Eldorado Gold Corp (EGO) 2008 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Eldorado Gold Corporation 2008 fourth-quarter financial and operating results conference call. This call is also being webcast and can be accessed at www.eldoradogold.com. 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 or information which include all statements that are not historical fact 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 maintained in our annual information form and our annual quarterly 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 risks, uncertainties and other factors that could cause actual results to differ. All forward-looking statements and the 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. Good morning, ladies and gentlemen and welcome to the Eldorado Gold conference call to discuss our 2008 fourth-quarter financial and operating results. This morning on the call, we have Norm Pitcher, Chief Operating Officer; Earl Price, Chief Financial Officer; and Nancy Woo, who you just heard from, Vice President of Investor Relations. We will follow our usual format with Norm and Earl providing operational and financial commentary followed by a question period.

We are indeed very pleased with our Q4 results as they contributed in a significant way to 2008 being a very successful year for the Company on all fronts. Production and costs in the quarter were in accordance with plan and good progress was made on our construction projects in Brazil and Turkey. And we were very pleased to complete the disposition of the Sao Bento assets at what we believe was a fair price for both ourselves and AngloGold.

Entering 2009, we are in excellent shape, looking forward to starting up our Vila Nova iron ore project, continuing with the construction of the Efemcukuru project and advancing the Perama project through permitting and engineering. And also, we see a very busy exploration year in front of us.

For the balance sheet, that presently contains $120 million in cash and no debt. We are well-equipped to execute on our internal growth projects.

I would now like to hand over to Norm who will bring you current on the performance in the fourth quarter, along with some commentary in terms of our expectations for 2009. Norm?

Thanks, Paul. Good morning, everyone. Let's go ahead and start with the operations. We will start with Kisladag, which had a very good quarter. We produced 60,753 ounces at a cash cost of $279 per ounce in the quarter. That gave us for the year a total of 190,334 at $254 in 2008 and that was against a 2008 forecast of 190,000 at $250. So very close there.

The transition to owner mining has gone very well and mining costs have been reduced as expected. The contractor does remain on-site mostly hauling run-of-mine oxide ore to the leach pad. We don't want to take our big haul trucks onto the leach pad.

We had had no issues associated with the crushing and screening plan during the quarter. Our 2009 forecast, we are looking at 230,000 to 240,000 ounces at a cash cost of $265 per ounce. Clearly, the declining oil prices could have a positive impact on our mining costs; although, I caution you, it is sort of like buying gas at the pump. You always wonder why the cost of that seems to have no relation to the world price, but we see a certain correlation buying diesel as well.

We have had quite heavy rains in January and February, which, as you can imagine, tend to dilute our process grade slightly. The good news on that is when it stops raining and it will eventually, we will have lots of process water going forward and lots of time throughout the rest of the year to catch up.

At Tanjianshan, we produced 21,092 ounces at $352. Cash costs -- for the year, that comes out to 118,468 at $261. That was against a forecast of 110,000 at $289. So we did quite well there. For 2009, we are projecting 95,000 to 100,000 at $385. Obviously costs are going up as we transition into sulfide material.

In terms of the sulfide processing plant, the commissioning is ongoing. We are running Tanjianshan concentrate through the roaster now and we continue to test the main parts of the system, which are really the roaster, the acid plant and the arsenic recovery area.

On the development side, at Efemcukuru, we spent $6.7 million in Q4. The access road is essentially complete now. Clearing and grubbing of the rock dump and plant site are finished. Work continues on the [cocarpenare] stream diversion. Again, as with Kisladag, we have been somewhat slowed by the rain, but that will stop here shortly and we've got lots of time to catch up on the year.

At Vila Nova, construction of the site is essentially complete and we will commission the plant starting later this month into March.

On the Perama Hill project in Greece, we've started to have meetings at both the federal and local level with various stakeholders. Initial discussions I think have been quite encouraging and I think this can be attributed to a combination of a couple of factors. One is certainly poor economic conditions throughout Greece and locally and I think just a more sustained and organized approach by Eldorado. This leads us to be fairly optimistic going forward on this one.

We are preparing the [PEIA], the [pre-EIA] for a submission to the Ministry of the Environment in Q2 of this year and I am certainly hoping that our MRMR statement next year will include reserves for Perama as well.

On the exploration side, we spent about $14 million in 2008. Our 2009 budget is around $18 million and that is split between -- Brazil and Turkey are the big ones and China next. In Brazil, the focus for 2008, 2009 will be on Tocantinzinho in Para State. We are looking at drilling somewhere in the range of 14,000 more meters in 2009. We're just getting into a metallurgical test work program now and advancing the permitting process as well.

