Eldorado Gold Corp (EGO) 2011 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Eldorado Gold Corporation 2011 first-quarter 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 Nancy Woo.

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 managed in our Annual Information form in our Annual Quarterly Management Discussion Analysis, available on our website and onSEDAR, identifies factors and assumptions upon which the forward-looking statements or information are based on and the risk, uncertainties, and others factors that could cause actual results to differ.

Our forward-looking statements and information made or provided during this presentation are express qualified in their entirety by this cautionary statement and cautionary statement contained in our press release dated May 5, 2011.

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

Thank you, Nancy, and good morning, ladies and gentlemen. Welcome to Eldorado Gold Corporation's first-quarter financial and operating results conference call. Joining me this morning in Vancouver, are Norm Pitcher, Chief operating Officer; Ed Miu, Chief Financial Officer; and Nancy Woo, Vice President of Investor Relations.

We will follow the usual format with Norm providing some additional detail on the Q1 operating results and outlook for the balance of the year, Ed will then cover the highlights of the financial results for Q1, and then we'll open up for questions.

Suffice to say we are very pleased with the start to the year. With all of our gold mines meeting or modestly exceeding their planned performance in the quarter in terms of both production and unit costs. In addition, our Vila Nova Iron Ore Project made its first contribution to the profitability of the Company.

With gold production of approximately 148,000 ounces in the quarter, this was about 10,000 ounces of our own internal plans, and with unit costs slightly below plan, we continue to maintain our guidance for the year of 715,000 ounces to 770,000 ounces at $375 per ounce to $395 per ounce.

It is important to emphasize that in accordance with the Company's plans for production and costs, you will see significant variance from quarter to quarter. With production generally increasing and costs generally declining through the year, as Efemcukuru and Eastern Dragon come on stream and ramp up as we move through the year.

In addition, what you will see is additional production from Kisladag as it hits the full run rate of 12.5 million tons a year at approximately mid-2011. We remain satisfied with the progress that we're making in construction at both Efemcukuru and Eastern Dragon, and look forward to our first gold production in the quarter from Efemcukuru.

At the TZ Project in Brazil, we are continuing with an aggressive program which includes ongoing engineering, permitting, and exploration activities, all designed to enable us to make a construction decision by year-end with the intention at this point to commence construction at TZ in 2012.

In Greece, continued active interaction with the Ministry of Environment and other stakeholders, continues to provide us with confidence that we will indeed successfully permit the Perama Hill Project in a timely manner, and again envisage a start to construction in 2012.

Our engineering groups continue to work on the phase IV expansion study for Kisladag, which we expect to be in a position to talk about more fully by mid-year. This study is being done in a manner to satisfy several requirements, principally to look to bring this Kisladag mine up to an annual production rate of approximately 0.5 million ounces per annum.

With that, I'll hand over to Norm, who will provide some additional color on the operations.

Thanks Paul. Good morning everyone.Just a general comment. I think we're -- I'm certainly very pleased with the performance of the operations in the quarter, and as always, I would like to thank our operating teams in Turkey, China, Brazil, as well as the Vancouver staff for achieving this.

As Paul mentioned what you're going to see going throughout the rest of the year is, is production ramping up at Kisladag as we, as we hit the, the 12 million ton expansion, and Jinfeng, White Mountain, Tanjianshan pretty much staying as they were in the first quarter and then bringing on Efemcukuru and, and Eastern Dragon later in the year.

Starting with Kisladag, we produced 50,833 ounces at a cash cost of $386 per ounce. That was compared to a budget of 50,102 ounces at $376. The phase III expansion has been completed and is up and running. In April we actually ran at the annualized rate of 12 million tons per annum. The major expansion scoping study, designed to maximize the 10.2 million ounce reserve, is proceeding and results will be released in early July.

At Jinfeng, we produced 48,564 ounces at $430 per ounce. That was compared to a budget of 45,897 at $467 per ounce. Both mining and processing costs were slightly below budget during the quarter.

Tanjianshan produced 28,493 ounces at $402, versus a budget of 27,038 ounces at $411, and we saw no operational issues at Tanjianshan during the quarter. We are starting to process some QLT concentrate at about 1,600 tons per month, and that's reclaiming 1 of the tailings [impalements].

At White Mountain we set a record for production, producing 20,687 ounces at a cash cost of $438 per ounce. That was versus a budget of 15,606 at $592 per ounce. A very good quarter at White Mountain. Production there was positively affected by higher grades in the Stopes mine during the quarter.

