Eldorado Gold Corp (EGO) 2007 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Eldorado Gold Corporation 2007 financial results conference call. This call will also be available on the Eldorado Gold website, www.EldoradoGold.com. Please be advised that this call is being recorded. I would now like to turn the meeting over to Ms. Nancy Woo. Please go ahead, Ms. Woo.

Thank you, operator. This presentation includes statements that may constitute forward-looking statements or 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 in certain material factors and assumptions, and are subject to certain risk 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 and management discussion and analysis available on our website and on SEDAR identify factors and assumptions upon which the forward-looking statements or information are based on, and the risk, 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 will now turn the call over to Paul Wright, President and CEO of Eldorado Gold.

Thank you, Nancy, and good morning. Welcome to the Eldorado Gold Corporation conference call on our 2007 financial results. Joining me this morning we have Norm Pitcher, Chief Operating Officer; Earl Price, Chief Financial Officer; and Nancy Woo, our manager of Investor Relations. In a moment I will hand the phone over to Earl here, who will take you through the financial results for 2007, and then we will open up for questions.

2007 was a year when the Company accomplished many of its operational goals. However the temporary closure of our Kisladag mine overshadowed many of our successes. Both of our two new mines, Tanjianshan mine in China and Kisladag in Turkey, operated strongly throughout the year; and combined with the residual production from the Sao Bento mine in Brazil produced a total of 281,000 ounces with cash operating costs of $236 an ounce.

Our ongoing commitment to invest in exploration on our project sites, with in excess of 57,000 meters of drilling, produced excellent results in terms of both increasing all categories of resources as well as reserves. At year-end 2007, our measured and indicated resources totaled 10.4 million ounces; in addition, 3.7 million ounces of inferred; with 7.7 million ounces of proved and probable reserves.

These work programs served to highlight further opportunities at Kisladag, Tanjianshan, and Efemcukuru for further expansion of resources and reserves. These opportunities are being aggressively pursued this year.

In the year, we made good progress in the development of the Efemcukuru project, where we anticipate making a construction decision early in the second quarter of this year.

Subsequent to the year end, on March 6 we announced the reopening of the Kisladag mine. We are extremely pleased with the restart and maintain our guidance of 190,000 ounces for the year at cash costs of $220 an ounce. New gold coming off the leach pad is coming off at approximately a rate of approximately 350 ounces a day which, combined with gold in circuit, has resulted in the operation month-to-date refining approximately 1,000 ounces daily. Our expectation is in the months of March through June that production will be approximately 80,000 ounces.

TJS is also off to an excellent start to the new year with both production and costs in accordance with our guidance of 109,000 ounces at cash cost of $289 an ounce for the year.

We will by mid-April be disclosing our operating results for Q1. At this time I would appreciate it if Earl would now take us through the financials, and then we will open up for questions.

Thank you, Paul. Good morning. I will begin with the balance sheet and give a brief review of the significant items have occurred during the year in comparison to 2006.

We ended the year with $46 million in cash compared to $50 million in 2006. With the closure of the Kisladag mine in August 2007, we have had to use some of our cash to complete our capital programs in 2007, as we continued to generate cash at our TJS operation in China.

You will note that we are showing $65.7 million in restricted cash. This cash is restricted to support our short-term debt of $65 million located down on the liability.

Our inventories has increased to $57.5 million in 2007 from $35.7 million in 2006. With the addition of the TJS mine in 2007, dore in process at the end of the year at both operations, and the additional gold in solution at Kisladag, our inventories have increased proportionately to having two operating mines.

You will note that we have a derivative contract of $2.9 million on the balance sheet. This is related to the power contract that we have in place at Sao Bento. With the closure of the Sao Bento mine, the Company had the option to pay out a penalty on the Sao Bento contract; or use this contract and sell the power into the power grid. With the increase of the power costs that occurred in 2007, the Company elected to sell this power into the grid. As such, Canadian GAAP requires us to now calculate this as a derivative contract, and book on our balance sheet and take to the P&L the calculated forward rate of the value of that contract.

