Eldorado Gold Corp (EGO) 2012 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Eldorado Gold second-quarter 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 call 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 statement made and information provided reflect our current plans, estimates, and views.

Forward-looking statements are information which include all statements that are not historical facts, are based on certain material factors and assumptions, and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in, or suggested by the forward-looking statements or information. Consequently, undue reliance should not be placed on these forward-looking statements and information.

The information contained in our annual information form and in our annual quarterly management 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 expressly qualified in their entirety by the cautionary statement and cautionary statements contained in our press release dated July 27, 2012. I will now turn the call over to Paul Wright, CEO of Eldorado Gold.

Thank you, Nancy. Good morning, ladies and gentlemen, and welcome to Eldorado Gold's second-quarter financial and operating results conference call. Joining me this morning in Vancouver are Norm Pitcher, President; Fabiana Chubbs, Chief Financial Officer; Paul Skayman, Chief Operating Officer; and of course, Nancy Woo, Vice President of Investor Relations. In a few minutes, Norm will take you through an operational update, followed by Fabiana, who will comment on the financial highlights of the quarter.

The second quarter has been a somewhat frustrating and disappointing one for the company. The continued difficulties in processing concentrate efficiently from our Efemcukuru mine has adversely affected production for the quarter, and will result in an underage for the mine for the year. The inability to date to conclude permitting activities of the Eastern Dragon project has resulted in us not being able to be in a position to complete construction of Eastern Dragon in 2012. As a result, we now do not anticipate meaningful protection until 2014 from this asset.

The combination of Eastern Dragon and Efemcukuru has resulted in the reduction in planned production of 660,000 ounces at average cash costs of $465 for the year. As disappointing as this is, it is important to highlight the fact that the combined production of Jinfeng, Kisladag, White Mountain, and Tanjianshan mines remains on track to produce 595,000 ounces for the year at cash operating costs of $471 an ounce. This is completely in line with the original plan for these assets for the year 2012.

In the quarter, we experienced a three-week temporary suspension of tree cutting activities in Greece, principally affecting our Skouries project. As annoying as this was, we were extremely pleased to see the integrity of our permits supported and respected by the Counsel of State decision to promptly revoke the suspension and allow us to get back to work.

I am very pleased with the progress being made in Romania, where subsequent to quarter-end, we were granted the environmental permit for Certej. We are now continuing to finish off the land acquisition prior to application for the construction permit.

In Brazil, very good progress is being made in both feasibility engineering and permitting in the quarter on the Tocantinzinho project. Having spent some time in the quarter with our team and with Para State officials, I remain confident in our ability to bring this project to a construction decision by the year-end.

Returning to Greece, good progress is being made in terms of development, reactivation of Olympias mine and exploration, all of which Norm will speak to in some detail momentarily. With the establishment of a new government in Greece, we experienced good progress in the permitting of our Perama Hill project, where as part of the EIA process, we expect public consultation to commence this quarter.

Again, as with Certej and Tocantinzinho, we expect to be through the major permitting by year-end, and be able to make construction decisions on these three projects. As a recap, although this was indeed a weak quarter for the Company, the broader business is in good health and we are diligently working to remedy the deficiencies that have contributed to this weak quarter. With that, I will hand over to Norm.

Thanks Paul, good morning, everyone. Let's start on the operations side, and we will begin at Kisladag, where we produced 61,575 ounces at a cash cost of $333 per ounce. Gold production was slightly lower for the quarter, mainly due to the stacking and leaching schedules. However, we set a project record during the quarter for ounces placed on the pad and will see the benefit of that in the coming months.

At Tanjianshan, we produced 27,172 ounces at $432 an ounce and had no operational issues there. Jinfeng produced 25,630 ounces at $786 per ounce. We continue to feed the mill from the underground and low-grade stockpiles, while the open pit is in a stripping phase. At White Mountain, we produced 18,095 ounces at $622 per ounce. During the quarter, there was a one-time charge for crusher repairs, which increased the cash cost slightly.

At Efemcukuru, the mine and the mill at site performed well, mining 90,500 tons at 10.3 grams per ton and running 95,000 tons through the mill at 9.6, through the flotation circuit. The base plant is now operational, as is the underground crusher.

At the Kisladag concentrate treatment plant, which treats the flotation concentrate from Efemcukuru, an additional filter press has been installed and is being commissioned to address the shortfall in filter capacity. By the end of the year, we plan to install an additional thickener tank and ISA fine grinding mill. At the end of the quarter, we had approximately 42,000 in-situ ounces stored on the leach pad at Kisladag.

