Eldorado Gold Corp (EGO) 2013 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Eldorado Gold Corporation second-quarter 2013 results conference call.

This call was also being webcast and is available on the Eldorado Gold website at eldoradogold.com.

I would now like to turn the meeting over to Ms. Nancy Woo. Please go ahead.

Thank you, operator.

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

The information contained in our annual information form and in our annual quarterly management discussion and analysis, available on our website and on SEDAR, identifies factors and assumptions upon which the forward-looking statements or information are based on and the risks, uncertainties and other factors that could cause actual results to differ. All forward-looking statements and information made or provided during this presentation are express qualified in their entirety by this cautionary statement and the cautionary statement contained in our press release dated August 2, 2013.

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

Thank you, Nancy, and good morning, ladies and gentlemen.

Welcome to Eldorado Gold's second-quarter financial and operating results conference call. Joining me today in Vancouver are Paul Skayman, Chief Operating Officer; Fabiana Chubbs, Chief Financial Officer; and of course, Nancy Woo, Vice President of investor relations. We will follow the usual format. In a few minutes Paul will review the quarter's operational results and provide some comments regarding the outlook for the balance of 2013. Fabiana will follow up with a brief summary of the financial highlights and then we will open up for questions.

We were very pleased with the solid performance of our operations in the quarter, with gold production of 183,971 ounces in the quarter being over 30% ahead of the 2012 equivalent quarter, and costs kept at 2012 levels. This performance supports our guidance for 2013 at 745,000 ounces at cash costs of $520 an ounce, well within the range provided at the beginning of the year.

In the quarter it was particularly pleasing to see the solid progress on our Efemcukuru mine with production up to in excess of 26,000 ounces from a little over 19,000 ounces in the first quarter of this year and costs declining from $582 an ounce to $519 an ounce. The mine now is producing a levels envisaged and the focus will recover reducing our cost structure. With July behind us I can say that the operations are off to a very good start for the third quarter, with gold production being ahead of plan for the month.

On the development front solid progress is being made at our Skouries, Olympias and Certeg projects as described in our disclosure. In regard to Perama we continue to wait for final improvement approval of the environmental impact assessment and are in regular discussion with the Greek government on this matter. We continue to be encouraged by this engagement and anticipate final approval prior to year end.

In regards to Eastern Dragon discussions with the working group, including the Heilongjiang Provincial government and members of the government of Canada, have concluded that the final approval for this project must be made by the National Development and Reform Commission, commonly known as the NDRC. We are presently engaged in preparing the necessary documentation for the application to be submitted to the NDRC.

In mid July we provided guidance in regards to how Eldorado will adapt its strategy to successfully progress our business in a low gold price environment. The only additional comment I'd like to make in that regard relates to the disclosure as of today relating to our dividend policy, where in essence we fine tuned our dividend policy to be in balance with the Corporation's best use of cash and cash flow.

Now I'll hand over to Paul.

Thanks, Paul. Good morning, everyone.

As Paul said, a pretty good quarter. All operations were running higher than budget in Q2 and all reported lower cost than budget. Kisladag, a solid quarter, 3.3 million tons placed on the pad and nearly 77,000 ounces sold for the quarter. Year to date very slightly behind budget but production was strong at the end of the quarter, and is continuing in this quarter so we do expect to hit guidance for the y ear. Cash costs are low at $327 an ounce, mainly due to higher-grade material being placed on the pad.

Efemcukuru Paul's mentioned briefly. Mine and treatment plant performing on budget with 109,000 tons of ore being processed at nearly 9.3 grams and about 25,000 ounces sold, which is above budget for the quarter. The mine and mill are now operating at expected capacity on throughput and slight improvements on design for recovery. Cash operating costs for the quarter were at $519 per ounce. Concentrate continues to be sold without problems and work continues on the Kisladag concentrate metallurgical test work plant with results expected by the end of the year.

