Eldorado Gold Corp (EGO) 2009 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Eldorado Gold Corporation 2009 Second Quarter Conference Call. Please be advised that this call is being recorded on 31st July, 2009 and will be available at El Dorado Gold website 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 statement made and information provided reflect our current plans, estimates and views. Forward-looking statements are information which include all statements that are not historical facts, are based on certain material factors and assumptions and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in or suggested by the forward-looking statements or information. Consequently, undue reliance should not be placed on these forward-looking statements and information.

The information contained in our annual information form and in our annual quarterly management discussion and analysis available on our website and on SEDAR 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 express qualified in their entirety by this cautionary statement.

I will now turn the call over to Paul Wright, President and CEO of Eldorado Gold.

So, thank you, Nancy, and good morning, ladies and gentlemen, and welcome to the Eldorado Gold Corporation Second Quarter Financial and Operation Results Conference Call. With me today in Vancouver are Earl Price, our Chief Financial Officer, Norm Pitcher, our Chief Operating Officer, and the voice you just heard, Nancy Woo, our Vice President, Investor Relations. We will follow our usual format with Norm and Earl providing you with some commentary and color in regards to the quarter's operating and financial performance, and then we'll open up for questions.

We're very pleased with the quarter's results. Both Kisladag and Tanjianshan are performing in accordance with our expectations and continue to support our guidance for approximately 330,000 ounces of production at cash cost of $300 an ounce for 2009.

Briefly on the mines, Kisladag has settled into its run rate of approximately 20,000 ounces monthly, and the team, along with our corporate technical staff and consultants, are busy detailing our planned expansion, which we expect to be confirming in the next three to four months. At TJS, as evidenced by our July production where we anticipate between 10,000 and 11,000 ounces, we have had a successful commissioning and are now settling into the run rate necessary to reach our stated target of 95,000 to 100,000 ounces for this year.

Mine construction, project development and exploration in the Company are all progressing well, and Norm will provide some details on the specific projects in a moment.

At the beginning of the second quarter, we announced our intention to acquire Gold Field's 19.8% interest in Sino Gold, and subsequently, on July 27th closed on that transaction. We view this stake as part of our strategy to create value for our shareholders in a region that we've committed to growing our business.

In summary, the Company is in excellent shape. We are financially strong with $135 million of cash. We have some of the lowest cost in the industry based on mines that are performing to our expectations and a pipeline of projects that will continue to deliver quality growth and ensure that El Dorado remains in the lower quartile of production costs.

With that, I'll hand the floor over to Norm.

Thanks, Paul. Good morning, everyone. Let's start with the operations first and we'll start with Kisladag. During the quarter, we produced 62,985 ounces at $269 per ounce. The weather improved at Kisladag starting in March. We're now into a typical hot dry summer. As I indicated in the last conference call, we're well ahead on water compared to where we were last year. I'm quite happy to say there's really no operational issues or problems to report at Kisladag. The mine's operating very well as are leach pads and plant.

During the quarter, we spent $5.5 million on Cap Ex, mostly on leach pads 14 and 15, of course the diamond drilling program and crushing circuit upgrades. We are maintaining our guidance of 230,000 to 240,000 ounces for 2009.

At Tanjianshan, we produced 21,587 ounces at $390 per ounce. I should probably talk a little bit about recovery because there's been some confusions there, I think. And we are -- you can't really take the tons in grade and then the ounces produced and calculate a recovery because we're producing more flotation concentrate that we're putting through the roaster right now. Until all of that material has gone through, calculating a total recovery, you can't really do it. Having said that, we're getting fairly close to our budget recoveries.

The roaster continues to perform well. The recoveries are improving. We need to do some work on the floatation recoveries and concentrate dewatering. Both of those areas are being addressed now. We are maintaining our guidance of 95,000 to 100,000 ounces for 2009.

On the development side, at Efemcukuru, progress has been a little slower than we'd like, and that's been mostly due to, of course, the rain early on in the season. We've encountered some additional cut material at the plant site and productivities have been a little lower on that due to the constrained space that we're working on in the plant area. Having said that, the access road is complete and resurfaced. The focus in the quarter has been on preparation of the plant site and the administration areas and we expect the cut and fill of the plant to be completed in Q3.

We also started work on the rock dump liner - took delivery of the water treatment plant during the quarter. Engineering and procurement are on schedule as are the long lead time items, including the mill.

At Vila Nova, we finished the construction and commissioning of the process plant and have put the project on care and maintenance pending higher iron ore prices.

At Perama Hill in Greece, we continued work on the 43-101 Report, which will be submitted in the third quarter - also continued work on the pre-EIA, which will also be submitted in Q3.

