Eldorado Gold Corp (EGO) 2010 Q2 法說會逐字稿

Good morning, ladies and gentlemen, welcome to the Eldorado Gold Corporation's second quarter 2010 financial results conference call. This call is also being webcast and is available on the Eldorado 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 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 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 and the cautionary statement contained in our press release dated July 29, 2010.

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

Well, thank you, Nancy. And good morning, ladies and gentlemen, and welcome to the Eldorado Gold second quarter financial and operating results conference call. Joining me in this evening in Beijing are Norm Pitcher, Chief Operating Officer, and Ed Miu, Chief Financial Officer, and you just heard it from our VP of Investor Relations, Nancy Woo, who is in Vancouver.

We will continue with our customary program with Norm providing commentary on the operating performance and the outlook for the company, followed by which Ed will review the quarter's financial results, and then we'll open up for questions. But before doing so, I would like to make a few brief remarks.

We continue to be very pleased with these results. A strong performance from our mines delivering 167,940 ounces at an average cash cost of $357 per ounce has enabled us to firm up and upgrade our guidance for the year to 625,000 ounces at $375 an ounce. Eldorado continues to distinguish itself through continued deliverance into its stated plan.

The strong operating performance has enabled the company to report net income for the quarter of $60.5 million or $0.11 per share for the period. In the quarter, we completed the acquisition of all the shares of Brazauro Resources Corporation that we did not own, allowing the company to push forward now with the development of the Tocantinzinho gold project in Brazil, where we look forward to delivering a full feasibility a year from now and being in a position to make a construction decision by year-end 2011. Our development and exploration programs are progressing largely in accordance to plan and Norm will provide some commentary on the individual programs momentarily.

I'm particularly pleased to see the significant improvement in production and costs from our three mines in China, where production has jumped from 82,688 ounces in Q1 to 97,489 ounces in Q2 and where we have seen a significant cost reduction in all three mines between the quarters.

I would like to thank all of our employees and all of our contractors for another great quarter and we look forward to the balance of the year.

I will now hand over to Norm, who'll provide some additional color on the operations and the outlook for the balance of the year. Norm?

Thanks, Paul, and good morning everyone. Why don't we start on the operation side, and we'll go to Kisladag first, another great quarter there. We produced 70,451 ounces at $304 per ounce and placed 2.7 million tonnes of ore on the leach pad at 1.12 grams per tonne. Our strip ratio was about 1.55 for 1, very close to life of mine average. We're obviously very pleased with the operation of both the mines and processing circuit at Kisladag and we're now in the process of looking at the heap leach recoveries in light of the good production we've had over the first half of this year.

At Jinfeng in China, we produced 52,659 ounces at $381 per ounce and milled 392,000 tonnes of ore at 4.51 grams per tonne. The open pit produced 335,000 tonnes, which is a little bit above budget and we did 97,000 tonnes from underground, which was pretty much bang-on budget. Strip ratio was a little bit lower than the year average, it was 12.6 to 1, as we concentrated on ore ahead of the rainy season, which is we're in right now at Jinfeng. Recoveries there are averaging about 1.5% above budget so far. And just as a general comment, now that we've got sort of six months operating under our belt at Jinfeng, I'm quite pleased with the progress we've made in both the open pit operation and the underground and also just sort of getting a handle on the overall structural setting of the ore body, [controls] of mineralization et cetera.

Tanjianshan had another good quarter. We did 28,884 ounces at $387 per ounce. That was milling about 272,000 tonnes of ore at 4.4 grams per tonne. The mine is now back up to full production after the New Year's break in the first quarter and seems to be firing on all cylinders.

At White Mountain, a better quarter there. We did 15,946 ounces at $442. That was from milling 168,000 tonnes at 3.78 grams per tonne. Really the mill and the mine both did a little bit better on production in the quarter, and we saw decreased sulfide content in the ore as well which helped us in the recovery side.

Onto development, things are going well at Efemcukuru. All the major equipment has been installed in the mill. We're now really focusing on placing an electrical installation there. Underground development has begun. The mining contractor is currently concentrating on the pressure decline right at the planned site and the north adit to give us access into the ore body and we'll start the south adit, number two access to the ore body in September.

