Eldorado Gold Corp (EGO) 2008 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Eldorado second quarter, 2008, financial and operating results conference call. This call is being recorded on August 1st, 2008 is also available on the Eldorado Gold web site at www.eldoradogold.com. Now I will turn the meeting over to Ms. Nancy Woo. Please go ahead, Ms. Woo

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 or 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 web site and on (inaudible) again define factors and assumptions upon which the forward-looking statements or information are based on and the risks, uncertainties and other factors that can 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 turn the call over to Paul Wright, President and CEO of Eldorado Gold.

Thank you, Nancy. Good morning, ladies and gentlemen and welcome to our second quarter financial and operating results conference call. Joining me this morning in Vancouver are Earl Price, Chief Financial Officer, Norm Pitcher, Chief Operating Officer and Nancy Woo, Vice President of Investor Relations. We will follow the usual format with Norm and Earl providing an operating and financial commentary on the previous quarter and an outlook for the balance of the year. (inaudible) up for questions.

We are very pleased with our second quarter results and proud of our operating teams ability to continue to deliver in accordance with our stated plan for 2008. With 87,000-ounces produced at an average cash cost of $229 an ounce we remain one of the lowest reporting pure gold producers if not the lowest reporting pure gold producer. With production at 154,000 ounces at mid year, we remain on track to deliver 300,000 ounces from our two mines in 2008. Our historical guidance for the year has been that this production would be accomplished with cash cost of 245 to $250 per ounce. Despite mid year cost of $222 an ounce, the detailed review of plan for the balance of the year suggests that year end costs will climb to the 255 to $260 an ounce range for the 300,000 ounces described.

We are pleased with our progress on the two construction projects in Brazil and Turkey. At the Vila Nova Iron ore project in Brazil, we remain on track to deliver our first iron ore, in Q1 2009. In Turkey, at Efemcukuru work commenced in the last quarter and we were pleased with our progress. As a result of a somewhat later start than was originally planned at FM Shucrew, we now anticipate the initial to commence in Q1 2010. We are presently updating the detail of our capital and operating estimates for Efemcukuru and the project's schedule and will share that with you in September. Exploration activity for the year underway and initial indications suggest that we will be improving both our resource and reserve base at our operations and projects by year end. In the quarter we completed two transactions with the acquisition of Frontier Pacific and the earn-in agreement at [Resore] Resources.

We are excited with both transactions as we believed that combined they offer the opportunity to add approximately 250,000 ounces of annual production within the next fiver years to the corporation. Both the [Poama and Tonkan's Tranzenial] projects provide a good match to the corporations core competencies. Two days ago we announced the planned disposition of the Sao Bento Mine infrastructure for $70 million. We view this as a fair and appropriate end to our long-standing successful association with the Sao Bento Mine. We are both pleased at the excellent infrastructure at Sao Bento will continue to be utilized by Angle Gold and look forward to focusing our talented resilient team on executing our development plans in Brazil. With those comments I will hand the floor over to Norm..

Thanks, Paul. Good morning everyone. Obviously a busy quarter, and a very successful quarter both operationally and with the addition of the two new projects which give us a growth platform going forward.

Let's start with operations. Sao Bento, as we mentioned, there's 20 staff there that are going to be transferred into the new company, ten from the Sao Bento mine itself and ten on the exploration side. We will keep all of those people. We're going to relocate the office from Sao Bento into a new office in Belo Horizonte where we will run the Vila Nova Iron Ore and the [Tokatansino] project and general exploration in Brazil. Relative working on sort of boxing up the equipment we are going to take over to Efemcukuru which is a combination of scoops and jumbos and perhaps a few diamond drills as well. [Caseda] had a great quarter of course, we are held by the grade there and the strip ratio as well was down a little bit. The model continues to predict extremely well.

