Eldorado Gold Corp (EGO) 2004 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Eldorado Gold 2004 financial results and corporate update conference call. This call is also available on the Eldorado Gold website, www.eldoradogold.com. At this time we are in a listen-only mode. Later we will conduct a question-and-answer session. This call is being recorded on March 21st, 2005.

Some of the information contained in this call and in the news releases is forward-looking information. This forward-looking information is subject to known and unknown risks, uncertainties and other factors as described in our annual information form under "risk factors" in our 2003 annual report and in our prospectus dated August 18th, 2003, filed with the Securities regulatory authorities. Please treat this information with caution as many factors might change which may cause future events to unfold differently than originally anticipated. Should one or more of these risks and uncertainties materialize, or should underlying assumptions prove incorrect, the Company does not assume the obligation to update any forward-looking statements.

Statements concerning reserves and mineral resource estimates may also be deemed to constitute forward-looking statements to the extent that they involve estimates of the mineralization that will be encountered if the property is developed. And in the case of mineral reserves, such statements reflect the conclusion based on certain assumptions that the mineral deposit be economically exploited.

I would now like to turn the meeting over to Mr. Paul Wright, President and CEO of Eldorado Gold.

Thank you. Good morning and welcome to the Eldorado Gold conference call. With me today are Earl Price, Eldorado's Chief Financial Officer, and Nancy Woo, Manager of Investor Relations. It is my intention to provide commentary on our performance in 2004 and the outlook for 2005. We would then welcome questions on all aspects of the Company's business.

Sao Bento's performance dominated the Company's financial results in 2004 in a negative manner. The operating performance of 82,000 ounces of production at $294 an ounce was disappointing. The operation, as with most mining operations, is under considerable pressure due to escalation in energy, consumables, and labor. The Brazilian Context has added to the price pressure, with the strengthening of the Brazilian currency, the Reais and an extremely demanding environment for skilled labor in the mining sector.

The underground mine itself struggled throughout the year with ongoing congestion associated with the shaft deepening activities, poor ground conditions, and lower metallurgical recoveries, both of which were associated with intrusive bodies. Our 2004 drilling campaign was unsuccessful in confirming continuity of the ore body at depth and negatively influenced our reserves. The shaft deepening project has been executed in a professional manner and will be commissioned in the third quarter within budget and has been carried out with an excellent safety record.

In summary, we now can see the likely end of the Sao Bento ore body in 2008, and management's efforts are designed to successfully maximize the free cash flow from the existing reserves and establish the best alternative to realize maximum value for the remaining infrastructure.

Turning to Turkey and the Kisladag Project, 2004 was an excellent year. We completed a complex and extensive land acquisition exercise, obtained the outstanding permits, in October commenced construction activities. Despite what has been a wet winter on site, we have made good progress in construction and remain on schedule to commence start-up prior to year end. Cost to date remain within our budget for the project.

We are successfully building up a high caliber operating team on site and are particularly pleased to have John Timmons joining us in May as General Manager. John's extensive experience in Turkey, most recently as a General Manager at Cayeli, brings to our project a unique set of skills.

With the permitting activities at Kisladag behind us, our in-country team assisted by our team of consultants, are now working on completing our EIA for the Efemcukuru project. We have been somewhat delayed waiting for the Ministry of Environment meeting with the public. This meeting was successfully held in February, and we are now working to incorporate the results from this public meeting and expect to submit our EIA in the first week of May.

In advancing Efemcukuru through 2005, we expect to receive our process [ph] certificate from the Ministry of Environment, continue with other permitting activities, and commence the feasibility study in the fourth quarter.

In exploration, efforts last year in Turkey successfully developed 5 drill targets, all of which will be tested in 2005. In addition, mapping and sampling our new licenses will continue with the objective to identify additional drill targets.

In Brazil, where we have budgeted $4.1 million in 2005, the focus is in the Northeast with our Cassipore and Tartarugalzinho properties. Both of these properties will see drill programs in 2005. Of the 4.1 million presently budgeted, $2 million has been allocated to a new project we are acquiring and plan to drill in 2005.