Turning to exploration, we'll start with Turkey. At Efemcukuru, we drilled 17 holes for 4,358 meters in the north ore chute and in the transition area between the north ore chute and middle ore chute. This drilling at Efemcukuru is really a combination of infill to upgrade resource categories in the north ore chute and extension drilling both along strike and down dip.

At Kisladag, we drilled eight holes for 5,568 meters during the quarter, mainly targeting zones of inferred resources adjacent to or just below the pit bottom. We're now going into the planning stage on a second smaller phase of drilling to follow up the initial results.

At Sayacik, the volcanic center adjacent to Kisladag, we have an ongoing large IP survey under way and diamond and RC drilling to test for pore-free gold potential. We drilled seven diamond drill holes during the quarter and eight RC holes at Sayacik. In addition in Turkey, we are active at two grassroots properties and participate in property auctions during the quarter.

Turning to China, at Tanjianshan, we drilled 216 rotary air blast holes. These holes are testing for anomalies south of QLT and between QLT and JLG pits where we're mining now. And the diamond drilling for the QLT extension, both long strike and down dip, will start in this quarter. In Nevada, we're active on five early stage properties with two joint venture partners.

A little word on disclosure - I think that we'll be -- Turkey will probably come first, and that should be hopefully early in the fourth quarter, followed by China, which will be -- because we're just in the heart of that program now, will be later in the fourth quarter.

With that, I'll turn it over to Earl.

Thank you, Norm. Good morning. As is my usual practice, I will review each of the financial statements covering their line items with significant changes.

Commencing with the balance sheet, on the asset side, cash and cash equivalents Q2 2009 of $135.7 million compared to the year-end 2008 cash balance of $61.9 million. Our cash balances have increased from December 31st due to monetizing of the AngloGold shares and continued robust margins that the Company is experiencing to date.

Restricted cash of $5 million on the balance sheet is related to the $5 million loan in China listed under liabilities that we have in place that was taken to complete the roaster construction. With the sulfide ore treatment plant in operation, we will pay off the loan by year-end and the restricted cash will be released. The reduction in marketable securities and accounts receivable is the result of monetizing the AngloGold shares in Q1 of 2009.

Inventories have increased as mining at both of our operations continued during the commissioning of the roaster at TJS as well as during a rainy period in Q1 at Kisladag, and therefore, ore inventory and gold inventory in the flotation circuits at TJS have increased.

Under liabilities, the debt of $5 million is the China debt, which I spoke about earlier. This debt will be paid off by year-end.

Moving onto the statement of operations, revenues, gold sales of $80.1 million in Q2 2009 were basically the same as Q1 2008 of $80.1 million. While the ounces sold in Q2 2009 were slightly less than Q2 2008, the price in Q2 2009 was higher, therefore offsetting the lower sales volume.

Gold sales year-to-date of $132.4 million Q2 2009 compared to $148.7 million Q2 2008 are lower due to lower production, and therefore lower sales in Q1 2009 due to the commissioning and the rainy weather at Kisladag and the commissioning at TJS.

Interest and other income of $0.4 million in Q2 2009 compared to $2.4 million in Q2 2008 is lower, a result of lower interest rates earned on our cash over the period to period and no excess sale of electrical power from the Sao Bento plant, which we of course owned during 2008.

Operating costs have increased in 2009 compared to 2008 as both operations at Kisladag and TJS have completed the processing of oxide ore and are now processing sulfide and primary ore. The additional cost associated with this processing, the roaster at TJS and the recovery rate at Kisladag have resulted in higher cost in 2009 compared to 2008.

General and administration is lower in 2009 compared to 2008, mostly related to the granting of options in November of 2008 and not our usual practice of Q1 2009. Line standby costs are related to the carrying maintenance of the Vila Nova iron ore project. Our ongoing expenses are forecasted to be approximately $200,000 a month.

Gain on the disposal of assets of $1.4 million is the valuation we have placed on the sale of our shares of the uranium project in Peru. Net income Q2 of 2009 of $25.9 million compared to $25.2 million in Q2 of 2008 and $38.9 million six months 2009 compared to $45.9 million six months of 2008. Our earnings per share is $0.07 and $0.11 comparative for this year -- for this quarter and $0.11 for the year-to-date.

Moving to the cash flow statement, I have very few comments on the cash flow statement, and in fact, my only comment on the cash flow statement is that Q2 2009, we increased our cash by $27.8 million compared to $16.4 million in Q2 2008, and for the first six months of 2009, $73.9 million compared to $50.4 million in the six months of 2008. This increase in cash is related to the substantial margins we're gaining on our gold sales as well as the monetizing of the AngloGold shares.

Commenting on the statement of comprehensive income, the changes that have occurred on our comprehensive income are directly related to the investment on marketable securities that the Company is carrying and the revaluations of the quarters and of the six months of those shares.

