Eldorado Gold Corp (EGO) 2008 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Eldorado Gold Corporation third quarter 2008 financial and operating results conference call. This call is available on the Eldorado Gold website at www.eldoradogold.com. This call is being recorded on Friday October 31st 2008.

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

Thank you, operator. This conference includes 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 facts 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 analysis available on our website and on [CDAR], identifies 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 will now turn the call over to Paul Wright, President and CEO of Eldorado Gold.

Thank you, Nancy, and good morning, ladies and gentlemen. Welcome to Eldorado Gold's third quarter financial operating results call. Joining me today in Vancouver are: Nancy Woo, Vice President of Investor Relations, Norm Pitcher, Chief Operating Officer, and Earl Price, Chief Financial Officer. We will follow the usual format. I'll provide some brief introductory comments and Norm will then take you through our operating performance in the quarter and outlook for the balance of the year. In turn, Earl will take a run through the financials as disclosed and then we'll open up for questions. I'd like to say we are extremely pleased with results. Revenue, net income and gold production have all increased compared with the equivalent quarter in 2007. The operations have largely performed in accordance with plan and expectations. This performance has enabled the company in the first nine months of this year to produce 226,957 ounces. With total cash operating cost of $279 an ounce, ensuring that Eldorado remains one of the lowest cost pure gold producers reporting. We maintained our guidance for the year 300,000 ounces at cash costs of approximately $255 an ounce. We're pleased with the progress in our development projects with new mine construction at Efemcukuru, sulfite plant construction at Tanjianshan and the construction of our iron ore project at Vila Nova in Brazil. We are now actively engaged in exploration activity at the Tocantinzinho property, that's come through our arrangement announced earlier this year with [Bizora] in the (inaudible) district. We are actively completing the groundwork to enable the company to move forward in the new year with the development plan for the Perama project in Greece.

Finally the planned sale of the Sao Bento mine to AngloGold is proceeding appropriately and we anticipate closing prior to year-end. In closing my remarks, I'll just say despite the present turbulent external environment, the company remains strong financially. Operations are performing well and we'll continue to adance our responsible progress in terms of moving our assets forward into production and continue to explore and look for timely acquisitions. Over to you, Norm.

Thanks, Paul. Good morning, everyone. Another busy quarter as usual. We are happy with results of operations and progress of construction at both Efemcukuru and Vila Nova. Exploration was also in full swing during the third quarter and we had drills turning in Brazil, Turkey and China. At the operations side, Kisladag had a good quarter at 46,863 at $270 per ounce or tons to the pad. We're right on target at around 2.5 million tons. Ounces were slightly down compared to Q2, really for two reasons. I think we stated both of these.

Number one, we did have some low grade oxide ore on our phase two push back that had to be moved. It was nonmaterial that we wanted to rehandle. We also had a pretty dry summer this year and that was on, don't forget, on the back of the shut down which we were not able to add solution to the pads, so those two hit us a little bit. October so far, the numbers are showing an increase in the tons of solution process and the pregnant solution grades. We started getting some precipitation there, and as Paul said, we're comfortable with our guidance for the year at Kisladag. The transition to owner operated mining has taken place and, and it is now being run fully with our equipment and during October we added an I-93 loader to the fleet. Tanjianshan, we produced 25,480 ounces at $306 per ounce in the JLG pit, which is our main pit now, we're into sulfide ore and the strip ratio is progressively decreasing there. During the quarter, we have been stockpiling transition and oxide ore at the end of the month, we had about 650,000 tons of significant stockpiles of transition going into the rolster commissioning. The strip ratio has been high. We had to move that material and move that transition ore as well to get down to the primary sulfide ore to feed the sulfide plant.