We are mining now on the upper benches at Caseda with our own equipment which is the [Natache] shovels and 785 trucks. The wheel dozer is running and our production drills as well. We expect to complete the transition to owner operated early in Q4 and so far we are very happy with the performance of the fleet and employees utilizing that fleet. The forecast for the rest of the year has gone up slightly. The increased cost in the second half will move a little more waste than in the first half and of course with fuel prices as well. So we are up in the 250 range for the year in Caseda. At Tanjianshan in China, we have completed the transition from the QLT pit to the JLG [Ginengow] pit.. So far the mining there looks pretty good. We are mining up the benches and prestripping the waste. The model appears to be slightly underpredicting there both in terms of tons and the amount of, oxite-- a little more oxite and transition than we predicted in there. The mill is generally running off QLT stockpile and JLG oxite right now. The grades are still good coming out of QLT stockpile and we do have a little bit of excess capacity in the mill so we feel pretty comfortable with our guidance there.

And the rollster is on schedule for the start up in Q4. On the development side, at Efemcukuru, we have essentially finished the clearing. The road contractor is mobilizing this week and will start on actual construction of the access road next week and as Paul mentioned we will update the CapEx and operating costs in September which will be-- the cost that we are using right now of course are based on feasibility study and we will update it based on detailed engineering. At Vila Nova the mining equipment will be started to deliver this month in August. That will be the backhoe and the first set of trucks. The arrival of the plant equipment is on schedule and we are expecting the mobile conveyors and shift loading equipment which will be sort of the last big delivery items in November of this year. Of course we have got two new development projects which are Tokatansino-- we have just taken over management of drill program there. Over the next several weeks we will be reviewing that program and making sure that it meets our targets.

We've got, ball park, a million ounces and indicated. another million inferred. We need to obviously bring that inferred up into measuring indicated. We will also look at the dow extension of the over body which is still open-- open dow and dip. Metallurgic sampling and then-- and looking at the permitting track for development of the project. At [Perama Hill] of course, it is early days there. We are just really start to review the status of the project, permitting. Perama is a nice little deposit and it is pretty well drilled. We don't see a lot of work on the technical side there. It is really more on the permitting and political side. On exploration we are quite active this year in Turkey, Brazil and China. In Turkey, we are taking a c;lose look at the [Sichek Deposit] which is a volcanic center very close to Kisladag.

At FM, Shucrew, as we mentioned, there are two new anomalies that have been outlined based on soil sampling. We are also looking at a small drill program in the north ore shoot this year which has seen very limited drilling in the past. Kistadag, we are about 50% through the drill program there. This is a combination of geotech holes and resource definition and expansion. So far we are quite pleased with what we have seen on the drilling there and we continue on a regional basis in Turkey with target generation. Exploration in Brazil has been mostly up to date, really supportive of Vila Nova Iron Ore. We did a fairly large metallurgical drilling program there that kept the guys busy and now, we are, of course, taking over the Tokatansino project.

In China, most of the exploration activities have been centered around the Tanjianshan Mine. We have got sort of three main targets we are looking at there this year, one is called XLG which is just to the south of the JLG pit that we are mining right now. And then, we've got two targets up at the QLT pit area which is an extension of the QLT deposit along strike to the south and the other is the QLT deep extension. When we, the QLT finished mining, really based on strip ratio, not that the ore body was finished. The floor of the pit had some fairly good high grade in it and we are now drilling that and looking at the possibility of going under ground on that for better definition. The idea there is that you could have a small underground operation that would provide some supplemental feed of non refractory material and pretty good grades to the [Tenshan Mill]. So that's where we are at with operations, development and exploration and I will turn it over to Earl Price.

Thank you very much, Norm. Good morning. I will give a brief overview of the key accounts that have changed on each of our financial statements and then open the line for questions. On our balance sheet, cash: the company currently has at the end of the quarter, $96.3 million in cash compared to $79.9 million in the first quarter of 2008 and $46 million at the end of 2007. We are now generating free cash flow from our mining operations and we continue to foresee that we will be building our cash balances. The company remains in a very strong cash position. Restricted cash of $60 million at Q2, 2008, has been reduced from Q1, 2008, as we paid $10 million in debt during Q2 releasing $10 million of our restricted cash. It is our plan to pay the outstanding debt of $55 million by the end of the year leaving us with a debt position of $5 million and the offset restricted cash of only $5 million.