Moving on to the liabilities, our short-term debt is $65.4 million compared to $50 million in 2006. Please note that we have reclassified the debt from 2006 to 2007 from long-term to short-term. It is our intention this year with the restart of Kisladag that we will be paying all of our debt this year and releasing the restricted cash balances to unrestricted cash.

Future income tax. We are presently in the final negotiation with the Chinese government to determine our tax rates ongoing. In 2007, Chinese government changed their tax rate structure from 30% to 25%, at the same time eliminating grants that had been given to operations in China for preferred tax rates. We have been in negotiations with the government to determine our effective tax rates going forward.

At the present time, we have been verbally given assurances by the government that we would be receiving a 15% tax rate, not the 25% tax rate; but from 2007 going forward to 2011 and from 2012 onward at the 25% tax rate. This has required us then go forward and book both current taxes payable as well as future income taxes at the 15% rate.

Moving on to the income statement, gold sales have increased substantially over 2006 from 2005. In 2005 we had $29.7 million in sales, and in 2007 $179.3 million. As you can see, over these years we have been constantly improving our sales as we have brought up more operating mines. With the operation of 7.5 months at Kisladag and 11 months at TJS and higher gold prices, our revenues have soared.

Operating costs have increased in total dollar amounts due to the additional sale of gold ounces compared to previous years. But as a cost per ounce and a percentage of gold sales, they have decreased dramatically. In 2007 costs per ounce were $273 an ounce versus $359 in 2006. As a percentage of revenues, 2007 was 40%, compared to 59% on the previous year.

Depreciation has increased as we are now operating two mines. In the previous quarters we erred in amortizing our prestripping costs related to the QLT pit at TJS over the life of the TJS mine. This was incorrect. We should have been amortizing the prestripping costs over the life of the QLT pit.

This correction has resulted in an increase of $4 million in amortization for the fourth quarter. $1 million of that is related directly to the fourth quarter, and $3 million to the previous quarters. It is this error in our accounting that has resulted in the statement of Price Waterhouse that we have an error and a weakness in our internal controls. This correction has been made and is properly reflected in the financial statements you are now examining.

G&A has increased year-over-year related to the strengthening of the Canadian dollar; additional legal costs; and implementation of the internal controls and additional staffing throughout our organization. Mine standby costs of $6.6 million at Kisladag during the shutdown period have been incurred in the statements.

[Being] on foreign exchange is substantial this year as all of our operating currencies strengthened during the year against the U.S. dollar. The gain on the derivative contract is the direct impact flowing to the P&L from the earlier discussion I had regarding calculations on the derivative contract, resulting in the placement on the balance sheet.

Finally, taxes. Well, given the high price of gold and our production, we have worked through all of our allowances that we have in all of our countries, and we are now paying taxes. With gold above $900, you will see additional taxes paid in 2008.

The net result is our net income for 2007 was $35.4 million versus 2006 a net income of $3.3 million. Earnings per share 2007 $0.10 per share, versus 2006 of $0.01 a share.

Moving on to the statement of cash flows, just quickly you will note that we have an addback of $20 million on our depreciation; $17 million added back on our future income tax; giving us a cash flow from operating activities before changes in working capital of $76 million. We have property reclamation payments and contractual severance payments that we have made during the year as part of the shutdown of the Sao Bento mine.

We had continued to move forward aggressively on our capital program, spending $94.5 million on capital and $13.5 million on the development towards the Efemcukuru project. You will note this was partially offset by the preproduction gold sales from Tanjianshan of $10.1 million.

These are basically the significant comments I would make on the cash flow statement. As of that, I will turn it back to Paul and questions.

Thank you, Earl. Operator, we are ready for questions.

(OPERATOR INSTRUCTIONS) Tony Lesiak, UBS Securities.

I just wanted to get some estimates for next year for depreciation, if you could give it to us on a per-ounce basis for both the operating assets.

Tony, I am just having to think here for a moment. Per-ounce basis?