In China, we continue to work towards identifying and accessing opportunities with an emphasis on partnering. Consistent with this approach, we are cooperating with Shandong Gold Corporation on 3 projects identified as having the potential for joint ventures. In the course of the year, we added 2 Chinese professionals to our team, a Senior Engineer based in Beijing, and a geologist working out of our Vancouver office.

In summary, the Company remains debt-free with a strong cash position, which allows it to construct and expand our Kisladag mine, build Efemcukuru, and conduct year-by-year healthy exploration programs. We are managing our operational challenges at Sao Bento and are determined to replace the Brazilian production.

We will now be happy to field any questions, operator.

Thank you, Mr. Wright. (Operator Instructions). The first question is from Craig Miller, BMO Nesbitt Burns. Please go ahead.

Yes, hi, Paul.

Hi, Craig.

For Kisladag, your production that you are anticipating late in 2005, would you consider that commercial production or precommercial? Second question I have is, what issues, if any, came out of your meeting at Efemcukuru?

Thanks. In terms of the ounces, ounces are ounces, Craig. That's really the first ounces that are coming out of the mine. I mean, typically commercial production is declared when you've reached steady state production. The first 10,000 ounces would not constitute steady state, we would be building up to steady state. I would expect commercial production to be declared in the first quarter.

Okay.

Sorry, did you have a follow-on to that?

No. And the second question related to Efemcukuru. You said you had a public meeting and that issues were being incorporated into the EIF. What were the issues, if any?

Just to remind people, on the -- in the process which surrounds the Environmental Impact Assessment report and the review by the Ministry of Environment, in the case of Kisladag this public meeting, which is held actually between the Ministry of Environment and the local communities, was held at the time in which the MOE had already received our EIA. They've changed the process and brought that -- advanced that meeting, so it's now in advance of our submitting the EIA, and that's designed so that the MOE can take whatever concerns, issues, comments that are made by the local communities and return those to ours with the express purpose of us incorporating those in the EIA.

The concerns that were raised by the community simply revolved around their ability to be able to ensure marketability of their grapes in the future. This isn't an issue or an item that, frankly, is not a surprise to us. We have been actively engaged with the community regarding this very issue and have plans to mitigate any risk associated with the ability of the locals to sell their grapes into market. This expression to the Ministry of Environment was then returned to us in a brief written report by the Ministry of Environment, and we are incorporating measures within our EIA to demonstrate that we acknowledge this and are capable of dealing with it within the plans for the operation.

And finally, would you expect that these legal challenges that you're experiencing to be settled in 2005, or are these things kind of things that go on forever?

They will sort of go on -- they will go on for a considerable period of time, because, I mean, both parties have the ability to, obviously, to make appeals until finally their high court decisions are made in Ankara. We would expect to see resolution of these towards the end of the year. That's our expectation. In the meantime, in the case of both Kisladag and Efemcukuru, it's not affecting our ability to be able to advance the projects.

That's all I have. Thanks, Paul.

Thank you, Craig.

Thank you. The next question is from Paul Burchell from Dundee Securities. Please go ahead.

Good morning, Paul.

Good morning, Paul.

Couple of questions as well. First of all, on Sao Bento, the '05 production profile is a little bit lower than I had estimated. I was wondering if you might give us a little feel for what the throughput is going to be, grade, recoveries, et cetera, and as well, going out to '08, would we expect a similar sort of production profile, 75,000 plus or minus per year? And as well, if you can, the second question would be any further details on the Shandong possible joint venture, any ideas like the interest you might be able to earn and/or any details on the projects that are included in this JV? Thanks.