Marketable securities you will note for the first time on our balance sheet of $5.6 million is composed mostly of the holdings at quarter end of our Frontier Pacific shares. Other holdings such as Luna Gold from our sale of the Arizona project to Luna Gold constitutes other shared holdings. Liabilities: our accounts payable of $54.4 million are up from Q1 of $48.9 million mostly related to the additional VAT accrual in Turkey. With the reopening of the Kistadag Mine at the end of the first quarter, the VAT receive-- or the VAT payable has increased. Our debt of $60 million I have already referred to as part of our debt repayment schedule that will occur during the remainder of this year.

Statement of operation and deficits: our revenues of $80 million compare to $74.8 million in Q1 of 2007. Our revenues have increased substantially based upon the increase in gold prices. While we sold fewer ounces compared to in 2007, the price of gold offset the lower volume. We sold in the second quarter of 2008 at $903 per ounce compared to $664 per ounce in 2007. Cost of sales at $22.9 million compared to $31.6 million in Q2 of 2007. This is a result of our lower volume of ounces sold in 2008 Q2. Our general administration costs are higher due to development costs, travel and staffing. Guidance for the remainder of the year would be $2.2 million per month for the remainder of the year.

Taxes: there is a total taxes of $13.2 million in Q2, 2008 with current taxes composed of $8.4 million future taxes of $4.8 million. This of course are current taxes relates to the profitability of our producing mines in China. The future taxes are mostly related to foreign exchange gain taxes on our Brazilian loan in Sao Bento. The tax rates in the operating countries are Turkey 20%, China 15%, Brazil 34%. Non-controlling interest: for the first time on our statement of operation and deficit a non-controlling interest appears of $5 million. This represent the 10% of the Chinese gap net income for our partners interest in the TKS. For those of interest the calculation is: Chinese income minus Chinese cost times .85% times 10%. In calculating the Q2 number you should use the year-to-date. We have completed our tax audit in China in April of this year which resulted in some changes in the Chinese tax calculation which always occurs when you may be taking certain positions in your tax calculation that is will later be denied by the government. One also must remember that included in the depreciation production costs number is also included our amortization of the acquisition cost of the [Afghan] asset and this is excluded for Chinese tax calculation.

Moving on to cash flow: cash flow from operations is $39.3 million or $0.11 per share compared to Q2 of 2007 of $0.12 per share. Our capital spending of $19.5 million (inaudible) grew of $7.5 million continues on our expenditure plan to complete our capital program for the year. You will note in the other final statement that we have other income and that other income is directly related to our share appreciations of the holdings that we had based upon our June 30, 2008. That's all I have Paul. Thank you very much.

Thanks Earl, thanks Norm, and operator, we'll open it up for questions, please.

(OPERATOR INSTRUCTIONS). Thank you. The first question will be from [Terrance Ortslan] from PSO and Associates. Please go ahead. Your line is now open.

Thanks. Good morning. Just a question on the Vila Nova Iron Ore. When do you start doing the marketing work on that study and will the (inaudible) iron ore going to be sold internally? Is there different prices within Brazil then external?.

We are actually, Terrance, we are just finalizing the definitive agreement with BHP on the off take agreement and we have previously made disclosure on the terms.

Okay. So you are going to pay marketing fee to BHP, is that what it is, the marketer for it.

It's just simply-- they're taking 100% of the product.

Okay.

And the rates are basically set by the, the valley rates on annual basis.

Okay. They are going to impose valley rates

Simply put, Terrance, we are selling at the, at the prescribed rate, the CDR rate and what we would expect that BHP's margin will be on the difference between that and the spot. The contract such as we have eliminated freight risk.

Got you. Efemcukuru, the large soil sampling program being done, the drill program would be able to be underway this year do you think or is it going to be 2009 by the time it is ready for the target.

On those anomalies we're probably looking at next year for drilling. The current plan on the drill program is simply the north ore shoot probably not these anomalies-- as you can appreciate we are pretty busy there right now with

Sure.

production activities, but I am not saying these are low priority. But we just got a lot on our plate right now. We always sort of planned to drill the north ore shoot because that's something that can ome in to, could come in production plan fairly quickly but yes, the anomaly bank will be next year.

