Eldorado Gold Corp (EGO) 2013 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Eldorado Gold Corporation year-end and fourth quarter 2013 financial results conference call.

Please note, this call is being recorded today, Friday, February 21, 2014, 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.

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, 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 forum and in our annual quarterly management discussion and analysis available on our website and on SEDAR identify 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 February 21, 2014.

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

Thank you, Nancy.

Good morning, ladies and gentlemen, and again welcome to Eldorado Gold's year-end and fourth quarter financial and operational results conference call. Joining me this morning in Vancouver are Norm Pitcher, the Company's President; Paul Skayman, Chief Operating Officer; Fabiana Chubbs, Chief Financial Officer; and of course Nancy Woo, Vice President of Investor Relations.

We will follow the customary format. Following my initial comments, Norm will provide a brief recap on the final quarter and 2013 operating results along with some commentary on what to expect for 2014. Fabi will then in turn take you through the year-end financials. I'm acutely aware that we are 27 minutes away from a hockey game that some of you probably view with some importance, so we're not going to be too slow in getting going here. We'll get under way here with my comments on 2013 and outlook for 2014.

Gold production for the year 2013 of 721,000 ounces represented a 10% increase over 2012 with average cash costs of $494 an ounce which compared very favorably with our 2012 costs of $483 an ounce. Forecast production for 2014 will see an increase of an additional 6% with production somewhere between 730,000 and 800,000 ounces with cash costs ranging between $550 an ounce and $590 an ounce.

Sustaining capital for the gold mines is planned to be approximately $170 million while new mine development is planned to be at $345 million including $215 million allocated for the Skouries development project.

Exploration expenditure for the year is planned at approximately $45 million of which we anticipate $25 million will be expensed. Forecast all-in sustaining costs are expected to be around the $950 an ounce mark. The Company continues to maintain a strong balance sheet with liquidity totaling approximately $1 billion.

As reported, and as Fabi will speak to, our annual goodwill assessment has resulted in an impairment non-cash charge of $314 million associated with our Jinfeng and Eastern Dragon assets. In addition, due to the significant extended decline in gold price in the fourth quarter of 2012, we are registering an impairment of $495 million associated also with the Jinfeng and Eastern Dragon assets. It's important to note that the lower gold prices have not affected our reserves and resources or the carrying value of our other mineral properties.

As stated in our release, proven and probable reserves of 27.7 million ounces and measured and indicated resources of 36.5 million ounces have both increased over our year-end 2012 numbers whilst maintaining $1,250 and $1,000 an ounce as a basis for reserve calculations. Our reserve statement was positively affected through success from our exploration results through the Company, particularly at Olympias, TJS, and Certej. In the case of Certej, we will be providing within the next 45 days both a press release and a technical report reflecting our current view of this asset.

In closing, I would like to thank again all of our Eldorado teams for the solid efforts and results of 2013. We enter 2014 in solid financial shape, quality growth being built, and a strong operational base to move forward with. With this, I'll hand it over to Norm.

Thanks, Paul. Good morning, everyone. I'll start with the operations concentrating on the gold mines.

At Kisladag, Kisladag had another strong year in 2013 producing 306,182 ounces at a cash cost of $338 per ounce. For 2014, we are estimating between 300,000 and 355,000 ounces at cash cost in the range of $470 to $485 and the increase in cash costs come mainly from a decrease in the amount of waste that we will capitalize in 2014. Sustaining capital in 2014 will be approximately $70 million.

In terms of the EIA expansion permit between the political intrigue going on in Turkey right now and changes in personnel and the administrative environment, the EIA approval has been somewhat delayed. We're now expecting approval before mid year and do not expect this to affect our 2014 production.

At Efemcukuru, in 2013 we produced 91,000 ounces at $580 per ounce and are predicting between 90,000 and 100,000 ounces for 2014 at cash costs of $575 to $590 per ounce.

Good progress was made at Efemcukuru last year in both mining and milling. Issues pertaining to tailing filtration, backfill placement, and underground crushing have largely been dealt with, and metallurgical recoveries and block model grades are at targeted levels. Going forward, we will continue to optimize the operation as well as evaluate expansion possibilities. Sustaining capital in 2014 will be approximately $20 million.

Tanjianshan, TJS had a pretty typical Tanjianshan year, just over 100,000 ounces, a good cash cost of $415 per ounce. For 2014, TJS will produce between 95,000 and 100,000 ounces again at cash costs in the range of $450 to $465 per ounce with sustaining capital of $20 million. The bulk of the mill feed in 2014 will come from stock piles as we enter a stripping phase in the JLG open pit.

