Eldorado Gold Corp (EGO) 2008 Q1 法說會逐字稿

Welcome to the Eldorado Gold first-quarter 2008 financial and operating results conference call. Please note this call is available on the Eldorado Gold website at www.eldoradogold.com, and this call is being recorded May 2, 2008.

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 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 discussions 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 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 expressly 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. Good morning and welcome to the first quarterly conference call. This morning in Vancouver, I have Norm Pitcher, our Chief Operating Officer, Earl Price, our Chief Financial Officer, and of course Nancy Woo, our Manager of Investor Relations. After some brief comments, Norm and Earl will take you through the operating and financial results, respectively, and then we will open up for questions.

Suffice to say we are all extremely pleased with the first-quarter results. Our minds are performing strongly, in terms of both production as well as costs, and net income of $20.7 million for the quarter, or $0.06 per share, is certainly from our perspective satisfactory. Production of 67,000 ounces, $213 an ounce I would suggest probably makes us the lowest cost pure gold producer reporting this quarter. Kisladag continues to build production. In the last couple of days we have pushed gold absorption through 500 ounces per day, and we continue to look forward to the balance of the year, and achieving our forecasted 300,000 ounces at $246 an ounce.

On the development front, our Vila Nova Iron Ore project continues to remain on track, and we expect in the second quarter to complete the long-term supply agreement with BHP Billiton. In Turkey at Efemcukuru, we received in the quarter all of our forestry permit approvals, and in the quarter we received Board approval to proceed with construction, and we expect site construction activities to commence in May. We are looking forward to an extremely active exploration season, and Norm I think will take you through some of the detail as we move forward.

On the new business front, we announced April 21, 2008, our intention to make an offer to acquire all of the outstanding shares of Frontier Pacific Mining Corporation. Frontier Pacific owns the Perama gold project in northeastern Greece. We appreciate the cooperation of Frontier in providing their shareholder register, and anticipate delivering our bid circular in a timely manner. We remain optimistic that in due course an amicable agreement can be achieved between the companies, benefiting both sets of shareholders.

With those comments behind, I would like to hand the phone over to Norm.

Thanks, Paul and good morning, everyone. I would like to start off by thanking all our employees, both in Canada, Turkey, China and Brazil, in this time of a tight job market, I think we are extremely lucky to have the employees that we do, and who contributed to the outstanding results this quarter. What I would like to do is just sort of go around each country and discuss operations, development and exploration in that country, and then I will pass it over to Earl.

In Turkey, of course we are very happy with the performance of Kisladag, which restarted on March 6. Keeping the workforce intact there resulted in extremely quick ramp-up. We did 27,228 ounces at $217 per ounce. As Paul mentioned, our solution grades from the heap are starting to go up, especially in the last week or so. We have seen them climb quite a bit, and we are now absorbing over 500 ounces per day. The mine is working well, the plant is working well, the heap is working well, and the crushing system also.

At Efemcukuru, we do have the permits in place for the access road, and the mine and plant infrastructure now. We will have a very busy second quarter there. We will be starting on construction of the access road, which is really a widening of an existing road. We will begin portal construction, diversion ditches, water treatment, also earth works on the plant site, and tailings filter plant in preparation for foundation work.

Exploration in Turkey, we will have a large plus 13,000-meter drill program at Kisladag this year. It will be targeted, bringing some of the new inferred into the measure and indicated category. We also have additional targets particularly in the western part of the deposit, and one a little bit further to the east. So we will be targeting those as well. We have got a volcanic center not very far from Kisladag that has had some limited work in the past. This year we will continue soil sampling there, and a drill program as well.

At Efemcukuru, we are currently soil sampling, and we are looking at a drill program probably later in this quarter that will target mainly the North Ore Shoot, which has had limited work in the past, but some not bad results over the last go round drill program. And of course we are continuing with our generative target development in Turkey.

In China at Tanjianshan, really good quarter, over 40,000 ounces at $211 per ounce. The plant is operating very well. Our recoveries continue to come in above budget. The transition back to a mining contractor has gone very smoothly. We are finishing up in the QLT pit, which is the pit we started in at Tanjianshan, and now Jinlonggou, JLG is coming onstream. The Qualified processing plant is on schedule and budget for a late Q4 startup.

And we are just about to start exploration at Tanjianshan as well; really at Tanjianshan three main targets. We are going to look at the QLT deep. This fairly high-grade ore body is still open at depth. We also have some indications of strike extension that we will be drilling.