On the development side, the Vila Nova iron ore construction activities, there were focusing on plant site, earth works foundations for crushing and screening equipment as well as earth works on [Tailings] Dam. We're looking at a late Q4 start up of mining and plant commissioning early in '09. Just a comment, since we did our March update of CapEx and operating costs by which we raised about 30%, the Brazilian real has devalued significantly and that has been accompanied by a significant decrease in oil prices as well. So we're still pretty comfortable with our operating margins at Vila Nova. At Efemcukuru, we're focused on site preparation work, including: the access road, plant site, portals, rock dump. Basic engineering is now complete and we're evaluating bids for preproduction mining. Orders have been placed for most of the major equipment, including the (inaudible) mills and delivery times are consistent with our current schedule. At Perama, as expected, it's been a steep learning curve there. We've established a new Board of Directors with more of an industry focus. I think we've come a long way to understanding the issues there. We're in the midst of preparing our '09 budget for Perama and everywhere else and work plans and we'll provide an updated view on, on the plan going forward and the permitting schedule early in 09.

Onto exploration. As I said, we had drills turning in all the areas that we're working in. The exploration budget of about $14 million through Q3, we spent about $12 million. That does not include Tocantinzinho, we've added additional funds for that. We'll be looking at doing an exploration update in February, which will include exploration results and also the new mineral reserve statement and we'll give operating guidance at that point as well.

Since we just did an update at the end of September, I'm not going to go into a lot of detail in exploration. In Turkey we're focused on Kisladag, Sayacik, Efemcukuru, and [recon] and the [pond tides]. At Sayacik we completed soil sampling and mapping. We're looking at the anomalies and going to follow those up with geophysics and drilling. Kisladag, we finished the 16,500 meter [die in our C] program. We used that information to update the mineral resource, mineral reserve early in the new year. Efemcukuru, we just started a 10 hole program in the north ore chute, and we're currently drilling on hole three in that one, probably moving onto hole four now. In China, about the same program as Kisladag is just finishing up. We had encouraging results at XJG, which is a zone adjacent to the JLG bend. We'll be interpreting that geology and results from that this quarter. In Brazil, at Tocantinzinho, we've just started a 16,000 meter drill program. We're on hole four there. We're looking at adding a new, another drill in November along with a brand new weather haven camp and we've also put in a new airstrip there as well, capable of handling the larger aircraft than the current one. And again results will be updated for Tocantinzinho probably in February. With that, I'll turn it to Earl Price.

Thank you very much, Norm. Good morning. As usually I'll pass through the financial statements commenting on the significant changes that have occurred during the quarter. And then we will open up for questions. Commencing with the balance sheet. Cash, our unrestricted cash balance at the end of the quarter was $51.6 million compared with the year-end balance of $46 million. The company spent almost $40 million on CapEx and $21 million on investments during the quarter.

The company continues and will continue to remain in a strong cash position. Unrestricted cash at the end of the quarter was $35 million down from $65.7 million at year-end 2007. During the quarter we made payments on our financing facility of $25 million. And you will note down in the liability section, our long-term debt has also dropped considerably to $25 million.

Two other major events occurred in the quarter. And rather than explaining each one of these separate transactions and their individual impacts on the balance sheet, I would like to call your attention to notes three and note eight of the financial statements. Note three reconciles and supplies the detail of combining the Frontier Pacific financials into Eldorado. as the acquisition was completed this quarter and the reclassification of the Sao Bento mine to assets and liabilities for sale, a result of AngloGold agreement. These events caused change to each of the individual lines as a result of these balance sheet reclassifications on these activities.

Moving to the profit and loss statement. Revenues of $65 million, compared to $38.2 million in Q3 2007. This is the result of higher volume, as well as price were the major factors of the increase in the profitability revenues of the company. G&A costs of $6.2 million compared to $5.7 million Q3 2007. G&A for the remainder of the year should remain at $2 million a month. During the third quarter, we had an additional $800,000 charge of G&A expenses related to the Sao Bento operation. Since this operation and the Anglo agreement that was signed, we took the costs incurred at Sao Bento and charged them to G&A rather than to reclamations since we reduced our acclamation activities pending the sale of the mine. Exploration of $7.4 million compared to $2.8 million Q3 of 2007, increased exploration activities which have been explained more in detail by Norm this year and timing of expense for these accounts. The third quarter is a significant period of exploration and the payment of the bills that have occurred during the second and third quarter. From a cash standpoint we see a drop-off of the expenditures in the fourth quarter of this year.

