Eldorado Gold Corp (EGO) 2007 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Eldorado Gold Corporation second quarter 2007 financial and operational results conference call. This call will also be available on the Eldorado website at www.eldoradogold.com.

I would now like to turn the meeting over to Miss Nancy Woo. Please go ahead.

Thank you. This presentation includes statements that may constitute forward-looking statements and information. Any forward-looking statements made and information provided reflect our current plans, estimates and views. Forward-looking statements are information which include all statements that are not historical facts, are based on certain material factors and assumptions, and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in or suggested by the forward-looking statements or information. Consequently, undue reliance should not be placed on these forward-looking statements and information. The information contained in our annual information form and in our annual quarterly management discussion and analysis available on our website and on CEDAR identify factors and assumptions upon which the forward-looking statements or information are based on and the risks, uncertainties and other factors that could cause actual results to differ. All forward-looking statements and information made or provided during this presentation are expressed qualified in their entirety by this cautionary statement. I would now like to turn the call over to Paul Wright, President and CEO of Eldorado Gold.

Thank you, Nancy. Thank you very much for joining us. As you may have gathered, we have Nancy Woo, Manager of Investor Relations with us along with Earl Price, the company's Chief Financial Officer, Norm Pitcher, the company's Chief Operating Officer and Berne Jansson, our Vice President of Operations. We're going to change the format slightly this morning because clearly, the company has been in a mode of intensive disclosure. We've made four disclosures in the last five days and I think it is appropriate in terms of getting the best value in the next hour that we open up for questions sooner rather than later. So, I'm going to make a few brief comments then we'll get straight into the questions. We're very pleased with the performance of the corporation in the second quarter. And I guess initially, what I would like to do is extend my sincere appreciation for all of our employees and contractors who have contributed to these records. In both financial and operating terms.

The group here, the management group here set about a number of years ago and systematically building a business and I think what we have seen and what our shareholders have experienced in the last two quarters in terms of the operating and financial results are the expression of those building stones in terms of financial and operating results. Just quickly, Kisladag is performing incredibly well in terms of what you expect from a mine, metallurgical response, integrity of resource, operating costs throughput, everything has been going in our favor. In the second quarter, we completed the integration of the additional crushing capacity and we're having a very successful ramp up in capacity.- Tanjianshan, you know, we've had some difficulties in the second quarter. We are engaged in a fairly high strip ratio as demonstrated in our press release. This has necessitated, obviously continued use of mining contractors with higher unit costs than our own mining fleet. At the same time, we've had some teething problems as it relates to the maintenance of our own trucks which obviously has contributed to the higher costs. As we move forward and see the strip ratio coming down according to plan and obviously deal with our problems in the maintenance of the trucks we would expect to see our costs return to anticipated levels. We are, however, seeing good grades coming out of the pit and as in Kisladag, are ahead of plan in terms of production for the year.

Turning to Kisladag itself, I mean clearly, the question that everybody wants answered in absolute terms is that when is the mine going to restart subject to a temporary closure target for August 20th. I mean there are no absolute answers to this. What we at management are required to do and have provided to shareholders is our best assessment on the basis of our understanding of the conditions that exist in Turkey. If the conditions in Turkey change, resulting in a revised assessment, we'll provide that to you. What we provided is our expectation that this court case will be resolved in a timely basis when the judiciary return from vacation in September and that the ruling will indeed be positive. Just some observations as to what I experienced and observed in a week-long visit to Turkey. We've seen the ruling AK party re-elected. This is a government with an overwhelming majority and a strong mandate to lead the country for the next five years. This is a government that is supportive of foreign investment, has been supportive of the mining sector and specifically has been supportive of the Kisladag project.