We were a little limited as to what we could drill last year, because of mining activities in this area. There are several deposits that are peripheral to Jinlonggou, JLG, that we will be drilling this season as well. These have the ability or the potential to come into a pit design fairly easily; so obviously these will be a high priority. And we'll be continuing to look at the regional land package within TJS.

Countrywide we have three geologists currently operating out of the Beijing office, concentrating on project evaluation and target generation. We will continue that throughout the year.

In Brazil, the activities, the winding-down activities at Sao Bento have gone very smoothly. We have reduced our water treatment costs there significantly. I was recently down there on site, and I think the tailings and the waste dumps there look very good. In general, the better you build these things, the easier they are to shut down. I think we are in a pretty good position there right now.

Very busy on the iron ore. We have got about 80% of the clearing is finished; orders placed for all the major process equipment; we have signed a contract for the earth works; started a core infill program that targets our first three years of production, so we know the metallurgical characteristics in detail there. And as Paul mentioned, we expect the contract with BHP to be done in the second quarter.

On the exploration side in Brazil, obviously our guys have been kept pretty busy with the Vila Nova Iron Ore project, but we will start this quarter to be a little more active in doing regional fieldwork and target generation. That is a quick rundown throughout the various countries.

I will pass it over to Earl at this point.

Thank you, Norm. Good morning. I will begin with the balance sheet.

Turning to the balance sheet, the cash, the Company ended the quarter with $79.9 million of unrestricted cash, compared with 46 million at year end 2007. With a flawless restart of the Kisladag mine, and excellent operations at Tanjianshan, low cost and higher gold prices, the cash generation capacity of the Company in this past quarter and in the future quarter is excellent. Restricted cash increased by approximately 5 million compared to the year-end 2007 as we drew down an additional 5 million on our financing facilities early in the quarter, and continued support of the Kisladag during its shutdown period in January and February.

Moving on to the liabilities. Accounts Payable has increased to 48.8 million from 39.9. This is directly resulted to accrual for taxes payable, with the high gold prices, low cost, our profitability at our mine sites in those countries are now putting us in a position where we will actually be paying cash taxes.

Current debt increased $5 million as we drew down the additional $5 million to support Kisladag. You will note that we have classified all of our debt as short term. While our agreements with our banks allow for repayment of the loan over the next three years, we are committed to repay this loan this year, and therefore we have classified the loan as short term. As this loan is repaid, the restricted cash will be released.

Moving on to the profit and loss statement. Gold sales of 68.7 million compared to 41.5 million in Q1 of 2007 have increased substantially, the direct result of higher gold prices. Depreciation of 8.8 million compared to 3.1 million. This increase is the result of a change in our amortization rate of the QLT pit in China from six years to 18 months. We spoke about this change at the end of 2007.

Our G&A costs are higher than compared to Q1 of 2007. This is the result of a restart bonus that was paid at the time that the Kisladag mine reopened. To offer a little guidance here, for modeling purposes the going forward quarterly G&A costs will be $3 million less, than the quarter presented here.

The restart bonus and option accounting that occurred in the first quarter is the result of this $3 million reduction going forward in your forecast. Current taxes, 5.6 million, with higher gold prices, low costs, and strong production, we have moved into a tax paying position at our operations. This leaves us with a net income of $20.7 million, compared to 12.6 million in Q1 2007, and earnings per share of $0.06 a share compared to $0.04 a share in 2007.

Moving on to the cash flow. My only comments on the cash flow is that the Company is generating positive cash flows from our operations 47.0 million after changes in noncash working capital. This allows us now to complete our continued investments in our capital program and developing projects. With expenditures of 10.3 million in the first quarter at our operations, and 2.4 million at our FNQ group projects.

This ends my comments that I have on the financial statements. I will turn it back over to Paul Wright.

Well, thanks Earl, and thanks, Norm. We will open for questions now please, Operator.

Thank you. (OPERATOR INSTRUCTIONS) The first question will be from Paul Burchell of Dundee Securities, please go ahead.

Good morning. Good morning, Paul.

Good morning, Paul. Good to hear from you.

Thank you. It is good to be back or almost back. The question is actually for Norm this morning. Norm, I understand that you are going to be moving from operations at the QLT into the JLG pit some time. I didn't catch the timing on that, and I was wondering if you could outline that as well as what implications there might be on recoveries, production costs, when you make that switch?

We have got probably about two months left of ore in QLT. We have also got a fair bit of stockpile built up, that we are still running through of oxide ore coming out of QLT. JLG we have started -- we have started prestripping in there. We are mainly stockpiling oxide and transition material. We are not into the sulfide there yet.

The strip ratio will go up a little bit in JLG through the rest of the year, and of course cash costs will as well. But it is not going to be too affected this year, because we are still -- the bulk of the material we are processing is both oxide and transition.