Tanjianshan had a good quarter, with 273,000 tons treated and nearly 28,000 ounces of gold sold. Again, slightly above budget. Costs were below budget at $398 per ounce. At Jinfeng we sold 20,000 ounces and at a cash cost of $757. Again on budget for ounces sold and under on cash operating costs. We're producing ore back out of the open pit. We mined approximately 140,000 tons out of the open pit in the quarter. Underground ore tons are also is slightly ahead on budget. The higher ounce production's the main driver for the lower year-to-date operating cost at Jinfeng.

At White Mountain we produced 17,500 ounces at $742 an ounce. Costs were slightly higher this quarter, but lower year to date than expected. Both of these are mainly due to grade variations. At Vila Nova in Brazil in late March the Anglo 4 facility suffered a collapse of the ship loading system and we haven't been using it for shipping our product since then. We worked with the local authorities and are now shipping iron ore from a local public port. Two shipments were sold during Q2 and we're hoping for another six to eight shipments by the end of the year. The operation continues at a slightly slower pace as we continue to sell our existing stockpiles.

At Scratoni in Greece the mine's performing reasonably well, producing 16,000 tons of concentrate, cash costs of $829 per ton. Costs were higher in the quarter due to lower mine activity than budget and some retroactive payroll benefits and a change in allocation of overhead. We're reassessing the division of those overheads and should have more detail in the next quarter.

In Olympius we traded 117,000 tons of tailings and produced 6,600 payable gold ounces. Commissioning continued in the plant during the quarter. We installed a screw classifier to handle the course tail, that's working well. We're now working on piping and pumping modifications and we expect to declare commercial production during Q3 of this year.

In development, Kisladag Phase IV, as we've announced previously, we've elected to defer the expansion pending an improvement in metal prices. We're continuing the purchase of the larger mining government and working on electrification of the same equipment. We have one Hitachi larger excavator and nine Hitachi trucks on site. The larger equipment will reduce earthmoving costs as we bring it fully online later in this year and into 2014.

At Skouries site work continued on clearing, grubbing and grading of the plant area and geotechnical drilling and tree cutting in the tailings dam area. At Olympius we continue work on the main decline. During the quarter this was hampered by groundwater inflows. We're working on grouting and earlier warning of that event.

Work continued on the Kocanolicus diversion and rehabilitation of the existing underground at Olympius. In Certej exploration drilling was completed during the quarter. We're now working on updating the resource model. Geotech drilling was also carried out on both pit area for slope stability and the proposed plant area. Metallurgical test work continues on the previous pit volume and the deeper sections that are included in the recent resource model.

At [Tea's Head] we continue to work on a review of the feasibility costs and considering options to reduce capital operating or both. We expect this work to be essentially complete by the end of this year.

In exploration we completed 65,000 meters of drilling during the quarter. Of note, we're currently drilling at Piavista in Greece and exploration drilling has recently been completed in Certej in Romania. We continue to drill brownfield targets at around all of our Chinese operations and at Efemcukuru in Turkey.

With that I'll hand it over to Fabiana.

Thank you, Paul. Good morning, everyone.

Before I go through the financial statement, I would like to correct a typo in our press release. The heading on the tables should read quarter ended June 30th instead of March 31st. I will now go through the financial statement, highlighting changes in significant accounts. Commencing with the balance sheet, we ended the quarter with a cash and cash equivalent balance of $522 million, compared to $870 million at the end of 2012. The decrease in the cash balance is the result of cash generation of operations net of amount invested in term deposit, the usage of cash for dividend payment and capital program.

The $4 million decrease in inventory relates to the sale of (inaudible) concentrate (inaudible) at Kisladag net of increase of supplies inventories at Kisladag and Olympius and production inventory at Vila Nova. In relation to our property, plant and equipment we have completed an assessment of external and internal factors and concluded there are no indications of impairment as of June 30, 2013. As reported in Q1 this year, there were $125 million increase in the deferred tax liability balance related to the increase in the Greek income tax rate from 20% to 26%.