Those are my comments on the financial statement. I'll turn the call back to Paul right now for questions.

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

Certainly, sir. Ladies and gentlemen, we will now take questions from the telephone lines.

(Operator Instructions.)

And the first question is from Anita Soni at Credit Suisse. Please go ahead.

Hi. Good morning. Congratulations on a really solid quarter. My question's with respect to the bottlenecks that you referred to at Kisladag. Could you comment on those, Norm, and let me know what those are about?

Bottlenecks at Tanjianshan probably?

Yes, sorry - at Tanjianshan.

Yes. Well, it's really -- it's concentrate dewatering is the main one. I mean, there's two areas that we need to improve, as I alluded to. One is flotation recovery, which we're working on, and the other is concentrate dewatering. And on the dewatering side, we're actually putting in a new filter system there to allow us to get more concentrate -- to get the concentrate better dewatered before loaded into the roaster basically. The roaster itself is working very well. I mean, it's operating just as it should. It's really, we just need to get the feed more consistent into it.

Okay. That's it for my questions.

Thank you.

(Operator Instructions.)

And the next question is from David Houghton at BMO Capital Markets. Please go ahead.

Good morning and thank you. I have a question for you with regards to Efemcukuru. The capital spend was somewhat lighter than expected in the first half, and obviously, the rain delays were part of it. Do you plan to have a significant catch up in that spending in the program in the balance of the year?

Yes, we will. Yes, we'll catch up to where we thought we'd be.

And the kind of Cap Ex figure that I had been assuming and I think provided on a previous call was about $80 million for the year. Is that still your target?

Yes, I think we're going to be a bit light on that.

Uh-huh.

I mean, we're just -- we were delayed in the first quarter because of rains and in the second quarter, we're finding -- two things. We're finding, frankly, that there's more cut and fill associated with establishing where the plant's going to go, and the other thing that we're finding, it's such a small footprint that it's -- productivity just is not as high as we'd like it to be in that region. And so, that's sort of backing things up a little bit.

Well, certainly, we're going, as Norm described, we're going into a higher spend period now.

Yes. And at this stage, is it too early to make any adjustment to startup mid-2010 kind of time?

I think, right now, our view is you're going to see that drifting towards the back part of the year--.

--Right--.

--Because we're just not seeing our ability to be able to catch up on the ground that we lost in the first quarter. I think, David, as we've said earlier, when we come out with our refresh on the project towards the end of the third quarter, refresh being new reserves, new mine plant, new estimate for operating capital cost, we'll be able to give you a more definitive schedule for completion at that point.

Okay. And can you remind me, what's the status of the permits? Do you have all of the permits in hand to start production there or is something still pending?

We have all the permits that are necessary to build the operation. The way it works in Turkey, once you've completed construction, you then have to apply for the operating permit, which is granted, assuming you've satisfied all the conditions prior. It's identical to Kisladag.

Okay. Changing now to your investments on balance sheet, do you have any AngloGold shares left or are they all gone?

No, they're all gone.

Okay.

Those were all sold in January.

And the investments that we see there are the Solex and the Brazauro stake?

As well as a number of other--.

--Smaller things--.

--shares that we have, yes, in other companies.

Okay. Now, just following up on TJS and the throughput and recoveries, what sort of profile should we be thinking about as far as the ramp up of that roaster through the balance of the year?

Well, I mean, we're still maintaining our guidance of 95,000 to 100,000 ounces. So, you can see what we've produced so far and do the math on that. We feel comfortable that we'll be able to put that through. It's really -- as I said, it's just getting the floatation recovery up a little bit and getting the concentrate dewatered and through the roaster. And both those are -- they're mechanical issues. These are not really fundamental metallurgical issues.

As far as the recoveries go, my recollection was that overall recovery was 85% out of the roaster. Is that still your thinking?

Yes, yes, a little bit lower. I mean, we budgeted a little bit lower for this year because we're a little--.

--Yes. I'm not assuming 85 by year-end at this stage, right. And during the second quarter, was there anything going through the oxide circuit or was it 100% through the roaster?

There was a little bit going through. It was very little. It's mostly going through the roasters.

Okay. And still in China, with your Sino Gold stake, have you had an opportunity to meet with the company and to visit their assets yet?

Post the transaction, no, we haven't visited the assets or had any meaningful discussions with management.

Okay. But, I presume at some stage, that'll be on the agenda.

I'm sure we'll have a very successful relationship.

All right. Thank you very much.

Thank you. The next question is from David Christie at Scotia Capital. Please go ahead.

Morning, guys. The other David asked most of my questions. Just on the roaster, is it -- I guess maybe just do a little commentary. Is it working the way you expected it to or are things proceeding as planned?