Vila Nova Iron Ore, we mined 138 tons of rhodonite ore. Made 2 shipments during the quarter, 1 lump and 1 center. Average price received for those was $124 per ton. That versus an average total cost of $53 per ton. Heavy rainfall throughout northern Brazil has slowed things down a little bit at the mine in the last couple of months, but we're coming out of the rainy season now and still expect to meet our 10 shiploads of approximately 45,000 tons each during the year.

On the development side, at Efemcukuru, dry commissioning continued during the quarter. It was completed in April. The power line has been energized, which allows us to turn the mills in anticipation of wet commissioning. The underground development continued on schedule with approximately 3,000 meters completed at the end of the quarter, giving us access to both the middle ore shoot and south ore shoot.

So far, grades encountered in the ore zone are pretty much as predicted by the reserve model. We expect commercial production to commence at Efemcukuru in the third quarter. However, the bulk of the gold production will be realized in Q4 when the treatment plant at Kisladag is complete. Just to refresh people's memory on that, we are producing a gravity concentrate, [Endora], on site, and then we're also producing a flotation concentrate, which is being shipped to Kisladag.

At Eastern Dragon, construction continued during the quarter, despite some pretty cold weather conditions. The concentrator building is enclosed, and we continue to pour foundations, including the critical foundation for the mill. All of the equipment has been ordered, and 90% is on site now, including the ball mill.

Tocantinzinho, the pre-feasibility study has been released. We continue to work on the EIA documents and expect to submit them by the end of this quarter, and then we're looking at a 9-month to 12-month review period for that. I'll talk a little bit more about Tocantinzinho under the exploration section.

Perama, I think Paul pretty much covered that, so let's go on to exploration. Q1 is generally our slowest quarter. That's really due to weather conditions in the field. But during the quarter, most of the exploration activity was focused on underground drilling at Jinfeng, as well as soil sampling and drilling at Tocantinzinho.

At Jinfeng, we are doing a combination of reserve definition and exploration. At Tocantinzinho, if you saw the press release, there's a figure in the back that sort of shows where we're stepping out from the main ore zone and drilling a combination of geophysical and soil anomalies, as well as targeting the trend itself.

During the second quarter, we will continue at Jinfeng and Tocantinzinho, plus start drilling programs at Efemcukuru on Kokarpinar and the northwest extension of the main zone. We'll have 2 drills going there. Kisladag drilling has started, which is a combination of exploration targets and infrastructure drilling for expansion.

At Tanjianshan, we'll start on 323 drilling to convert resources into reserves. The QLT deeps will come probably by mid-summer. At White Mountain, we will start drilling the main ore body extension, down plunge, as well as 2 satellite deposits which are [Xiaxiren] and [Dong D'po]. We'll also drill another project in Brazil, close to Tocantinzinho, called Aqua Branca.

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

Before I delve into the financial numbers, I want to point out the fact that Eldorado has commenced reporting in IFRS effective January 1, 2011, as required. Accordingly, the numbers reflected in the financial statements for first quarter 2011 were prepared under IFRS. Prior periods' financials have also been adjusted to IFRS convention in order to allow apple to apple comparisons between the time periods.

We have included a section in the notes to the financial statements, Section 14, to be exact, which provides explanation of transition to IFRS, and reconciliations of Canadian GAAP to IFRS. Suffice it to say that the net impact from the transition to IFRS is not significant. Now the numbers.

Starting off on the balance sheet, March ending assets balance of $3.7 billion increased by approximately $23 million from the end of last year. That was mainly due to capital investments incurred, plus an increase in deferred income tax assets, which was partially offset by decreases in cash, marketable securities, accounts receivable, and prepayments.

Including restricted cash of $55 million, quarter ending cash balance was $350 million, a decrease of $17 million in the quarter, which I will explain later on when I go over the cash flow statements. For the end of March, total liabilities amounted to $681 million, a decrease of $7 million in the first quarter, due primarily to bank debt reduction.

Moving on to the Income Statement. First quarter's [NATO] sale revenues of $218 million had a year-on-year increase of $30 million, or 20%. The revenue increase was accounted for by the gold price increase, coupled with $10.6 million revenue generated in Vila Nova, which was not in production in the first quarter of 2010.

Consolidated mine operating profit of $112.5 million, was up by $19 million year-on-year. Including a $10 million extraordinary G&A expense item booked in the quarter, net income attributable to shareholders of the Company for the quarter was $52.5 million, or $0.10 per share, compared to $50.5 million, or $0.09 per share for the same quarter in 2010.