At the Villa Nova iron ore project in Brazil, trial mining is proceeding on schedule. The plant is actually producing some iron ore now and we still expect to start shipping in Q4 of this year.

At Perama Hill we continue to work with the Ministry of Environment to get the PEIA approved and we'll submit the full EIA once the PEIA is approved.

Eastern Dragon in China, we secured the long lead-time items to ensure a quick start-up of restarted construction and we continue to make progress in completing the necessary permitting to restart construction.

At Tocantinzinho in Brazil, which we just acquired through our acquisition of Brazauro Resources, we plan to complete a pre-feasibility by year-end and declare a mining reserve. In addition, we'll be preparing an EIA and also ongoing permitting work on the road and power line. We're currently looking at the exploration budget for the rest of 2010 and 2011 and we'll probably start a fairly major drilling program here in the next couple of months.

On the exploration side, in Turkey I'll start with Kisladag first. During the quarter we drilled 29 holes, almost completing the 42-hole program. The results so far have being quite positive. And I would refer you to recent press release we did on exploration in Kisladag.

At Efemcukuru, we finished the last four holes of the six-hole program at the Kokarpinar which is a parallel name to the main structure at Efemcukuru. All six holes get the main structure with four of them having a significant mineralization. So we'll continue that program, but really are more concentrating on development of the main zone right now. Recon in Turkey worked on four different projects, all of which will be drilled later this year.

Exploration in China in the Jinfeng area, we started a 22,000 meter in-fill program at the mine itself. We've also started drilling in two other projects in the Jinfeng district that are targeting mill and mineralized fault zones. Up at White Mountain in China, we're drilling extensions of the ore body and have intersected this all approximately 200 meters below the previous intercepts. We're also mapping and sampling at two other prospects along strike, which we will drill in Q3 of this year.

At Eastern Dragon, we have mostly been doing geochem and mapping in anticipation of drilling in the second half of this year. And at Tanjianshan, we finished the in-fill drillings of 323 zone and are now testing the on strike extensions of that zone and doing geologic and resource modeling which is ongoing at this time. That's sort of around the world in less than 10 minutes, and I'll pass it to Ed.

Thank you, Norm. Good morning ladies and gentlemen. Eldorado's continued strong operating performance in the second quarter resulted in good financial performance as well. Starting off on the balance sheet, June ending assets balance increased by approximately $47 million from first quarter-end's balance and $97 million from 2009 year-end mainly due to increases in cash and capital investments.

Total cash balance at June month end was $359 million and the increase of $24 million in the quarter and $44 million from last year's end. The year-to-date cash increased principally derived from operations, proceeds from the sale of an asset, plus cash generated from exercise of share options. This was partially offset by $95 million of capital expenditures and the $15 million bank loan prepayments in China.

As of the end of June, total liabilities amounted to $725 million, a decrease of $44 million since the year-end as a result of the bank loan prepayment in the second quarter I just mentioned. Plus payments in the first quarter of transaction fees related to the Sino Gold acquisition, which were accrued for at year-end last year.

Moving on the statement of operations and retained earnings, this year's second quarter's gold sales revenues of $260 million at the year-on-year increase of $126 million or 258%. For the first six months, the year-on-year revenue increase was $256 million or 294%. The significant increases were accounted for by production increases in both the Kisladag and Tanjianshan mines, coupled with the additions of Jinfeng and White Mountain from the Sino Gold acquisition. Another contributing factor, of course is the higher gold price, which increased from an average of $920 per ounce in the first half of last year to $1,154 this year.

With the higher production and the Sino Gold acquisition, operating costs, DD&A and interest expenses all went up year-on-year. Year-to-date G&A costs also increased by about $13 million from last year, probably due to stock-based compensation being higher as a result of the Sino Gold acquisition.

Net income of $61 million in the second quarter increased from the same period last year by $35 million and $74 million on the year-to-date basis. In terms of diluted earnings per share, there was a record high of $0.11 this quarter versus $0.07 for second quarter last year, an increase of 157% and for year-to-date, $0.21 this year versus $0.10 last year, an increase of 210%.

