Eldorado Gold Corp (EGO) 2014 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Eldorado Gold Corporation first-quarter 2014 financial and operating results conference call. Please be advised that this call is being recorded on May 2, and the replay will be available at www.Eldoradogold.com. I would now like to turn the meeting over to Ms. Nancy Woo. Ms. 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 form, 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 May 1, 2014. I will now turn the call over to Paul Wright, CEO of Eldorado Gold.

Well, thank you, Nancy, and good day, ladies and gentlemen. Welcome to Eldorado Gold Corporation's Q1 operating and financial results conference call. Joining me in Vancouver this morning, are Norm Pitcher, President, Paul Skayman, Chief Operating Officer, Fabiana Chubbs, Chief Financial Officer, and Nancy Woo, Vice President, Investor Relations. We will follow the customary format, following a few brief introduction remarks from myself, and Norm will cover -- cover off the operational highlights of the quarter, and comment on the outlook. Following which, Fabiana will summarize the significant aspects of our Q1 financials, and then we will open up questions.

We are very pleased with the start of the year. All of our mines to contributed to a very strong performance in the quarter, with gold production of 196,523 ounces, representing a 20% increase over the same quarter of 2013. All-in sustaining costs of $786 per ounce, compared very favorably with our guidance for the year of $950 an ounce, and secures our position as having one of the lowest cost structures of the industry. We retain our guidance for the year, and expect to produce between 730,000 and 800,000 ounces. On the development front, the Skouries project in Greece remains our most significant growth project in 2014, where approximately $200 million is planned to be spent in the year, representing 60% of our total growth spend for 2014.

With over 500 persons working onsite, progress is being made on multiple fronts both on surface and underground, and in the quarter we commenced mill foundation pours. As mentioned, we are now in a position to state what we believe, or as I have mentioned previously I should say, we are now in a position to state what we believe to be a realistic schedule to complete the outstanding permitting and construction at our Eastern Dragon project in China.

Together with our 20% joint venture partner, CDH, the team is working hard to ensure that we commence production in [2014 - background noise]. Returning to Greece, specifically the outstanding approval of the Perama EIA, we have previously mentioned we do not anticipate any movement this file until after the municipal European elections in late May, and you can expect commentary from us, when we report on our second quarter results.

Before handing over to Norm, I would like to acknowledge and express my appreciation for the dedication and to, and the hard work for the Corporation by Nancy Woo, our long-standing Vice President of Investor Relations, who will be retiring at the end of this month. [Christian Muir], who many of you know, has joined us recently, and will be taking on these responsibilities as of June 1. With that, I will hand over to Norm.

Thanks, Paul. Good morning, everyone. My comments will be fairly brief this time, since it was a very solid quarter operationally, and there isn't really much in the way of issues to highlight this quarter. In Turkey, at Kisladag, we produced 67,075 ounces at cash cost of $456 per ounce, with capital expenditures of $7.9 million, which included money spent on capitalized waste and leach pad construction. The new fleet of mining equipment has been incorporated into the operation, and is performing well. We continue to evaluate options for expanding the Kisladag operation, including, of course, using equipment, originally purchased for the Phase 4 expansion.

At Efemcukuru, we produced 26,969 ounces at cash cost of $526 per ounce. Capital costs at Efemcukuru $5.4 million for underground development and mining equipment. We are looking at potentially expanding Efemcukuru to 500,000 tonnes per annum. A decision on this will be made as capital costs are developed, along with a new life of mine plan at the expanded rate. Over to China, Tanjianshan produced 28,379 ounces at a cash cost of $422 per ounce. A modest capital spending of $1.1 million, was mostly for capitalized waste and the JLG cut back. Most of the tonnes processed in the quarter came from the stockpile, as we continue waste stripping in the JLG open pit.

Jinfeng had an excellent quarter, producing 41,295 ounces at a cash cost of $626 per ounce, well below the budgeted cost for the quarter. Capital spending was $5.5 million for underground development, mining equipment and work in the tailings dams.

At White Mountain, we produced 26,473 ounces of gold at a cash cost of $607 per ounce. Mine grades at White Mountain were higher during the quarter, due to changes in the mine plan, and we expect grades to come down in subsequent quarters.

The Olympias tailings retreatment produced 6,332 ounces of gold, and we saw improved throughput and recoveries during the quarter there. That's it for the gold assets.

As far as Vila Nova, we sold 217,000 tonnes of iron ore during the quarter. Pit production was impacted slightly by heavy rains, which are seasonal. And at Stratoni, we sold 16,717 tonnes of concentrate, no real operating issues there.