In Turkey, we will continue drilling the North Ore Shoot in 2009, which remains open -- open down plunge. We will also start drilling at Sayacik in the first half of this year. That is the intrusive center next to Kisladag and the general field season will, of course, start coming up here hopefully in Q2 and will commence with our [generative] recon program.

In China, the big push there is going to be to get some of the inferred into measured and indicated and hopefully into reserves as well. And QLT deep, we had some encouragement in the last drill holes of '08 and we will be taking a look at that here shortly in '09.

Just a brief couple of words on the mineral resource, mineral reserve statement. Certainly, at Kisladag, the appearance of this basement schist that resulted in decrease of inferred was sort of a geologic anomaly that we didn't expect in that area. The increased gold price was slightly offset by -- we flattened the pit slope slightly by about a degree and a half, which was the prudent thing to do based on the geotechnical drilling that we have done there.

I think the positives, we did quite well at Efemcukuru in terms of resources. We were able to add Perama this year to the project and including Perama South, which hadn't been declared before, for over 500,000 ounces and that is an area that we think has considerable upside as well.

Kisladag, the downside of the schist unit was a little bit of an upside in the southeast where we did discover a new zone in a geotechnical hole. As I said in the commentary and the press release, maybe this thing could be tilting a little bit that way and that will be a focus of exploration at Kisladag going forward in 2009. With that, I will turn it over to Earl.

Thank you, Norm. Good morning. During the past quarter, the Company completed two actions, which accounted for significant changes to our earnings statements. We completed the sale of the Sao Bento mine to AngloGold Ashanti and began to monetize the shares. And we paid the remaining $35 million of our bank debt, releasing our restricted cash. These actions, as well as continued strong performance from our gold mining assets, resulted in an excellent performance for the quarter.

Regarding the balance sheet -- the assets, the cash, marketable securities and accounts receivable balances. Cash at the end of the quarter was $61.8 million compared to $46 million in 2007. We reported in January that we held $110 million in cash as of January 20, 2009 as we completed the monetization of the AngloGold shares. At the end of Q4, we began the selling of the AngloGold shares. The value of the AngloGold shares that remained unsold at the end of the quarter were held in the marketable securities and accounts receivable accounts, which explains the increase in those accounts over the ending balance for 2007.

Restricted cash at the end of the quarter was nil. We paid the remaining bank balance loans and therefore the restricted cash was released. Inventories increased compared to 2007 as Kisladag mine had been operating during the Q2, Q3 and Q4 quarters of 2008 compared to the mine being closed in Q3, Q4 of 2007 and Q1 of 2008.

Our mining interests have increased substantially from $377 million to $660 million, the result of, one, additional capital being spent during the year of $123 million, as well as the acquisition of Frontier Pacific in 2008.

On the liability side, the debt, we paid off our debt during the quarter leaving us now debt-free with a very, very small balance to be paid off to Sino Gold as part of the Afghan acquisition at the end of 2009 of slightly more than $100,000. Future income taxes have increased substantially compared to 2007 as a result of the Frontier Pacific acquisition.

Moving on to the statement of operations and deficit. Revenues -- gold sales in Q4 of 79,965 ounces at $800 per ounce compared to 31,912 ounces in Q4 2007 at $774 per ounce. The difference in production is that of the Kisladag mine, which was shut down during the Q4 period of 2007 and of course, operating in Q4 of 2008. Operating costs reflect the same impact being higher in Q4 2008 due to the shutdown in 2007.

General and administration costs were higher in the quarter, the result of cost of employee options granted in the quarter and administrative costs associated with the sale of Sao Bento. On a go-forward basis, our G&A costs for 2009 should be modeled at $2.5 million per month. Exploration expenses for Q4 were $3000. This is the result of analyzing exploration expenses incurred during the previous quarters in Turkey. Several mining licenses were incorrectly expensed rather than capitalized according to our policies and we made the correcting entries this quarter. Gain on disposal of assets reflect the sale of Sao Bento.

Future income tax -- we have been notified that the Greek government has lowered the income tax rate from 25% to 20%. We see this as a very positive action on the part of the Greek government to stimulate economic development in the country. This has resulted in a reversal of $9 million of future income tax liability associated with our Perama Hill property.

Net income of $101 million, or $0.28 per share for the Q4 2008 compared to a net loss of $9.1 million or a loss of $0.03 a share in 2007. We are very, very pleased with these results.