On the cash flow statement, $92 million of cash was generated from operating activities before non-cash working capital in the quarter, compared to $36 million in the second quarter of last year. For a six months period ending June, it was $173 million this year versus $56 million last year.

By comparison, year-to-date net increase in cash of $42 million this year was less than the $74 million generated last year. The year-on-year decrease was attributable to capital expenditures being $59 million higher this year, the dividend payments in the second quarter this year, coupled with $30 million cash receipt in the first quarter last year pertaining to the sale of the Sao Bento mine. All in all, it was a very strong quarter and six months Eldorado in terms of financial performance.

With that, I now turn it back to Paul.

Thanks, Ed and thanks, Norm, for those comments and descriptions. Operator, we are now ready for questions please.

Thank you. We will now take questions from the telephone lines. (Operator Instructions) The first question is from Steven Butler of Canaccord. Please go ahead.

Good morning, Paul, Norm, Ed, thanks very much. Question for you on Efemcukuru in terms of under ground access and the portal efforts just starting, does that give you a sense of timing Paul on start-up of the operation from a milling point of view? Is that a Q1 event next year still or perhaps slightly delayed?

We are bit later starting than we originally planned, Steve. I think you probably have to bear with us for this quarter. I mean, we would like to get a quarter of experience underway with the contractor before we firm up on specific startup in 2011.

All right.

We are obviously working. We have some flexibility in the mine plan, and we are going to work on that to try to stick as close as we can to the schedule we described for next year. But I think, as I say, give us a few months to get the contractor up and running, and let's sort of see what sort of productivity he gets, and then I think we can peg the start up a bit more accurately, but there has been some slippage.

Great, okay. Paul or Norm, the Kisladag, is there expectations of I think about an interim resource update throughout the year or is it wait completion of the full year program at Kisladag?

No, I don't think we will wait, Steve. We are in pretty good shape in terms of modeling, so it's not a big deal for us to update the model at this point. So, we will ahead and do that and update the resource here pretty quickly.

Okay. Sense of timing error, I am not going to pin you down again or --

No, look, I mean, it's Paul. I think, Norm and I have discussed on this as you described. We've got the bulk of the drilling done. It's quantifiable. I think it's safe to say in the next little while measuring --

Next little while?

In the next couple of weeks, you are going to see new resources out of it. It's going to take us a bit longer to convert those into reserves largely because we would like to get this metallurgical test work behind us, because we are seeing some signs of improved recovery. As those ore body gets larger, we want to frankly spend some time looking at whether or not we should be moving to some larger equipment, given the scale of this operation, which obviously impacts on unit costs, which in turn impacts on reserves.

And so, there is some engineering work that we would like to do before we take these resources and move them into reserves. So, you will see us coming out with an interim reserve statement fairly shortly as I described and then probably few months later a new reserve statement which will include what I described, as well as probably some more drilling as Norm and the crew deem that appropriate.

Okay. Thanks, Paul.

Thank you. The next question is from David Haughton of BMO Capital Markets. Please go ahead.

Good morning, and thank you very much for taking the questions. Looking at Kisladag, perhaps Norm, pretty good rates there hanging in about the 1.1 gram level. Do expect that kind of rate to be around for the balance of the year?

Yes, we do. This is the pretty consistent ore body and we don't -- we honestly don't see a lot of variation in grade. I mean you go from sort of 1 to 0.95 to 1.15 and you're back to 1.1. So, it will probably stay right where it is for the rest of year.

And you also are talking during your commentary, Norm, about improvements on the recovery ratio. What kind of targets do you have for that, and when would expect for that to be achievable?

Well, we don't have a target. I think we're -- that's why we are doing the test work. As you can appreciate it and a heat reach of this size recovery is not a simple issue. Considering we also haven't closed up any pads yet, we are continuing to leach and leach on all of the cells. But we are running a lot of [bar] rolls and column tests, and we will be updating that before the end of the year.

With that thought in mind, do you have any consideration of putting into [interlift liners] in?

Not really, no. I mean we got there early and the pads are fairly high already. So, when we got enough room to the North, and I don't think we really need to go that route.