Foreign exchange loss of $2.3 million compared to a gain of $1.6 million in Q3 2007. This loss is a result of the dramatic weakening that we have seen over a short period of time with the Canadian dollar and Turkish lira just very recently and the end of the third quarter. On the future income tax, we have a significant gain of $9.7 million compared to an expense of $2 million in Q3 2007. Again this gain is the result of the weakening of the Brazilian real. We have a significant gold loan dominated in US dollars and as the Brazilian real will weaken, this results in a tax loss, and therefore what losses we have booked in the past because of the strengthening of the Brazilian real this quarter we were able to reclaim.

Moving onto the cash flows. Investing activities are really the significant item model that we address on the cash flows. You will note that we had capital invested of $39.9 million. This is capital expenditures and adding also the nonproducing properties under development. The nonproducing properties under development are the Efemcukuru and Vila Nova projects. Also purchase of securities. You'll note from a press release that was released during this quarter and acquisition of shares in [brasara]. Our ending cash balance of $51.6 million compares to $56.9 million in Q3 of 2007. So this leaves us with a net income of $17 million or $0.05 per share compared to $5.2 million or $0.02 per share in Q3. Finally you will notice that we have a statement of comprehensive income and this quarter we have an unrealized loss on available for sale investments of $10.4 million. And again, these are the write down of a significant or our [brasara] investments due to the substantial drops in the markets this year. Those are the comments I have on the financial statements. Paul, I'll turn it back to you.

Thanks, Earl. Thanks, Norm. Operator, we'll open up for questions, please.

Thank you, we'll now take questions from the telephone lines. (OPERATOR INSTRUCTIONS) There'll be a brief pause while participants register. Thank you for your patience. Our first question is from Anita Soni of Credit Suisse. Please go ahead.

Good morning, gentlemen. A few questions for you. Just in terms of CapEx, can you outline how much was spent at each asset? I know some of that's disclosed in the financials, but I think I'm missing Kisladag at this point.

Good morning. Just give us a moment as we shuffle through some papers and we can give you that. If there's another question you want --

Sure, Norm, can you give us an idea where you're running at grades at Tanjianshan at this point? Sorry, at Kisladag.

Like I've said, we've come up from where we were in the quarter. We're plus, we're about a gram, a gram and a quarter.

1.2 or so, 1.25--

Right where we should,.

Okay. And then just in terms of the Vila Nova, iron ore pricing, can you give us an idea how those negotiations are going, or what pricing levels we can kind of put into our models for that?

Yes, look, I mean, the commercial terms are very much established in the letter agreement. We're really now just finalizing the definitive agreement. The price is referenced, the contract prices. And so they're obviously set annually.

Okay, and then just in terms of Tanjianshan the strip ratio you said has been decreasing. Can you give an idea where you're sitting at right now in terms of the strip ratio this quarter?

Yes. We're looking at this quarter about 5.5:1 with Q4.

Okay....

We just sort of ratchet it down from there basically.

And at Kisladag, what was the strip ratio for, in Q3?

Q3 was probably about .7:1. A little but under average.

Yes. I guess a follow-up question for that was the cost strips were not working out for me, what was the cost per ton for the same amount of costs, I guess mining costs per ton for the lower grade oxide? Or was that an additional cost? Or --

Cost per ton of material was basically the same, Anita. As Norm described, we ended up with a push back experiencing -- where we expected waste, we encountered ore which ended up going out as production. So it brought down the average grade for the quarter.

Yes. You didn't capitalize any of that. But you expensed all that out?

Yes.

I guess that's it for me. When you get the CapEx break down, I'd appreciate it.

I can give you some of these numbers. In December, what we spent at Kisladag comparing for the year, we've spend $16 million at Kisladag. We spent $8 million at Efemcukuru. We spent $8 million at the Vila Nova project. And at Tanjianshan mine, currently at Tanjianshan we've spent $12 million.

That was for the quarter, right?

No, that's for the full year.

Nine months.

Okay. I thought I read --

If you want the quarter, I can give you a call, Anita

That sounds good.

-- on each of the quarters.

Thank you very much.

Thank you. Our next question is from Steven Butler, of Canaccord Adams. Please go ahead.

