Eldorado Gold Corp (EGO) 2012 Q1 法說會逐字稿

Good morning ladies and gentlemen. Welcome to the Eldorado Gold Corporation First-Quarter Results Conference Call. This call is also being webcast on May 4, 2012 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, Miss Woo.

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

The information contained in our annual information form and in our annual quarterly management discussion and analysis is 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 and 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 May 3, 2012. I will now turn the call over to Paul Wright, President and CEO of Eldorado Gold.

Thanks Nancy and good morning ladies and gentlemen. Welcome to the First-Quarter Operating and Financial Results Conference Call. Joining me this morning in Vancouver are Nancy Woo, Vice President of Investor Relations; Norm Pitcher, Chief Operating Officer; and Fabiana Chubbs, Chief Financial Officer. We will follow the usual format whereby following a few brief comments from myself, Norm, and Fabi, we'll take you through the operating and financial results for the quarter and provide some additional color relating to our plans for the balance of the year.

The quarter has been an exceptionally busy one with the ongoing integration of the European Goldfields asset base, and the refinement of the development plans as disclosed April 12. We continue to be pleased with the progress being made here on all fronts, ranging from exploration, where we've started now in Greece on a couple of projects to the near completion of the refurbishment of the Olympias Mill, and to the start of construction activities of Skouries, and the steady progress we're making at the Certej project in Romania on the permitting front. Operationally, with the exception of the slow ramp up of production at Efemcukuru, we are very pleased with all of the mine's performance in the first quarter. It's necessary to remind you that all quarters are not created equal and are largely influenced by climatic considerations.

Simply dividing our annual guidance by four will not provide a reliable quarterly number. As an example, the Eldorado corporate plan for Q1 production in visage producing approximately 135,000 ounces at cash costs of $510. Our actuals were in excess of 155,000 ounces at $452 an ounce. Hence our satisfaction with the performance of the Company's operations. As an example, our Kisladag Mine, which is a heap leach operation operating in Turkey, is every first quarter of the year affected by the fact that the period of January through March has some of the highest precipitation of the year which inevitably dilutes solution grades and effects ultimate recovery going through the plant. And again, given that most of our mines are in the Northern Hemisphere in one way or another, we tend to be effected detrimentally in the first quarter.

Norm will, in a moment as part of his discussion, take you through some of the issues that we've been facing and resolving as it relates to the startup of Efemcukuru. Ands with that I'll hand over to Norm.

Thanks Paul, and good morning everyone. Let's start with the operations. I will go into Turkey and Kisladag. As Paul mentioned, we do have a seasonal production rates there. We're affected in the wintertime, mostly by cold weather and this winter we were really affected by cold weather. It was one of the coldest winters on record in Turkey. Despite that Kisladag, performed well producing 65,707 ounces at a cash cost of $339 per ounce, which actually beat our operational budget on both ounces and cost. Design work for the Phase Four expansion continued including site layouts, electrical and mechanical installation, and process design criteria. Long lead time items have been ordered, including the mine fleet and gyratory crusher and we expect the first haul trucks to be delivered by the end of the year and the remainder of the fleet in 2013. The gyratory is scheduled for delivery towards the end of 2013.

Onto Efemcukuru. We had the same difficult weather there at site that we did at Kisladag. Maybe even a little bit worse, because it's a little higher elevation. But the process plant put 18,300 ounces in to concentrate that was then shipped to Kisladag, bringing the total of ounces at the end of the quarter in concentrate to approximately 35,000. The Kisladag concentrate treatment plant produced 4,293 ounces of gold during the first quarter, and we expect that the remainder of the ounces will be -- of the non-commercial ounces will be produced in the next quarter. At the Efemcukuru mine site, production was affected by not having paste fill available during the quarter. We will have that system up and running this quarter.