Yes. No, it is. As I've said, the roaster itself roasts just fine. There's no issues there. It's really this -- and in our flotation, we get quite good recoveries in the lab. But, we're just -- we're getting -- we need to get up to where we're -- what we're seeing in the lab on the production side. And we're adding a flash float cell that we think will get us there, and then it's simply the mechanics of dewatering, dewatering the concentrate.

I think, David, I think just broadly speaking, we've had what I would consider a successful commissioning, I mean, to the extent that we're maintaining our guidance for the year and hitting our targets for the year. But, inevitably, even when you've moved through your commissioning, you recognize opportunities to improve the overall circuit, as Norm described, and that's what we're going to be implementing over the coming months.

Excellent. And just a question on Sino Gold quickly - will you guys be assuming a Board position with that company?

We've neither been asked to take up a position nor have we requested one at this point.

Okay. Would that be something you'd want to do to sort of help direct the Company's future or how -- what kind of arm's length are you going to be with this company. Twenty percent is a big stake.

David, if and when we are either offered or -- a position, I guess I can comment on that.

Okay. Good. And Perama Hill, can you give me just a little update on the status of permitting and whatnot there?

At Perama?

Yes.

Yes, we're going to put in the pre-EIA by -- in September. It was delayed a little bit because there's a break in August in Greece and they didn't -- they actually didn't want to submit it. The government didn't want to submit it. So, we'll put that in in September, and we're looking for approval of that sort of by the end of the year, early next year. And then, we'll go into the EIA phase. So, we're on -- we're basically still on schedule as to what we gave for guidance a few months ago.

Excellent. Good quarter, guys. Thanks.

Thanks.

Thank you. The next question is from Anita Soni at Credit Suisse. Please go ahead.

Hi. Just a follow up question with regards to actually grades at Tanjianshan and then also strip ratio at Kisladag for the remainder of the year.

Well, the strip ratio at Kisladag we have for the year is about 1.1 to 1. So, we're a little higher in the third quarter and I think we're -- probably in the first quarter. So, we're probably around 1.2 or so. It might be a little bit less than 1.2 for the rest of the year at Kisladag.

The grade at Tanjianshan, we had -- we originally had budgeted around five grams. We're a little bit higher in the last quarter. But, it'll be around sort of high fours, low fives grams per ton.

Okay. Thank you very much.

Yes.

Thank you.

(Operator Instructions.)

The next question is from Barry Cooper at CIBC. Please go ahead.

Yes, just a couple of quick ones - I think on the last conference call, for Vila Nova, you indicated kind of holding costs of $1 million a year. And I see in Q2 is basically that $1 million. Is that run rate a little bit different now?

Well, yes, it is. In the Q2, it was initially -- it's higher in Q2 because there was the reduction in headcount that occurred at the time we decided to put it on hold in maintenance. And the result in Brazil is there's a substantial amount of funds that had to be paid out. And that's why I gave guidance that we're now looking at the run rate of -- it should be around $200,000 a month going forward. So, that is higher than the original guidance, but now, we're in that and we have much better numbers.

Right. Okay. And then, can you give a little bit more color on -- the Tocan project down in Brazil there kind of looks like it's being elevated in importance, but not much spend there. But, just what have you learned since jumping on board with that project and where do you see it fitting in kind of the scheme of things for El Dorado?

You're talking about Tocantinzinho.

Yes.

Yes. Well, we're sort of towards the end of about a 20,000 meter drill program at Tocantinzinho. And I think Brazauro has put out results on that. It's -- I would say the -- we've confirmed pretty much what we thought was there to start with, and now we're sort of -- we've got another year before the next decision point comes up, and we'll just sort of sit back and look at our results and run some economics and see where it gets us.

And I guess going in, at least it was in the public domain, somewhere around 2 million ounces there. Most of the drilling, I assume, is taking inferred into kind of more of a measured and indicated.

Yes.

Is that correct?

Yes, that's correct.

And any surprises there that would change that 2 million from kind of that number to something different?

We haven't -- obviously, we're not recalculating at this point. But, we -- there haven't been any big surprises.

Okay, okay. The metallurgical work there, is this a fairly straightforward thing or is there some quirky--?

--Yes. No, it's non-refractory and it makes a good concentrate. So, you're looking at floating the con and then leaching the con. The metallurgy looks reasonably good.

Right. Okay. Good enough. Thanks a lot.

Thank you. (Operator Instructions.)

There are no further questions registered at this time. I would like to turn the conference back over to you, Mr. Wright.

All right. Thank you very much, operator. Thank you for attending this conference call, and as always, we welcome your questions at any time. Have a good weekend. Thank you, operator.

Thank you. Ladies and gentlemen, your conference has now ended. All participants are asked to hang up their lines at this time and thank you for your participation.