Or if you can give it to us in millions and we can back calculate?

Okay. Can we go on to the next question? I will calculate this and then I will just answer the question shortly.

How about G&A?

G&A on a per-ounce basis?

Or just on a million-dollar basis for the Company.

Oh, $22 million.

For '08?

Yes.

Okay. How about CapEx mine by mine, and for Efemcukuru, if you do decide to go ahead Q2?

Approximately $62 million Efemcukuru.

And the two operating assets?

About $18 million at Kisladag and $19 million at Tanjianshan.

Then I think we have $30 million at the iron ore project, Vila Nova iron ore.

Okay. Just exploration expense?

We're looking; we have got budgeted general about $6 million; and then there's an additional -- that does not include Tanjianshan or Kisladag brownfields.

How much would that -- is that included in their CapEx there?

I'd add another $5 million or so.

Great, thanks very much.

David Stein, Cormark Securities.

Thanks. Just I wanted to clarify. I missed when you were saying -- I think you said from March to June you expect 80,000 ounces of production. So if you could just verify that.

Then also do you expect any of the production in March to be commercial production?

David, March through midyear we expect approximately 80,000 ounces of production. This is commercial production, all of it will be.

Basically as soon as you turned it back on, it was commercial. So, okay, that's all. Thank you very much.

Anita Soni, Credit Suisse.

Good morning. Can you just remind me what the royalty structure at Kisladag is?

The royalty structure is 4%.

Of?

Of revenues.

Of revenues, okay. In the long-term I guess the contractor at Tanjianshan, you have opted to keep them on there. And you're going to be selling back your mining fleet to them. Can you tell us how much that will result? How much that sale of that will result in for you?

Yes, it is sort of being credited to the unit costs that we are paying, Anita. It is part of the overall contract and reflected in the unit costs that we are paying.

Okay. So that is reflected in the guidance, that you put out (multiple speakers) ago.

Yes.

Then just on the $6.9 million budget for exploration I was reading in the MD&A, how much is capitalized and how much of that is expensed? I think you might have answered that with Tony's question.

Pardon me, Anita. I could --

$6.9 million (inaudible).

It is all expensed. That is all expensed.

The addition, the $5 million additional, that --?

That is capitalized.

That is capitalized? Okay. I guess if you had any guidance for CapEx for 2009 as well?

We're not giving guidance for 2009 cap at this point.

Okay. Thank you very much.

(OPERATOR INSTRUCTIONS) Craig Miller, BMO.

Good morning, everyone. Has there been any further initiatives by the NGOs that have been raking you over the coals?

Also is it the same group that now has successfully gotten an injunction against Inmet?

Look, I cannot really comment to the Inmet situation, Craig. But in terms of where we sit at Kisladag, as we mentioned, previous in our disclosure we had a decision at the High Administrative Court on February 6 which allowed the mine to reopen March 6.

We commented at that time and numerous times since then that we view the likelihood of a successful request for a new injunction to be very slim. I can comment that there was indeed a request by the plaintiffs for a subsequent injunction at the Lower Administrative Court, and that was declined.

So I think this case will go the process that we have described. I think -- and thank you for giving me the platform -- there has been and continues to be I think an unrealistically high level of risk associated in many people's minds as to the likelihood of a subsequent injunction resulting in the mine closed.

As I say, that is not -- has not been our opinion; and the fact that the lower court has recently declined the request by the plaintiffs for injunction tends to support that.

That's all I have. Thanks a lot.

Tony Lesiak, UBS Securities.

Just to follow up on your production guidance for the year for Kisladag, given the run rate from March to end of June, are you perhaps a little conservative for your annual estimate?

We like to think of ourselves being a relatively conservative company, Tony; but we will only make revisions to forecasts when we feel we can have a high level of confidence that we can substantiate that. But I think we are confident in the guidance we are giving at present.

Okay. No, I'm just wondering if it reflected perhaps a grade profile over the year that we were not aware of.

No, it does not.

