Eldorado Gold Corp (EGO) 2011 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Eldorado Gold Corporation Third Quarter Financial and Operating Results Conference Call. This call's results are being webcast and is available on the Eldorado Gold website at www.eldoradogold.com.

I would now like to turn the meeting to Miss Nancy Woo. Please go ahead, Miss 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, or 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 the cautionary statement and the cautionary statement contained in our press release dated November 3rd, 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 and welcome to Eldorado Gold Corporation's third quarter financial and operating results conference call. Joining me this morning in Vancouver are Norm Pitcher, our Chief Operating Officer; Fabiana Chubbs, Chief Financial Officer; and Nancy Woo our Vice President of Investor Relations.

Following a few introductory remarks from myself, Norm will take you through the operating highlights for the third quarter and some brief commentary on what to expect for the balance of the year. Fabiana then in turn will comment on the financial results for the quarter and then we'll open up for questions.

We are all very pleased with the quarter results and we're also very pleased where we expect to be in terms of the end of the year.

The mines continue to operate in accordance with the plans with Kisladag, White Mountain, Tanjianshan, Jinfeng and Vila Nova all contributing to a record quarter of revenues, record production and record earnings.

We're also very happy with the steady ramp up of production at our new Efemcukuru mine in Turkey and remain on schedule to have the construction at the concentrator treatment plant in Kisladag completed in December.

Many of you in the past few weeks have had the opportunity to visit our assets in China and Turkey, which combined represent approximately 75% of our net asset value. So I will not spend much time this morning on commenting on the individual assets. Again, as I mentioned earlier, I'll leave that to Norman on his section.

We were also pleased in the quarter to strengthen and further clarify our commitment to delivering upon a meaningful dividend policy. I'm also pleased to confirm that yesterday the Eldorado Board of Directors formally approved management's recommendation previously announced to expand throughput at our Kisladag to 475,000 ounces annually. This will be accomplished over the next three years through the planned investment of approximately $350 million.

At this point in the calendar a lot of effort is being applied to finalize plans for 2012 and we look forward to providing you will full corporate guidance for 2012 early in January.

At this time I'll hand over to Norm.

Thanks, Paul, and good morning everyone. We'll start with operations and I think to a certain extent the results speak for themselves. We had a very strong quarter operationally. Starting at Kisladag, which did very well, produced 86,788 ounces at a cash cost of $377.00 per ounce. And we placed around 3.5 million tonnes of ore on the leach pad at a grade of 0.9 grams per tonne and the phase three upgrade, which took us to 12.5 million tonnes per annum, continues to perform at or above design.

At Tanjianshan, we produced 26,935 ounces at a cash cost of $353 per ounce. During the quarter we had a 16 day power shut down as a provincial power authority conducted routine maintenance on the distribution system. However, even with the shut down we were still able to meet budgeted ounces and costs at Tanjianshan.

Jinfeng produced 44,402 ounces at $424 per ounce. We're currently working on acquiring the land needed for the final pit pushback and expect to start that pushback in Q1, 2012.

At White Mountain we produced 21,270 ounces at $475.00 per ounce. Very good performance for White Mountain, where improvements in the process plant and in the mine are becoming quite evident this year.

Vila Nova, the iron ore mine in Brazil, we had better weather during Q3, which allowed us to improve transportation logistics in mining operations and for the quarter we sold almost 171,000 tonnes of iron ore.

On to development, as Paul mentioned, we have -- the Board has approved the results of the Kisladag expansion study of which sees the mine increasing ore production from 12.5 million tonnes per annum to 33 million tonnes per annum, which is 25 million tonnes through the crusher, an additional 8 million tonnes on the mine ore by Q4, 2014.

A big focus for development for the quarter, of course, is Efemcukuru where we continue to ramp up production throughout the quarter. At Efemcukuru we mined 59,000 tonnes at 9.3 grams per tonne and treated 57,500 tonnes at 8.9 grams per tonne.

Grinding and floatation circuits are fully operational. Recovery looks good and we're shipping concentrate to Kisladag where the recovery plant to produce ore will be completed this quarter.

