Weather leaves Centerra investors cold even as gold prices sizzle

Back in October 2016, Centerra Gold CEO Scott Perry told investors that purchasing the Mount Milligan gold and copper mine would give the company an asset in “one of the lowest risk jurisdictions” in the world — British Columbia.

At the time, his company’s other flagship asset, a gold mine in the Kyrgyz Republic, was mired in disputes with the local government about pollution and corruption.

But about one year after Centerra acquired Mount Milligan — about 120 kilometres northwest of Prince George — as part of its US$1.1 billion takeover of Thompson Creek Metals in 2016, Perry is learning that even B.C.’s interior carries risks, including unpredictable weather. After experiencing drought through spring and summer, the company its water supply was dangerously low, and then froze when an unexpected cold snap hit in late December.

“Due to a lack of sufficient water resources, mill processing operations at the Mount Milligan mine … have been temporarily suspended,” Centerra told investors on Dec. 27.

The halt comes just as gold prices are up nearly 18 percent in the past six months. Centerra’s stock has is down 13.1 per cent in the last six months, at $6.10 as of Friday morning, even while other gold companies such as Agnico Eagle, Goldcorp and others surge.

Now, Centerra has asked provincial authorities to expedite its application to pump water from nearby lakes that some First Nations groups claim overlaps their traditional territory.

Although the Mount Milligan property may be the first mine affected by B.C.’s drought, hydrologists and climatologists in Canada said water management will increasingly create challenges as climate change wreaks havoc on precipitation patterns.

“What we’re seeing is that weather systems … are very hard to predict,” said John Pomeroy, a professor and director of the Centre for Hydrology at the University of Saskatchewan. “It’s very hard to design something like a tailing pond, because we’re seeing weather events that aren’t normal, so the capacity you designed your tailing pond for isn’t working anymore.”

Pomeroy is also director of the Global Water Futures Initiative, which received a $77.8-million grant from the Canada First Research Excellence Fund, to develop computer models that will help predict future water supply scenarios across Canada, like when a warm winter will suddenly turn cold.

“We have to be able to predict these events or else they will cripple our economy,” he said.

At Mount Milligan, Centerra executives disclosed in October that water was running low, but predicted only “minor disruptions” in 2017. They thought the water supply would suffice until February or March, according to B.C.’s Environmental Assessment Office.

Instead, in December, temperatures dropped precipitously, and the shallow water supply froze, according to a company news release.  

That same month, as part of its application to pump water from nearby lakes, Centerra submitted materials to the province showing that First Nations groups, including the McLeod Lake Indian Band and Takla Lake First Nation, raised concerns at that time about cumulative and short-term impacts of the pumping. Another group, Nak’azdli Whut’en, conditionally supported short-term withdrawals.

Meanwhile, elected officials from Fort St. James, Vanderhoof and Mackenzie have expressed concerns about the closure, and sent letters of support for Centerra’s application.

Under the expedited schedule, the public comment period opened on Dec. 27th, and ends Jan. 10th.

The company declined to comment, but said it is tapping local aquifers and believes mill processing may resume at half-capacity by the end of January although full capacity is not predicted until snowmelt occurs in April. Meanwhile, it continues to stockpile gold and copper at the site.

The drop caught the attention of a Bank of Montreal analyst, Andrew Breichmanas, who reduced the target price for the stock by a buck to $9.50, still far above where it is trading.

The suspension in mill processing, resulting from drought and cold, coincide with an effort by the Canadian Securities Administrators to review companies’ obligations to disclose climate-related impacts. In 2016, the Chartered Professional Accountants of Canada conducted a study of 75 companies’ climate change-related disclosures.

"Generally speaking, our study found that insufficient context was provided" for investors to understand how climate change would effect the businesses, said Sarah Keyes, a principal of research with the CPA. "The whole idea ... is to ensure that investors are never surprised and that's a challenge."

gfriedman@postmedia.com