Moving on to the income statement, we reported a loss attributable to shareholders of the Company of $43 million, or $0.06 per share, compared to a profit of $47 million, or $0.07 per share in the second quarter of 2012. Revenues for the quarter of $267 million are up $23 million from a year ago due to higher gold sales volume offset by lower gold prices. Production costs increased by 23%, or $22 million compared to the second quarter in 2012, reflecting higher sales volumes at Efemcukuru and Kisladag. On the income taxes spend the effective tax rate of 36% fell from a rate of 43% in the second quarter of 2012, mainly as a result of the impact of the recognition of investment tax credits in Turkey.

On the statement of cash flows, during the quarter we generated cash flow from operation activities before changes in nonworking capital of $85 million compared to $82 million in the second quarter of 2012. The main uses of cash relate to our capital program $117 million and investments in term deposits of $63 million. Those are my comments on the financial statement.

I will turn the call back to Paul.

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

Thank you.

(Operator Instructions)

John Bridges, JPMorgan.

Congratulations on the results. Just wanted to see -- the Turkish lira has weakened substantially, just wonder how much that's affecting your cost structure in Turkey and how much of the costs that you report are lira based and how much dollar based?

Our costs probably -- [I can't give you exact] number, we're looking at 40% will be Turkish lira based and the rest is other currencies, mainly US dollars and some euro.

And then as a follow up, Stratoni, you mentioned that the number you reported this quarter was a bit abnormal, could you tell us what a more normal number would be and what we should be plugging into the model for the rest of the year?

That's a tough question until we sort out division of overhead. I would suggest something between the first and second quarter if I was forced to guess for a number.

What's happening there, John, is it appears that we are misallocating a lot of the G&A in and around the Chalkidiki region to the Stratoni mine. The Stratoni mine acts administratively as a center for all of our business interests in Chalkediki, Olympias, Stratoni and Skouries and it appears that, frankly -- and it's probably just reflective of where we are in terms of getting our systems in place that we're misallocating a lot of the costs that are being dumped into Stratoni as an operating unit. So just bear with us and we'll get it, frankly, sorted out in the next quarter and you'll see, in all likelihood, an adjustment in the end of the third quarter and we'll be better equipped to give you some proper guidance.

Josh Wolfson, Dundee Securities.

My questions are with regards to Kisladag. Some of the CapEx it sounds like was allocated towards stripping, with the deferral of Phase IV do you still expect to do additional stripping towards eventually proceeding with that expansion, or will it be reduced going forward?

Where we are, Josh, right now is really looking at how we can take advantage of the operation in terms of increasing throughput. We are in a stage where we expect to have the EIA for the expansion project complete at the end of the year and although we won't be, at this point, proceeding with the expansion of the process facility crushing, screening process plant, we do clearly in the next few years have surplus mining capacity. And we're going to be looking with the EIA approval giving us access up to 35,000 million tons a year we're going to be looking at increasing our throughput to the leach pad and, frankly, revising our mine plan to do that. So you will see -- we won't be looking at production levels, obviously, that were envisaged as part of the expansion, but we won't be reverting back to the production levels prior to the expansion being muted. So we're in the throes now of really redoing the mine plan, looking at what we can do in terms of utilizing the existing mining fleet over the next few years where we, [as I was saying,] appear when we do have service capacity. A long answer is you're just going to, again, have to wait until we can update the mine plan.

Okay. And at this point is there any ability to see what the impact would be to reserves and if there's still the ability to process the lower-grade material and some of the run-of-mine --?

No, this is what we're looking at. We certainly see the opportunity to, frankly, increase the run-of-mine component taking, again, advantage of the equipment that we have.

Thank you. And lastly just for the concentrate treatment plant, would you expect to see any change in the Efemcukuru costs when that plant is up and running, or will be basically marginal --?