At Eastern Dragon most of the civil works on site were completed. During the quarter we're pushing on finishing any outside work on the plant as winter approaches. Piping and electrical installation inside the plant were started during the quarter and work on those will continue into the New Year.

As we announced last month, we'll be delayed on starting earth works on the Tailings Facility and waste dump until springtime pending the receipt of final permit approvals.

On to exploration, since we've just done a fairly comprehensive press release on that, updating everyone on recent explorations results, I'll just touch on some of the main points.

We currently have 34 drills working throughout the world on 16 projects. In Turkey we've had encouraging results at Efemcukuru from the Northwest extension zone, where we're defining a new ore shoot that will be included in the year-end reserve and resource statement.

In China we continue to explore aggressively at our three operating mines including infill drilling at the 323 zone at Tanjianshan to bring this ore zone into reserve category this year. At Jinfeng we have 7 drills concentrating on near mine targets both in the surface and underground. And at White Mountain we have discovered a new zone of higher grade mineralization down plunge from the main ore body.

In Brazil we continued to test targets at Tocantinzinho and have made the option payment at the Aqua Branca property, where recent hole returned Tocantinzinho style widths and grades.

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

Thank you, Norm. Good morning, everyone. I will go through the financial statement, highlighting changes and significant accounts.

Commencing with the balance sheet, we ended the quarter with cash and cash equivalent balance of $357 million compared to a year-end cash balance of $314 million. The increasing cash balance is a result of cash generation from operations, net of the usage of cash for debt repayment, capital program and dividend payment.

The inventory increase is mainly related to material and supplies as a result of the increase in operation on needs requirement. I would like to bring to your attention that inventory levels will increase during commissioning of the Efemcukuru mine as flotation concentrate it produce at the Efemcukuru and shipped to Kisladag for further processing.

On the liabilities side, yesterday we paid $74 million of the outstanding debt, which brings the debt balance to $105 million as of September 30, 2011. During October we paid an additional $18 million on this debt. As you may recall this is the debt with Chinese banks resulting from the acquisition of the Sino Gold Mining. That acquisition, it has a balance of $190 million.

Moving on to the income statements, revenues of $326 million for the quarter were up a $136 million from a year ago due to higher selling prices and an increase in sales volume, mainly for increased production at Kisladag.

Year-on-year the [$217 million] revenue increase is the result higher gold prices as well as revenues from iron ore sales.

On the income tax expense, for the quarter was $63 million compared to $13 million in the same quarter last year. This increase is due to higher taxable income from operations in Turkey and China and the impact of the weakening in Turkish lira and current and deferred income taxes.

I discuss with you during the Turkish -- the visit at our Turkish mines and the IFRS a company has to revalue its tax basis of foreign currency used in the current exchange rate and records that revaluation as income taxes in the income statements. This results in volatility in income taxes due to foreign exchange rate movements.

As a way of reference, a 10% change in the exchange rate for the Turkish lira will result in approximately $7 million adjustment in our deferred taxes and a 10% change in the exchange rate for the RMB will result in approximately $16 million adjustment.

On the cash flow statement, which generated cash flow from operating activities before changes in non-working capital of $367 million for the nine months ended September 30, 2011 as compared to $270 million in 2010. This increase is a direct result for increasing operating profits.

The three main uses of cash related layer of cash relates to our capital program $202 million, repayment of debt $74 million and payment of dividends $61 million.

Those are my comments on the financial statements. I will return the call back to Paul.

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

(Operator Instructions). The first question is from Anita Soni from Credit Suisse.

My question is with regards to the royalty rates at Jinfeng. They went up substantially this quarter. Could you just provide some clarity on that?

I don't think it was--

The royalty rates per se would not have gone up, Anita.

Sorry not the rates but the actual amount, dollar amount paid per ounce seem to I think go from about $50 per ounce somewhere up to about $70 or so?

The rate per ounce?

Yes.

Sorry, Anita, what was the rate that you were estimating?

I believe it went from -- went upwards by about up to $70 per ounce instead of $50 the prior quarter.

What you're having there I think it's the (inaudible)fee. Remember you -- we indicated in the previous quarter.

Sorry could you repeat that again? Could you repeat that please?

Sorry my mistake. I thought it was a (inaudible).