Jinfeng had a good year in 2013, increasing production and lowering cash costs compared to 2012 as the open pit came back into production. In 2014, production will increase again to approximately 150,000 ounces with cash costs between $650 per ounce and $670 per ounce and sustaining capital pegged at $35 million.

White Mountain produced 73,000 ounces at a cash cost of $705 in 2013. We expect very similar production and costs in 2014 with sustaining capital of $25 million.

At the Olympias Tailings Retreatment project, we produced 26,444 ounces of non-commercial production in 2013. We continue to make modifications to the plant and expect to declare commercial production this quarter. For 2014, we're estimating between 30,000 and 35,000 ounces at cash costs of $975 to $1,050 per ounce, and I would remind listeners that the Tailings Retreatment is part of an environmental cleanup program to reclaim the valley as part of the overall EIA permit. That's it for the gold operations.

At Vila Nova, we continue to produce and sell iron ore using the public port following the accident at the Anglo-Ferrous port facility. We had sales in 2013 of about 470,000 tons. In 2014, we're looking at sales of around 640,000 tons of iron ore.

At Stratoni, our underground lead, zinc, silver mine in Greece, in 2014 we expect to mine and process 250,000 tons of ore as compared to 225,000 tons in 2013.

On to the development projects. At Olympias, in 2013 we spent about $94 million in capital, largely on developing the underground mine for Phase II production which is slated to begin in 2016. Capital costs for 2014 will be in the $60 million range mostly for underground development.

At Skouries, in 2013 we spent $51 million on both surface infrastructure and the underground decline. Capital costs for 2014 will be $215 million as we continue to focus on the process plant and tailings areas as well as the decline in anticipation of production commencing in 2016.

At Certej, we spent $23 million in 2013 and have budgeted $35 million for 2014 and today, as Paul mentioned, we released a maiden resource for Certej of 2.46 million ounces of proven and probable and we'll be posting an updated technical report on SEDAR within 45 days.

At Perama, as previously indicated, we do not expect any movement on the EIA permit until after the May elections.

And at Eastern Dragon we are actively engaged with NDRC on the project permit approval, the PPA, with the strong support of the Canadian government. We're finishing up the various documents required by NDRC for permit approval and will provide an update on progress early in Q2.

At Tocantinzinho in Brazil, we're finishing up our optimization of the feasibility study, which we expect to submit towards the end of the quarter.

On to exploration, we drilled approximately 128,000 meters of exploration drilling on 18 projects across Turkey, Greece, Romania, Brazil, and China in 2013. Brownfields exploration drilling programs were conducted at Efemcukuru, TJS, White Mountain, and Jinfeng mines, as well as our Certej project. All of these projects identify new mineralized zones outside of existing resources or delineated extensions to known mineralized zones.

Highlights include new high-grade intercepts at White Mountain northern extension, representing the down-dip extension of the White Mountain ore body; additional resource areas defined by within-pit drilling programs at Jinlonggou in the bridge and west wall targets; and identification of a new mineralized splay fault at Jinfeng outside of the existing resource model.

In Greece over 12,000 meters of drilling were completed at our advance stage Piavitsa project. Moderate to high-grade gold grades have been intersected over nearly 3 kilometers strike length of the whole Stratoni fault zone and the deposit remains open to the west and down dip.

Also in Greece, an extensive drill core re-logging and deposit reinterpretation program at Olympias culminated in an updated resource model for the deposit. Our early stage exploration and project generation activities include drill testing several new projects in Romania and Brazil as well as testing new targets defined within our existing exploration and mining concessions in Turkey, Romania and China.

I'll now turn it over to Fabi.

Thank you, Norm, and good morning, everyone.

I will go through the financial statements highlighting changes in significant accounts. Commencing with the balance sheet, we ended the year with cash, cash equivalents, and term deposit balance of $624 million compared to $817 million in 2012. The decrease in cash balance is mainly the result of cash generation of operations net of the usage for dividend payments, $85 million, and capital program, $482 million. The $23 million decrease in accounts receivable and other relates to collection on Efemcukuru and Stratoni concentrate shipments.

During the fourth quarter, we completed the annual goodwill assessment which resulted in an impairment of the full current value of goodwill related to our Jinfeng mine and Eastern Dragon project in the amount of $139 million and $175 million respectively. Since the release of our Q3 results, gold price has fallen below $1,300 and has remained at that level until recently. This was considered an impairment indicator and we tested our assets for impairment.

This resulted in an impairment of $350 million in our Jinfeng assets and $145 million in our Eastern Dragon project. This lower gold price has not affected our reserve and resources or the current value of our other mineral properties.