So all together with the new programs and all of the program in Turkey, you could use your exploration dollars will be how much about?

Around $14 million total.

Out of curiosity, what is the total exploration dollars being spend in Turkey? I heard numbers of between 50 and 100, but not at (inaudible)

Oh, I'd be surprised if if it is not high, Terrance. Just to make one additional comment. Obviously with the acquisition of obviously to a lesser extent,than the Frontier acquisition, but certainly taking on Tokatansino there, the program for that is still being refined and it will inevitably lead to an increase in exploration expenditure for this year.

Thanks a lot.

You're welcome.

Thank you. The next question will come from Anita Soni from Credit Suisse. Please go ahead your line is now open.

Hi. Good morning, Paul. Just a question on, a few questions actually with regards to Efemcukuru. I might have missed it. I had to jump on the call a little bit late but at Kisladag and [Tanjanshaneri] (inaudible) check for higher grades in Q3 and Q4.

Well, the grade at Kisladag is going to come off a little bit and a little bit is kind of .1, .15 per ton. Tanjashan, I think will probably stay about the same and what we've done there because the roaster is looking-- is scheduled to start up November, December we've taken a pretty conservative approach on what one mill through, but on those two. That's why you sort of look at where we are now and look at where we could be at the end of the year, you might say we're being too conservative but we are being careful November, December on the build through the but the grades are coming out of the stock pile. We are pretty comfortable with what we have got in there.

So in terms of-- you are saying that the drop in-- should we be forecasting what 20, 30% drop?

Well, we are still on target. at Tanjashan We are saying about 110,000-ounces.

Oh no, I know. Just from the modeling point of view, just for figuring out what throughput we shall use for the next couple of quarters.

Well, I mean I would just sort of take the, Anita we are sitting in the frist six months with 72,000 ounces we are saying we are going to use is 110. That's 40,000 ounces and we are pointing, or Norm's pointing toward the bottom quarter where the greatest impact-- or assumed impact because of the commissioning of the.roaster. I would say, if you-- to guide you gently, if you want to assume third quarter is similar in terms of the throughput to date but the fourth quarter will be the most affected.

Okay. And just in terms of your sorry-- the calculation that you were talking about for Tanjanshan, could you go over that again in terms of the minority interest.

Interest. Yes, it is going be your revenues or in case you take your forecasted production times your gold price, for China would be your revenues, minus your total production cost, we give you guidance on what that number is, times 85% because the tax rate we now have officially in China and then of course 10% of that the remaining of that net income number would be for non-controlling interest. I just wanted to give guidance when you use the total production cost number the depreciation number includes our amortization of our acquisition costs (inaudible) . So, that number will give you a lower number than what the actual non-controlling interest would

Okay. So can you remind us what the Afkan transaction cost was?

Well, let me. Honestly, I don't remember exactly what that was, but $82 million. $82 million.

Okay: thank you very much.

Thank you. The next question will be from Doug Rowe, from (inaudible) Please go ahead, your line is now open.

Thank you, sir. Good morning, everyone. I had a question on your Sao Bento sale. It is just a series of questions I wonder if you could discuss it. As I understand that, you were selling a subsidiary, was that a non-operating entity. Was that impaired? Did you have an impairment there? How was that treated basically going forward? Do you recognize the sale of that all in the third quarter of this calendar year? And then I guess you are getting shares, I guess those are freely traded shares. I don't know, do you recognize the gain or the sale of that asset as you dispense those shares? Well. How is that all treated.

I think it is you know, we will have to wait until the deal closes and we will receive the shares. I think it is, it is currently our position, we will probably trade out those shares.

Okay.

As soon as possible, but we will wait until we see exactly what we have at that time and then from an accounting standpoint, yes that will be just treated as a sale and you will see that as a separate line item in our financial statement.

Okay. So that will be a nonoperating item. So that's below the line?

That's correct. Oh yes.

You don't have.

It will not appear in other income.

Okay. It will not appear in other income.

