms of strip down value, there's a fair amount of dollars in that mill.
And as we look at potential opportunities, of course, we would look at, does it make sense to potentially send gold-bearing material through that mill? Now, there has to be a degree of proximity. There has to be great support, the trucking. But of course, when we look at these assets that are currently not only unproductive, but drags on our annual cash flow, of course, we'll look at opportunities to monetize and, and generate value from otherwise dormant assets. So your question is a good one. There's no immediately obvious answer to, the Endako mill, but it is an asset that has significant value, though dormant right now. And I just want to be clear, we're not reopening Endako. That's coming after Thompson Creek, so that's far in the future.
Oh, I know that. Great. Thanks very much for that color. Appreciate it.
Thanks, Brian.
Once again, if you have a question, please press star then one. This concludes the question and answer session and today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.