Process plant performance improved during the quarter and has now reached design levels for both throughput and recovery. At the Kisladag concentrate treatment plant itself, as stated in the press release, we've identified a bottleneck in the filter press circuit which post leaching separates the tailings from the pregnant solution. We are replacing those filters during this quarter and expect the plant to be running at designed levels for the second half of the year. The other main elements of the treatment plant which are the fine grind, leach circuit and electro winning are operating normally.

On to China, Tanjianshan produced 26,816 ounces at $408 per ounce. It was a very similar quarter to the first quarter last year. We do have the shut down for Chinese New Year there during the quarter, but there were no surprises at Tanjianshan. On Jinfeng produced 35,235 ounces at $643 per ounce, also better than budget for both ounces and cost. A mining took place from both the open pit and underground during the quarter with most of the millipede coming from the underground and surface stock piles. At White Mountain, we produced 21,484 ounces at $543 per ounce, which is 20% above budget for ounces and below on costs. And recoveries at the plant are seeing the benefit of the caustic pre-treatment. At the Vila Nova Iron Ore Mine in Brazil, well we reprocessed about 190,000 tons of ore and sold two shipments during the quarter for a total of 88,581 dry tons of iron ore, and operating costs averaged about $65 per ton during the quarter. Exploration diamond drilling continued during the quarter and we are quite encouraged by the results there to date.

Let's move on to development, and this section is getting longer all the time so I'll try to talk fast. Eastern Dragon. No construction during the quarter. We expect to restart this quarter pending receipt of the PPA. Tocantinzinho in Brazil, we continued on engineering and field work to support the feasibility study which will be completed during the third quarter. Last year, there had been somewhat of a jurisdictional dispute between the state and federal permitting agencies as to who would be responsible for reviewing and approving the EIA. The state prevailed, which is good news for us. And completion of the review and approval of the EIA is expected before the end of the year. Onto Perama Hill in Greece, several key milestones were achieved there during the quarter. The PEIA was approved in February. A fast-track approval for the EIA in March, and then submittal of the full EIA to the Minister of Environment also in March with approval expected in Q4 2012.

Basic engineering work has started so that we can start placing orders for long lead time items and we'll start carrying out various site investigations for surface facilities. On to the new assets. Olympias, a very busy quarter at Olympias. We've been working on a bunch of different things including a rehabilitation of the underground workings; a rehab of the existing processing plant; development of the plant at decline which connects the underground to the refurbish mill; development of the portal for the long decline between Olympias and Stratoni; and also metallurgical test work to support the economics of the new facility at Stratoni. The mill will be refurbished towards the end of this quarter and will be in a position to be getting pre-tailings at that point.

At Skouries, basically work during Q1 focused on preparations for fieldwork which will start this quarter and continue throughout the construction cycle. The major activities we'll start on will be access and internal road construction; a surface clearing and earthworks; geo tech and infill drilling; some minor archaeological work starting on the surface portal for development of the underground decline. We also selected the EPCM contractor for the flotation treatment plant, which is ENOIA, a company based in Athens. On Certej, we did a fair bit of work getting comfortable with the metallurgical flow sheet and updating plant capital costs. Permitting activities continued. As I think a lot of you are aware, there has recently been a change of government there. And there'll be elections in November of this year. But we do not expect any material changes to the agencies reviewing our EIA application.

That's it for development, on to exploration. Q1 is not usually our busiest quarter, but this year it actually was fairly busy. We had 15 projects being drilled and drilled a total of 33,000 meters in Turkey. Both Efemcukuru and Kisladag saw some work. 7,500 meters of drilling at Efemcukuru where veins in the Kestane Beleni Northwest extension of Kokarpinar are being consistently intersected at projected depths. In Greece, really focusing on Piavitsa, getting drilling underway there. We've drilled about 1,600 meters there. Five holes completed. We are hitting good intersections of massive sulfide in some of those holes. Drilling at Fisoka, a porphyry prospect between Stratoni and Skouries, started during the quarter and infill drilling at Skouries will start in early Q2.