At Vila Nova, we sold 172,000 tons of lump and sinter during the quarter at an average price of $85 per ton, with operating costs averaging $62 per ton. At Stratoni, in Greece, we produced 17,300 tons of concentrate at an average cost of $593 per ton, and sold 15,800 tons of concentrate at an average price of $843 per ton. Mine and mill operations at Stratoni were normal during the quarter.

On to development, as Paul mentioned, in Eastern Dragon we were informed in early July that the Provincial Development and Reform Commission, PDRC, was referring our permit application to the National Development and Reform Commission, NDRC, for final approval. We are currently in the process of compiling and preparing the documents to support the application, and are scheduling meetings in August and trying with both PDRC and NDRC further clarify the permitting timeframe, and we expect to provide an update in the next quarterly conference call.

In broad terms, the move to go with NDRC is unfortunate, in that if we had done at 16 months ago, when we started our application with PDRC, I think we would have had a good chance of having that permit already in place. I don't necessarily see the permit process at NDRC more difficult than at PDRC, it's just that the time that has been spent going through the application process at the state level.

Tocantinzinho, public meetings were held during the quarter and the input from the state quotas was positive. We are on track to have the feasibility study done late this quarter, and the EIA approved by the end of the year. At Perama, the EIA has been submitted and is being processed on the fast-track program. We started geotechnical drilling on site and will start exploration drilling this quarter.

At Olympias in Greece, mine development went well during the quarter, where we are rehabbing the main decline, as well as establishing a new access from the underground to the recently refurbished mill. The mill is in commissioning at this point, and we have started to run tailings through. We continue to evaluate options for sale of the concentrate product, including Jinfeng. In the meantime, are securing sufficient storage nearby to handle near and mid-term production.

At Skouries, we continue with site work, including mobilization of support equipment and personnel and tree cutting. At Certej, we have reached a major milestone with the approval of the environmental permit, and I would like to take this opportunity to congratulate our team in Romania. Land acquisition will continue throughout the rest of the year as a precursor to applying for the construction permit.

Onto exploration, and since we have just put out an update at the end of June on exploration, I'm not going to cover much there at all. Just a few observations. At Kokarpinar, at Efemcukuru, is looking quite good. We are starting to find a couple of ore-grade shoots there, they seem to be a little narrower than the main Kestane Beleni vein, but with some very high grades in that.

Piavitsa in Greece is shaping up pretty much as we hoped it would, and we are quite encouraged by the results coming out of Jinfeng. We currently have 25 drills churning around the world, and we look forward to providing another update later in the year. With that, I'll turn it over to Fabiana.

Thank you Norm. Good morning, everyone. I will go through the financial statements, highlighting changes in significant accounts. Before I go into the details of my comments on the financial statement I want to bring to your attention that there is a typo on our MD&A on page 12, where we had the reconciliation with non-IFRS measurements. For the second quarter in 2012 we inverted the total cash cost per ounce with a cash operating cost per ounce and total cash costs per ounce should be $550 per ounce while the cash operating should be $480.

Now I will provide the comments on the financial statements. Commencing with the balance sheet, we ended the quarter with cash and cash equivalent balance of $315 million compared to a balance of $394 million at the end of 2010. The $79 million decrease in cash is mainly related to the usage of cash in our capital program, offset by cash flow generated by operating activities. The $50 million increase in inventory relates mainly of the build-up of concentrate inventory at Efemcukuru, that accounts for nearly $29 million, and the balance is addition of (inaudible) inventories.

During the quarter, we sold 8,798 ounces of pre-commercial production concentrate. As a reminder, the revenue from the sale of pre-commercial production concentrate is recorded as a reduction of property, plant and equipment. On the liability side, the debt balance increased by $39 million as a result of the $30 million draw-down on our credit facility, and a repayment of $11 million of our debt with Chinese bonds. The acquisition of European Goldfields, completed in the first quarter, had a substantial impact on property, plant, and equipment, which increased by $3 billion; goodwill, with an increase of $300 million, and deferred income taxes, which increased by $542 million.

Moving on to the income statement, net income attributable to shareholders of the company was $47 million or $0.07 per share, compared to $75 million or $0.14 per share in the second quarter of 2011. This represents a 38% decrease. The decrease in net income year over year was due to lower earnings before taxes from gold mining operations, as well as higher [center line elimination] expense, exploration expense, and tax expense.

