Eldorado Gold Corp (EGO) 2009 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Eldorado Gold Corporation year-end 2009 financial results conference call. Please note this call is also being broadcast or our website at www.eldoradogold.com. Please be advised this call is being recorded on Friday, March 19, 2010, at 11:30 AM Eastern standard time. I would now like to turn the meeting over to Ms. Nancy Woo. Please go ahead, Ms. Woo.

Thank you, Operator. This presentation includes statements that may constitute forward-looking statements or information. Any forward-looking statements made and information provided reflect our current plans, estimates, and views. Forward-looking statements are information which include all statements that are not historical facts, are based on certain material factors and assumptions, and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in or suggested by the forward-looking statements or information. Consequently, undue reliance should not be placed on these forward-looking statements and information.

The information contained in our Annual Information Form and in our Annual Quarterly Management Discussions and Analysis available on our website and on SEDAR identify factors and assumptions upon which the forward-looking statements or information are based on and the risks, uncertainties, and other factors that could cause actual results to differ. All forward-looking statements and information made or provided during this presentation are express qualified in their entirety by this cautionary statement and [the] cautionary statement contained in our press releases. 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. As previously mentioned, this is the Eldorado Gold 2009 year-end financial results conference call. Joining me today in Vancouver are Norm Pitcher, our Chief Operating Officer, Ed Miu, our Chief Financial Officer, and Nancy Woo who you just heard from, our Vice President of Investor Relations, and making a cameo performance we have Earl Price, who was the Company's CFO until his retirement at the end of 2009.

We will follow the usual format, with Norm and Ed providing some commentary on the 2009 results and some color to our expectations, plans, and outlook for 2010, and then we'll open up for questions. We are frankly very pleased with the year-end results and the performance of our mines in the fourth quarter. Our mines through the year achieved the targets set for them, in terms of both costs and performance, affirming our position amongst the very few producers who delivered into or exceeded their guidance as of the beginning of the year. Total cash costs of $337 an ounce also allows us to remain one of the lowest cost pure gold producers.

At year-end, we completed our Sino Gold transaction, and I must say the integration has gone very well. We are looking forward to another busy year with mine construction at our Eastern Dragon project in China, and our Efemcukuru project in Turkey. Although it is early days in the year, we are satisfied that the production guidance that we provided to you previously of 550,000 to 600,000 ounces at cash costs slightly less than $300 an ounce or $400 an ounce is indeed solid. On the exploration front, last year was again a very successful year and exploration made a significant contribution, along with the Sino Gold transaction to increasing our proven and probable reserves to in excess of 15 million ounces.

In summary, the Company is in excellent shape, we have a strong balance sheet, we remain unhedged, we have mines that are performing to plan, we have construction projects that are on schedule, and we're looking forward to adding to the completion of these two new construction projects in excess of 200,000 ounces at cash costs of around $200 an ounce. We have an exciting year of exploration ahead of us, with a budget of $35 million and a total of in excess of 20 drilling projects that we will be reporting in through the year. With that I'll hand it over to Norm for further comments.

Thanks, Paul, and good morning everyone. Let's start off on the operations, and we are off to a very strong start this year. In February, which is a short month, we produced over 55,000 ounces of gold, so we feel quite comfortable with our 2010 guidance of 550,000 to 600,000 ounces.

Going to Kisladag, in Q4 we produced 70,131 ounces at $296 per ounce for 2009, that gave us 237,210 ounces at $280 per ounce. We're forecasting for 2010 between 230,000 and 240,000 ounces at $310 to $330, increasing in 2011 to 270,000 to 280,000 ounces at $300 to $320. For 2010, we'll be mining a strip ratio at about 1.2:1, and the average grade of 1.03. We're going to spend $65 million in CapEx at Kisladag this year, which is mostly crusher upgrades to the 12.5 million tons per annum, and leach pad expansions.

At Tanjianshan in Q4, we produced 37,773 ounces at $329, which gave us for 2009 a total of 105,610 at $349. In 2010 we expect between 95,000 and 105,000 ounces at $420 to $435, at the same number in 2011, at cash costs of $400 to $420. In 2010, we'll be mining a strip ratio of 2.5:1 in the main JLG pit, and grade through the mill will be approximately 3.85 grams per ton.