The $25 million increase in the deferred tax liability is the result of an increase in the Greek income tax rate from 20% to 26%. This resulted in a $125 million increase which was [reserved] in Q1 2013. There is also the impact of the Turkish lira against the US dollars, and that accounted for $17 million. This was offset by the impact of the reduction in the current value of Jinfeng and Eastern Dragon of $123 million.

Moving on to the income statement, we reported a loss attributable to shareholders of the Company of $653 million, or $0.91 per share, compared to a profit of $305 million, or $0.44 per share in 2012. Excluding the impairment adjustment, the impact of income taxes, and the increase in the Greek income tax rate, we reported an adjusted profit of $193 million compared to $327 million for the previous year. The difference in adjusted profit year-over-year was mainly due to lower gross profit from gold mining operations.

On the revenue side, we have revenues of $1.1 billion, which are slightly lower from the year ago due to lower realized gold prices offset by a 16% increase in gold face volumes. The increase in production costs and depreciation are the result of increases in sales volumes and a full year of commercial production at Efemcukuru.

On the income tax expense, excluding the $125 million adjustment related to the tax rate increase in Greece and the impairment charge net of taxes of $685 million, the effective tax rate was 47% for the year compared to 29% in 2012. The increase in effective tax rate over 2012 was due to withholding taxes on dividends paid by subsidiaries and the impact of foreign exchange fluctuations.

As the way of reference, a 10% change in exchange rate for the Turkish lira could result in approximately $11 million adjustment in deferred taxes; and a 10% change in exchange rate for the RMB could result in approximately $60 million adjustment.

On the statement of cash flow, during the year we generated cash flow from operating activities before change in our working capital of $382 million compared to $448 million in 2012. The main uses of cash relate to our capital program, $482 million, and dividend payment of $85 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 now, please.

Thank you. (Operator Instructions) Our first question is from Kevin Chiu from CIBC.

Good morning. It's actually Cosmos here. Thanks for hosting the call. Got a few questions here. Maybe first off on Kisladag. Looking at 2014 guidance you're including about 5 million tonnes of run of mine ore, and then looking beyond 2014 should we continue to factor in about 5 million tonnes of run of mine ore on an ongoing basis in terms of how we should look at the stacking rate?

Yes, for the time being, I think that's probably fine.

Okay; because Norm, in the past you've even talked about getting up to about 8 million tonnes but that was part of the expansion plans. So I just wanted --

Yes, right now, we're actually hauling run of mine with a contractor just because of an access issue we've got for this year. After that, we've got the bigger fleet of trucks, we can start using the what are now a little bit smaller Cat trucks to haul run of mine. So we will have the capacity to get up to those levels if we choose to.

And run of mine is driven, I guess, by the mine plan and what's available at those grades so it will vary.

For any particular year, sure.

So, it's good that you brought up the new mining fleet. What's your mining capacity now in terms with the upgraded mining bigger equipment?

Well, we're certainly not struggling at what we're at right now, that's for sure. We've got the new Hitachi shovels and trucks are currently working as are the Cat trucks. As I mentioned, I think we'll probably move the Cat trucks on to run of mine after this year, 25 to 30 probably with the whole fleet.

And then in terms of grade, we saw the grade at Kisladag drop off in Q4 2013. How should we look at -- I know usually it's hard to say, but what should we be expecting in terms of a quarter-over-quarter change or whatnot in 2014 in terms of the grade being stacked at Kisladag?

Cosmos, this is Paul.

Hi, Paul.

With my party line, you're trying bravely to extract quarterly guidance from us. (laughter) And we'll refrain yet again. I think again you're going to see fluctuations from quarter to quarter within the mine plan and, again, just to remind people here that this quarter is typically one of our weaker quarters because of climatic considerations at Kisladag, so that's about as far as you're going to get.

All right. I'll keep trying next time, but I've got one more question actually, maybe for Fabi here. After those writedowns that we saw in Q4, can you give us the carrying value for Jinfeng and also Eastern Dragon?

I cannot tell you from the top of my head. I think Eastern Dragon may be in the $400 million. I don't quite remember Jinfeng, but I can give you that information after the call.

Okay, sounds good. Also, if I can get it for the other Chinese assets as well in terms of TJS and also White Mountain, I just want to see after the writedowns what the carrying value would be today.

Okay.

And then maybe one more, Fabi. In terms of we've seen the Turkish lira go up and come down, there's been a lot of fluctuations. What percentage of your costs in Turkey would be denominated in the Turkish lira? I'm just trying to work out some kind of sensitivity.

Approximately 40%.

40%, okay.

It's higher than that.

It's higher than that. It's like 70%, isn't it?

I think it's more 65% to 70%.

We'll double check and reply on the same note.