On to China. Tanjianshan, we're doing some resource drilling around the Jinlonggou pit area and a Phase Two program there will start this quarter. We have had some good results there so far. Continue with our ongoing exploration at Jinfeng. We did about 8,500 meters there during the quarter from surface and underground and that's in the Rongban open pit area, structural targets and inferred resources around the Southeast and to the deposit. Onto Brazil. We did about 4,000 meters at Tocantinzinho peripheral to the main deposit and about 2,000 meters at Aqua Branca. And probably we'll come out with an update on exploration mid year that will sort of wrap some of these results together.

With that I'll turn it to Fabi.

Thank you Norm, and good morning, everyone. I will go through the financial statements, highlighting changes in significant accounts. During the quarter, we completed acquisition of European Goldfields. The impact of acquisition on the balance sheet was substantial with an increase of $3 billion in property plant and equipment, $275 million in goodwill, and $542 million in deferred income taxes. This goodwill arises mainly on the recognition of deferred income tax liabilities and noncontrolling interest. That position also had an impact on our income statement which includes transaction costs of $17.8 million, which are expensed under IFRS.

Continuing with the balance sheet, we ended the quarter with a cash and cash equivalent balance of $387 million compared to $394 million at the end of 2011. The small reduction in the cash balance is a result of cash generation of operations, net of the usage of cash for dividend payment, capital program, and debt repayment. The increase in inventory relates mainly to the addition of the Stratoni inventories and the build up of concentrate inventory at Efemcukuru. At quarter end, there is a $90 million balance of flotation concentrate to be processed at the Kisladag plant. As indicated by Norm, pre-commercial production concentrate of approximately 16,000 ounces will be processed here in Q2. As a reminder, the revenues from the sale of the pre-commercial production concentrate is recorded as the reduction of property plant and equipment.

On the liability side, we paid $5.6 million of the outstanding debt, which brings the debt balance to $76 million at the end of March 2012. The debt is with the Chinese banks and needs to be repaid from cash flow generated by our Chinese mines. Moving on to the income statement. Net income of the period is $67.9 million or $0.11 per share compared to $52 million or $0.10 per share a year ago. Excluding $17.8 million of transaction costs, the net increase relates is $33.2 million that brings the result of -- sorry. That brings net income to $86 million or $0.14 per share. Revenue reported in the quarter of $272 million are up to $53 million from a year ago due to a 22% increase in the averaged realized gold price. Production costs increased by 23% compared to the first quarter of 2011, reflecting an increase throughput at Kisladag, Tanjianshan, and White Mountain. Additionally, higher gold prices resulted in higher royalties on production taxes which are included in production costs.

Income taxes spent for the quarter was $28 million compared to $21 million in Q1 2011. This increase is mainly due to the high profit before income tax. The effective tax rate increased 1% from 26% to 27% in 2012. This increase is a result of withholding taxes based on dividends from the Turkish subsidiary offset by income tax recoveries related to the impact of the strengthening of the Turkish Lira on current and deferred income taxes. On the statement of cash flows, we generated cash flow from operating activities before it changed it to non working capital of $103 million compared to $93 million in Q1 2011. This increase is a redirect result from increasing operating profit. The main uses of cash relate to capital program, $52 million, and dividend payment, $50 million.

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

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

(Operator Instructions)

Jung Park of Morningstar.

Hello, Paul, Norm, Nancy -- good morning. My first question was -- in the technical report for Skouries that came out in 2011, it cites operating costs of EUR1.6 per ton for the surface and EUR12.5 per ton for the underground, and then roughly EUR3.5 to EUR4.5 per ton in processing costs. I was wondering if the OpEx figures for Skouries is still accurate, and now that you guys have had an updated mining plan?

Well, I think, first of all you can only really attach significance to numbers that we disclose. I think we've said previously that our view on operating costs in general going into the transaction were that we viewed the operating cost likely to be a little bit higher than were described by European Goldfields. That was our view following the completion of our review subsequent to the acquisition. But you can really only go on the numbers that we provide you, rather than us commenting on numbers that were generated previously by others.

Okay. So just assume a little bit of inflation maybe.

