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(Kitco News) - Centerra Gold Inc.’s (TSX: CG) revised mine plan for its Kumtor operations located in Kyrgyzstan heavily affected the company’s third quarter earnings but according to a company executive, the revised mine plan that caused production issues due to low grade surface stockpile materials is in the rearview mirror.

“The issue that’s created that problem is behind us, we won’t run into it again and we won’t see that challenge going forward,” Ian Atkinson, president and chief executive officer of Centerra told Kitco News. “So now, next year as we step into this expansion, we’ll be moving more waste next year and we’ve still got a good production outlook, 600,000 ounces for the year.”

The company was forced to revise lower fourth quarter production to 225,000 to 235,000 ounces of gold, putting consolidated production guidance for the year to 415,000 to 425,000 ounces of gold.

While Kumtor did experience difficulties in the third quarter, Centerra put a new mine in place that boosted reserves by 58% to 9.7 million ounces of contained gold in the expanded open pit and extended Kumtor’s mine life another five years into 2026.

“That profile (600,000 ounces of gold in 2013) is a little back end loaded but that will be the last year where we have the bulk of our production in the last quarter,” Atkinson said. “As soon as we get through 2013 and into 2014, we’ll start to release ore on a more even basis and actually start to build some stockpiles very quickly.

“So that means going forward over that 10-year period we’ll actually have a thoroughly even production profile on a quarterly and an annual basis and that makes it easier to manage the operation. (It) keeps our costs under control and it’s also very good for the Kyrgyz government who receives the taxes from us and they can plan on what revenue we will generate for them. The only variable then becomes the gold price for them,” Atkinson said.

Kumtor has had some recent issues with the Kyrgyz government which is looking into operational, environmental, health and safety and community standards which might be affected by the mine.

Centerra said it has been transparent with the Kyrgyz government and the company is waiting on a report from the state commission regarding their investigation.

“We’ve had numerous requests for information over the three and a half months that we’ve met, as we’ve always had,” Atkinson said. “We’ve had visits from the various state commission members, we’ve given them access to the data and other areas they’ve needed and wanted to see.

“We’ve been doing that and will continue to do that until they bring their studies to a conclusion,” Atkinson added.

The state commission has experienced delays in submitting their finding to government and parliament.

“They are behind schedule; they were supposed to report back to the government Oct. 1 and then to parliament the first of November,” Atkinson said. “One thing they were asked to do as well was bring in some independent experts to help them with the review and that took them a lot longer to actually secure. They didn’t manage to get people on board until late August-early September so that’s to a certain extent one of the reasons they’re probably behind schedule.

“We really don’t have any sense of what will be in this commission report, we just work with them to make sure they’ve got the information that they need,” Atkinson said. “We’ve also put the time in to try and explain everything we give to them so they understand it thoroughly.”

This is not the first time Centerra has had to work with the Kyrgyz government as Kumtor has been operating in the country for over a decade.

“We’ve been operating in Kyrgyzstan now, producing from Kumtor since 1997 and we’ve gone through two revolutions, five presidents I think and a number of prime ministers and through the changes we’ve never lost a day’s production for any sort of political reason,” Atkinson said. “We’re such a large part economy, we’re 10-12% of the GDP, we’re the largest single employer in the country, 96% of our workforce are Kyrgyz nationals. We buy a lot of our materials locally and we’re the single largest tax payer in the country.

“We do become a bit of a political football, and that’s what’s been going on currently, and we’ll just work our way through as we’ve done in the past with constructive dialogue with the government,” Atkinson said. “We’ve always been able to bring these things to a resolution.”

Aside from its flagship Kumtor operation, Centerra has been exploring other properties and have seen some positive exploration results.

“We’ve had a fairly aggressive exploration program for the last few years. One project, the Aoksut in Turkey, is one we’re quite excited about,” Atkinson said. “We announced the first results on that that we published in February of this year that has shown that we’ve encountered a fairly interesting oxide-gold zone on the property.

“We’re getting some really good drill intercepts, good lengths up to 200 meters of good grade, we’ve had a couple of holes in there of 2 grams per ton material and all of that is oxides so it’s leachable. What that leads to is a low capital cost operation since you’re just looking into the heap leach plant so the construction period is much shorter,” Atkinson said. “Turkey is a region that’s open to foreign investment, especially mining so we’re very encouraged about that one.”

Third Quarter Operational and Financial Results

“When we had to revise our outlook for the year back in April, we said the second and third quarters would be poor quarters,” Atkinson said. “We knew we would run out of stockpiled ore in July, and we did just as planned, and we knew we’d get back into ore in September in the pit, which we did as planned.

Gold production dropped to 42,723 ounces on the quarter, a steep decline from 154,936 ounces of gold in the comparative quarter in 2011 due to the revised mine plan and an unexpected amount of till waste during the restart of the mill process in October.

“We had this hiccup in October with the till interface but that’s behind us and I think we’re through that period with this new life of mine plan and I think we’re in a good position going forward, particularly once we get into 2014 and start building up those stockpiles,” Atkinson said. “It’s going to take a lot of the risk out of our production profile.”

Centerra’s revenue dropped 75% to $68.8 million in the third quarter from $278.4 million in the third quarter of 2011 due to the sharp drop in third quarter production.

Net earnings fell to $46.8 million, or 20 cents per share, compared to $83.7 million, or 35 cents per share during the same period last year while cash generated from operations was also lower at $38.4 million compared to $108.2 million from the comparative quarter in 2011, the company said.

Capital expenditures rose 112% to $78.8 million on the quarter compared to $37.2 million during the same quarter in 2011.

The company incurred a $19.3 million abnormal mining cost during the quarter due to the increased unloading of ice and waste material in the high movement area and the impact of the revised mine plan at Kumtor, the company said. Centerra did not have any abnormal mining costs in 2011.

Centerra did announce a C$4 cents dividend payable Dec. 6 to shareholders of record on Nov. 22.

By Alex Létourneau of Kitco News aletourneau@kitco.com

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Ian Atkinson, President and Chief Executive Officer of Centerra Gold Inc.