Hello, good morning guys. Your investments of $21.2 million in the quarter, is there entirely [brasara]?

No.

Are there other marketable securities, other equities or investments?

That would be a safe assumption given the --

Okay. In terms of the $70 million consideration pending from Anglo noting the course that most companies prices here have been cut in half the past couple months, Paul, is this still a $70 million consideration on the time of finality of conclusion? In other words you'll get more shares at $70 million or was it based on a reference price earlier?

It's based on a volume weighted average price, five days prior to closing.

Okay. The, Tanjianshan, guys maybe you can give me a sense of , the remaining, of the reserves that you had at the start of the year, what is the percentage of reserves that are refractory and needing roaster treatment in terms of the number of ounces and what is the incremental milling costs associated with roasting versus nonroasting? Thank

Yes, I mean, just -- normal field of questions, but I'll make a couple comments, Steve. Most people appreciate being on the site visit recently, we're still frankly drilling in and around the resource and reserve on this project and beginning to identify both transitional and sulfide ore. Any numbers we give right now are a point in time. Clearly, on the reserve base we have going forward, the bulk of the reserves are sulfide and refractory.

If we, let's say we started the year at 950,000 ounces of reserve, a number something like that, we're going to do about 100,000 plus, 110,000 this year, subtract that, the remaining will probably be 80% to 85% primary and the rest transition and oxide.

Operating costs for next year, we'll provide that at the beginning of 2009. As you appreciate one of the big drivers on the roaster is energy costs. We're in a lot of flux as it relates to what energy costs are going to be in the near term here.

Right. What have been your main costs if you can give me that? I'm sure you've some assumption on incremental milling costs for roaster.

Yes. I think we're looking at about $8 to $10 per ton now. We're not going to give an incremental cost on the roaster.

Okay, $8 to $10 is your current milling cost roughly.

Obviously it's higher and obviously we operate as a higher cutoff grade accordingly.

Yes. Okay, guys, thank you

(OPERATOR INSTRUCTIONS) Our next question is from Haytham Hodaly of Salman Partners. Please go ahead.

Sure, thanks operator. Most of my questions have been answered. Earl if you can get back to me on the CapEx for the quarter, too, that would be great. Maybe just a quick question just with regards to the current environment. Can you give us an idea of how you're cutting costs? I see you G&A numbers really look like they've come down. Is there plans to defer any exploration costs expected in the fourth quarter, or just going to keep going ahead, plugging away?

Well yes, we need to, most of the drilling is finished. We finished Kisladag drilling. We finished Tanjianshan drilling. We're starting a small program in Efemcukuru. We really want to finish that one too, we're talking 10 holes there, it's not a big deal. The big one of course is Tocantinzinho. But we do need to get that drilling material moved into a resource category. So I don't see us cutting back there. Of course we'll be taking a look at our exploration expenditures for next year and what need to do there. And we may not have as large a program as some of our operations. Most of that, the bulk of the exploration spending for the year is -- the big ticket items are done.

Okay, fair enough. Maybe just one last question for Earl, effective tax rate forecast next year?

Well the tax rates we have 15% in China, 20% in Turkey and we are in full tax paying mode there. That's why -- what you see is our current tax now and the expenditures change in the noncash working capital, a significant portion of that, we're paying taxes.

Perfect, that's great, thank you.

Thank you. Our next question is from Barry Cooper of CIBC World Markets.

Yes. A question for Earl. Just follow that up on the tax. Earl, there's about, a little over $7 million in the expenses there that I would normally X out of your -- or at least X out of my estimates, things like foreign exchange losses and various things on unrealized derivatives and what not, any idea how I should tax effect that, those numbers?

No I really don't. Many of these -- if you think about it, your gain or loss on foreign exchange that we're reporting, that's on a consolidated Canadian basis. So the reality is, that has limited impact in the countries that you're operating in, because those are under Turkish lira RMBs or your taxes are calculated there. They don't take into account whatever has happened to the US dollar in calculating that. The only impact of course is in Brazil which I indicated earlier. There, because there is a gold loan that sits between our Brazilian operation and holding company. That does impact the future in a tax impact. But other than that, there should be -- you should be able to go through and calculate your income stream based on what we've given as cost structure, out of both of the two foreign operations and take tax rates of 15% or 20%.