Moving to the cash flow statement. I have few comments to the cash flow statement. Under the operating activities, note that the $72.4 million reduction of cash from the sale of assets. These are the Sao Bento assets. We received shares for the sale of Sao Bento and as they are monetized, the cash received is shown in the disposal of marketable securities line on the investing activities. Note, during the quarter, we expended $44.1 million on capital for the sulfide ore treatment facilities at [PJS], construction at the Vila Nova iron ore project and construction of Efemcukuru.

These are my comments regarding the earnings statements and I am open to questions. Paul?

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

(Operator Instructions). Anita Soni, Credit Suisse.

My first question is with regards to the Sao Bento sale. Can you let us know how many perhaps some shares or number of dollars outstanding, how much is left to be disposed of in Q1 for the sale of Sao Bento?

They have all been monetized. Everything was sold by January 20.

Okay, but was that all still booked in Q4 or will we see some of that come through in Q1?

You'll see the cash come through in Q1. That is the point I made. We had $61 million at the end of Q4, okay, and the remaining amount will come through in January of 2009.

Yes, Anita, some of those shares were sold before the end of the year and then the balance were sold, as Earl described, by January 20.

Okay, $61 million was sold in Q4 and then basically --

No, no, no. $61 million at the end of Q4 reflected our cash position, which included the disposition of some shares.

Okay, yes, I guess I was just looking for a split there if you could give it.

Well, the easy thing to do would be to take $61 million minus $110 million, which is what we announced on January 20.

Okay.

Haytham Hodaly, Salman Partners.

Good morning, gentlemen and Nancy. Hope you guys are well. A quick question for you. Actually a quick few questions. Just to clarify, maybe, Earl, you said the G&A was $2.5 million a month. Is that including stock-based compensation or is that without?

That includes everything.

Okay. And your exploration budget of $18 million, how much of that do you expect to be expensed?

That is the expensed portion.

Okay. I guess just on Vila Nova, at the end of the third quarter, I think the financial statements indicate that there was about $13.7 million spent. At the end of the fourth quarter, it said $31 million, but in actual, CapEx was only $13.2 million. So there is probably around a $5 million discrepancy there. So I am not sure where that is. But I will let you look at that and maybe get back to me at a later point.

Do we understand the question? I'm not sure I understand the question.

Sure, sure. At the end of the third quarter, Vila Nova expenditures was listed as $13.7 million year-to-date at that point. And at the end of the fourth quarter, I believe it said the expenditures year-to-date were $31 million, but only $13.2 million was spent there. It was just a small discrepancy there. If you could outline that at a later point, that would be great.

The only other question I had was with regards to DD&A at Tanjianshan, Earl. On a per-ounce basis, it went up quite significantly in Q4. Obviously, you attribute it -- and we've had this conversation -- you attribute it to the deposits you are working on, etc. Can you give us guidance of what you would expect for Tanjianshan DD&A in 2009?

Yes. What you're going to be looking at is approximately I would say about $1.2 million a month.

$1.2 million a month. Okay. I will ask one more question actually just with regards to the exploration budget of $18 million. Could you just -- I think you briefly mentioned it, it may have been Paul. Just a breakdown of where you expect that $18 million to be spent?

Yes, it is about $6 million in Brazil, $7 million in Turkey and most of the remainder in China.

Okay, that's good for now. Thank you.

Kerry Smith, Haywood Securities.

Thanks, operator. Hi, Paul, and Norman and Earl. I had a couple questions. Firstly, the life of mine strip ratio for Kisladag, does it change much with the flatter slope angles that you are now using in the model?

No.

No.

Still around one to one, Kerry, or very close.

Okay, so that hasn't changed.

We actually -- we got some low-grade oxide material that made up for the --

Okay, for the waste. Okay, great. And for Efemcukuru, do you plan to update the reserve at a different gold price than the $530 announced?

Yes, we do, Kerry.

Okay, so that will happen by next year this time then. Okay.

I think obviously we have had some very good results in the North Ore Shoot, which added to the resources in this year. As Norm described, we're going to be doing more drilling on the North Ore Shoot and to hopefully both expand that resource and bring more of it into a category to make it eligible for reserves. So I think we would like to get an estimate done in the course of the year that reflects both the higher metal price, as well as a larger resource base. So we are a bit -- frankly, we are a bit remiss in not having that updated.

Okay. But you would wait until after you finished this next round of drilling I presume though?

I think so. It would make it more meaningful, Kerry.

So back half then probably. Okay. And just for Earl, on Efemcukuru, it looks like you've -- by the end of the year, you will still have about $43 million left to spend. Is that roughly what the budget would be for 2010 on the CapEx?

For 2010 or 2009?

For 2010? I just went off the $142 million CapEx less the $13 million or $14 million spent in '08 and then $85 million this year and it comes to about $43 million. I just want to make sure that's roughly what your budget is.