Okay, cool. Thanks a lot. That's all I have, thank you.

Thank you. The following question is from Josh Wolfson from Dundee Capital Markets.

Hi, guys. Just following up on Cosmos' question for Kisladag. Regarding the throughput in 2014, without the amended EIA, what throughput would you be able to achieve there?

Well, our current EIA permit is for 12.5 million tonnes per year but, as I mentioned, we don't expect this to affect our production for 2014.

And in terms of your run rate, I think you placed on a pad at least a little over 13 million tonnes last year. How is that the case if the current permit is still rated for 12.5?

We've got a little bit of flexibility within the current permit.

Okay, so you'll basically be operating at the higher throughput rate until the permit is received mid year; and then if it's not, you'll have to curtail production a little bit later on?

Preferentially, Josh, it's obviously until we have the permit in place where we're putting run of mine. Because the bulk of production for this year comes from crushed material. There's a very modest portion of the guidance for the year that actually comes from run of mine.

In terms of ounces.

In terms of ounces. So, until we have the permit in hand, we're going to maximize our production through the crushing circuit.

Okay, so there's no quarterly limitation, it's just an annual requirement?

Right.

And then just one other question. For Skouries, there's a mention of modifications to support ongoing permitting. Could you discuss what the modifications are that you're seeking to make and what sort of permits are at question?

We're just undergoing the normal modification. There's been some design change to thickening tanks and additional floatation as well. And in terms of permitting, we've got the permits we need now to continue with our current schedule that has us into production in 2016. Just like any mine we've ever constructed, there's various smaller permits that you're getting along the way, but nothing major.

Okay, that's it for me. Thanks so much.

Thank you. The following question is from Kerry Smith from Haywood Securities.

Thanks, Operator. Fabi, what do you think would be a reasonable run rate on a go-forward basis for G&A for Eldorado? Should we use the 2013 G&A as a guide or would it be higher or lower?

It would be an annual of around $60 million. You're going to be looking at $16 million to $18 million per quarter.

Okay, so $60 million annually. As far as Greece, Norm, you talk about production in 2016. When do you think it would be in 2016? Is it like the first or the back half?

Yes, it's mid. (laughter)

That's perfect. That's what I expected, actually. And for the Piavitsa Resource that you released, which we haven't seen before, can you just remind me --

We had one last year.

Oh, you did, okay. So, has it changed then from last year?

It went up a little bit. The grade went up a little bit, tons went up a little bit I think as well. It wasn't a huge increase.

Okay. And I was just trying to follow on through the call on the new CapEx for the new projects, can you just give me again what that split is and what the total number is?

I think it was 300 -- just bear with me, Kerry, I've got to go into my notes here. Yes, $345 million is allocated for new capital which includes -- the lion's share is going to Skouries which is estimated to be $215 million. If you go to our corporate presentation, most recent corporate presentation, it breaks it out into the different projects.

Okay, I'll look there then. Okay. Thank you, Paul.

Thank you. (Operator Instructions) The following question is from Anita Soni from Credit Suisse.

Hi, good morning guys.

Good morning.

My question is not about strip ratio this time. I just want to clarify what you said to Cosmos, that this quarter is one of your weaker quarters. You mean Q1, right, at Kisladag?

What I was alluding to is that every year winter comes to Turkey in the first couple of months of the year. In the heap leach operation it affects us typically in the same manner.

I was just trying to clarify --

There's nothing unusual about this winter.

I was just trying to clarify if it was Q4 or Q1 that you were referring to when you said this quarter. Okay, that's it. Thank you.

You're welcome.

Thank you. (Operator Instructions)

There are no further questions. Actually, we do have a follow-up question from Andrew Quail from Goldman Sachs.

Hi, guys. Just a quick one on sustaining CapEx at Kisladag. Obviously it's come down a lot given you bought all that new equipment. Is that run rate for 2014 something we can model going forward into 2015 and beyond?

We had an extraordinary year in 2013 because we were into the expansion that we stopped. This probably isn't a bad range going forward.

Look, it's going to go up and down depending on which year we're still constructing leach pads. This year we're into leach pad construction, so it's probably going to be a little bit higher than the average.

And waste stripping I guess will (multiple speakers) a fair bit as well, because there will be less this year.

This year we're not. We're building leach pad but not waste. Yes.

So, that will be quite a big rider on that.

Okay, thanks, that's all I had.

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

Thank you, operator, and thank you everybody on the call. It's two minutes to 9 o'clock and I gather there's a hockey game starting in a couple minutes, so thank you all and we'll look forward to talking to you next quarter.

Thank you. That concludes today's conference call. Please disconnect your lines at this time and we thank you for your participation.