Okay, so let me explain it a different way. If I ignore the $7.3 million and I ignore the $9.7 million of future tax, then I guess what you're saying is you earned $0.04.

Yes, if you're going to ignore all the tax impacts, yes.

Yes, yes, okay. Good enough, then, thanks.

But just as long as you also ignore it when it goes the other way.

I'll try to remember that. I'm sure you'll remind me.

After this conversation we certainly will.

Thank you. Our next question is from David Stein of Cormark. Please go ahead.

Thanks. Good morning. I just wanted to get into the, the iron ore, ask another question on that, following up on that. Have you already agreed to prices with the buyer? And if not, could you maybe just give a comment on the iron ore market in Brazil, I assume that we don't know that much about it? And I guess my concern would be that given all the other commodities and prices that have gone down, that you, that you mentioned that there would be probably some affect there on the iron ore price as well.

Again, you have to appreciate we're finalizing a definitive agreement with BHP Billiton, so as such we're not privy to discuss the details of the commercial terms. But the reference point is established in the letter of agreement is the contract prices that are set annually. That's what we're off of. If you're asking us to look in someone's crystal ball and tell you what the contract prices are going to be in 2009, your guess is as good as mine. What we would point towards, as Norm has, is what we disclosed on the operating performance of the project, and the fact that we're in an operating environment in Brazil, where given the devaluation of the real and reduction in energy costs, we're seeing some of the inputs that are going our way which aren't reflected in our most recent disclosure and projected operating costs. This is a good project, if the iron ore prices come off from where they were on the basis of what we put forward in our disclosure, I think we have a very attractive project. There's nothing to suggest that the that the project will not proceed in accordance with what we have described previously.

Alright. And just to clarify works you be getting BHP's reference price, would that be like a global price, or is there a specific reference price pertaining to Brazil? Just because I know that CVRD had specific prices for buying in Brazil and outside Brazil etc.

It'd be specific to Brazil, David.

Okay.

That's where it's coming from.

Okay, thanks. I think that's it for now.

Thank you. Our next question is from Tanya Jakusconek of National Bank. Please go ahead.

Hi, I think that's me.

Good morning, Tanya.

I wasn't sure, but it could come back as somebody else.

Give it a go, Tanya.

I just have a question for Earl. Earl, could you remind me again on the restricted cash, when do you expect to have that all moved into cash?

Our expectations are to pay our plans are to pay for all the remaining outstanding debt facility that we have this year. Then all the restricted cash would be moved to unrestricted cash.

Okay. So that 35 goes to pay the 35 in the current debt and that's it.

Tanya, we're tired of trying to explain this. We want it off the books.

Yes, so the restricted cash offsets the debt. And you really have no debt and $51 million in cash.

That's right. We could do that now, but there's issues of a withholding tax in Turkey. So if we pay it off early --

Okay, so but on December 31st balance sheet, that should hopefully all be recognized and done.

That's gone.

Okay, okay, well, that's it for me, thanks.

Thank you. Our next question is from Anita Soni of Credit Suisse. Please go ahead.

Just a follow-up question for Earl on the taxes. What did you say the taxes were in Turkey? I just calculated roughly your earnings and how much you paid in tax there and I get about 14%. I'm wondering if there's other factors in there I'm not calculating.

20%.

Well the tax rate's 20%, but on occasion we do have some opportunities of some reductions, but it's 20% and for going forward you should be using 20%.

All right, thank you.

Thank you. Our next question is from Dana Richardson of World Capital. Please go ahead.

It's World [tempered] Capital Management. Thank you. I just wanted to ask a question about your production drop-offs from the second quarter. Was there any other other reason for the drop-off in production at Kisladag other than the lower grades and the leach pad issues?

No.. That was really it.

And also on TGS there was a question of lower grades as well?

Sure, yes, we're finishing up the QLT stockpile there. This is completely expected and we're still going to hit our guidance for the year.

The third quarter performance at TGS was as expected.