Revenues from gold sales for the quarter of $214 million were down $30 million from the second quarter of 2011, due to lower sales, partially offset by higher gold prices. The NOI, in effect, only contributed $29 million of revenue in the quarter. Production costs increased by 16%, compared to the second quarter of 2011, mainly as a result of an addition of the extra production costs.

[Sale and] administration expenses increased $6 million from the second quarter of 2011, mainly as a result of additional costs at our Athens and London offices, following the acquisition of European Goldfields.

On income tax expense, the effective tax rate for the quarter was 43%, as compared to 31% in 2011. Items increase in the effective tax rate during the quarter include deferred income tax expense related to foreign exchange fluctuations, 5%. Benefits on tax losses which was not recorded, 4%. And withholding tax expense on dividends paid by our subsidiaries, 3%.

On the statement of cash flows during the quarter, which generated cash flow from operating activities before changes in net working capital of $82 million, compared to $150 million in Q2 2011. A decrease in cash flows year-over-year was due to lower operating cash flow from our mining operations. The main uses of cash relate to our capital program and the payment of cost incurred related to the transaction with European Goldfields. Those are my comments on the financial statement, I will return the call back to Paul.

Thank you Fabiana, thanks Norm. Operator, we will open for questions, please.

(Operator Instructions)

The first question is from Kerry Smith from Haywood Securities. Please go ahead.

Fabiana, on the working capital changes, there is a big number in there for accounts payable. What is that related to? $103 million, almost $104 million.

It relates to the liabilities is that were accrued at the time of the acquisition of European Goldfields. In the first quarter we completed the transaction and we accrued all of the costs, and now those costs are being paid, so then the liability is reduced.

So it is the transaction costs as well in there?

Yes.

From the EG deal.

Correct.

Okay. Norm, can you just take me through, it sounds like the facility at Kisladag for treating the concentrate from Efemcukuru, that you are expanding and changing the circuit. Can you just walk me through exactly what you're doing? You said you are putting in a small ISA mill and another thickener. I'm just curious exactly what you're doing and what the CapEx would be and when all of that will be complete?

We are not changing the circuit so much, Kerry. We struggled with this filter press that we have got really right from the start there. It should've been operating at about five tons per hour and we have it up to about four or so now. So we basically bought two Chinese filter presses, the ones you saw at White Mountain.

The first one we flew over and was installed and is now being commissioned, and seems to be running okay. Very early days on that. That one has capacity for about eight tons per hour, so we will have another one of the same size coming over. It will have a lot of filter capacity here, coming up.

Then this is also partly looking at the overall expansion. We are going to put in another ISA mill. We already have a fine-grinding ISA mill up front to start with. We're going put an additional one in there and basically increase our thickener capacity at the other end. So it's not changing the circuit so much, as really, now the immediate thing is to add additional filter capacity, and then make sure that we can also beef up the ISA mill and the thickener.

If I can jump in a minute. I think it's safe to say, as Norm described, our ambitions for Efemcukuru are obviously, one to get beyond this lengthy teething period, but beyond that, to frankly look to expand overall throughput from Efemcukuru. The changes that Norm is describing are designed not only to fix the short-term problem, but to put us in a position that we can indeed increase throughput from the mine and through the mill and eventually make sure we don't have a bottleneck at Kisladag.

Okay. So was five tons an hour, Norm, what you needed in terms of capacity?

Yes. The problem is, Kerry, we got behind on that, and we built up the access, and we want to be able to treat that as well. So we are sort of belt and braces situation that we are doing here.

Right. So all of these modifications, or these additions to the plant that you're adding, when will that all be up and operational? Is that Q1 and Q2, then?

Late this year, early next year on the ISA mill and thickener. The filter press we will be giving another update in the next quarter. We are already starting to run it. The Chinese one.

The second one to install?

That is correct. With these 2, we will have 13 tons per hour, 12 tons per hour capacity if the first one starts just running at 4.

Just on Eastern Dragon. How did PDRC actually approve the permit, but then said that it needed to go to the NDRC for subsequent approval? Or did they just decide that they didn't want to deal with it, and they wanted somebody else to make the decision?

They do have to deal with it in the end, because what they're going to do is they are going to give approval of the project, but not of the particular permit. So they're going to say to NDRC, we approve and want this project, and they're willing to do that, but they want NDRC to give the final approval on that.