On the development side, at Skouries, capital spending was $16.3 million for the quarter. Clearing in the open pit is pretty much done, as are the roads connecting the first top soil storage area on the tailings dam. The pouring of foundations for the mills began during the quarter, along with other concrete works. Minor inflows of water into the decline slowed advance. This problem has been dealt with using concrete grouting, and normal advances resumed.

At Certej, we finalized the pre-feasibility study, and submitted a 43-101 technical report. We will now proceed with a number of optimization studies, prior to starting to prepare a full feasibility study later this year. At Eastern Dragon, with our partner CDH, we are focusing on completing the revised EIA which we expect to submit this quarter. Following approval of that, we can then submit the PPA application, and are targeting approval of that by the end of 2014. The PPA is the main permit needed to resume construction of the project, along with a few smaller locally granted approvals.

At Olympias, in the main decline, we also encountered water inflows there which now have been dealt with, the same manner as in the Skouries decline. Refurbishment in the main mine continued on plan.

Briefly on exploration, it was a fairly quiet quarter, really due to the season; only 5,500 meters were drilled during the quarter. We did drill about1,300 meters at Goldfish, which is a new project in Brazil, targeting high-grade orogenic veins. We only have one -- we only have assay results from one hole, but so far so good. We had 4.53 meters at 12.74 grams per ton of gold in that hole. I always like to end on a positive note. So there you go, Fabi.

Thank you, Norm, and good morning, everyone.

I will go through the financial statement, highlighting changes in significant accounts. Comments in the way the balance sheet, during the quarter we completed acquisition of Glory Resources, and entered into an strategic agreement to advance our Eastern Dragon project. This resulted in a $10 million decrease in the investments and associated balance, an increase of $45 million in property, plan and equipment, and a net increase of liabilities and equity of $4 million.

The balance of the changes on our balance sheet relate to our normal course of business, including the reduction of $15 million in the inventory balance, representing a reduction of gold [in-circuit inventory] which was in that year end, at our Chinese operation. And an increase of $10 million in the deferred income tax liability balance, related to the impact of the Turkish lira exchange rates changes, on the tax basis of our Turkish tax assets, as well as an increase in accrued withholding taxes on dividends paid by our subsidiaries.

Moving into the income statement, we reported a net profit attributable to shareholders of the Company of $31.3 million or $0.04 per share, compared to a loss of $45.5 million or $0.06 per share in the first quarter of 2013. Adjusted net earnings for the quarter were $37.3 million, compared to $83.3 million in the first quarter of 2013. The difference in adjusted profits year-over-year was mainly due to higher gross profit from gold mining operations the during the quarter.

Revenue for the quarter of $280 million were lower from a year ago, due to a 20% fall in realized gold prices year-over-year. The 24% increase on depreciation and amortization over the first quarter of 2013, was a result of an increase in the depreciation of capitalized waste stripping costs, as well as higher production from our Chinese mines which carry higher depreciation rate than our Turkish mine.

Looking at income tax expense, excluding the $125 million adjustment related to tax rate increase in Greece, the effective tax rate was 36% for the first quarter of 2013, compared to 51% for this quarter. The increase in effective tax rate year-over-year was due to the impact of the Turkish lira exchange rate changes, as well as increase in accrued withholding taxes on dividend paid by subsidiaries.

On the statement of cash flows, we ended the quarter with cash, cash equivalent and term deposits balance of $690 million, compared to $624 million at the end of 2013. During the quarter, we generated cash flow from operating activities before changes in non-working capital of $95 million, compared to $140 million in the first quarter of 2013.

The main uses of cash relate to our capital program, $80 million, the Glory acquisition $30 million, and dividend payment of $6.5 million. This was offset by proceeds received in connection with [Thrace] and [Dragon] transaction of $40 million. Those are my comments from the financial statements. I will turn the call back to Paul.

Thanks, Fabi. Thanks, Norm. Operator, we will open up for questions now, please?

(Operator Instructions)

Our first question comes Dave Katz from JP Morgan.

Good morning. I hope you all are well. With the Efemcukuru expansion that you were discussing, do you have a particular return target that would serve as minimum? In other words, when you do the analysis, the return is below that you wouldn't proceed?