So the head grades are expected to return to a higher level? Hello?

No, it's just that we had high grades in the first two quarters contributed to the first half performance. We expected to see lower grades in the third quarter and we did and in the fourth quarter, we expect our production to be lower because we're going to be commissioning our roaster plant. But at the end of the day being at the end of the year, we expect to hit our forecast of 110,000 ounces.

And Kisladag can you speculate about what the grades will be going forward there, or is that just completely unknown?

Our reserve grade is around 1.1, 1.2 grams per ton. We were down a little bit and now we're back up. The grades are generally going to bounce around there. They shouldn't be -- on a quarterly basis, they shouldn't be bouncing much more than 10 or 15% from there, generally. Depending on scheduling of the pit. It's a big pit though, we had got a lot of opportunity to schedule to blend the grade to what we want. What happened was we had some material we didn't want to rehandle. It was unmodeled. It was new ore for us. So it went to the pad.

I would just make the point, in addition to what Norm's described, this ore body is performing incredibly well in terms of reconciliation of model and what we're mining. If anything there are some minor positives we've experienced, as Norm's described. We found additional ore and really the inhibiting factor in the second quarter, third quarter was just the fact that we benefited by having some additional ore albeit a lower grade that we put on the bleach pad, and we were still ramping up the solution in the heap. We're going into this fourth quarter, we're -- our absorption rate right now is sort of running on a daily basis in excess of 700 ounces a day, which points towards obviously, us having a good fourth quarter, consistent with what we said for the end of the year.

Okay, sounds good I was --

Hate to leave anyone with the impression there was a grade issue, no not at all. As Paul said, the model has been sort of uncanny in its performance in terms of reconciliation and, yes, there's no grade issue there at all.

Okay, I just had one more question about your cash flow from operations. It looks like in the third quarter of 2008 and 2007, it was less than in the prior two quarters. And I was wondering if that was just coincidental or if there's some kind of seasonal factor going on?

No, probably the most significant item that I really look at is that, compared to what we see in 2007, we're now in a tax paying position, so we're actually writing cash out the door. So that's the biggest. And the other is really just timing. Now also you must remember from the first and second quarter, we have seen a deterioration in the gold price, the overall average. That affected our profitability.

Okay, thank you very much. Cheers.

Thank you. Our next question is from Paul Burchell with Dundee Securities. Please go ahead.

Good morning, folks. She got my name right. Couple of questions, Paul. First of all, actually probably for Norm. I think you already touched base on it with the previous questions, but just wanted to verify that, as far as this low grade oxide material at Kisladag, you're through it now, you don't expect to see anymore of this material?

Yes, we're through it, if there's more unmodelled ore, that's okay. This is not a bad thing.

No, no, fair enough. So yes, we respect the fact that you might have some perched oxide layers within the ore body --

Actually what's happened Paul, is we got contact between the intrusives and the volcanics. The mineralization is bleeding into the volcanics, into pyroplastics, a little more than what we modeled and we happening to be mining along that contact.

Okay. Okay. Second question then is with regards to Efemcukuru, I think you touched base on this last quarter, but I'd like to reiterate. The 20% of the land holdings that you still do not own. How could that affect your development plans at FM?

It doesn't to the extent that the construction activities are not on these lands. Ultimately at the end of the day, Paul, obviously at the end of the day is when we complete construction, we apply for an operating permit, we have to complete these land acquisitions.

So the --

Frankly through the normal course of purchasing properties, it will come through us exerting our legal rights under the right of expropriation.

Right. And finally just could you reiterate what your gold production forecast for 2008 is, and if you can for '09 as well?

We're looking at 300,000 ounces for '08, and we haven't given our '09 forecast yet. We'll do that early in the quarter.

Okay, I tried. Okay. Thanks very much guys. Good quarter. Thanks a lot.

There are no further questions registered at this time. I would like to return the meeting back over to Ms. Woo.

It's Paul Wright calling. Thank you, operator, and again thank you, everybody, for attending this call. Look forward to talking to you at the end of our fourth quarter. And as always, please don't hesitate to contact us if you have questions. Thank you, again

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