On the Cash Flow Statement, $92 million of cash was generated in the quarter from operations before changes in non-cash working capital in the quarter. An increase of $11 million, or 13% over the first quarter of last year. That was attributable primarily to the year-on-year increase in profits.

The cash generated by operation in the quarter was more than offset by capital expenditures. The dividend payment and bank loan repayments resulting in a net cash decrease of $20 million in the quarter. Including restricted cash, quarter ending total cash balance decreased by $17 million from year-end 2010 as I mentioned earlier.

I'll now turn it back to Paul.

Thanks Ed. Thanks Norm. Operator, we'll open it up for questions now, please.

Thank you. (Operator Instructions) Our first question is from Josh Wolfson from Stifel Nicolaus. Please go ahead.

Hi guys. I just want to know, for Kisladag, the amended permit, has that been secured?

It's been submitted, and we're waiting for final approval on it.

Okay, so just wondering what the impact would be if you, if you -- assuming it's not secured by mid-year when you would expect to ramp-up, what would happen, I guess, towards the second half of the year?

We don't need the-- we don't need that to ramp up. I mean, we have essentially already ramped up. We need it, you know, in reality, you need it by the end when you've done your annual production. We'll get -- yes, we'll get it way before that.

Okay. And accounting for Efemcukuru, just because the -- I guess commercial production third quarter, the bulk of production will be in the fourth quarter. Should we expect to see any contribution to the income statement at this operation in the third quarter?

No. I mean, what, what you're going to see in the third quarter is really minimal production coming from the processing of gravity concentrate being reduced to dory on site. It's a bit of an odd situation in terms of when you do declare commercial production, and we're taking the approach, really, that it's not going to be until we're able to start treating the flotation concentrate.

Okay, so then in fourth quarter, I guess we'll see a pretty sharp ramp up?

Yes, look, I mean I wouldn't get too preoccupied as to commercial production versus production. I think from our perspective, what we're most focused on is obviously, you know, the getting, getting the mine up and running and getting, getting the ounces that we have targeted for the year produced, so to speak, whether the split between how much is accounted for commercial production versus what, what is accredited to capital is a bit of a moot point.

But it's certainly going to be the bulk of the ounces produced will be coming out in the fourth quarter.

Fourth quarter.

Fourth quarter, yes.

Okay. And then just a quick question on G&A. Saw the increase this quarter, and it seemed like it was a one-time thing last quarter. Is this something we should expect to be sustained going forward, or is it due to currency movements in your operating regions?

No, I mean, look a big part of it was simply due to a one-off payment to management in the first quarter for services in the past. This will not be occurring on a quarterly base.

That's correct.

Okay. Thanks so much for taking my questions.

Welcome.

Thank you. Our next question is from David Haughton from BMO capital markets. Please go ahead.

Good morning Paul, Norm, Ed. Thank you for the update. I've got a question for you with regard to Eastern Dragon. When would you expect for that to come into production on a commercial basis?

If it's not the end of the fourth quarter it will be early, early next year -- first quarter next year, for commercial.

I mean we're only forecasting, David, 20,000 ounces to 30,000 ounces of total production. I mean, practically speaking, anything-- the part of that that is going to be commercial is going to be negligible.

Yes.

I mean, if you want to keep it simple, I would just -- I would have commercial beginning of next year.

Yes.

Okay. And when we're looking into next year, I guess with the kind of really good grades that you're getting out of there, initially open pit, and then ultimately underground, we're still looking at that 85,000 ounce kind of run rate?

Well, I think we've certainly gone out in our disclosure with four areas that we've identified opportunities to increase production. One of those areas is Eastern Dragon.

Yes.

But we've also said that it's going to be -- you know, that's probably going to be the last of the studies to be delivered, which probably realistically won't be until this year -- this time next year. I mean, I think our view, obviously, of Eastern Dragon, is that it will evolve into something that can produce more than what we've pointed towards in the existing disclosure. But we're a ways off being able to substantiate that, David.

Okay. The CapEx this quarter there, about $4 million, looked a little bit light. Would we expect to see quite a bit of catch-up during the balance of the year?

Yes. Yes, you will.

Okay.

I mean, it was light really, it's a weather issue.

We were looking at about $55 million for the year, Eastern Dragon. Is that still a reasonable thing to shoot for, CapEx?

Yes.

All right. Now, at TJS, I see that you've got your concentrate coming out, and you'd mentioned in your discussion, Norm, that we're looking here at getting stuff out of the tails. Can you just explain a little bit about what's happening there, what's the process?