I wouldn't even assume that the Efemcukuru concentrate plant gets up and running. At this point -- and I'm sure metallurgists and Paul, of course, sitting across me. I'm sure the metallurgists will come up with a fix for this plant but we're receiving such, frankly, good concentrate treatment terms in the marketplace right now that I think it's going to be -- my sense is it's going to be unlikely that you will see us investing additional capital to reactivate the KCTP in the short term.

Anita Soni, Credit Suisse.

Congratulations on a good results. The questions that I have are with regard, of course, to stripping at Kisladag. What was the strip ratio?

Strip ratio for the quarter was 1.5 and year to date 1.5 so fairly consistent.

Tanjianshan?

Lucky I got all these out, isn't it? (laughter)

It's the Anita Soni file that we're drawing upon here.

Well, I have to calibrate my costs right now.

That's fine. Q2 at Tanjianshan was 1.4.

And the last one, Jin -- actually, could you just give me the underground open pit split on Jinfeng?

Underground open --

Yes, the split between the tons of ore in the open pit and the underground?

The open pit was slightly less than half of the total mine.

Okay.

Sort of 40/60 if you wanted.

40/60, okay. And then I guess my other questions have been asked. Thank you.

Thank you.

(Operator Instructions)

Kerry Smith, Haywood Securities.

Paul, for Eastern Dragon now that you've finally decided -- or the regulators have decided that you have to go through the NDRC to get the approval, how long will it take you to actually prepare the documentation to be submitted to them?

I honestly don't know, Kerry, because to be blunt, we're now thrashing out what exactly of the existing documentation that has been with the provincial authorities, being reviewed by the provincial authorities can be simply put -- transferred directly to NDRC and how much will have to be reworked, how much will have to be modified. That's the process we're engaged in. We just don't have -- in terms of timelines that's just the level of certainty as I can offer.

So without putting words in your mouth, could be like -- it could be as short as three months or it could be as long as a year or do have a bracket? (laughter).

Well put, Kerry.

Okay. And then obviously --?

As it gets clearer, looking into the muddy bowl, we'll obviously tell you what we see.

David Haughton, BMO Capital Markets.

Back to Kisladag, would you expect to see some cost improvements with this new fleet that you've got on board?

Yes, I -- yes we would. (laughter) Look, if you look at the Kisladag expansion as originally envisaged, there was two parts to it. There was -- the part to it that was about how do you keep unit costs under control, down as you go forward, and that was very much linked to the decision to invest in the new mining fleet, larger equipment in terms of both haulage and loading, as well as electrification of the pit and that's what keeps costs under control. The second component, which was about increasing production levels, was all about bringing production forward earlier in the mine plan. The nature of that type of expansion really doesn't do much of anything to your unit cost. So the first part is what we've kept.

Now, because we're not expanding throughput in the manner we first envisaged, what we're looking at is what is the opportunities within the existing infrastructure to increase throughput predominantly through run of mine. Traditionally the run-of-mine component to Kisladag has been relatively modest. It's been, frankly, not necessarily as well -- cost effectively executed as one would think. There's not been a lot of effort gone into it. Frankly, we would pick it up out of the pit, bring it to the pit rim, dump it on the ground, pick it up again with a loader, put it into smaller contractor-operated trucks, smaller trucks, and then it would go a circuitous route out of the leach pad.

What we're looking at now and we will be looking at over the next few months is the opportunities within the pit to changing drilling and blasting patterns to increase fragmentation, to make some changes in terms of our access roads to the leach pad, to basically take material straight from the pit straight to the leach pad. And again, we will benefit as we start incorporating the larger loading and hauling equipment and as we go to electrification. All of this will contribute to our ability to be able to get ounces to the pad cheaper, but -- so we're working our way through that, David, at this point, and certainly by the time we give guidance for 2014 and the out years those sorts of -- that sort of work will be behind us.

So you're still ultimately working towards the potential of a 30 million ton per annum stacking rate, but the mix between what's crushed and what's just simply dumped is --?

Well, we're not going to -- I think it's unlikely that we're going to get close to the 30 million ton but we're certainly looking at going beyond where we are right now and that's the reason why, obviously, we're completing the EI -- or the EIA process is being completed to give us that licensed ability to increase tonnage to the leach pad.

