Eldorado Gold Corp (EGO) 2006 Q3 法說會逐字稿

Please be advised that this conference call is being recorded. Good morning and welcome to the third quarter 2006 financial results conference call. This call will also be available on Eldorado's website at www.EldoradoGold.com. [OPERATOR INSTRUCTIONS]

I would now like to turn the meeting over to Mr. Paul Wright. Please go ahead, Mr. Wright.

Thank you, Operator. And welcome to this morning's Eldorado Gold conference call. Please refer to our forward-looking statements as disclosed in our news release and management's discussion and analysis. I'm joined this morning by Norm Pitcher, Chief Operating Officer and Earl Price, the Company's Chief Financial Officer, and Nancy Woo, Manager of Investor Relations. The conference call will be conducted according to our usual format with Norm and Earl providing an operational and financial review followed by a question period.

To start with, however, I would like to make a couple of introductory remarks. This year has been a demanding one for the Company, building, commissioning, and commencing production, two mines in two different countries on two different continents simultaneously. For the first time, it's not a small undertaking. For those who are familiar with the process, it is not a surprise that the process has not been flawless. However, I believe that the team has performed exceptionally well in executing a demanding plan and that our third quarter results now start to demonstrate this success.

The Kisladag mine continues to increase production month by month, and with costs for the quarter at $218 an ounce, we have already achieved our target cost levels. At our Tanjianshan project, the team has recovered quickly from a small fire in the plant last month, commissioning has resumed. The official mine opening remains on schedule for November 12th and we expect to report our first gold by month end.

Late last week, we made disclosure on our Efemçukuru project in Turkey where our 13,000 rig [indiscernible] drill program is underway in connection with our planned feasibility study. In light of ongoing engineering work and drilling results, to date we have elected to examine the possibility of increasing our production to 1250 tonnes per day. And we'll be releasing the results of this study in April. We are presently in the midst of planning and budgeting exercises for 2007 and beyond and will be providing guidance early in -- sorry, early in December for both our operations as well as our development projects and expiration.

At this time, I would like to ask Norm Pitcher to provide some additional detail on our operational performance. Norm?

Thanks, Paul. I guess as a general comment, we're obviously quite pleased with the operational results this quarter. As usual , there's never a dull moment. And I think that before I go into the various operations, thanks should go out to our operating teams in Brazil, Turkey, China, and here in Vancouver. I think they've done a great job this quarter and this year in general.

Sao Bento, we produced 13,605 ounces at a cash cost of 493. We've now moved up in the mine, we're mining mostly up to 26 levels, before, we sort of had three levels going, we're now really down to about one level. We expect the mining to be done either the end of December or early January. As it sort of gets closer to that date, it gets a little harder to predict. It will be very close to that. We had a draft closure plan submitted to us by our consultant, so we're currently reviewing that and some other alternatives for the plant [entailings]. In addition, we're processing some concentrate from the third party that's giving us some pretty good recovery. That should help the Sao Bento bottom line a little bit in Q4.

Kisladag, we did 27,477 ounces at $218 cash cost. I think what's encouraging there is the monthly increase in ounces as we're building up leach pad inventory. The mine continues to run very well. We've had really no issues get ore out to the leach pad. And in addition to that, the percentage of crushed ore is increasing monthly. Just to clarify what was in the press release, when we talk about 2 million tonnes of ore placed on the pad and there's a 1.6 million ton number, that's crushed material [inaudible] the extra 400,000 tonnes is over liner and [run of] mine material.

We have a water pumping installed in well number three. We'll run pump tests this week. We expect that to be operational by the end of the month. And in combination with recent rain, and that, really water is getting to be less and less of a problem there. We've now got six leach pad cells fully operational. Number seven and eight are being loaded, and we're finishing the liner system on number nine. And the crushing system continues to improve. Really, the primary fine and we've got mostly minor commissioning type issues with the secondary in [terishuary], so the performance of the crushing system's getting better on a monthly basis.

On to Efemçukuru. We're quite encouraged by the recent results. We're drilling with three drills right now. One RC and two diamond drills-- rigs, and we plan to add a fourth drill in December. This program is about 13,000 meters total and about 4800 of that is targeting years one through five in the updated mine plan. We've got another 4,000 that is targeting bringing in [furred] resources and to measuring indicated, and another 4,200 meters that is targeted for deep -- deeper drilling and a long strike, because the system really hasn't been tested either at depth or along strike. So far we've drilled about 22 holes, 3,100 meters. We're expecting this program to be done sometime next April. On the land purchase, we're about 40% complete on that. The next step after that will be the zoning plan and then the construction permit.