That was just when we were processing the QLT deposit, there was a small part of it that was refractory. It was a whole ore leach, and then we did a flotation concentrate. That flotation -- so, just a pulse leaching concentrate. That concentrate went to the -- the sulfite concentrate went to the tailing stand. We knew we were going to be reclaiming it, and that's what we're doing sort of now at about 1600 tons per month. It's not particularly significant, but it just -- it means that you're, if you sort of look at recoveries and tons into the mill, it's not going to exactly balance, because we're adding some in from this concentrate. Now, it's coming in out of inventory at about the same cash costs that we're experiencing right now. So, it's not going to have a, it's not going to have a big net effect on the cash costs.

Okay. Just still in China, both Jinfeng and White Mountain, had quite good grades this quarter. Should we expect that kind of grade to continue for each of those assets?

No, I think White Mountain will come down a little bit closer to budget. I mean, we -- basically at White Mountain, we went into, as I sort of described, went into an area, and it was significantly higher grade than the model predicted. You know, it wasn't that we're mining in a different area, it was just higher grade. But I would, in general, I think the model is predicting fairly well at both deposits now. I would expect them to sort of come back down to what we had guided towards before. Jinfeng wasn't up too much more. I mean, White Mountain was the big anomaly.

Yes. And in the case of Jinfeng, was that supported by better grade from underground, or both the open pit and the underground looking good?

I think it was probably both.

Right.

Yes, a little bit of both.

Now, Kisladag I know that you've got a lot of work ahead for potential expansion and maybe as much as doubling what we see today. Paul, I kind of missed your timeframe on when we could start to see some news on that. Could you just go through that for us, please?

Yes. We're aiming to, to have this study complete by mid-year, and I think as Norm has commented, we do expect to be able to talk publicly about it in the month of July.

All right. Well, thank you very much.

You're welcome.

Thank you. Our next question is from Mike Jalonen from Bank of America. Please go ahead. Please go ahead, your line is open. If you're using a speaker phone, please lift up the handset.

Hello, Mike, where are you?

Unfortunately hearing no response, we will move on. Our next question is from Kerry Smith from Hayward Securities. Please go ahead.

Thanks, Operator. Hi, everybody.

Good morning, Kerry.

Good morning.

Just on, there's a slide in your presentation package, I guess maybe Norm, that you talk about the expansion opportunities. Could you just in general terms talk about for some of them what you're thinking of there? Like, like for instance, Eastern Dragon, I'm presuming you are planning to basically double the mill, and are you sort of building the mill with that in mind today, such that would be a relatively easy thing to do? Just trying to get a sense for the scale of what you're planning here.

Yes. I mean, we're obviously leaving a little bit of extra room in there, but you're probably, yes, I mean you're probably looking at another ball mill at least there. So, yes, you're close to doubling it, so we're going to need some extra room there. Room is not a big issue at Dragon. At White Mountain, it's really-- we've almost got the capacity in the system now, so there's not too much to do there. And then Kisladag, of course, is the big one and that'll be coming out in July. You'll sort of see the details of it there, but that's a -- you know, that's going to be obviously a large one.

Right, and then --

Large in terms of production, and it's going to be fairly significant on the CapEx side as well.

And in Efemcukuru, Kerry, just to round it off, is one where we're certainly seeing that we're, we're actually building, in reality, we're building additional mill capacity in, in the system. And I think that with the higher metal prices, we're certainly going to be modifying our approach to mining somewhat. That will be shift things towards maximizing resource recovery and that will be reflected in probably more of the ore body being mined, cut and fill, and you know, cut and fill tends to reduce dilution compared to open stoping. So, you know, it's a combination of factors is to how we will get there in Efemcukuru. But the big one, if you look at the expansion, that slide that we put in our corporal presentation, which shows targeting, whatever it is, 300,000, 400,000 additional ounces. The big contribution, of course, is Kisladag, and you'll see that middle of the year time.

Great.

It's really over the next 12 months that you're going to see us working our way through each of these and give you the detail in terms of methodology and time frame, capital requirements, operating -- effects on operating performance.

Right. Okay. No, I know you wouldn't probably try and put CapEx around these projects today, but I was just trying to get a sense for what you're thinking. So, I think if I understand it, for Efemcukuru and White Mountain, really that's kind of debottlenecking and maybe modest CapEx to get to where you want to get. And then Kisladag and Eastern Dragon is going to be more CapEx and more time --

I mean, if you look at the total CapEx planned for this whole expansion, probably 75% of it is going to be Kisladag.

Yes, okay.

Yes, at least.