Oh, no, no we'll have it as a separate line on our--- .

Okay. and was that an impaired asset. Did you consider that an impaired asset?

No, we had not because we had written down that asset at the time that the mine was closed down to what we thought was going be the value and it is sitting on our books today as a value of $7.5 million what the would be the value of the assets if we sold the remaining equipment and our asset, our retirement obligation.

So basically you are realizing a $62 million gain.

Yes, I think you can probably say roughly speaking.

That's kind of the arithmetic.

Right.. Is that a tax consequence then, that gain?

We are working very, very strongly to make sure that the tax impact on that will be negated as much as possible.

Right. And I am curious, how did you come to that valuation with [Angle Gold]?

Mutual discussion and negotiation as you normally do on these things, Doug. What we have here is an opportunity for Angle Gold that they recognized and we arrived at a negotiation and appropriate price.

Can you give us a little color? Clearly you saw it worth much less than they did. It hasn't been really operating, what for a year plus now. What is their intention?

Well, they have a project that is immediately adjacent. I think you, what you should do, Doug is really before the Angle Gold disclosure on the transaction. They have made their own disclosure where they-- it's a fairly lengthy disclosure where they describe how they see utilizing the infrastructure. That best explains why the price is what it is.

Uh-huh.

They have a project immediately adjacent that requires refractory ore processing.

Right. So just again doing some simple math if you were to sell the shares into the market and you have what-- was it $92 million dollars or so in cash, in securities or so you have what, 150-- let say roughly $150 million I am sorry I came in late to the call. Curious about your CapEx program for the next 12 to 18 months. What was that again?

I didn't give guidance per se but if you look at let's say from this date going forward where assuming that the cost to build the Efemcukuru project which Norm alluded to earlier will be coming out with new cost structure on that. So, I would just say let's assume it is a total with working capital of $150 million. That would be our key CapEx accomplishment.

Look. Don't give you, I mean just to come through, Doug. We put aside [Salventa] disposition. The company through cash and cash flow hasn't had the ability to develop both the Vila Nova iron ore project and the Efemcukuru project in the next 18 months. So the disposition of Salventa simply adds to our cash reserves.

Well, that's great. So you could go back and buy your stock.

That is an option.

That's great. Well, thank you very much.

Thanks.

Thank you. The next question will be from Haytham Hodaly from Salman Partners. Please go ahead, your line is now open.

Good morning, Paul. How are you.

Good.

Most of my questions have been answered but I did have a question. Just want to talk about Efemcukuru a little bit. Can you just give us a little update, how is-- I know it says in the news release that the land acquisition has been halted or stalled I guess for now. What process are you taking-- how are you going about dealing with the people there and just is there any new injunctions or anything that the environmentals, NGOs or anybody else has filed against Efemcukuru ?

We have the cases at that we previously stated. I mean there was an injunction decision as it relates to the expropriation and we have to wait for the case to be held. That doesn't preclude the few remaining landowners coming and selling us the land if they choose to do so. Obviously, the vast majority have done so and we anticipate that others will.

Okay. That's perfect. Thank you.

You're welcome.

Thank you. The next question will be from Kerry Smith from Heywood Securities. Please go ahead your line is now open.

Thank, operator. Morning everybody. Paul, just that Efemcukuru with the 20% land that you haven't been able to acquire so far, is any of that land critical in terms of development plan or is it land that you would need subsequent and it is not really a big panic to get it tied up.

It is not a big panic, Kerry, because the reality is that the infrastructure that we have is-- the infrastructure is predominantly located on lands we control and again just to remind you, the majority of the land that we are dealing with is actually forest leased.

Right. And most of it is on the forest lease as I remember the access road and that sort of.

That's right.

And what about like the mill site and tailings and all of the rest of that. Is that on private land or is that on forest land.

Forest land.

Okay. So basically all the infrastructure is on land you've already got a deal done on.

Our view that -- It's just-- it's a matter of time to complete the balance of the exercise.

And just for Norm, just on Kisladag, you were-- I think you suggested the grade would be sort of 1.15 grams through the second half. Is that sort of going from 1.5 grams now down to 1.15 grams by year end or will it average 1.15 grams.