I would say definitely not, because what we're experiencing potentially is the opportunity to get higher recoveries due to leach cycles, which are well beyond what you would do in a column test and you put -- with interliners in frankly you are eliminating some of the potential benefit that can come through.

Lining off the pad --

Yes.

Okay.

We have experienced no difficulties at all in terms of percolation as these lifts have got higher. So, no, we'll keep them open.

By taking advantage of the long leach tile in other words?

Exactly.

Looking at TJS, the grade there is looking pretty good in the full plus kind of category, what's your expectation for the balance of the year?

We'll probably come off that a little bit, I think down to about the 4 - 4.1 gram range. I think in Tanjianshan we've got a lot of stockpiles built up from the last -- So, the grade, we're not necessarily dependent on the grade coming out of the pit. We can bolt-on stockpiles. It's quite easy to sort of keep the grade of what we forecasted for the year, which I think is just over 4 grams.

And the other offset that is recovery, just backing out what the recovery may have been, I didn't see it stated anywhere, was around the 73%-ish level? Target, I understood was up around the 80% level. What are you shooting for, for the balance of the year there?

Yes, I think, we're higher. We should be up. I think we are up around 77%, 78% recovery. That's total recovery.

David, is this White Mountain or Tanjianshan you are still...

TJS.

Sorry.

But on the topic of recoveries it looked like a pretty good result there for Jinfeng.

Yes.

Previously it was running in the low 80s. It looks like you are at least in the high 80s now. Do you expect that to be something sustainable?

Yes. Now I think we are up around 80%, yes, we are up around 86% now which is little bit -- I think it's about 1%, 1.5% better than what we have expected. I don't see any reason that would change.

And one of the other things I found is on Jinfeng is that the depreciable rate on average for the year-to-date seem to step about the $250 per ounce range and maybe is that something that we should be think about going forward?

I'm sorry, can you repeat that?

The depreciable rate, the dollar per ounce depreciation, D&A rate on average for the first half was about $250 per ounce. Is that something that would be considered going forward?

Yes, that's about the rate that we expect going forward, yes.

Okay. And Eastern Dragon, just wondering about how much we spent during the year-to-date and what your target is for the balance of the year?

For capital?

Yes, please?

Yes, it's not much on capital..

It's minimal.

It's minimal.

At this stage of work, we are frankly finishing off the permitting process David.

Okay. And with that permitting in mind and this is going to be an important part of your timeline, when do you say this is coming on stream to contribute production?

Well, we still think next year, I guess as is the case of Efemcukuru. It's going to give us a little bit of time here and we'll update. It's going to depend, of course when we start. We think we can wrap up construction quite quickly, and there has been some work done already by Sino onsite. So, yes, it depends on the timing of permits.

Yes, I mean in the case -- as Norm says, I mean in the case of Efemcukuru, it's depended upon what the level of productivity we get out of the underground development in the case of Eastern Dragon and just frankly when we have the remaining permits. If we can get started then we can firm up on when we expect to finish. I mean, in Eastern Dragon, we're in good shape in terms of engineering and procurement.

Yes.

Our approach to when you start construction shall we say somewhat different to our predecessor.

You mentioned Efemcukuru where you've got a little bit of slippage on-time here, do we have a commensurate increase in CapEx from what you're seeing at the moment?

No, I wouldn't say so. Simply we've been a bit delayed getting started with the underground development. I think any increase in capital will be very very modest.

Alright. Thank you very much.

At this point, we're not projecting any increase in CapEx.

Okay. Well, thank you very much.

Thank you. The next question is from Barry Cooper of CIBC. Please go ahead.

Yes, good morning. Just wondering on Tocantinzinho, what is going to be the change on your pre-feasibility expectations vis--vis the kind of, I guess the soft scoping study, if I call it that, that was done by Brazauro or earlier, is there going to be -- are you changing much there in terms of throughput or anything else like that?

Not really, no. The concept is essentially the same in terms of the open pit where facilities are sighted, power lines, road access is not really much different than what was there before, I mean there'll be more detailed mine design. We're going to start doing some condensation drilling facilities here shortly everything we need to do in actual [pre-feas], but the concept is similar.