At Jinfeng just for the Sino assets, the ex-Sino assets, I'll just start at 2010, we're looking at this year for 170,000 to 190,000 ounces at $450 to $480 per ounce. 2011 is 200,000 to 220,000 ounces at $370 to $390. At Jinfeng we'll mine about 400,000 tons from underground, and the remainder of 1.1 million tons from the open pit.

We're currently in the process of rebuilding the block models at Jinfeng, designing the 2010 in-field drilling programs, and have started the study which will determine the optimum pit size and underground production rates. We're fairly confident that there's a larger pit there, and we'll know that by probably mid year to Q3.

At White Mountain in 2010 we're going to do 55,000 to 65,000 ounces at $430 to $460, at 2011, 65,000 to 75,000 at $410 to $440. White Mountain does have excess mill capacity, and we're currently reviewing alternatives to increase underground production to take to allow us to access that excess capacity.

On the development side at Efemcukuru, we've completed the updated mine plan which incorporated the north ore chute into the development layout and life of mine schedule. Construction activities continue in full swing and are on schedule and budget. The Sag and Ball Mills are on site and sitting on their foundations. We expect to begin underground development in early Q2, which will allow us to meet our predicted 2011 production guidance of 90,000 to 100,000 ounces at approximately $200 per ounce.

At Eastern Dragon, we recently released an updated Mineral Resource Mineral Reserve Statement, which showed an increase of 47% in measured and indicated, 42% improvement in probable reserves. Physical construction activities are getting ready to resume on site as the weather improves. We're currently at 85% of the engineering design completed and procurement is also at 85%; approximately 20% of actual construction on site, which is right where we should be on schedule. We expect production to commence in early 2011 and will produce 70, 000 to 80,000 ounces at cash costs of approximately $150 per ounce.

At Parama, the PEIA has been submitted. We expect approval of that by the third quarter, and will submit the full EIA by the end of the year.

At Villa Nova Iron Ore in Brazil, due to the strengthening of the iron ore prices, we've decided to start production there. We're not going to give any guidance for 2010. It's still quite early there. We've got a fair bit to do until we can start shipping iron ore out.

Turning to exploration, 2009 as Paul mentioned, was a very good year for us for exploration. It saw us increasing resources and reserves at Kisladag, Efemcukuru, and Eastern Dragon as a result of [brown] fields drilling programs. We also discovered the 323 zone at Tanjianshan and acquired a host of new exploration targets in China as a result of Sino transaction.

In 2010, we have approximately $35 million budgeted for exploration, which includes 125,000 meters of drilling. In China, that's going to be split between Tanjianshan, we have $3.8 million budgeted there, which will be mostly 323 zone drilling and additional reconnaissance. 323 was a covered target that we discovered, and we'll be looking to the south for more targets like that.

At Jinfeng we've got $2.5 million budgeted, which is for mine site drilling, plus four additional exploration licenses in the vicinity. At Eastern Dragon we have $2.4 million budgeted there. That is for mostly drilling outside of the main load five zone. This is a epithermal high grade shallow ore body. It appears that we may have multiple veins in the area based on trenching and rock chip sampling, so we'll be drilling those quite aggressively this year.

And at White Mountain we have another $2.5 million budgeted, which is for step out drilling of the main zone and two other regional targets. I would like to direct you to the website, and if you look at the recent presentation that we gave at the PDAC, there's quite a bit of detail on the Chinese exploration effort.

In Turkey we have almost $7 million budgeted. We've got a 20,000-meter program at Kisladag, which is actually twice what we drilled in 2009. We have an additional 5,000 meters at Efemcukuru to explore the parallel Kokarpinar vein, where we encountered economic widths and grade in 2009 drilling. This would appear to be a parallel structure to the main Kestani Beleni vein. We'll also be continuing our regional recon program, plus more advanced exploration on three properties that we identified in Turkey in 2009.

With that, I would like to for the first time ever, turn it over to Ed Miu.

Thank you, Norm. Good morning, ladies and gentlemen. During the fourth quarter 2009, the Company completed the acquisition of Sino Gold. The transaction was completed on December 4 to be exact, as control was effectively transferred on that date. The acquisition impacted the 2009 income statement insignificantly, because only one month's worth of Sino Gold's P&LL data was consolidated into Eldorado's. On the other hand, the impact on the Company's year-end balance sheet and the year's cash flow statement from the acquisition was quite substantial.