What I was saying is there's going to be a slight decrease in the grade over the next half of the year. And that decrease is sort of in the .1 range. It's not a big decrease.

I see. So I misunderstood. So the grade is going to maybe drop by .1, .15 by year end.

Yes

Okay. That helps me there. Can you just remind me how many shares you actually issued for Frontier Pacific, for the acquisition, what the actual number was.

About 20 million.

20 million, okay. Did you disclose that number or have just calculate it out.

I am pretty certain it was disclosed, Kerry.

I will look at the press release. And just on the DD&A for the two operations, would Q2 DD&A be sort of typical on a go forward basis for those assets.

Yes, Kerry.

Okay. That's great. Thanks very much.

Thanks, Kerry.

Thank you. (OPERATOR INSTRUCTIONS). The next question will be from Steven Butler with Canaccord Adams. Please go ahead, your line is now open.

Good morning, guys. Question, I guess Earl on just the cost per ounce just coming back to depreciation I am wondering if there is maybe a typo, but it might be my fault. Total cast cost to total production cost at Tanjancan is only in the second quarter highlighted on page three or four or five only 22 bucks an ounce difference. Is that explainable or what's happening at Tanjancan for total production cost being so immaterially higher than total cash cost?

Well, I think I indicated to you when we did our tax calculations that there was some changes there in what we were allowed. So it is lower but that's why. I think what you need to do for the calculation, I implied, you need to look at the year-to-date numbers. If you look at the difference from the 302 to 495 and calculate that you will come up with what is a correct number.

Okay. It.

a forecasted number going forward using that model.

Okay. In other words, the minority interest catch-up is maybe part of that.

Yes.

Okay. I missed that earlier. Sorry. And then did you guys or not provide because I came in after the North Gate call, my apologies, but production and cash cost guidance , I think you reaffirmed $225 per ounce or not at Kisladag. Your start of the year was 190,000 ounces at $222 per ounce. What are you confirming now or

No, just in gross terms, Steve what we are saying is we are guiding-- we are continuing to guide toward 300,000 ounces for the year whereas the weighted average cash cost initially were the 245 to $250 range our guidance now is 255 to $260 and for the total with the increase occurring in Kisladag or projected to increase-- .

Okay. And on the roaster, what is the, what is the throughput change that comes or is it not so much a throughput increase to go to roaster at Tenshan -- sorry

There's not. There isn't We actually have a fair bit of excess capacity in the roaster more so than we do in the mill actually. But we are still, we are still looking at nominally 800,000 tons per year throughput.

Okay. And how about Norm I guess how about roaster incremental milling cost is it materially different than what we are talking about now or any bump to milling cost for the roaster implementation?

It will be a little bit higher. Sure. It is going to be increased power consumption but I wouldn't say it's nominally higher.

Steve, it is reflected in the head grade. Moving to mining refractory material going through the roaster would increase the head grade a little bit. So average grade going through the mill will increase accordingly.

Right. Okay. And recoveries being maintained roughly where we are now.

Yep.

Okay. Thanks very much, guys.

Yep.

Thank you. The next question will be from [Steven Monnings] a private investor. Please go ahead your line is now open.

Yes. I have a question regarding a press release that was put out by a certain AUEX Company that stated that they had signed a letter of agreement with Eldorado Gold Corporation for some properties in Nevada.

Yes.

And I have seen neither confirmation nor denial of this from Eldorado itself.

well, we can confirm that. I apologize, I probably should have covered that in my exploration section. It is a small-- look, it is a small bat we are take there can and among the management here, on the technical side, most of us have actually worked in Nevada at one time or another. it;s a jurisdiction we feel pretty comfortable with. We like the AUEX management in terms of their exploration skills. We don't do a lot of that sort of joint venture type stuff. This one we sort of liked the properties and the people. So yes we can confirm that.

Okay. Great.

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

Thank, operator and again thank you very much for attending the call and please don't hesitate to contact myself or Nancy Woo with any questions. We look forward to speaking with you on the next quarterly results.

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