That number, $140 million, is the only number that we have put out there, Kerry. So your arithmetic is correct, but as I think I have said previously, we probably have picked the worst time to do a capital estimate, which was June of last year. So embedded in that $140 odd million is peak of oil prices, peak of steel prices and strong Turkish lira. But we are not making any formal revision to that estimate until we are further into the construction.

Okay, okay. What is the rough sensitivity on the new reserve calculation to the gold price? Like you did it last year at $600 and this year, you are at $725. If you would have done it at say $600 this year, would it have been much larger than it was last year or do you have some sensitivity number there?

Yes, much larger -- if we had done it at the same price -- based on the new information and the same price?

Right, right.

No, I think it probably would have stayed about -- probably would've stayed about --

The same, okay. And just the last question if I could. The EIA, Norm, for Perama, the release says you're going to prepare it in early '09 and I guess -- I am presuming once it is prepared, you will obviously submit it I guess. That is the plan, right?

Yes.

Okay, okay. That's great. Thanks a lot.

Dan Rollins, UBS Securities.

Thank you. Good morning. I was wondering if you might be able to provide a breakdown on the split between the primary and the secondary ore at Kisladag by tonne and by grade if possible?

I can tell you it is about half/half. It is about half for this year.

Okay.

Grades -- I mean -- similar.

Okay. And so based on the current reserve basis, is it still -- what is it running at, do you know?

The current -- yes, I mean -- we are getting more and more sulfite. I mean 50/50 this year and then it decreases as we go forward in the bulk of sulfide.

Okay. Thanks. And just on Tanjianshan, with the roaster starting up, basically going through commissioning right now, you probably won't really start putting much through it full time until Q2. Could you give us a little bit of a heads-up on what the grade profile on a process basis is going to be over the next 4Qs at Tanjianshan? Because you are -- I think you are guiding at 4.9 for the year?

No, we don't give -- (multiple speakers). We don't give quarterly guidance on these things, Dan.

Okay, great. All right. That's all I have. Thanks.

Harish Srinivasa, Dundee Securities.

Paul, I did not hear the 2009 production guidance. I did not hear it properly. Could you please give me the guidance again?

2009 for Kisladag --

Kisladag, yes.

For Kisladag, it is 230,000 to 240,000 ounces at $265.

And on Vila Nova, I know pricing -- I am just wondering, do you guys already have some sales contract or will you be selling it on spot?

We have a memorandum of understanding between ourselves and BHP Billiton, which was established last year. And we are in the process frankly of ongoing discussions with BHP in terms of finalizing a contract and at the same time, frankly, there is -- another group has come to the table also with an expression, a desire to purchase the product. So we have not finalized the sales contract with either group at this point.

Okay, thanks.

Anita Soni, Credit Suisse.

Hi, sorry, just a follow-up question. I jumped on the call a couple of late. I know you went over basically the schist you found at the bottom of Kisladag. Could you just elaborate a little bit more for me on what that was?

It wasn't actually at the bottom, Anita. It is over in the West portion of the deposit. And if you look at -- I know in some of our corporate presentations, there is a long section that shows it quite well, basically with some inferred ore over there that was projected downwards. It is fairly well out of the main pit area, but the basement schist sort of came over -- looking almost like a ledge-type structure and we hit that in the drilling in '08, which then we had to get rid of some of those inferred ounces over there.

So how far out from I guess the western extent of the pit is that?

100 meters probably.

Sorry, how many?

A couple hundred meters.

Okay. All right, thank you very much.

(Operator Instructions). Haytham Hodaly, Salman Partners.

Thank you, operator. Just one last question, guys. Just can you give us your budget for CapEx for this year and the breakdown for example at Kisladag, Tanjianshan and I guess we went through a little bit on Efemcukuru?

Well, basically Efemcukuru was $85 million.

$117 million.

$117 million is the total.

Yes, but for --

And $85 million is in Efemcukuru and the balance is split between Vila Nova and Tanjianshan and a little bit is sustaining capital at Kisladag.

Perfect. Thank you.

Heather Douglas, Thomas Weisel Partners.

Good morning. I was wondering if you can give us a couple more details about your work at Tocantinzinho in Brazil. You are doing your due diligence work. Can you give us an idea of what you are seeing and what you need to have to proceed to make the purchase decision there?

Well, this is an exploration project, Heather and we view it as a good exploration project. We have our own sort of views as to the size of resource that would need to be present to potentially make a development decision. We think there is a reasonable chance of hopefully attaining those ounces and the primary thrust this year is to drill test and see how big of a resource we can define. In parallel of that, obviously, we're doing very early stage engineering to (inaudible) this project could look like. What it is going to come down to is the metal in the ground in the form and the grade that makes some sense.