The project continues to have strong support at a provincial government level, at a community level, and with all stakeholders. The project has performed flawlessly in accordance with the terms of the environmental impact assessment report, which was approved by the Ministry of Environment. We have, over the last seven months, in excess of 20 inspections which document the flawless performance of this operation from an environmental and safety perspective. We remain satisfied with the integrity of the EIA and we remain satisfied that the judicial system is willing and able to make the right legal decision when provided with the appropriate information. Finally, I'll remind you that the prime defendant in this case is the Ministry of Environment. And although there is no formal appeals process, the prime defendant has assured us that they can make submittals to the file at any time and there is precedent for change of decisions. Furthermore, the Ministry of Environment has ensured us that they'll make the best efforts to explain the merits of the case to the court. At this point, I would like to open up for questions.

Thank you. We'll now take questions from the telephone lines. (OPERATOR INSTRUCTIONS) There will be a brief pause while participants register. We thank you for your patience. The first question will be from Andrew Nees of Aim. Please go ahead.

Good morning, gentlemen.

Good morning.

Hypothetical situation, say the resolution in Turkey has not come about by Jan 31, 2008 and your lender decides to call the note. You've got C$75 million of cash on hand. How do you pay off that note?

Well, the note that we have with HSBC is a C$40 million revolving facility that is totally secured by restricted cash. So, if that were to happen, we would take the restricted cash and pay off the debt. It does not influence our unrestricted cash at all. We would still be holding C$75 million.

Great. Thank you.

Thank you. The next question will be from Steven Butler of Canaccord Adams.

Congratulations on a good record of production at Kisladag. Question for you as to Tanjianshan where I see the total cash costs, Paul, being in the second quarter, beyond cash costs, obviously is a fair add there for royalties and what's called off-site administration. Could you maybe clarify the level of off-site administration either per ounce or dollars that may be charged to total cash costs, Paul?

This is Earl price. I'll answer the question. What is below the cash cost and the total cash cost is royalties and then production taxes. In China, there are a number of production taxes which account for approximately 5%. Those particular tax calculations, half of that tax, 5% is calculated actually on revenue, which would almost be like a royalty and others are based upon production and bore production. So, that's what the difference is. They're production taxes imposed by the Chinese government.

Okay. Earl, I guess I just saw in Q1, the difference between cash and total cash costs, C$31.00 an ounce. In Q2, it was approaching if, if I'm correct, C$82.00 an ounce. I'm wondering was there any big swing factor there from Q1 to Q2 at Tanjianshan?

Most was just our larger production and greater sales. Now you've got an operation because some of those production taxes I indicated are based upon revenues, not just on production. So, it is somewhat when we say a production tax, it is a misnomer. Because it is not based upon production. It is based upon sales revenues.

Ok. Guys, are the -- is the strip ratio, Paul, coming down to Earth in the third quarter or will it be a bit of a graduated decline on stripping ratio as we go throughout the year?

Berne Jansson and and my recollection is we're going down for the balance of the year. We're going 27-to-1 in the second quarter down to 20-to-1 for the balance of the year.

Okay.

That's about right. So, we're on our way down. This has been the hump that we've had to get through. Again, as I describe, we've been utilizing, we want to get the contractors out of here so to speak.

Okay, so as much as strip ratio, it's other costs as you say may be lower maintenance costs and getting your fleet operating better in the second half of the year.

You've got a combination. You've got the high strip ratio, the high strip ratio necessitating higher cost of mining because you're using contractors still and because we've had some issues, maintenance issues with the trucks, we've ended up having to incur higher maintenance, higher operating costs in our own fleet and at the same time because of we've had maintenance issues, we've had to push more production to the contractors. All of that is compounded to result in obviously a high unit costs in the second quarter.

Okay. Thanks very much, Paul.

Thank you. The next question will be from Anita Soni of Credit Suisse.

Congratulations on the performance at Kisladag. I have a question following Steve's about the -- I guess the cost at Tanjianshan. Can you let us know when you expect to get rid of the contractors there?

Gradually phased out, but we still need some contractors next year but on a much less level. Still looking at the mine plans for next year. So, we don't have those numbers firmed up yet.

We'll do some of the prestripping in (inaudible) will be done with existing contractors.

Okay. Just a question -- two questions about grades. At Kisladag, we're now seeing 1.3 grams a ton. I recall on Q1 conference call I asked is this something that we were seeing similar grades in the mine plan called for 1.1 and I asked if we should be changing our grades at that time. Is that something we should be using going forward for I guess the next couple of years while they're still mining offsides or is this something that uplifts for the quarter?