And then for the CapEx spending, it seems like you guys only spent $53 million. Are you still targeting the $350 million in the growth CapEx for the year? That you outlined before?

Actually, the CapEx for the year has increased, reflecting the addition of the European Goldfields assets. And I think we're now looking at more at $550 million for the year.

So this is including sustaining and capitalized exploration expenses? The $550 million?

Includes sustained and not capitalized exploration.

Okay, I see. And as you are doing the refurbishment on the existing plant Olympias, I'm curious what kind of condition you are finding that plant to be in?

I would say -- yes, I would say not bad. It sat there for however many years -- 10 years or something like that -- 10 or 15 years. So you'd expect a certain amount of degradation but they're replacing flow cells and things like that, but it's almost done. We are kind of 90%-plus done at this stage. So -- but it wasn't in bad shape.

Okay. Is the reprocessing -- are you guys shooting for maybe May startup? Something like that?

No, it'll be a little bit later than that.

Okay. So perhaps in the third quarter of the year?

Yes, you'll see the first production third quarter. We'll probably start tearing the mills and commissioning towards the end of June.

Yes.

Okay. That was all my questions. Thanks so much.

David Haughton of BMO Capital Markets.

Yes. Good morning and thank you for the update there, Paul, and Norm.

Just got a question on Eastern Dragon. What's your expected build time once you get all these permits in place for the open pit and then subsequent underground?

Sort of six months, now. Basically, the mill is finished. You've got some surface work to do in terms of the tailings and open pit, but that's really about it.

The first production comes from the open pit, David. And the ore is right on surface. It's fairly high grade. So it's a matter of, frankly, clearing the trees as Norm described, and scraping it off the surface and going at it. And in terms of tailings damage -- the dry tailings storage and -- rest assured, we don't have to build a tailings facility for the next 10 years. We need to get enough so we can get started before the next Winter season.

Well, the seasonality has been important here, isn't it?

That the issue here, yes.

And can you just remind me what sort of life you're expecting from the open pit before the underground kicks in?

It's about 3.5 years, I think.

So you've got a bit of breathing space on getting that portal in place and the development work, et cetera, for the underground.

Yes. But this thing outcrops on surface, and there is actually an exploration, with an exploration drive right through the guts of the ore body already, so it's not -- that won't -- getting that access up and going in China will not take all that long.

Yes. We do have some time.

Okay. And just going back to Efemcukuru -- during this current quarter we're just going to be capitalizing whatever is processed to just sort out the filter situation at Kisladag and the filter and the mine issues at Efemcukuru. Commercial production likely now in the September quarter. You've got a backlog of inventory there. Is that going to be like a big rush of sales in the third and fourth quarter as a bit of a catch-up? Or how are you going to treat that?

We certainly hope so David. As you remember from a week ago, we have fields of concentrate bags which we plan on aggressively pushing through in third and fourth quarter. As Norm described, we're bringing additional filtration capacity in, to replace, but we're going to look to try to utilize existing filtration capacity to gives us ourselves as much capacity as possible to try to get this off the books by the end of the year.

Right. Okay, so it's going to be a big, big rush of revenue in the, I guess, the fourth quarter in particular coming out of this thing.

Yes.

Now with the weather situation of the freezing of the pipes and the various other things that you'd encountered, what remedial action's in place so that it doesn't occur every Winter? Or was this a particularly harsh Winter?

This was an incredibly harsh winter, I would say. But I guess the good part of that is, it's sort of pointed out the weaknesses in our system for next Winter, and around the water treatment plant, and the water pipes going underground, and the exposed pipes in the mill -- obviously we'll be looking to insulate those for the next Winter. We even had issues at some points getting people up to site, because they don't expect a lot of snow there, and you get a bunch of snow and there aren't plows, and things like that. So, hopefully we won't see this again for a while. If we do, we'll be a lot more prepared for it.

Thank you, Norm.