Great. And you will stick to your guidelines?

Yes. Yes, we will.

Okay. Thank you very much, great quarter.

Thanks.

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

Good morning, gentlemen and Nancy, how are you? Just a quick question for Norm. Could you give us a little more color just on what is happening in terms of exploration at Tanjianshan, or around Tanjianshan?

Yes, in Tanjianshan itself, like I said, we have got, there are three main targets. QLT is just finishing up, and you can think of it as a vein although it is not; it is more of a replacement unit in marble, but it resembles a vein. We are limited by sort of the width and the strip ratio there, so we still got ore sitting in the bottom of the pit. Of course we are taking out as much as we possibly can, including sort of a final cut with a backhoe, but that is still essentially open at depth.

So we tried to drill it last year and we got into some issues with water, they thought was coming from the drilling, but it actually wasn't. So we weren't able to complete that program. We are going to take a look at that. There is the potential of doing something with the small underground there. I mean this is very good grade material. The bottom of the pit we are probably running 7-plus grams. We have also got some on-strike potential there both to the north and the south, mainly to the south, so we will take a look at that as well.

In JLG, which is the other pit, we drilled that last year, and I think we were all a little disappointed by the amount of resources that we gained, based on some of the pretty good assays that we had, both in terms of width and grade in there. So we need to -- it is structurally complex. It is a lot more complex than QLT, so we are going to drill some more in there, and try to get it -- really last year we were pretty conservative with the way we converted into resources. We just felt we needed a little more structural detail in there, which we have been working on, and we will sort of finish up with the drill program.

And then there is still the regional part. We have had a structural consultant come over there a couple of times over the last six months and he is fairly bullish on what he sees, and thinks that we should be taking a harder look at the whole regional picture, in terms of looking for something else the same type of size that we have got now. It is a big land package and we have really I think in a lot of ways just sort of scratched the surface there.

That's a good answer. Maybe the next question would be on Efemcukuru. Can you give us a little bit more color on the expropriation process for the privately owned land, and then maybe just current guideline, as to when you would expect potentially a startup of that project?

Expropriation rights have been granted, and we would expect the process, in terms of land acquisition to be complete in the next couple of months, through that process of the private lands.

I mean as an aside, Haytham, I mean just the fact those rights have been granted has resulted, frankly, in a number of individuals coming to the table voluntarily, wanting to sell their land. The development schedule that we have on Efemcukuru, predominantly, frankly, is on land that is covered by forestry.

The access road that Norm described, site preparations in terms of plant locations, portals, this is all on forestry land; and as I say, we expect to start that, to [probably in here] in the next month, in the month of May.

Look, the present guidance we have, in terms of schedule, suggests that we will be getting the first production out right at the very end of next year. I think, give us a couple of months to get construction underway, and then we will look to start to give you better detail and better guidance, probably end of second quarter.

Thank you. Appreciate it, Paul.

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

Good morning, Paul. My question was with regards to the acquisition. Have you had any kind of talks with Frontier Pacific, and how is that going in terms of trying to get this to be a friendly transaction?

Well, we remain amenable to a friendly transaction. I mean there are no discussions to comment on.

And just with regards to the MD&A disclosure that you had, that the lawsuit has been appealed, and is now on its way back up to the upper court; is there any update on that?

No, there isn't. Anita, what has to be appreciated is the fact that the lawsuit, and you are referring obviously to the Kisladag EIA lawsuit, is going back to the upper court, reflects our desires, all right.

I mean this lawsuit had gone to the lower court. The plaintiffs had requested yet another injunction, which was declined by the lower court. We along with our codefendants, or the defendant, which is of course the government of Turkey, felt it preferable to see the case in the high court again, through an appeal process. And that is why it is there. It shouldn't be viewed as a negative. Obviously it is -- from our perspective, it is a positive; but we have no further update.

And then just lastly on the Efemcukuru suit as well? Have you gotten a final written decision from the --?

No we haven't. As soon as we have a written decision, we will obviously make that disclosure. Our view is as it always has been, the facts and the decisions and recommendations that are being made to date regarding the technical committee, would support a positive decision at the lower court.

Thank you very much.

Thank you. There are no further questions registered at this time. So I will return the meeting back to you, Mr. Wright.

All right. Well, thank you very much, operator, and thank you for everybody being on the line. It has been an excellent start to the year, and we look forward to the balance of the year being as good, but hopefully that won't discourage questions if we continue on a similar light. Thank you again for attending.

Thank you. The conference has concluded. You may disconnect your telephone lines at this time. We thank you very much for participating.