Okay, have they given that project approval, as it were? Or are they are prepared to do it?

They are prepared to do it, and that will be part of what we are doing now, with getting all the documents and permits that we've gotten so far, into a bundle to take to NDRC.

Okay. I had a couple more questions, but I will jump off and let someone else go. Thank you.

The following question is from Joung Park from Morningstar. Please go ahead.

First question I had was Olympias. You mentioned that you would send the concentrate potentially off to Jinfeng, I was just wondering, can't you send it somewhere closer like Stratoni?

Stratoni produces concentrate, it doesn't treat concentrate. But right now, we have run some tests at Jinfeng that look fairly encouraging through the BIOX circuit, but we haven't decided that is the final destination. We are looking at various options, and yes, we will be producing this at fairly modest cost out of the mill at Olympias, so we don't want to then whack it with huge transportation cost. We're looking to find the best spot for it, and in the meantime, we have a nearby storage capacity to handle lots of it. Lots of the product.

Okay. What will the annual production from the tailings portion look like, again?

It's about 55,000 ounces at full production.

Okay. Then at Kisladag, can you give us an update as to how the phase four expansion project is going?

Phase four is going fine. We have put down payment on most of the long lead time items. We are continuing with detailed engineering, and yes, really no issues there so far. It is a very busy site right now.

Okay, I can imagine. and then for Jinfeng, what is the percentage break down between the ore that you sourced from stockpile versus the ones that you got from the open pit and underground for the quarter?

Are you speaking in terms of tons or ounces?

Tons.

About 40% of the stockpile and the rest of it comes from the underground.

Okay, thanks for that. Question for you, Paul. Is there any changes in the capital expenditure expectations? I believe, when I asked on the first quarter call, you guys are expecting about $550 million for the year. Has the mining CapEx creep in the industry affected you guys at all?

We are not actually seeing any revision to our capital estimates as it relates to escalation in prices. But we are certainly looking at an underage on capital spend this year, compared to what we originally expected.

We had guidance at the beginning of the year which reflected our assets prior to the European Goldfields transaction being closed, and us subsequently in April giving guidance on that. I think if you add them up, we are probably going to be about $100 million light on capital at the end of the year. That is just timing, really. It is not change of scope, it is just timing.

Okay, so $450 million now?

Well, year-end we will be looking at more like $375 million to $400 million for the year.

Okay, great. Thank you so much for the answers.

The next question is from Cosmos Chiu from CIBC. Please go ahead.

Congrats on getting your permit at Certej, but now with the permit in hand, can you remind us of some of the upcoming key deliverables? You mentioned acquisitions, construction permits, but in the past, you had also talked about maybe a reserve resource update. You also in Q1 performed a detailed review of CapEx and the flow sheet and things like that. When might we start seeing some of that information come out?

As you described and as Norm described, and I think we have all described, the big environmental permit is behind us. It is a matter of now the mechanics of completing the land acquisition, which is well underway. and the application of the construction permit. In parallel of that, we are doing exploration, as Norm described, we think there is some excellent opportunities to expand the resource base. We're doing some confirmatory metallurgical test work to help us refine our own expectations in terms of final metallurgical recoveries and operating capital cost.

Our objectives here is to bring us all together and as I said in my introduction, by year-end be able to be able to make a construction decision which frankly, necessitates us being able to be firm on expectations for capital and operating. We may -- my expectations are we probably well have an updated resource estimate before then, and certainly when we make a construction decision, we will be giving you full guidance as it relates to reserves in capital and operating at that time.

Great. On your new guidance of 660,000 ounces. I just want to make sure, confirm that, does it include pre-commercial ounces at Efemcukuru, and if that's the case, how much of the 65,000 ounces coming from Efemcukuru would be non-commercial versus commercial ounces?

It does include that material, that 66,000 ounces from Efemcukuru. In terms of commercial, probably 25,000 of that 66,000 will be commercial. 25,000 to 30,000.

Great, that is all I have. Thank you.

The following question is from Josh Wolfson from Stifel Nicolaus.

Just going back to Certej for a minute, for the land acquisitions. What sort of requirements, what is the process for this being done, or is this all local community landowners, is there any sort of protest against the mine that would hold up that process that you need to get?