Okay.

Things have come out very well for us, Tony, at the mine site. Again, we put this in writing. There are reasons why we kept our employees on the site through this period time; and it enabled us to ratchet up production very quickly.

I mean, literally within days we had the mine operating at the full 10 million tonne a year throughput. The restart has gone very well for us.

Okay. Just perhaps you could comment on the strip ratio for Kisladag over I guess the coming years. It has been a while since I've gone through that.

The life of mine strip ratio presently I think is 0.9-to-1.

Yes.

With 5.5 million ounces of reserves. Norm maybe can take you through some of the detail over the next couple years.

Yes, I mean it is bouncing around from this; 2008 is actually lower. It is about 0.6-to-1. Then we are basically up around 1-to-1 2009. It more or less stays around there for that overall 0.96-to-1 in the end.

You're continually working on a series of pushbacks here, so you are able to sort of even out the strip ratio as you go.

Okay. Then just one follow-up question on the declined injunction. I assume that was for just Kisladag. Has there been an injunction request made yet for Efemcukuru?

There was an injunction request made for Efemcukuru and that was also declined, Tony. The present schedule as it relates to the court challenge against our EIA at Efemcukuru is scheduled for March 28. We would expect to have a written decision certainly by the middle of April.

Again, in terms of the lower court coming to -- rendering a verdict on the case itself, it did convene a panel of technical experts, a panel of three, all of which basically ruled in our favor. We expect the judge to reflect that in terms of his decision.

Look, again, there seems to be huge amount of muddiness out here and people speculating somewhat simplistically that what is going on with Inmet is similar to what has occurred in Kisladag.

I guess the fundamental point I would make is we are dealing with challenges to our EIA. We have an EIA in place. My understanding with Cerattepe is there is not a current EIA applicable to that project, and that is a significant difference.

Great, thanks very much, Paul.

Anita Soni, Credit Suisse.

Just another follow-up question. Regarding Tanjianshan, you guys sold 112,000 ounces, 113,000 ounces roughly. I was just wondering, is that just a timing difference? Maybe you could talk about that a little bit.

Is that a permanent lag that we're going to see in the months going forward, or is that something that will flow through in Q1?

Anita, you faded out right at the end there.

The question is we sold 113,000 ounces last year, as opposed to producing 138,000 ounces. Just explain the discrepancy (inaudible).

Well, for one, we weren't producing the whole year. Right? We were only producing '11 months, out of 12 months. Right? So you have the ramp-up period.

Right, but you also had -- yes, but commercial production, you had 129,000; so I'm still seeing about 17,000.

Okay; so if you are comparing 129,000 to the 138,000?

Yes.

(inaudible).

No, I am comparing 112,000 sold to the 129,000 commercial.

Yes, but what we did is we had the difference between the total production and sold; that was the $10 million was taken as preproduction revenues back against the cost of the capital budget.

I'm just -- in the disclosure you say you guys had sold 113,000; and the commercial production was 129,000; and total produced for the year was 138,000. So I'm still seeing I guess 17,000 ounces if you compare commercial and total ounces sold.

Okay, well, there's 12,000 ounces that was sold as preproduction.

Right, and that explains 129,000 to 138,000.

Okay. Then the other difference is ounces produced that were not sold until this year. Because you always have pours right at the end of the year that are not refined by the refinery and they're not sold until the next year, and those are recorded in the next year.

Okay. That is what I was asking about. That is going to come through in Q1?

That comes through in Q1. Pardon me. Okay.

Yes, there was some lag time. I think just generally, Anita, as we go forward here, we have been able to do improvements in the system. I think [we have reduced] the lag time between production and (inaudible) sales.

Okay, thank you.

Thank you. We have no further questions registered at this time. I would now like to turn the meeting back over to Ms. Woo.

Operator, thank you very much. Thank you for people who attended the call. We are obviously very pleased with the restart at Kisladag and we're looking forward to disclosing our first-quarter operating results and the balance of the year. Thank you very much for attending.

Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.