And then, and you've kind of got it all lumped into really sort of, sort of three years there; 2013, 2014, and 2015. Is that going to sort of stress your -- I mean, I guess from this, from this plan here, you would have Perama coming on before this, I guess. Then, the guys building Perama would go to Kisladag. Is that kind of how it would work?

Well, you know, I mean you're trying to fine-tune ahead of our fine-tuning, I guess. You know, I think through our experience in both China and Turkey, we've built up some pretty competent teams in both of those countries in terms of doing building and expanding. So I, I'm not --

Okay. Okay, that's fine, Paul.

Basically the engineering team that did Efemcukuru has now moved over to Eastern Dragon, you know, working on Tocantinzinho as well. Once Eastern Dragon is done, they'll move to the next one.

Right. Okay. And then just on, on Eastern Dragon, you had given sort of your guidance for this year, and with that guidance you had given the grades. I think it was 17 grams gold and like 130 grams silver. What kind of grade should we think about for the next year? Would it be more sort of inline with reserve grade, which is going to be--?

Yes, it's going start -- yes -- it will start -- at Eastern Dragon, the upper part of the deposit is the higher grade portion, and as you go deeper it will start coming down to reserve grade. I mean, next year might be a little better than reserve grade and then dropping down to reserve grade after that.

So maybe by 2013, you would be at reserve grade, but 2012 would be slightly better.

Yes. Yes

Okay. And this concentrate at QLT that you're running though the plant, how many years of -- will you be able to do that for? Or how long should we kind of think about this coming through?

About 5 months.

Oh, so just 5 months.

5 more years.

5 more years, sorry.

5 years, okay.

Because we're feeding it in very slowly.

Yes, okay. Okay. And then, just on Kisladag again, on the expansion, why, if you have this study done by mid-year, middle of 2011, it's 2014 is the timetable. Why is it that long to get that expansion running?

If you look at the heading in that column, Kerry, it says anticipated time frame. When we complete the study, the study will have the full details in terms of schedule. Okay?

Okay.

And so, it may be 2014, it may be a little bit earlier. But we, being our usual sort of conservative selves, that's what we have thrown out there. Again, as each study rolls out, we will give you capital, operating schedule, methodology, and performance afterwards. And we'll then be able to start to peg what's the realistic timeframe that we're working towards. So.

Right. Okay. And then just --

I mean, you know this, this is not a modest -- this will not be a modest expansion. I mean, this is -- we are targeting, as I say, moving this thing up to a level that's consistent with a resource base that's still growing. And so that points you towards closer to 0.5 million ounce of production. So it's a-- it will be a big expansion.

Right.

And then all the implications in terms of permitting and land acquisition and everything else.

Right. I'm presuming it's more than a doubling of the throughput would be my guess, but --

That's probably a good, good assumption.

Yes. And then just one last question if I could, Paul. Back when you put out your Q4 numbers, which I guess was February, you had talked about the phase III expansion at Kisladag, the 12.5 million tons, starting up in February -- or late February, I think, was the wording, and now it's going to be in Q2. I just wonder what the delay was? If it was just getting equipment to site, or just a bit slower than what you thought?

There wasn't a delay. I mean, it's done.

We're finished.

Already --

Yes. As I mentioned, we ran, we ran April at -- you know, if you multiply it by 12, it was a 12 million ton.

Okay. Okay.

Yes.

Okay. That's great. That's all my questions. Thanks very much.

Yes.

Thank you. Our next question is from Matt Sheppard from GMP Securities. Please go ahead.

Can you guys please describe what downtime or interruptions to normal operations at Kisladag were necessary to tie in the expansion in the first quarter?

Well, yes, it's just what we added was crushing and screening capacity, so when that was being tied in, it had to -- the system was shut down for 5 to 8 days, sort of thing. We also did some work on the construction main -- the main crusher mainframe at the same time. So, that was all sort of part of it. And then you've got, you know obviously, once you finish that, you've got some time to, to ramp up to full capacity. So, you have probably got another 10 days to 15 days anyway where you're fixing stuff and getting it up to full speed.

Okay. Thank you.

Thank you. (Operator Instructions)

Our next question is from Mike Jalonen from Bank of America. Please go ahead. Mr. Jalonen, your line is open. Please make sure that if you are on a speakerphone you've lifted up the handset. I'm sorry, we will move on.

(Operator Instructions) There are no questions registered at this time. I would now like to turn the meeting back over to Mr. Wright.

Thank you, Operator, and thank you everybody who has been on the call, those who have asked us questions, and those who have attempted to ask us questions. And look forward to reporting on the second quarter results. Have a good day.

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