It is mostly local. In the pit area and plant area, it is pretty much all local landowners. I think they are 85% to 90% complete already on that. There is not a lot left there. The village of Certej, which is about 10,000 people, sits kind of 15k from the mine, it is an old mining town, extremely supportive of the operation. No issues there. And up in the tailings area, part of it's forestry, and you're doing a forest release on that. We don't see any complications there either.

The process that is being permitted, or was permitted for, is Albion, correct?

Correct.

So there is no issue with cyanide use.

It has always been cyanide.

That is good to hear. And also, for the land acquisitions at Jinfeng, what percentage of that is complete at this current time?

Over 80%.

The expectation is still to get that done in the third or fourth quarter?

I think by the end of the year, early next year we will have what we need. We don't see it holding up the open pit mining schedule.

Your expectation is to keep feeding the stockpile until that's finished?

We are stripping right now in the pad. We are mining waste at a fairly good rate. So the pit wall is being brought down to access the ore at the bottom of the pit, and over in the [runband] area. So yes, we will continue to be from the stockpile until the end of the year, and hopefully we will be back in to open pit material early next year.

Okay. I guess a last question, with the HSBC covenant, I guess that was negotiated before the European Goldfields acquisition. Has there been any reconsideration of looking at new debt terms, or renegotiating that so that you would be able to secure additional debt, assuming all the projects are built in the next year or two?

We are looking at how we could have strengthened our balance sheet from the debt perspective, to ensure that through a period of two to three years of intensive capital investment, that we have the ability to execute the plan, recognizing the volatility in the metal prices. Suffice it to say that we are looking to expanding our safety net accordingly.

My own view is that it is quite possible and likely that we will see gold bouncing around in the $1,500 to $1,800 range for the next couple years. What we want to make sure is that we have protection on the downside and beyond that, such that we don't have any interruptions with our construction on that. If you do the arithmetic, it would suggest that we should probably look to expand the facility in one form or another. So we are going through that review process consideration.

We're also looking at it from the perspective of optimal scheduling of capital spend over the next couple of years, at the same time. Certainly prior to year-end, you will see us giving you some guidance on what we see as the optimal capital spend over the next two to three years. Again, our approach is to strengthening the balance sheet. And I will emphasize it will be on the debt side.

So if you're looking for bank debt or high yield market, or even maybe looking at forward-selling some of the base load direction.

We are not looking at forward-selling.

Okay. That is all very helpful. Thank you for taking my questions.

The next question is from Steven Butler from Canaccord Genuity. Please go ahead.

At Efemcukuru, you were talking to Cosmos was about the commercial production, Norm, you hesitated a little bit, maybe I was just doing your math. 25,000 to 30,000 ounces. Is that suggesting that we wouldn't really see much commercial production, your best guess from Q3 that's Efemcukuru?

Yes.

Okay. What work would you look at investigating, if you expanded the capacity of the mine and the mill, and Paul, are you talking about, I remember at the site visit a year or so ago, is up about 25% level of expansion. Is that what you are thinking?

That is what we're thinking. That's where we see the mine being able to go to. The milling capacity we have invested in at Efemcukuru. So as I have more than alluded to, the fixes that we are making now at Kisladag are designed to make sure we get there in one fell swoop, so that we are not, a year from now, saying oh, now we have to add another bit.

Frankly, obviously we had deficiencies in the filter press, but to be perfectly blunt, we underbuilt the treatment facility at Kisladag. Now we have to fix it.

Is it the ISA mills, Paul, or Norm? The 40,000 additional ounces of inventory, you said your work is going to determine the appropriate measures to recover some of these ounces in an accelerated way, if you expanded the mill at the 25% level, how long will it take you to get some of those 40,000 ounces cycled through? Beyond the normal process of throughput coming from the mine on a daily or weekly basis?

You will get a fair bit of it through, once we hit our stride, I think you're going to see, as Norm talked about seven tons an hour, it is probably reasonable throughput, so we are going to be moving ounces through reasonably quickly. We won't get them all through this year, though, I doubt.

Right, on those 40,000 inventory, Paul you're saying?

We assume those will come out early next year.

Next year, not in one full swoop, a step basis?

Another thing Steve, we have 40,000 ounces sitting at the leach pad and we are producing ounces and bags of concentrate every day at Efemcukuru. One of the things that we are looking at is an option to frankly take some of this concentrate and sell it. Frankly, just rundown inventory a lot faster. That is just a cost trade-off.