Regarding the balance sheet, 2009 year-end asset balance increased significantly from the previous year-end by about $2.5 billion. The bulk of the increase resulted from the Sino Gold acquisition. More specifically, cash and cash equivalents, including restricted cash, went up by more than $200 million. Of that, $104 million came from Sino Gold, with the remainder contributed by increased cash generation from operations as a result of higher gold price, and also increased sales volumes.

Inventories were up year on year, due to higher ore stockpile, in process inventory, and materials and supplies. The increases in mining, interest, and goodwill, which constituted the lions share of the year on year increase in assets, were also attributable primarily to the Sino Gold acquisition. On the liability side, the majority of the the increases in various accounts were also triggered by the Sino Gold acquisition, including bank debt totaling $191 million, asset retirement obligation liabilities, and future income taxes.

Moving on to the statement of operations and deficits, let me point out first the fact that in 2008, there was a $71 million non-recurring gain from the sale of the Sao Bento Mine. Excluding that one-time profit, which amounted to $0.20 a share, 2008 diluted income per share was $0.26. 2009 diluted income per share was also $0.26, of which $0.08 was earned in the fourth quarter. General and administrative expense of $32.5 million decreased by $5.8 million compared to 2008, primarily due to lower stock based compensation costs resulting mainly from the timing of the issuance of options.

Incidentally, there have been questions raised as to whether there is a difference between our China mines' sales price versus the spot price on the Shanghai gold exchange. The answer is no. As a case in point, other than a contractual refining fee charge of 1.41 [ramenbe] per gram, Jinfeng's settlement prices on eight recent gold sale transactions during the period January 5 through March 11 this year was sold at the spot rates of the Shanghai Gold Exchange, as of the transaction dates for Number Two gold of 99.95% purity. Likewise, for White Mountain, the sale prices for its sale on January 22 and February 23 this year were at the spot rates of the Shanghai Gold Exchange for those dates, minus a refining fee of 1.15 [ramenbe] per gram.

On the cash flow statement, net cash increased in 2009, exceeded that of 2008 by close to $188 million. The year on year change was essentially accounted for by the net increase resulted from the Sino Gold acquisition, coupled with lower capital expenditures in 2009, and relative changes in non-cash working capital. I'm open to questions.

Thank you, Ed, thank you, Norm, and Operator, we'll open up for questions, please.

Thank you. (Operator Instructions) The first question is from Haytham Hodaly from Salman Partners. Please go ahead.

Thanks, Operator. Good morning, everybody.

Good morning, Haytham.

Just a few little questions. First with regards to the debt that was taken on, is there any plans to accelerate the repayment on that debt?

We're taking a hard look at the debt, Haytham, to see frankly what's the best way of managing it on a go forward basis. I mean, historically you know the Corporation hasn't been enamored with having debt on the balance sheet.

Certainly we don't consider ourselves to be overleveraged, but given the strong production coming from the mines and the gold prices remaining strong, we'll be looking at what our options are here. We have a busy year for construction in terms of CapEx at Efemcukuru and Eastern Dragon and Kisladag, but don't be surprised if we don't look to sort of reduce that debt a little bit faster.

Okay, that makes sense. Just with regards to our G&A levels, I know you guys got it to 45.8 million for the year. Does that include any unusual items this year for the transaction? Is that a reasonable number to use going forward at this point?

Yes, about $5 million of that $45 million is a result of the transition resulting from the acquisition, so I expect that much to drop off on a go forward basis.

Okay, great, and I guess with regards to the exploration budget of $35 million, is that $35 million all going to be expensed or is there some of that that's going to be capitalized?

$5 million of the $35 million is going to be capitalized.

Okay, perfect and with regards to the tax rate of 42%, what's dragging that number up specifically?

Where do you come by 42%, Haytham?

I thought that was the effective tax rate guidance in the quarterly. Did I misread that?

Are you looking at, this is Earl, are you looking at the quarterly or are you looking at the year-end?

Oh, you know what, I think I'm looking at the year-end.

Okay, well if you're looking at year-end there's a number of issues, particularly if you compare it back to about the previous year. One the $70 million Sao Bento sale was basically tax sheltered, so if you look at the previous years, therefore you have a very low tax rate for our current tax rate for Eldorado. Now, you roll forward to this year, you no longer have the shelter, but what we do have in Eldorado is that fact that we have Vancouver expenses, G&A expenses, and other G&A expenses in Brazil, and whatever, that are not sheltered at all with any income. So you basically have a lower income, which effectively raises the tax rate then, based upon the two producing assets.