Let us come back to that, Anita, because I think what -- it's not the royalty rate per se. What you're looking at is the gap between the cash operating and the total cash cost, which is large in the previous quarter. Let us come back to that later in the call with that answer if you may.

Sure and then also at Jinfeng do you have your mining from the stockpiles right now or putting the stockpiles I guess onto (inaudible) as the mining rate from the underground isn't keeping pace with what's going into the mill. Can you give me an idea of what the stockpile right now is at Jinfeng?

700,000 tonnes.

At what grade?

2.5, 3, something like that.

Thanks and did you say that at Tanjianshan there was a new zone that would be coming into reserve?

No this is 323. I mean we--

Oh okay.

Yes we put it into a resource last year. It will come into reserve this year. We're drilling to bring it up into measured and indicated proven and probable.

Okay thank you very much.

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

Well, we sort of realized that we had delivered a fairly predictable set of financial results and that questions would be few and far between but, operator, are you sure the rest of the lines are plugged in?

Oh we do have a follow-up question from Miss Anita Soni.

Ah well done, Anita, thank you.

I figured you needed some air time--

We'll have to give you a call back, Anita, on this but we'll sort out why the difference is a bit higher so.

Sure no, while it's -- as long as you've got I don't know--

Maybe it's just you on the line.

Sorry I missed the exploration. You gave an overview, Norm, on the areas where you're expecting increases. Could you just reiterate those for me since I am the only one who has got any questions?

Well I didn't actually give an update on where we expect increases because we're not going to really -- I mean until we do the calculation but you can sort of look at we've hit a pretty significant zone at White Mountain that is sort of normal widths and quite a bit higher grade than what we're -- than what we have up above and if you look at the long section on in the press release you'll sort of see where this is located. It's down plunge and maybe offset. We're not quite sure yet from the North zone at White Mountain so obviously you can sort of look at the spacing there and come up with some ideas.

And at--

Yes I think I did add that from the mine tour. I am just kind of curious. Is that year-end? Like is that an inferred this year or--?

I would think that will probably be an inferred this year yes.

And then perhaps further in the next year.

Yes what we're doing on that zone in particular, Anita, is we've got -- we're going to have access from our main ramp there in the next couple of months or so to be able to start drilling it from underground so we're going to hit that pretty hard next year. Because it obviously has some fairly significant implications on the mine plan going forward sort of in the next five year time frame.

In addition to that, Anita, of course, we're on to a fourth ore shoot or appear to be on to a fourth ore shoot in Efemcukuru as well so you'll start to see that coming into resources this year and, as Norm mentioned earlier, at Tanjianshan where we had an inferred resource we'll be bringing that up into measured indicated and making that eligible for reserves.

A fourth ore shoot so this is different between the south, middle and north?

That's right.

We're currently at the northwest extension and how it links onto the -- whether it's simply an extension of the north shoot or of the north ore shoot or a separate shoot, we're not quite sure yet. I mean, we're still--

Okay so that's the northwest extension you were talking about?

That's the northwest extension yes.

All right, all right. Thank you very much.

Josh Wolfson, Stifel Nicolaus.

Thanks for taking my question. I guess the lack of them is a good indication the tour went pretty well. I figure it with the lines being quiet I just wanted to ask in the release you mentioned technology issues at Perama Hill being discussed with the Minister of Environment there. Could you provide some detail on what the difference is I guess between what the feasibility study and what's being evaluated now and how that's being discussed with the Ministry?

Oh no there's no differences. I mean what we're doing right now is discussing the EIA; I mean the pre-EIA is working its way through the Ministry and we're preparing for approval of that and then preparing the ground for the submittal of the full EIA.

Okay so no technical changes I guess that you would expect at this point.

No it probably would be -- we probably could have worded it a little bit differently. I mean, there's not technical issues that we're having to deal with. It's just that we're going through all the technical parts of the feasibility study.

Okay that's good to hear. Thanks.

There are no further questions registered at this time. I would like to return the meeting over to Mr. Wright.

Thank you, operator, and thank you everybody for attending and I would like to extend our appreciation for the group that toured with us in Turkey and China and we enjoyed your company and so we look forward to the next time. All right thanks, operator. We'll wrap it up.

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