Also noticed that you've changed your presentation style for the quarterly. It's a lot more compact now, so I'm happy with that. With regard to Stratoni -- is the way you presented the data in the report, is that the way that we will expect to get the information going forward? Or are you looking to fine tune that as you learn more about what's required for disclosure?

Good question. (laughter) As you can gather from the silence, David, we're trying to organize our answer here.

That's okay, I understand entirely, it's a work in progress. But thanks for the additional way that you've worked the presentation there.

So that's it for me. Thank you.

Steven Butler of Canaccord Genuity.

Well, Paul, I guess in your comments about your original budget, which we didn't have in our estimates -- 135,000 ounces in Q1 -- I assume that, that was obviously excluding anything from Efemcukuru from your budget, correct?

No, we had a modest amount for Efemcukuru.

Okay, that's fine.

And Paul, or Norm, is it the same supplier of a new and improved filter press? Or a different supplier, and/or will this shipment come to you, or is it in progress of being shipped such that it will be installed in --

It's a new manufacturer.

And we're actually, Steve, going back to 1950s technology. And there's only very few places where you can get 1950s technology, and China happens to be one of them. So that's what we're doing.

Yes, and these are filters we're sort of familiar with from China, and they are in the process of getting on an airplane here quite shortly.

Okay. That sounds great.

And further today's questions -- you say you're confident, or you would hope to be able to have extra. Is it more the filtration capacity, Paul, or do you have an [extran] installed capacity, generally speaking, at that treatment plant, such that it could handle more than the relevant daily throughput from the mine itself?

Well we haven't had a real good chance to test it yet, because we've been held up by the weakest link, which is the filtration capacity.

Right; okay.

We're obviously going overboard to try to remedy this. To step back and look at the big picture at Efemcukuru, we certainly view that we have surface milling capacity. We view that we're going -- the mine is such that we can, frankly, with additional development get the productions rate up there as well. So we are looking at, once we get through these initial teething problems, to push Efemcukuru, as we do all of the mines, to higher levels of production.

Right -- and the throughput through the mill -- of course you would say it was probably a bit bottlenecked by some of the issues in the quarter -- obviously weather and freezing pipes --

But we -- grinding circuit -- we have lots of capacity in the grinding circuit. We know that, that can push more tons than the design. The issue is being if you can't -- if your filtration capacity is not there, or you don't have your [paste] backfill system up and running, you just get it -- it sort of backs up on you.

Right. Okay. Thanks guys.

(Operator Instructions)

Anita Soni of Credit Suisse.

Hello. Congratulations on a solid quarter.

The strip at Kisladag -- what was that this quarter?

The strip at Kisladag this quarter was about 1.15 to 1. Budget for the year is a little bit higher than that. I think it's about 1.3 to 1. So we're a little bit under for the quarter. And that's just is where we're mining.

Sure. And the grades were little bit better, I guess, than the -- I know this is -- your guidance is a full year guidance, and we shouldn't nitpick on the quarters; but the grade was a little bit better than the full-year guidance. Is that just going to trend down, or is that just some kind of positive reconciliation that you saw there?

It's just a really matter more of where we're mining in the pit. We were mining a schedule to a little bit higher grade portion deeper in the pit.

Okay, so that's one plan.

And then with respect to Tanjianshan -- grade is a little bit, the same question I guess? That the grades were a little better and the recovery a touch light? Is that something that will reverse and revert to your plan?

Yes, I'm not sure that recovery was a touch light, but yes. Don't forget at Tanjianshan we've got pretty good significant stock piles there, and we can sort of -- we're not processing directly from the pit at all. We can blend to the grade that we need to get. And we also have to -- there's sulfur considerations there as well for the roaster.

Okay. And then on Jinfeng -- can you give us little bit more of a breakdown in terms of the split between the -- what was processed from the pit -- grade, tonnage, and underground and then stockpile.

I would have to get back to you on that, Anita. I don't have those numbers right in front of me.

That would be great if you could. And I think that's it for my questions.

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

Very well. Thank you, Operator, and thank you, everybody who's listened in and participated, and look forward to talking with you on the next quarter.

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