And is there also a scope to tweak a little bit more out of the crushing circuit than what you've got so far?

Probably not, I think we're just about there. It's 12.5 to 13 million tons and I think we're just about there on the crushing side. But obviously what we'd look at is a mining rate where we would preferentially put higher-grade material through the crushing plant and run-of-mine on a lower grade.

And of the grade front continue -- you appear to continue to get over call in the current quarter. Is that something that you can predict going forward, or you're just taking as it comes?

No, it'll vary up and down over periods but no, we -- it actually reconciles over a longer term so we're not predicting a factor in there.

When we do our reserve updates obviously, David, we take the blast hole skin and we incorporate it so we are refining our model as we go forward. And as Paul said, we do have -- we're usually -- on the growth scale we're very close, it's just that the -- we've continually, I suppose, benefited somewhat. There's been more downside -- upside than downside I guess, but I don't think we want to assume that for the future.

Okay. And revised CapEx numbers now looking at the $340 million together with the exploration of $51 million, the first quarter was fairly slow in that spend, it looks like you're catching up in the second quarter. Should we be -- is there scope for you to meet that or a bit of an underspend? What's your thinking at the moment about the pace through the course of the year?

Well, we revisited it's only a month ago so I think it's probably -- I think we would expect to spend that over the time we've got left.

Activities at Skouries are ramping up every -- frankly every month so I think that's a good number, David.

Okay. And finally looking at Olympias, you've got some precommercial sales, I presume that's concentrate sale? Are you happy with the terms, are they up to the expectations that you've spoken about previously?

Yes. Happy? (laughter) There's always scope for a few more percent but pretty well in line with what we'd indicated or what we thought initially.

Okay. So in line with the cost guidance that you had provided some time ago?

That's correct, yes.

[Boter Cherapov], HSBC.

Congratulations on a good quarter there. I have a couple of questions, one being on Olympias. I believe that initially commercial production was expected actually in the second quarter but it has been pushed, I believe, to the third quarter now. Is there anything operationally that's precluding you guys from declaring it this quarter?

Yes. (laughter) We're just simply not up to the throughput that would trigger commercial production.

Okay. And when in the third quarter do you expect to get to that throughput?

Month of July is behind us and July won't be commercial so that leads two more months. Look, I -- either August or September. I'm not trying to be flippant but --

All right. The other question would be, have you guys done the impairment testing with many of your peers and if you have, what price -- what gold price did you use and which -- just trying to figure out which of your assets would be in danger of impairment if gold prices come down more?

Well, as I said, we did a review, we assessed the factors in there and we used consensus prices so those are in the $1,300 range for long term.

Okay. And none of your assets really were impaired when you did that?

No.

Any particular ones that would be in danger, let's say, if price dropped to $1,100 or $1,200 if you had to revise your long-term expectations?

We would look at it at that point, I think.

At that point, yes.

Because I think -- the point you have to look at is if gold -- certainly in our view or my view is that if you see gold down $1,000 or thereabouts you're going to be looking at inputs. You're not just going to be -- your cost structure's not going to be the same. We haven't looked at the assets at $1,000 gold in terms of critically what their cost structure would look like and therefore what would be the potential for impairment.

Anita Soni, Credit Suisse.

I forgot and I hadn't asked, the breakout at Kisladag on sustaining and growth, could you give us that -- the split for the -- I know you give us the aggregated capital but I would appreciate the split?

For this year? Growth versus --

Just for the quarter.

I don't know that I have that.

Just bear with us, Anita, we --

Okay. Sustaining for Kisladag was --

I think it's $35.3 million for the entire quarter for Kisladag for both --

About 20% of that was sustaining, Anita.

Thank you.

(Operator Instructions)

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

Thanks, operator, and thanks for attending the call and look forward to talking to you at the end of the next quarter. Enjoy the rest of the summer. Thanks, again.

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