Yes, I mean, production is certainly down in 2005. Just to step back, as to those factors that are really handicapping us, the drilling results in 2004 reflected in our updated reserve statement were disappointing because of our inability to be able to extend the mineralization below the intrusive. But what has really handicapped us in the -- for the remaining mine life, unfortunately, is that we determined through additional drilling above the intrusive that the geological model, frankly, that has served us well for the better part of the last 20 years is, as the ore body is disappearing is starting to break up on us. So we had some negative surprises above the intrusive, which frankly, necessitated reworks of the development plan, the development schedule, and that has come back and hit us again on terms of production in 2005 and our costs.

With the shaft being completed in the third quarter, we would expect to see an improvement in production, improvement in cost in 2006 and 2007. But, I mean, I think it's fair to say that we're now in the -- call it the 75,000 to 85,000 ounce a year bracket for the remaining portion of the mine life. Now, not wanting to be too negative on this, we do certainly still see some opportunities in the inferred resource to bring those resources back into measured indicated, but realistically all that will do is perhaps make 2008 a fuller year than we presently envisage.

That's great. The second question was on, if you can, any further details on the Shandong possible JV.

Yes. I mean, we're really -- through our discussions with Shandong, which are extensive, and we've established, I suppose, a basis -- a logical basis for us to cooperate, and being realistic in terms of what we can actually offer and what they have to offer, and we've identified, what I refer to as 2 development projects, and 1 advanced exploration project that are in various stages. 1 is owned by Shandong, the other is in the process of being an acquired, and a third which is identified by Shandong, which is, dare I say, worthy of acquisition. It's really going to be on a case-by-case basis that we work together and establish what is -- how we're going to cooperate on these. So until we, frankly, have a specific joint venture on one or more of these projects, that's going to be the extent of our commentary.

Fair enough. Paul, thanks very much.

Thank you, Paul.

Thank you. The next question is from David Stein from Sprott Securities. Please go ahead.

Thank you. Good morning, Paul. My first question is on the costs at Sao Bento. Just looking at the operating expenses line in the income statement, it implies a higher cost than the cash costs or that something's been worked in there that's -- that I couldn't find a break out for. Could you maybe just explain what's going on there?

Well, I think it -- I'll let Earl describe this in detail, but I think it relates, frankly, to our decision regarding the shaft deepening project and, obviously, the conclusion that we've come to that the shaft deepening project will not have the reserve and resource base that we anticipated 2 years ago when we made the capital investment decision. Earl?

Yes, David. What we've done, in the press release we relate to certain capitalized costs of 8.07 million. That's the additional charges made to the cost of sales. Given the lack of moving indicated reserves into the proven category, what we did is we took an opportunity to take a look at all of our capital that has been charged to the Sao Bento mine and ascertained which projects were really not going to have a return back against the projection when we attempted the project initially, and that resulted in us looking at those charges and taking a write-down -- or not a write-down, but an expense to the cost of sales for those projects.

Okay. I understand that. Thanks. My second question, just on Shandong, I was wondering if you could just give us the background on what Shandong, the company, I guess, it's basis. Is it a private sector company or government related? Just some details.

It's a publicly traded company. It's 1 of, I think, 3 publicly traded Chinese companies. Like all of these publicly traded companies, came out of the state and still has a significant provincial interest in it. It is, from our -- in our opinion, and this is based on spending considerable amounts of time with the people, and also, frankly, spending time with their operations, one of the most enlightened group public companies in China. Certainly their attitude towards operations is very professional, and we're very comfortable working with them.

As you know, David, we spent considerable amount of time working with the China National Gold Corporation. That was beneficial for us, I think in terms of our learning, or the process of learning what it takes to be successful in China. The difference there was that we were dealing with a state organization and ultimately there are some limitations in terms of what a state corporation can do as opposed to a public company.

Okay. That's all for now. Thank you.

Thank you. The next question is from Mike Curran from CIBC World Markets. Please go ahead.

Hi, guys. Was wondering how much money is left to spend in terms of the -- at Sao Bento in terms of the shaft deepening, and how is the total expenditures going to compare to the initial budget? I'm guessing a little higher?