Well, yeah, we we've been a little bit above for the first couple of quarters. First couple of quarters of this year. What it appears that is happening is we've hit some -- where these benches are daylighting and the model had predicted waste or very low grade. We're hitting some better grades in there. So, we're getting a bump on the grades in those areas and we're also -- that's also changed the ultimate bottom of the pit where it is now. So, those two factors have led to it. So, I think it would be premature to start changing grades in any models right now although we're certainly going to redo the model at the end of the year and come up with a new forecast for next year.

At Tanjianshan, a similar question. I think we saw 4.41 grams per ton. Mine plan calls for 7. Is that a change in mine plan or is that something to do with geological?

We always knew both in terms of strip ratio and grade, we knew there was a bump in the schedule in and around this time. And depending on where we mine, the bump was moving over a couple of months earlier or later. It sort of ended up in this quarter ultimately. So we're getting into better grades in the pit and I think second half will get back up to where it should be. And that's partly -- I mean, that's partly based on what we're seeing in results in the pit now.

Last question. In terms of recovery, still not seeing them. Is that somewhere in the press release? And I'm just not seeing it?

Recovery for Kisladag?

Yeah, for Kisladag and Tanjianshan.

Never put recoveries in for -- recoveries -- I mean recoveries in a heap leech operation on a quarter basis is a pretty meaningless number.

Okay. All right.

What we're seeing -- we're obviously doing what you would expect in each operation in terms of monthly composites, column test work, and we're seeing recoveries in line with expectations probably slightly better.

Okay. Than the -- what was forecast in feasibility study.

Yeah.

Okay. Great. Thank you very much.

Thank you. The next question will be from Mike Curran of Royal Bank. Please go ahead.

Good morning, guys. Just a question on the shutdown. Have you been -- do you have like full idea of what the shutdown entails? Is it just stopping mining or are you going to be allowed to circulate fluids in the heat bleach during the shutdown?

Look, as you appreciate, as a Ministry of Environment who are responsible for developing the guidelines appreciates, you don't just flick the switch here. No, we'll be continuing to maintain the operation in a safe manor which will include recirculating solutions.

Great. Thanks.

Thank you. The next question will be from David Stein of Cormark Securities. Please go ahead.

Hi, good morning. I just wanted to first just go through something at Tanjianshan. So, you -- your stripping ratio was 27-to-1 extremely high. You're saying it is 20-to-1 for the rest of the year. Now, if you run three your cash cost guidance for the rest of the year, it implies that the cost should be under 250 for the remainder of the year to meet that 290 number given what you've done in the first half. So, I guess just wanted to confirm that and see why is it going to be so good. Is it just the grade going up to seven grams or -- and then maybe what to expect in '08 going forward.

I think it is grade and strip ratios, simply put, David, you've got it right. In terms of guidance for next year, we'll be -- as you appreciate, we're doing a lot of drilling in and around the pits so we've still got a pit changing in shape almost monthly or quarterly as a result of drilling. So, it is probably premature to be giving guidance, meaningful guidance for 2008 right now.

Fair enough. Can you update on when you expect to start autoclaving refractory material and if you've started that already and what the status is on that?

There are no plans for an autoclave, we have a roaster which will be --

That's what I meant, sorry.

I think next year.

Late next year?

Yes.

Okay. And then on -- just a follow-up on Mike Curran's question, so, are you -- your employees are allowed on-site presumably while the shutdown is going on to maintain -- to make sure, monitor everything?

Sure. I mean at this point, we do not have any plans in the short term to lay off our employees.

Yeah. I didn't mean that. I just -- they're not preventing from you being on-site and stuff like that. You're allowed to monitor everything?

Sure.

Perfect, thank you.

The next question will be from David Christie of Scotia Capital. Please go ahead.

Hi, guys. Just quickly, what's the strip ratio going to be next year for TJS? Tanjianshan?

Looking at that right now -- we have -- immediately north of the pit. That will be incorporated in a new mine plan.