Yes, okay. I just wasn't sure whether when you got the hands on that whether you kind of say, "Okay, well, let's put it into an Eldorado form." And the Eldorado form is not the same as what they have admission when they originally did that scoping study a couple of years back. But obviously the numbers will be updated and everything else like that.

Yes, I mean the scoping study was their study. This will be our study and will be done to pre-feasibility standards so that we can stand by it in terms of first reserve statement. But I mean, clearly the scoping study that was produced by Brazauro stepped off of our combined views as to what was an appropriate scale of project. We don't necessarily have -- expect the same financial results in terms of capital and operating cost as Brazauro, because again it'll be our engineering studies as opposed to theirs.

Sure, sure. And then, stepping over to Turkey with some new mining laws that got passed there last month, has there been any kind of action with respect to acceleration on permitting or the granting of permits at this point in time?

Yes, there has been. And certainly one of the things that's occurred is the -- you can do bar C permits again, so that's on our exploration where we're looking at now being able to permit our drill sites and roads. I can't really comment for the other folks that are doing business there.

Right. Just wondering you've got your permits then for the underground, there is no real change in, I guess the law vis--vis what you could have done six months ago compared to what you can do now?

No, I mean, the change in the mining law don't affect -- the permits that we had for the construction of Efemcukuru are the same permits. I mean, the mining law doesn't affect that I mean. What the mining law does affect is ultimately the final permit that is required for us to start operations is now being shifted to back to central government as opposed to municipal level. That's really the only change for Efemcukuru.

And then when does that final permit get granted though?

When we have -- basically when we start up.

Okay.

Yes, I mean --

So, it's kind of the last turnkey thing where they say okay, we have done an inspection on whatever thing and everything is copacetic and here you go.

Yes, exactly. We essentially start the mine op, and then they come in and ensure that we are operating in compliance with the EIA and the conditions that were specified within the EIA ranks.

Right.

Identical to what we did at Kisladag, Barry. The only difference is again that that permit is now granted at central government level where the rest of permits are granted as opposed to it being a sort of an outlier granted at the municipal level.

Okay. Then right on the, I guess, your guidance is now topping up at the top end the range for the production level, the lower end of the cost. Is that primarily all related, if I were to simplify it, mostly all to Kisladag given that you are probably about 65% or 70% of your original guidance for Kisladag already with six months under the belt?

I think we would have said that in the first quarter but I think in the second quarter we have seen, as I commented in the call, a significant improvement on the cost from the Chinese operations. So, to the extent that that continues through the year, I think you will see the overages as being a combined contribution from all the mines really.

Yes, I think the original guidance was $230 to $240 at Kisladag, $153 for the six months which suggest on an annualized basis you would be over $300 there.

Yes. Barry, you are trying to get us into guiding for the quarter, we are not going to do that.

Okay, so let me ask in a different way. The second half I suspect will be a little bit weaker at Kisladag than the first half?

That's your suspicion.

Okay, fair enough. Thanks.

Okay.

Thank you. The next question is from Kerry Smith of Haywood Securities. Please go ahead.

Thanks operator. Norm, just for TJS, the roast performance how has that been now that you've had it operating for a little while, has it is been -- is it pretty much running at budget and at design?

Yes, no, it is going pretty well Kerry and since, it's very close to budget recoveries and we are not really having any issues at the asset plant. It's a complicated piece of machinery so there is always something going on there but I think from sort of here on now to Tanjianshan, we are optimizing the performance of that circuit but no major issues.

Okay. And the drilling on the 323 zone, is that now finished, like have you fully closed off that zone or does it still remain open in any?

We should have closed off the main part of it that we are sort of doing the modeling and the resource calculation on now, but we still got some -- we still have some indications along straight especially up towards QLT, the first heavy mine there. So, no, it's not closed off. We have got -- we have enough drill now that we go ahead and run a resource on it so that's what we will do.

And when would we see that resource do you think?

Should come out in this quarter, Q3.

Okay, is that going to come out, let's say, within two, three weeks with the Kisladag resource or will that be a separate?