There's about $3 million remaining on the shaft project. Probably a bit less than that, that was at the beginning of the year, Mike.

Okay, great.

The bulk of the expenditure is done now. That's what we're looking at. As you appreciate, we've just completed the reserve statement. We've had some unpleasant surprises at depth in our reserves, and we now really have to go through this iter of exercise of looking at what indeed is the best combination mine plan through the next 2 or 3 years, how much capital do you put at risk in terms of capitalized development versus the opportunity to recover reserves or perhaps, as I alluded to earlier, identify additional reserves.

Got you. Thank you.

Thank you. The next question is from Anita Sony from UBS Securities. Please go ahead.

Hi. Could you just refresh our memories, what's the total CapEx for Kisladag in 2004 and what are you expecting for 2005?

The total CapEx for the program, budget is what, $63 million, of which I think approximately 56 million was going to be spent in 2005.

And that's still on budget then?

That's correct.

Thank you.

Thank you. The next question is from Haytham Hodaly from Salman Partners. Please go ahead.

Good morning, Paul. A couple quick questions. What is your overall expensed exploration budget forecast for 2005? I know you indicated it was 4.1 in Brazil and 1.7 in Turkey. Will all that be expensed?

Yes, it will be.

Next question, your G&A costs in the fourth quarter appeared to be a little bit higher than other quarters. Is there a general increase in overall G&A expected in 2005 over 2004?

Not exceptionally higher, what you're really seeing is the increase -- our G&A is directly related to the additional staff that we have brought on, related to our Vice President of Operations, the Chinese nationals that we have employed, so that should stabilize going forward.

So if you added 1.7 million roughly in the fourth quarter just take that and multiply it by 4 for 2005?

That's a little high, but it's very close.

Fair enough. Last question, I guess, would be with regards to 2005. Paul, somebody mentioned this, I don't know if it was answered, just for Sao Bento, as an example, the tonnage and grade that you're expecting in 2005.

Haytham, I don't have that sheet in front of me. If you can bear with me a moment, and we can obtain that.

That would be great. Just trying to get an idea if recoveries are going to be affected, et cetera, as well. And that would answer my questions.

Yes, I mean, the recoveries have been down a little bit because of the work around the intrusive. As we've got away from mining around the upper intrusive and our ore production, or at least our stoping production has resumed, shall we say normal metallurgical characteristics. We're now, of course with the development, pushing down getting closer to the lower inches [ph], so we're starting to see the effects of the development ore coming back into it, so that plagues us somewhat. If you just sort of bear with me, Haytham, or later in the piece I will give those numbers. That would be great. Thank you, Paul.

One other comment on our G&A, this is Earl Price, one of the effects that we have to look at in our G&A particularly is, of course, the strengthening of the Canadian dollar against the U.S. dollar. That continues to strengthen. That is also having an impact on our U.S. dollar reported costs.

That being said, does the 1.7 multiplied by 4 still too high even after considering that?

Yes, it is, it's still too high.

So somewhere around 6.5 sort of thing, million for the year?

Yes.

Thank you.

(Operator Instructions). The next question is from Michael Fowler from Desjardins Securities. Please go ahead.

Yes, hi, question on going forward. You're looking for 320 for Sao Bento this year, but I just want to know if you are going to expense any development costs in the year as you did in the fourth quarter?

We may elect to do that, Michael, depending a little bit on our ability to be able to, through drilling, convert these improved resources. That's certainly a possibility.

Okay. Second question, Paul, a slight decline in the reserves at Kisladag, any particular comment on that?

No, I mean, it was simply a result of the -- of some modest drilling that was done early in the year and the revised mine plan that was wrapped around that pit. I think it was about 300,000 ounces that were affected. We were doing those reserves at the same time as we did our update for our feasibility study in May, and when we did the update and the feasibility study we also, of course, increased our operating costs in response to the conditions that existed, and the increase in the operating costs flow through to the parameters you use to design the optimal pit. It was a little bit of drilling and just shifts in terms of those criteria that we used to design the pit, reflecting higher operating costs.