In Tanjianshan in China, as Paul stated, we're currently in commissioning. The crusher and sag mill are running well. Just the usual small issues with those. We now have slurry in the CIL tanks, and they've been charged with fine item line and by the end of this week we expect to have six cyclones running, six out of the bank of ten and these are six new warman cyclones. We also have a set of Chinese replacements, but six is fine for what we need right now. Six will actually handle basically full production. We lost about a month on that in the buyer. Costs were not great, you're looking at a bill somewhere less than $100,000 for that. Grand opening November 12 and we expect to be producing gold by the end of month.

Briefly on exploration, obviously in Turkey the focus is on Efemçukuru. We decided not to drill on a couple of other properties, basically due to rig availability and we're starting to get a little bit late in the season and we're also compiling data from other projects we've worked on throughout the year.

In Brazil and Vila Nova, we still have three rigs going. We'll drill through Q1 2007 and we expect to make some disclosure on results by the end of the year. And in China, we have finished the exploration work at Tanjianshan and we're currently compiling results.

With that, I'll turn it over to Earl.

Thank you, Norm. Good morning. I'll take you through the financial statements beginning with the balance sheet, but I'm only going to hit the highlight changes that have occurred on our financial statements and I'll leave individual -- answer individual questions from you regarding the statement.

Regarding our cash and cash equivalents, we had at the end of the quarter $81.1 million of cash available. This is sufficient cash to complete our projects and operate the Company. I would expect to see going forward, now that our cash balances will increase as production and sales increase in Kisladag and Tanjianshan mines, especially at this $600 per ounce price that we're seeing. So next year, we will generate positive cash from operations as the projects are completed.

A significant change on our balance sheet this quarter is what you'll see is our restricted cash on the statement. You will note that we have a short-term $15 million restricted cash that did not appear previously. During the quarter, we established an $80 million -- an 80 million [R&B] loan from the China Construction Bank. These funds have been drawn down in the amount of approximately $10 million U.S. to complete the project as well as fund the working capital needs of the Tanjianshan project. The $15 million is deposited with HSBC Bank in New York to guarantee this loan.

You will note that in the liability section, there is an offset of a current portion of a long-term debt. This is the long-term debt and it is due to be paid back in full next year in 2007. You will note in the assets under the long-term restricted cash of 58.3 million. This is an increase of 8.3 million from the previous numbers of 50 million reported. The 8.3 million is related to reclamation and pollution requirements that we had to deposit with the Turkish government to comply with the rules and regulations of the Turkish government since the start up of the Kisladag mine.

The other significant change on the balance sheet continues to be the increase in property plant and equipment. You'll note from 186.6 million in December 2005 up to 262 million as of the end of this quarter. And of course, that's directly related to the completion of the Kisladag mine and the final stages of completion of TJS. These are the substantial comments I'm going to make upon the balance sheet.

Moving on to the income statement, gold sales increased as we sold 46,238 ounces at 620 compared to 21,057 at 435 in the complimentary quarter in 2005, Q3 of 2005. Where's additional gold volume of ounces and price adds to substantially our increase in gold sales. Interest income is up substantially to 2.0 million from 1.4 million because of the additional interest earned on the cash that we have available and invested from the financing that occurred in the first quarter of 2006.

Our G&A expenses of 4.1 million for the quarter and 10.4 million year-to-date are up substantially from 2005. But included in this number is 1.3 million of direct costs related to SOX compliance and implementation this year. What this has left Eldorado with at the end of the quarter is a net income-- a positive net income, and this is the first positive net income from operations I can state since 1997 of 5.2 million compared to a loss of last year of 6.5 million, or a positive cash per share or basic income per share of $0.02 a share. We are very proud of this number and we're looking forward to many years now of profitable net income.

On the cash flow statement, I really have no comments on the cash flow statement. I think every line item is very self-explanatory. I will point out that there is one line item here, proceeds on the disposal of property plant and equipment of 1.9 million. This is funds that were received on the sale of the substation at the Sao Bento mine during the quarter.

I'll turn it back to Paul Wright for questions from you. Thank you very much.

Thank you, Earl, thank you, Norm. At this point, Operator, I would like to open the floor for questions.

Thank you, sir. [OPERATOR INSTRUCTIONS] The first question is from Paul Burchell of Dundee Securities.