As you appreciate, Paul and Norm and the gang are in the throes of saying, once we get these fixes made, how quickly can we run down the concentrate, what are our alternatives potentially selling the concentrate and then we will decide on the offset and the benefit.

Last one. Olympias commenced production, concentrate production from the tailings early in the quarter, that sounds fine, and as they say, you're working with, maybe, maybe not Jinfeng as a solution or elsewhere. Any discussions with elsewhere? In other words, concern as to whether there will be in a commercial ounces out of Olympias in the third or fourth quarter?

We haven't put any into our guidance.

Okay. I was wondering if your guidance was apples and apples but you're saying you haven't put anything into your production profile from Olympias. Okay. Appreciate that. Thanks.

The following question is from Anita Soni from Credit Suisse. Please go ahead.

What is the grade division from stockpile right now?

It is a couple of grams.

2 grams or so. Okay. Then just second question, with respect to the Olympias concentrate. What was the original plan for the concentrate? I'm just not quite sure why it needs to be shipped to China.

It doesn't need to be shipped anywhere, Anita. When we required the assets from European Goldfields, there were discussions going on with a certain North American company to ship concentrate there.

Oh yes.

It wasn't a plan per se. Suffice it to say, since we have taken over operations, we have alternatives that European Goldfields didn't have. We have the luxury, I suppose, of not necessarily having to turn it into metal immediately. So we are really in the process of exploring what is the best thing to do with this concentrate.

As you appreciate, Anita, what we are doing basically is digging up tailings, putting it through a mill to break up the lumps, and then floating off the high grade gold concentrate. The cost of putting that gold in concentrate is minimal. The real cost is then tied to what do you do with that. One of the alternatives that we may have is storing it for a considerable length of time. Because the cost of producing this gold is negligible.

It is an obligation that we have in terms of the EIA or EIS, which is to clean up residual tailings. That is really what we are doing here, is satisfying that requirement, cleaning up the tailing, getting rid of the old tailings and producing a gold-rich concentrate, which, rest assured, we will, one way or the other, derive the maximum benefit for the corporation from. It is something that we are really sorting out what is the best way to go with this.

Okay. Thanks.

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

Probably for Norm, having a look at Kisladag, good tons being stacked, good grade being stacked, but the ounces falling short. Looks like recovery ratio is down. Can we expect for that to be picked up in the next couple quarters?

It will, and I wouldn't necessarily say it was a recovery issue. You have seen in the pad there, it's a big pad, and you're leaching, and you're stacking in certain areas and leaching in others, and sometimes where you're expecting to be leaching in a quarter, you may not finish on a particular cell, so you don't get on to the next cell. That is really where we were in this one. So, it is not a recovery issue.

It is just timing basically.

Exactly.

Okay. Earlier on you mentioned a slower spend pattern this year perhaps you would have thought earlier in the year. I'm presuming most of that is in Greece. Is that correct?

It is spread around. Turkey. You have a big lump of upfront spending for Kisladag associated with procurement.

Kind of bunch it up.

Eastern Dragon, for instance, obviously we're not going to be finishing off Eastern Dragon this year. So it is spread around.

Eastern Dragon relatively low CapEx. Even if the cost went up a touch, it won't do much damage.

No. We had Eastern Dragon originally planned for $45 million for investment this year and obviously we're not spending very much on Eastern Dragon this year.

As far as the grade sequencing out of Jinfeng, do you expect any improvement during the course of this year, or should we save it up into 2013?

I think it will stay about where it is for the rest of this year.

All right. So that is all good. Thank you.

The next question is from Patrick Chidley from HSBC. Please go ahead.

I actually want to ask about the detail of that process Kisladag in terms of the concentrate processing. Is that merely a filter press problem or what is the experience for the respective recoveries? Can you explain a little more of the technical detail?

It is a fairly simple process. It is fine grinding down to about 10 to 15 microns, leaching, obviously it is high-grade material and it is sulfate, so a lot of cyanide and oxygen, and then a direct electro winging process. Through thickening and then direct electro winging. Once the material has being thickened, it goes for the filter press, it has really been a throughput issue in terms of getting the material filtered, so we've been limited in terms of that capacity to get that through. With the Chinese filter, obviously, now we're looking at a faster throughput rate.

You're pretty confident that you are getting the recoveries that it is designed for, in terms of getting that ISA mill working?

We probably haven't fully optimized. We are a little under what we would like to see. But, we are seeing improvement, so by and large, we are eventually giving there.