What is your threshold typically when you are looking at either acquisitions or proceeding with projects?

It's like asking how long is a piece of string.

Okay. It never hurts to ask, right?

Look, I mean this is a project -- I mean this is a project that is in a fairly remote part of Brazil and where infrastructure and access are significant issues. And so to be there in a meaningful way, you have to have a project that is large enough to cover these high fixed costs. So for us, I think to succeed in something that really makes sense, I would suggest that we would have to have a resource in the 2 million to 3 million ounce range.

Thank you very much.

David Christie, Scotia Capital.

Good morning, guys. Just a quick question on sustaining CapEx at Kisladag. What is your sort of run rate number you think you're going to have there?

Well, on sustaining capital, you are looking at probably around $4 million to $5 million a year. Except I think -- what has to happen is every other year -- or Norm could probably speak to this closer -- you are going to have a spike as you didn't have to put in a new leach pad.

Yes.

And what is the cost -- I sort of had one of those coming in 2012 and whatnot, but what was sort of the cost for the expansion of the leach pad?

It is about $1 million per cell, David.

And how many cells do you do at once when you do that?

Usually three to five.

Yes, I mean the big thing there, David, is -- obviously, in 2008, we completed the expansion of the crushing circuit, so that is done. We are fully invested in terms of a new mining fleet. So you're not into any early rebuilds of equipment or in the near term, adding additional trucks. Obviously as the line extends and line goes deeper, you're into adding trucks and eventually getting into rebuilds. So as Norm and Earl described, really the biggest component is every two or three years when you have to expand the leach pad.

That's great. It seems like the CapEx, sustaining CapEx is quite a bit lower than a lot of mines around the world. So that is good. Thanks.

Well, that reflects the nature of the operation and the fact that it is a new mine.

Yes, that's great.

Kerry Smith, Haywood Securities.

Maybe just a couple of questions if I could follow-up, Paul. For Vila Nova, just on the pricing here, would you sell it at spot if you didn't have an agreement finalized between now and when you actually start commissioning or will you just stockpile the material?

Look, our approach in this project is that it is a very nice project. It has got good grades, it is small, it is got low technical risk, it hasn't cost us a lot to develop. We also take a view on the iron ore prices that we've seen the bottom of the market, okay, and frankly our attitude towards setting on a sales contract is one where we want to see material benefit from running this operation. And that is the basis for our discussions and negotiations with the parties. And if it takes a bit longer to get there, so be it and frankly if we are not satisfied we are getting a sales contract that allows us to share satisfactorily in the upside going forward here, we will sit on this project for three, six months, mothball it until conditions are better in terms of having a good margin. Suffice it to say, with the present market conditions, there is a clear operating margin for this project. It is just us frankly wanting to ensure that we have the best exposure on a go-forward basis.

Okay. What would be the rough spot pricing today that you would get if you were to sell? Do you know roughly what the spot price is?

It is probably around $85 a tonne right now.

Okay. And then obviously you're hoping to do better than that obviously. Would you sell at $85 though I guess is my question?

I am not going to answer that question, Kerry. Look, as I say, our own view is we've got a nice project here. Capital is essentially invested; it is not going anywhere. We are at or have seen the low point in terms of pricing for lump and fines of this quality and we are patient people.

Right. But as I remembered it, your cost structure was around sort of $40 a tonne. So even at $85, it is still a decent margin.

Yes and the cost structure has probably -- I would say it has probably improved a little bit because of the weaker reis, lower energy costs and lower steel prices.

Okay. And then just one last question if I could for Earl. What was the diesel price that you would have used in your '09 budgeting when you came up with a cash cost for Kisladag?

$65.

$65? Okay. Great. Thanks very much.

Thanks, Kerry.

Anita Soni, Credit Suisse.

One final follow-up. You guys had a good decision out of the Efemcukuru EIA from the High Court in late January. I was just wondering have you heard anything back yet on the Kisladag court case that still stands in the High Court?

No. Rest assured, Anita, if we had, we would share it.

Okay. And the timeline, as I recall from what you were saying on the mine tour, was something midyear that --

Look, we don't know. I mean we don't -- it is not a thing that we can really monitor. I guess our hope, remote sense is that perhaps you are going to see resolution this year, but we don't know.

Okay. Thank you very much.

There are no further questions registered at this time. I'd like to turn the meeting back over to Mr. Wright.

All right. Well, thank you, operator and thank you for those who attended the call. And as always, if you have any other questions, please don't hesitate to contact us. Have a good day.

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