Congratulations on a great quarter.

Thanks, Paul.

A couple of questions. I actually talked with Nancy this morning, but I was wondering just on CapEx, what expenditure levels you might have left at Tanjianshan to finish it off this quarter?

We're looking at probably $6 million to totally finish off everything.

Okay.

That includes the mining fleet.

Okay. Okay, that's great. So that's still essentially in line with earlier expectations?

Yes, it is.

Okay, great. And just two other questions. Really looking-forward questions on Efemçukuru. You mentioned the permitting schedule and I was writing notes, but I didn't really -- I wasn't able to capture what the timing was. Could you reiterate what your time table for acquiring -- for submitting EIA and acquiring the subsequent permits are?

Yeah, Paul, it's Paul answering the question here. As far as the EIA is complete, that was behind us in 2005. In 2005, we completed the environmental impact assessment report, submitted it to the administrative environment, and obtained approval in the form of a deposit of certificate. The emphasis this year, other than the sort of technical program, i.e. the drilling and engineering, has been on land acquisition, which is a precursor to applying for the zoning plan. We -- as Norm's described -- we have approximately 40% of the land acquired. We're in the process now of, frankly, reassessing what it's going to take to complete the land acquisition process, which then enables us to apply for the zoning plan. If you can bear with us, in December we'll be in a position to try to lay out what we see as our schedule going forward.

Okay, that's great. Then finally, just on resource update, any future for -- I'm really thinking along the lines of Tanjianshan, you've been doing a lot of drilling there. Could we look forward to something, an update in the first quarter of next year?

Yes, that will be done along with our 2007 resource and reserve update for everything.

Excellent. Okay, well, again, great quarter. Thanks very much, have a good day.

Thanks.

Thank you. The following question is from Haytham Hodaly of Salman Partners. Please, go ahead.

Good morning, everyone, how are you? Just a couple of questions, actually, Paul just touched on one of them, regards to Efemçukuru. With the time revised study, could you tell me what the earliest, I guess, you could have this product into production, I guess what I'm trying to find out is by the time the feasibility is actually revised and completed, what's your construction time line, assuming all permits and zoning plans are in place?

Haytham, if you look at the critical path, it isn't the feasibility study, it is very much the permitting process which is driven by, at this stage, when we complete the land acquisition process. The feasibility study, or the extension of additional three months to complete the feasibility study, does not in itself affect when we can start construction. And as I said, not trying to avoid the question, please bear with us until December until we're in a better position to give direction as to what we see as our schedule to complete permitting.

Maybe I'll reword it a little bit. Are you running into any problems in terms of acquiring your remaining land at this point? Is there a specific opposition to this --

No, as usual, it's the process by which you acquire anything in Turkey, it's a process. And that takes time.

Okay, fair enough. One last question. I'll change and go over Sao Bento, what's your current reclamation estimate at Sao Bento when it's all said and done?

Currently what we have in the Sao Bento, we had a study completed by [inaudible] associates two years ago and the total net impact for the reclamation was $10 million. That included using third party arms link organizations to do that reclamation. It's a great deal of reclamation. We'll be using our own staff there, so we believe it will be less than that. But currently what we're stating is from the Golder study which is 10.1.

10.1. Have you accrued much of that throughout the life of the mine?

Yes, we have.

The whole thing or will there be an extra component there?

All of it.

All of it. Okay. Perfect. Thank you.

Thank you. The following question is from Terrance [Orselan] of PSO and Associates..

Actually, I have a similar question to Haytham about the line acquisition. I'm sure there's a sense of urgency within the region or area itself that this project has to go on. First of all, are the costs being exorbitant, or by, now that there's a buyer, everybody seems to have stars in their eyes, or is it just the process itself that is just slowing it down? Hello?

Yes, part of the -- part of the dynamics as it relates to land purchase in Turkey relate to the time of the year, the seasonal factor. What I'm alluding to is that some of the land owners have crops. When crops are harvested, farmers have money in their pocket and are, frankly, less inclined to sell land. As I describe -- and we've been through this process in a much larger scale at Kisladag, this is a process which takes time and it's very difficult to accurately assess exactly how long it is going to take. Do we have fundamental issues in terms of an amenability for people to sell land? No, we don't believe that's the case.

And just remind me, how much more land do you have to purchase to complete the [inaudible] again?

About 30 hectares?

30 hectares. That's not very much.