Okay. Then just to confirm, these 660,000 ounces this year includes a 100% of production you had forecast from Efemcukuru this year. Including that which is inventoried?

Yes.

Okay. Then and just in terms of the tailings --

There is 66,000 ounces total coming out of Efemcukuru, which is included in the 660,000.

Right, some of that isn't going to be produced because it is going to be carried over into 2013.

All of that will be produced. Some of that is pre-commercial but total production from Efemcukuru will be 66,000 ounces.

Patrick, still even with that, we will be left with an inventory at year end we anticipate to be around 40,000 ounces, which is not included in the 660,000.

That is what I wanted to know. Thank you. Just a quick question on Olympias, the tailings concentrate. Just remind us what the metallurgy of that is, is that is that just gold, or is there base metals in it?

The base metals have been removed already. So it is a pyrite concentrate.

Is that something that can be in a changed with the material you're getting out of Efemcukuru?

It is probably not dissimilar.

Lower grade.

It is lower grade, it is running about 20 to 30 grams, Efemcukuru is running about three times that.

In the future you wouldn't want to take that to Kisladag, then?

No.

Okay. Good. All right. Thank you very much.

The following question is from Chris MacCulloch from Desjardins Capital Markets. Please go ahead.

I think this question was just answered, but I had to jump off the quickly. Just wanted to some clarity on Efemcukuru, you stated 65,000 ounces this year, and your year-end inventory of 40,000 of concentrate. So do we interpret that as 105,000 or is the 40,000 included within that 65,000?

The 40,000 is not included in that 66,000.

We would not be classifying that as production. That is strictly inventory at year-end.

40,000 in year-end inventory. So the guidance includes the 65,000 ounces.

Totally.

Thank you.

(Operator Instructions)

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

On Piavitsa, what are the base metals that are within the ore grade intercepts that you reported there, Paul? Is it just, copper?

It is very similar. It is similar to Olympias. A little bit lower on the gold side, so it's galena and sphalerite, are some of the base metals.

Lead and zinc.

And silver as well.

Very similar mineralogy to Olympias, is what we're seeing so far.

That's good. So I'm clear, I think I understand this, you are through to the end of the year at Jinfeng, you expect about 40% of the tonnage from the stockpile, and so the grades should be roughly as they were this quarter through the end of the year. Is that correct, Norm?

Yes.

So cash costs are going to be kind of similar to what we have seen this quarter? That's great, thanks very much.

The next question is from Dan Rollins from RBC Capital Markets. Please go ahead.

Norm, Paul maybe you could touch base on Eastern Dragon. I'm just wondering, what has changed with the provincial level to force this permitting up to the national level. Because you have been permitting for about two years. I am wondering what has changed there.

The major change is the change in people. We have a vice governor who directed us down a certain pathway and they swap these officials out fairly regularly. He is now gone, and you have several new people at PDRC as well. That's really the main change.

Okay. Just on the national level, with the changes in the hierarchy in China happening later this year, do you see that having impact at NDRC just given the bureaucratic nature of the Chinese?

Yes, it could. I wouldn't want at this point to really speculate on what effect it would have.

Okay. So what are you looking, timeline, what have you been hearing from your people on the ground there. How long do you think it will take? A year or a year and a half?

As Norm said, we will give you guidance at the next call, after Norm and others have met face-to-face with NDRC. You've heard me to say don't expect meaningful amounts of production until 2014. We are taking a pretty conservative view right now. If we can do better, obviously we'll push do that. For us to say anything else now is just speculation.

Just to confirm, basically most of the mill is complete. You're waiting for the permits for a lot of the earthworks and then to actually commence mining. Is that correct?

That is correct.

Great, thank you. Actually, one question. On the original, your guided grade for Kisladag this year as 1.08, you had a bang out quarter on a grade this year, this quarter is probably one of the top ones over the last three or four years. Is 1.08 still a good number, because you're well above that now, or do you see roughly about the 1.15 level for the rest of the year?

I think the grade will come up a little bit, maybe 1.2 something like that. The grade this quarter was a pleasant surprise, we were sort of mining in an area. We are having a positive reconciliation, we're mining where we thought we were going to mine, and the grades are a little bit better. The way things are, that can go the other way in subsequent quarters, so, yes.

Nice to see. Nice grade. Congrats on that one. Thanks very much.

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

Thank you, Operator. Thanks, everybody, for being on the call. We do appreciate the questions and look forward to talking on the next call. All the best.

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