No, that will be probably a separate one.

Okay.

I think it's too far behind. But I don't think it will remain for Kisladag one.

We will probably try to wrap it up into a bit of general update on exploration.

Yes.

Okay and then just for Eastern Dragon, the permitting that you have to complete before you can actually start construction, do you think you will get that permitting done, is that something that's going to happen in the next couple of months that you can get mobilized on construction before it gets too -- or the weather gets too miserable or is it not really that bad up there?

Well, let me -- we got a pretty good winter out there. I mean, sort of Northern Ontario type, very Northern Ontario type winters. Yes, I mean, that's sort of the timeframe that we were hoping for.

Okay. So you are hoping for permitting to be wrapped up in the next couple of months I must say?

Yes, that will be start, sort of before it starts to get into real winter.

Right. By October be in construction or...?

Yes.

Okay. And for the PEIA at Perama have you heard any feedback, because this is been issued to the government or been delivered to the government, have you had any feedback from them in terms of issues that have been identified or things that they are concerned about or what kind of feedback are you getting from them, and when do you think you might actually have that PEIA approved?

Kerry, I mean, let's put it this way. There has been no feedback that would suggest that anything that we've submitted is problematic. As you appreciate in Greece right now, plotting progress is somewhat difficult. We are still taking the view and working on the basis that we are going to be in a position to have the pre-EIA behind us by the end of the year and have our full EIA submitted, and if things change then we will tell you.

Okay.

But it's one of these situations where there really is no milestone between now and getting a pre-EIA.

Okay. And then, just one last sort of general question Paul and Norm. Just on Kisladag because it's running extremely well for you, and I am just wondering strategically what other things you could do there to sort of incrementally improve the operation or have you kind of got most of the operational efficiencies that you think you can get?

No, we are looking at the expansion, we are doing an expansion right now to take this up to 12 million, 12.5 million tonnes per year. This ore volume isn't drilled out yet. So, I think we will probably do another drilling program this year if not certainly next year. And as it keeps getting bigger, it certainly changed from the original, what we original had as a project there in the EIA. We are going to look at bigger equipment as well, because the pits, we are going to get deeper in the pit and one way to offset that cost is to go to larger equipment.

Part of the reason, Kerry, why we are delaying frankly on getting this reserve out is because as we Norm described previously, I mean, we've seen what we think we are seeing better recoveries. We are certainly seeing more ounces here, and it may very well be that there are opportunities to scale this project up, and that's something we've said all the way along, along the line.

I mean, the expansion that Norm described is something we committed to almost a year ago now, and that's underway and along with way in parallel with that obviously we've made other improvements, counter current leaching, expanding the size of the carbon columns and we are benefiting from that as we go forward. So, there is various ways and means in which we potentially can enhance this operation.

And then, just on solution management generally if you are -- that's going to get to be a bit more of an issue, is there anything there that you can do to keep the cost reasonable, or do you think that will be a problem at all?

I don't think so. I would say it's still away. I think as your pads get larger it creates greater flexibility in how you manage your leach pad. We have increased our pond capacity, and again, having now the pond capacity in the area that extend open for counter current leaching it gives us currently more flexibility to manage solutions. We are able to store more solutions, accumulate more solutions in the wet months and keep those available to us for the dry months. And as you probably noted, you haven't heard us complaining about problematic leaching cycles in the summer for the last two years and that's partly because as this is scaled up, we just have more flexibility.

Okay. Okay, great. Thanks a lot.

Thank you. (Operator Instructions). The next question is from Anita Soni of Credit Suisse. Please go ahead.

Good morning Paul and Norm. My question, and congratulations on the good quarter, my question is with regards to unit cost improvements at the Chinese operations. Could you talk a little bit, Norm, about any particular areas that you are seeing any unit cost, because how my calculations are coming down?

Well, I think we are doing, and we are doing a little bit better, and yes, at Jinfeng we are doing a little bit better both in the pit and underground. I would say the same thing, well, at this quarter right now anyway. As I mentioned Tanjianshan, I think the improvements now going forward are going to be more on -- the mine is -- we understand that quite well. It's a mining contract and the costs are pretty much under control there. I think the improvements will be mostly on the plant site.