At (inaudible).

Right. So the new values, you're going to try to incorporate those?

We're continuing to drill around it. I mean that's the first set of results we expect to be making more disclosure in the next month. Again, just to remind you on this project, this was a project that was very much work in action when we acquired it. We by no means defined the extent of the mineralization in and around the pit. So, you have to bear with us that we develop a set of plans and unfortunately, these plans are being revised in a fairly regular basis as a result of -- I think being revised positively as a result of new drill information.

That's good. At Kisladag, what is the grade going to be next year and for the rest of this year?

Well, rest of this year, I think we're probably in the 1.1 to 1.3 range and then basically the same sort of thing next year. I think 1.1 to 1.2.

I just looked at your guidance, even though there is the two-month shutdown, you're not that much different than you had before or the three-month shutdown.

We're well ahead of midyear, aren't we?

You're well ahead but you still have to do pretty good for the second half, right? When you're circulating fluids, are you allowed to recover gold once you're in the closure?

No, we will not be recovering gold.

Just circulating fluids. Okay. Thanks, guys.

Thank you. (OPERATOR INSTRUCTIONS) Next question is from [Christine Healey] of UBS Securities. Please go ahead.

Just a quick question on Kisladag guidance that you gave, it assumes production for the second half the year is 73,000 ounces. Can you give us a sense of the split between pre August 20th and after the mine resumes production after the shutdown.

No, we don't typically give month-by-month guidance on the operations.

Okay. What estimate do you have for the start-up date? Is this beginning November? End of November?

This is assuming that we get started at the beginning of November.

Beginning of November. Okay. Thank you.

Thank you. The next question will be from Haytham Hodaly from Salman Partners.

Good morning gentlemen and Nancy. Just a follow-up on that question, actually. Since -- obviously we don't expect month-by-month guidance, but the fact that the operation effectively shuts down the end of call it three-quarters of the way through this month and then in theory, you're just circulating fluids means that the majority of those ounces to get from 110 to 180 have to be recovered throughout the two-month period for the third quarter. Is that correct?

No.

Ok. Only because if you're shutting down and it takes you time to get back up steady state leeching, I guess it is pretty important to determine is there -- how many ounces are you projecting for the fourth quarter? Roughly. Not by month-by-month but maybe by quarter.

I would suggest that you take a few moments to think about what happens when you recirculate solutions.

Okay. Let me ask you another question. How will you be accounting for any production that you -- that you recover in theory when you're no longer in commercial production? Will it be netted out against --

We're not going recovering gold when we're under a closure order.

And what we'll be doing, the costs that we'll be incurring during the closure otherwise holding on to our labor force, meeting our commitments of minimal power usage and as such, will be expensed to our P&L as other costs. We will not be treating those as operating costs or charging those against costs of production from a unit standpoint. But we'll be just expensing those.

Okay. By now, you probably have a better understanding better assessment of what closure and restart costs would look like. What are the internal numbers you're looking at roughly.

Closure costs we're looking at basically a $1.5 million a month.

Ok. I'm going to switch frames for a little bit and go over to Villa Nova. You had some good news on Villa Nova in the last little while, probably overshadowed by some of this Kisladag stuff that's going on. On Villa Nova, if somebody was to offer to buy that asset, even though it generates strong cash flows, before you actually develop it, is that something you would look at right now or does being in Brazil, having an operating asset, create a lot of good will in the country, now that Sao Bento is effectively done.

We're commercially minded. We'll entertain anything that makes sense at the time.

Thank you.

The next question will be from Anita Soni of Credit Suisse. Please go ahead.

Oh, no thanks. Actually, Haytham just asked it with regards to how you'll be dealing with the cost. So they will be expensed, right?

Anita, was your question answered?

The question was answered. It was just a question with regards to how you're going to be dealing with the cost when you're no longer commercial.

Yes. Those will be expensed.

And for the third quarter, since it is a partial quarter, are you still -- are you still going to get enough production this quarter to be considered commercial or is this quarter and the third quarter you won't be?