Okay, I was looking for the year-end, which says the overall effective tax rate was 42%, but I understand what's happening.

Yes, so you see what's happening? What we need is we need a Canadian profit producing mine so we could use up our tax losses here.

Right, that makes sense, okay. Maybe just looking at the same page that has outlook there, the $280 million provided for CapEx, you give a great breakdown for $195 million of that which goes to Phase I at Kisladag, [and] from Efemcukuru and Eastern Dragon, so there's about $95 million left. How much of that is sustaining, and is it all sustaining, and are there any other big components?

Most of it is sustaining.

Okay, perfect. That's perfect. Thanks, gentlemen.

You're welcome.

Thank you. The next question will be from David Haughton from BMO Capital Markets.

Yes, good morning and thank you. Just following up on Haytham's question, also I noted 42% as the overall effective rate. It's on Page 12 of your MD&A, so what should we be using then for 2010 if it's not 42%?

The blended average rate for the countries in which we operate will be about 25%.

Okay, it's written in the text of the MD&A at 42%.

Well yes, but for the countries, that's correct, but again, what I'm saying is you've got at the G&A costs, which are not sheltered with income, so that effectively raises the tax rate, so for going forward basis I would say you want to use at least 30% to 33%.

Okay.

Do you understand the calculation of what I'm saying, is basically we've got additional costs which reduces the profit, so the effective tax rate goes up against those countries that are producing.

Let's just go through the country by countries at the tax rate. The tax rates in China are 25%. Tax rates in corporate tax in Turkey is 20%. That's the base tax applicable to those operating entities. The step up as Earl describes relates to the expenses that are not - -

Well basically there are going to be expenses incurred in Brazil, because there is no income generated in Brazil. There are expenses incurred here in Vancouver because there's no income in Canada or Vancouver. There's throughout the legal chain, we have legal structures, requirements in Bermuda, Barbados, all of that that are small, but there is no income generated so you understand what happens?

Sure. I can see now.

So that's what the issue is, so I would say you'd be better off to use a tax rate going forward now, not the average of the 20% and the 25%; it would be somewhere between 30% and 33%.

Okay, now Haytham had also identified the guidance for depreciation. Would you be able to step through for us where you see each of those levels of depreciation?

Yes, for this year total depreciation and amortization is $106 million, of which the $56 million goes to Jinfeng, $19 million White Mountain, $15 million Tanjianshan and the remainder of $15 million, $16 million, Kisladag in Turkey.

Okay, and that level that we're seeing at Jinfeng, is that going to be a sustainable regular level of that $56 million?

Yes.

Okay, that's quite an uplift. Back in the Sino Gold days of Eldorado at pre-Eldorado, it was even sub-20, so a very substantial proportion, I take it then, of the acquisition cost would be tagged to Jinfeng that you're depreciating?

That's correct.

All right, thank you very much, gentlemen.

Thank you. The next question will be from Kerry Smith from Haywood Securities. Please go ahead.

Thanks, Operator. Paul or Norm could you just give me a little bit more of an update on what the status is of Parama? You did give a bit in your commentary but just a bit more of an update?

Well, yeah, we've gotten the pre-EIA has been submitted. We're sort of looking at approval of that by June, somewhere in around there, and at the same time we are putting together the full EIA. The pre-EIA really just sort of sets the basic ground conditions for the project, but you are pretty much locked into those. We've changed a few things, like we've put in dry stack tailings, we've also put everything into one [preficture], like a county, to make it permitting a little bit easier, and then once the pre-EIA has been approved we'll submit the full EIA.

And then the full EIA you were saying should be submitted by year-end. What is your expectation in terms of how long you think it might take?

Probably about six months or so for approval on that.

Hopefully we'll get it. When we say by year-end, hopefully it will be within about three or four months after we get the pre-EIA approved. So call it late, early fourth quarter.

So late Q3, Q4 of this year, and then six months from there for the approval. And then can you just remind me what has to happen after that, in terms of getting to the point where you could make a development decision?

Well nothing really.

Are there any other, like you need a construction permit? Is there anything else?

Yes, there's various local construction permits that we'll have to get, but nothing major. Once the EIA is approved, that's by far the biggest milestone.

Okay, so - -

And in terms of a production decision as you're probably aware, if you know the project, it's kind of a no-brainer.

Yes, of course.