And then, in terms of...

We've got sort of six months under our belt now at the new operations and I think we have done fairly well them.

And then, in terms of Jinfeng grades, I know you are running a little bit below the guidance. Do you expect that to come up, for the full year guidance?

We shouldn't be much below guidance.

I think it was like 4.96, you are running 4.5 right now.

Yes. It might come up a little bit, I don't think it will be too much.

Okay. And then, just.....

Let me take a look at that.

Okay. And then, just, I missed the split when you told us what the underground tonnage and grades with Jinfeng?

I don't think I gave it.

Comment (Inaudible—multiple speakers)

No, I didn't give a grade. It was about a 100,000 tonnes --

Okay.

The underground which is right where it should be, and the grade is probably about 5 grams.

Okay. And then, lastly, on the exploration spend, seems a little bit below the $30 million you guided for the year on a run rate basis. Do we expect a lot of spending in the second half of the year?

Yes, I think we will. Whether or not we catch up to the $35 million, maybe not quite that. But certainly we are just getting going in Turkey with the change in the mining law, we can now drill the four projects we have been working on and the same thing in China, we are just starting to get going there. And we also may be redoing the budget for Tocantinzinho in Brazil, so would be probably some additional spending that was accounted for in the original $35 million.

And the last question, the throughput right now at Tanjianshan is running above 1 million tonnes per annum if you look at the quarter. Do you expect that kind of strong performance to continue or trending more towards the 1 million tonnes per annum?

Trending more towards 1 million tonnes per annum. I mean, that's what our license is in that.

Yes, okay. All right, thank you very much.

Sure.

Thank you. The next question is from Steven Butler of Canaccord. Please go ahead.

Guys, just a quick question to clarify Kisladag has historically been tracking a royalty or a difference between cash and total cash costs of about $2 an ounce and it bumped up to $41 per ounce spread in Q2. Is this new mining law a part of that or anything explains that bump in total cash cost above cash cost at $41 an ounce in Q2?

Well, the new mining law that basically includes royalty being increased from 1% to 2% and that translates into, on a per ounce basis, about $3 to $6 per ounce. Now the new royalty rule, however, is not clear whether it is going to be retroactive to January 1st, but what we did was to be conservative. We accrue for it in June. Going back to retroactive to January 1st, and the total in the quarter, there was a cumulative impact, a one-time impact in the second quarter. But going forward, the royalty increase is $3 per ounce more and going up from $3 per ounce before the new law to about $6 per ounce. So there was a cumulative impact one-time that hit the second quarter.

I am sorry, you mentioned $3 to $6 an ounce at 2% royalties and 2% of the gold price which is that $1,200. Are we now talking about more like $24 an ounce going forward or am I missing something?

That 1% was, on a per ounce basis, it was about $2.

Yes, if I can just step in here Steve, Ed, I think you actually are closer, because what our understanding of the new royalty is it's essentially going to be a 2% NSR. And so, you are right Steve, I mean, at 2% NSR would translate to around $24 an ounce. The previous royalty was a 1% royalty, but it wasn't an NSR, it was closer to some form of net profit royalty.

No --

There is a sizable gap, and I can't, and maybe Ed, you have what 1% would represent. But as Ed described, we are not certain right now whether this is going to be applied as of January 1, 2011.

Okay.

July 1st and so we've taken a conservative view and said, okay, what's the worst case if it ends up being retroactive to the beginning of this year, let's take that hit now in this quarter, and if we are ultra conservative so be it, we will rectify that when it's clarified.

Okay, thank you.

So we have an upside on the energy yield, and we know whether it's going to be applied retroactively to the beginning of the year. If it isn't, then we will flow back what we have accrued.

Okay, thank you very much.

But if you assume, the worst case is 2% which is $25 less whatever the amount was based on the 1% sort of essentially a net profits royalty.

Right, okay. Thanks Paul.

Okay.

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

All right. Well, thanks operator and thank you everybody who is on the call and we look forward to talking with you a quarter from now. Have a good day.

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