We'll have commercial production in July and August.

Okay, so you'll break it down that way then. Okay, thank you.

Thank you. The next question will be from Steven Butler of Canaccord Adams.

Guys, just wanted to follow up on a Sao Bento, Earl, maybe it is a question for you where you're talking about $8.3 million of additional reclamation costs at Sao Bento. Will that be an expensed item or capitalized?

What that will is, it's not capitalized, that's the asset retirement obligation that sits on our balance sheet. So it's all been currently expensed to the P&L historically accrued for.

Okay.

So, it won't hit the P&L. It will just go against the accrual.

Very good. And then as it relates to the subsequent -- subsequent to June 30th, perhaps is it the same parties, I assume, the same certain third parties that have now filed yet again a claim against FM2 crew just to be clear if that's the same group.

Sure.

Yeah, and because it looks like they're approaching it at a little different angle this time because in '04, they tried to go after the actual --

They tried to go after the license and they obviously were unsuccessful right through the high courts. Now they're taking the (inaudible)

Against the --

against the EIA environment.

Okay. And is that I guess right now, in the lower court? Or --

Yes.

Filed in the lower. Then maybe go to the higher if need be.

Inevitably it will, irrespective of outcome.

Thanks very much.

Thank you. The next question will be from [Irwin Miller]. Please go ahead.

Hello. I want to thank you, Mr. Wright and your team for excellent achievements not only in the last quarter but going back from the dark days of the early 2000 period. You've done tremendous success.

Thank you very much for that. We do appreciate hearing that now.

I've been following your company for many, many years and many others as well. You're one of the winners. I have a very specific question perhaps coming from my legal background. Since the (inaudible) blind-sided you as something that the ministry did not do properly, is there a possibility of reclaiming insurance for any costs you might have because of this? Including loss of production and so on?

No, there isn't. And I don't think -- maybe I'm misunderstanding the question or the comment. I mean the ministry really are not at fault here. The reality is that the ministry in response to our submittal of our environmental impact assessment report granted us a positive certificate which was the approval of the environmental impact assessment report. And that the mine is proceeded to be developed and operated in accordance with those guidelines and as I mentioned earlier, subsequent continued inspections have confirmed that the mine continues to work (inaudible) environmental matter in accordance with these guidelines.

Excuse me. Then what is the problem? If they're correct -- and you're complying how can anybody get a court to stop you from operating?

That's why we express some surprise, shall we say.

What I'm saying is it is no fault on your part.

No.

If you have interruption insurance, it could be collectible.

But even your business interruption insurance would not cover you in the case where the Supreme Court of a country, whether in the United States or in Canada, the Supreme Courts of those countries rule against a company and ask them to cease operation until they can rule on a case, that will happen and no insurance company will cover you for that cost.

All right. I just --

their belief there has been a violation of the law.

I just brought up the point. And I wonder if this case was pending, how come no one ever knew about it? And it hit them by surprise? I mean if you have a potential pending case, your documentation should have stated, there is a remote case somewhere which may come up. And may impose -- may impede on us.

Each year in our annual reports and our annual information form, we have stated information about this case. It has been totally available to all of our shareholders and everyone. It has been public knowledge since the cases were filed.

Ok.

Always stated that publicly in our documentation. We at the organization have always known about these cases. What caught us by surprise is the decision that was made by the court to support -- to support the injunction. Now, they haven't decided on the case. This is just that they supported the injunction. That's what really caught us by surprise.

Well, I have the highest respect for you people and I'm sure you'll get this --

We will. We'll get a second opinion. At the end of the day, the law will prevail and the appropriate decision will be rendered on the case which will result in obviously the reverse of the injunction. That's our position at this present time.

I agree with you. Thank you very much.

Thank you.

Thank you. There are no further questions at this time. So, I would like to return the meeting to Mr. Wright. Please go ahead.

All right. Thank you very much for your attendance. And we'll continue to keep you abreast of the developments in the company. Thank you, operator.

Thank you. The conference has now concluded. You may now disconnect your telephone lines at this time. We thank you very much for your participation. And have a nice day.