That's why, Kerry, if you look at the disclosure that we have made on our website and in our corporate presentations, we point people towards sort of the back end of 2011 being in a position to start construction or start those sorts of activities.

Right, okay, and in the pre-EIA, are you required to give some sort of general parameters on the operation?

That's correct.

Are those parameters public or can you share with them just what sorts of parameters you're conceptually thinking of, or that you put in the document?

We actually made, Kerry, a disclosure on the results of the - - and I think are either filing today or in the next couple of days a full 43101 report.

Yes, if you look on SEDAR, I think actually today we're probably going to be filing the technical report. If not, it will be up - - is it today? If not it will be up next week.

Okay, fine. That's great. Because I had some assumptions but I'd like to just take a look at what you've done there. That's perfect.

I'd look at the technical report, Kerry.

Okay, great. Thanks a lot.

Yes.

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

Thanks for, anyway, sorry. Okay, just had a little bit of a - -

We're having trouble hearing you Anita.

That's good. Actually, I just have a question with respect to the costs that you've given at White Mountain. You produced I guess at 364 in Q4 and the guidance is about I guess, $60.00 or $80.00 per ounce higher for 2010. I was just wondering is there any kind of expectation for higher costs or what that's a function of, and why there's a little bit of higher expectation of costs going forward there?

I mean, the costs is probably grade related, the costs going up; I'm not sure, I don't know about that calculation for the past production. What we're saying is that 55-65 this year at around 430-460, and I think we're pretty close to that.

Sorry, in what sense are you pretty close to that, just because Q4, I think you actually produced at 364 for the quarter. $364.00 per ounce.

There was production in Q4. Well we would have had about two weeks attributable production Anita, to be frank, so we're not trying to be evasive but we're not really in a position to make too much commentary of worth on it in terms of the two weeks of production in Q4. I mean the costs that we projected for 2010 reflect obviously the budget and planning process that we've gone through.

Okay, thank you very much.

Thank you. The next question will be from Barry Cooper at CIBC. Please go ahead.

Yes, good day. Just wondering if you can walk us through what kind of things need to be done to basically start up Villa Nova in terms of jobs required, and what kind of costs do you think you'll be incurring to get that started, and when will it start do you think?

Well, I think a couple things, Barry. In terms of getting people on board and ramping up, it's probably six weeks to eight week type of exercise. In terms of cost to get things up and running, it's probably $1.5 million to do so; working capital to get us to the point that we can probably be in a position to have a first shipment is probably maybe another $3.5 million to $4 million. That's the order of magnitude.

I don't have the shipping schedule in front, but again, this is why or at least one of the reasons why at this point we aren't giving some firm guidance. We'll do that later.

Right, but basically then if you're in my shoes, if I assume sort of a half year kind of what you've told us before is realistic?

Sure. Look, you're not going to see anything shipped until third quarter.

Right.

I mean, Barry, just on this project, as we've said over and over again we're probably the most reluctant iron ore miners on the face of the planet, but with the present iron ore prices and the outlook, and there's clearly margin here, so we're going to get this mine up and running and start getting cash back for it, but I think it's more than likely going to be a precursor to eventually sooner rather than later probably bending the asset.

Right, okay, good enough. That's my only question.

Thank you. (Operator Instructions) The next question will be from Bob McCleary, a Private Investor.

Good morning. Previously a comment was made concerning taxation wise that it might make sense to acquire a producing Canadian miner. Has there in fact been any exercise in this direction?

No, no, there hasn't. That was a comment made by our recently retired CFO, who is engaging in the luxury of being able to make those comments as a retired CFO. No, he was simply pointing out how we could conceptually obviously utilize the tax credits that we built up. It's frankly not really on our priority list.

Okay, well thank you.

You're welcome.

Thank you. We have a follow-up question at this time from Haytham Hodaly at Salman Partners. Please go ahead.

Thanks, Operator. I just wanted to confirm the 385-400 cash cost, that is cash operating cost, that excludes royalties; is that correct?

That's correct.

Okay, perfect. That's it, thank you.

Thank you, and we have a follow-up question at this time from Anita Soni at Credit Suisse.

That's okay, my question has been answered.

Thank you. There are no further questions at this time then, so I'll return the meeting back to you, Mr. Wright.

Well thank you, Operator, and thank everybody for being on the call. Look forward to talking to you again.

Thank you. The conference call has concluded. You may disconnect your telephone lines at this time, and we thank you for your participation.