Okay. Fine. Thanks. Just on reclamation expenditures at Sao Bento, has that been provided for, or how much would that be?

Yes, we have an independent report identifying the cost for reclamation and also the cost for disposal of assets, and they're pretty close to being a wash.

Okay.

Being an underground mine, the reclamation really is focused on the re-vegetation of the tailings down [ph].

Okay, fine. Just a last question here, I mean, you've sort of dipped your toe into China, and you've given us some indication of what it's like to do business there, but maybe you could sort of tell us what you think the business climate is really like right now as opposed to say a few years back.

Well, I think it's increasingly getting better. I think it is still an environment where extreme caution is required, and patience and perseverance, and I think to a large degree, the skill sets that we've demonstrated in Turkey are absolutely essential, if you were to look to try to establish a business in China.

We -- we've been in China now for the better part of 18 months, and frankly, I consider it a success as opposed to a failure that we're not proud owners yet of Chinese real estate. The reality is that there are a lot of geological opportunities in China, but it's establishing the right business model is a prerequisite, in my opinion, to ultimately succeed in China.

And clearly, as you've seen from our endeavors so far in our report here, we really do believe that if you are, over time, going to play a meaningful role, it is going to be in some sort of relationship with one of the Chinese public companies. And that takes time. I mean, it's a -- it's a lengthy educational process to put yourself in a position where you're indeed feeling comfortable about who you're working with.

So, I mean, are conditions getting better? Yes. Have there been some disappointments in, shall we say, the junior explorers' entry into China? Yes, there have been. But we view China as an option. You're not going to see this Company placing big bets in the short term, but we do feel there are indeed rewards there that are worthy of our time and attention.

Many thanks, Paul.

Just if I may, Haytham Hodaly, to return to your question, the plan for 2005 is based on a total tonnage throughput of 311,000 tons at a grade of 8.4, and the planned plant recovery of 90 percent, which is down from our historical recoveries of around 92 percent.

Mr. Hodaly, your line is now open.

Paul, I appreciate that. Just 1 last question. Effective tax rate in 2005, what's your forecast, current and deferred?

The effective tax rate is in Brazil is still -- remains at 30 percent in Turkey, but what we'll be paying in tax will be 0 in actual cash outflow. What we will have is an accrual of future income tax of approximately $2 million, and that will be driven substantially by the Real exchange rate, and what happens there is whether the Real weakens or strengthens, compared to the gold loan that we have at that operation generates that future income tax liability.

Okay. Thank you.

The next question is from Tanya Jakusconek from National Bank. Please go ahead.

Hi, everyone. Can I just get a little bit of an update on what you're doing in Brazil on the exploration? Because you're spending 4.1 million. And perhaps, Paul, you can flush that out for us.

We will be in the course of 2005 spending 4.1 million. 50 percent of that money that's been allocated has been designated to a project that we are in the process of acquiring and expect, clearly, given the amount of money that we're allocated to complete that acquisition and start field activities in the short term.

Do you think that will be done shortly, Paul?

Yes, I do, and I am somewhat frustrated, frankly, that I'm sitting here today not being able to describe to you more fully the project and our plans for the project. Clearly, by the amounts of money that we've designated, we view this to be the most prospective project that we will have in the portfolio. In terms of the other 2 projects in Amapa, Cassipore and Tartarugalzinho, we're following really from work that was done last year, mapping, surface sampling, and we'll be carrying on this year with diamond drilling, auger drilling and additional mapping.

Okay. Well, keep us informed on the other one, I guess.

We will.

Thank you. There are no further questions registered at this time. I would like to turn the meeting back over to Mr. Wright.

Well, thank you very much for attending this morning, and as always, please do not hesitate to contact the Company in regards to any questions you may have. Thank you again.

Thank you. The conference has now ended. Please disconnect your lines at this time. We thank you for your participation and have a great day.