No, it's not very much. And, again, just to remind people, the total footprint of Efemçukuru is about 10% that of Kisladag. And where, as in Kisladag, we had a fairly large amount of private land. In this case, the majority of the land is actually owned and controlled by the state.

Okay. Obviously you're very focused on this project. Is there anything else going on corporate-wise that you think you want to highlight in terms of possible other deals that you're looking at, or is it going to be just enough [inaudible] for the time being?

I think I would characterize that question by the fact that we are probably more active in terms of assessing other opportunities than we have been, say a year ago. We are coming to the end of construction at Kisladag and Tanjianshan. We have obviously Efemçukuru ahead of ourselves, but we do now have the capacity to do more, and therefore we're more active at looking at opportunities.

And geographically?

Well, clearly you start in those jurisdictions which you have infrastructure where you're most comfortable, but beyond that it's really based on the quality of the opportunities.

You're not looking to Africa or something like that at the moment?

It's not top of our list, no.

Good. Thanks.

[OPERATOR INSTRUCTIONS] The following question is from Kerry Smith of Haywood Securities. Please go ahead.

Thanks, Operator. Hi, Earl, could you just tell me when you think you would actually be in commercial production at Tanjianshan? It sounds like Norm said you would be pouring gold by the end of November, if I heard that correctly, but I presume there would be a little bit of a ramp-up, I'm just kind of trying to estimate when it would be commercial.

What we have indicated that we'll be in commercial production in the first quarter. What we'll see with the start-up in the first production in November, then of course we'll be going into the winter period, particularly at Tanjianshan, and we'll see if we have other start-up problems. It will be in the first quarter, but until we get the preproduction-- preproduction coming out, and we see how we operate during this winter environment, I can't say whether it will be January or February, but it will be in the first quarter of 2007.

Okay, okay. And Paul, just on -- or maybe Norm, on Kisladag, how has block model held up relative to what you've actually mined in terms of tonnes and grades so far? Now you've mined a fair amount of tonnage that's gone to the pad, I'm just curious how the block model is holding up?

The block model looks fine. We're very close on production to what the model is predicting.

Okay. It just seemed to me that the grade was maybe a bit better than what I might have expected. I was just wondering if maybe the grade is a tad better, or if it's really kind of in line?

I would say it has been a little bit better. We have hit some higher grade zones, but I think in general it's all going to come out in the wash and we're going to be very close to what we predicted.

Okay. And then, the millers' group performance has been in-line, too, I think, right?

Yes. I mean, you're still fairly early in the lead cycle, so actually predicting final recoveries we can't do right now, but no recovery, we're up in the [ox] line, and recovery seems to be very good.

And --

The mine doesn't have a lot of issues right now and it's really a matter of getting the new cells finished up and more ore on there and more inventory built up.

Okay. And Paul, it sounds like you don't really want to give too much guidance for '07 right now until you update everybody in December, but would you mine sort of reserve grade at Kisladag, or is it even too early to say whether you'd be mining above or below reserve grade, just to give us some sense?

It should be at reserve grade, Kerry. The hesitancy to give guidance is that as you can see, production is going up monthly, and we just like to get as many dots on the graph as possible so we can do the best extrapolation for production for next year. What we want to do is give guidance and then have to change guidance. We like to have the best possible number which, realistically, we're not going to have in front of us until early to mid-December.

Right, when the budgets are done, yes. No, I understand that, I just trying to get a sense on the grade.

[inaudible] grade, it should be pretty close to average.

Okay. And just on the crushing circuit at Kisladag, is the availability and the throughput and all that sort of stuff kind of where you expect it to be? You're not having any particular problems?

I don't think we've got any -- I mean, there's bits and pieces that you're working on, transfer points between the trip or conveyer, but there's nothing-- we're happy with the fundamentally the way the crushing circuit is operating.

And no problems with dust or anything like that?

No.

Okay, great. One last question, if I could. Could you just remind me what the acquisition cost per hectare was at Kisladag? I remember it was a fairly modest number per hectare, but just maybe as kind of a rough comparison for Efemçukuru, in terms of what it might cost? Or is it a relevant number?

It's not a relevant number in the whole scheme of things. I mean, frankly, it's not the best interest for us to be making specific disclosions.

Okay. No, that's fine. Thanks very much.

Thanks, Kerry.

Thank you. There are no further questions, I'll now turn the meeting back over to Mr. Wright.

All right. Well, thank you very much for sitting in on, obviously, what's a busy morning in our space in the markets and we look forward to reporting next quarter. Thank you again. Thanks, Operator.

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