Yes, to be frank, the nature of the expansion is not going to be return dependent to the extent that it'll go well beyond 20% rates of return. What we're looking at right now is an expansion of is being described as an increase in production for 400,000 tonnes to 500,000 tonnes. In reality, obviously what we're targeting is increased ounce production, which may actually be achieved with less of an increase in tonnage, and simply through increasing grade through reducing dilution and modifying mining methods. This will not require significant capital investment. Therefore, rates are return will be in excess of 20%.

In other words, you expect to fully go forward with it regardless?

Yes. This is really just a matter of defining what it is, not about defining it to justify it. It's simply to give our engineers the plan to go forward.

Excellent.

We're not concerned about this being dependent upon rate of return.

Okay. With Skouries, would you be able to provide an update on where you expect to be in terms of the final cost? Is everything still on plan to hit the original budget?

We've updated guidance as of last year, in terms of schedule and cost, and at that point we're working within those parameters. If we see a change in either schedule or final capital costs of any significance, we'll obviously provide that. But given the fact that we haven't at this point, we're operating within those parameters.

Okay. Finally, obviously you adjusted the dividend plan last year. Gold prices came down, but have been reasonably steady within a band. If they moved down or up, would you change your opinion with regard to hedging?

Sorry. The question, I'm not quite clear on. You started talking about dividends, and you ended talking about hedging.

Right. No, what I meant was that --

Are you suggesting that we might consider hedging to secure our dividend policy? Is that the --

No. I'm sorry. What I was trying to say is if the dividend policy was established so as to make the Company's dividend flex with gold prices, and therefore linking the retained cash flow to gold prices as well. What I was saying is, would there be some gold price movement that would cause you, in addition to having the cash flow be dependent linked to the dividend, would there be another gold price movement that could also cause you to do a similar thing and institute a hedge?

That's like asking the question, how long is a piece of string? Are there conditions under which hedging could be considered for the Corporation? The answer would have to be, yes, to the extent that we're not categorically against hedging at any and all times. Fundamentally, hedging is a tool that can be utilized given a specific set of conditions. I think that's as specific an answer as I can give to you.

Okay. Thank you.

We're not a Company at any time that said, at all and every time would we preclude hedging as a tool to use, but it's not something that we're frankly considering at this time.

Okay. Thank you. That last bit was what I was going for. I appreciate that. Thank you.

You're welcome.

Our next question comes from John Bridges from JP Morgan.

Good morning, Paul, everybody. Sorry, I don't have a question. I just want to say thank you to Nancy for all the help over the years, and I wonder how you're going to manage without her, Paul?

It's going to be bit of a challenge, but Krista is recognizing that, and I'm sure she's up for the task.

Well done. Great quarter. Thanks, guys. I appreciate your comments, John. Much appreciated

Next question is from Cosmos Chiu from CIBC.

Hi, and thanks for hosting the call. Again, first off, best of luck Nancy, and appreciate all the help over the years. Turning onto the questions then, maybe in terms first on CapEx, certainly the CapEx spend this quarter, when I compare to your full-year guidance seems to be on a lighter side. I guess my question is two-fold, Paul and team. Have you made any changes, or are we still looking at the 2014 CapEx guidance that you've given to us? Is that still what we should be using? At the same time, is it safe to assume that from that perspective, CapEx will be higher in subsequent quarters?

We're not changing that guidance for 2014, Cosmos. You're right. It was a little bit light at Olympias and Skouries. Part of that is just seasonal. Part of it with Olympias, and I guess Skouries to a certain extent too, is we did have some of these water issues in the decline, so that slowed production down. That will certainly pick up. It will pick up now for the rest of the year. At Skouries, we are starting to pour foundations now, and setting rebar, and working in more areas, so it will pick up there as well. We're not changing at this point for the year's guidance.

Yes, and Norm, even at the operating assets, if I look at Kisladag and Jinfeng, and even those were pretty light in terms of Q1 spendings. Is there a reason behind it? Or is that again just assume that it's going to pick up?

It's probably going to get beat them up pretty good on the budgets this year. I don't think for any of the operations, we really changed our view on what we're going to spend this year. Again, it partly comes down to the timing, the season, and things like that, equipment deliveries, what have you.

(inaudible) New Year in China almost takes a month out of the circuit. I think that the GMs are probably a little bit optimistic, and they put things forward in terms of timing. We're still expecting similar spending I guess, on the operations.

A lot of the sustaining capital relates to surface works and tailings dams, and leach pads, and these sorts of things. Most of our mines in the northern hemisphere in the winter time just isn't the time when you're doing this.

Sure.

(inaudible) see sustaining and growth capital increasing as we go through the quarters. Whether we end up at the end of the year spending as much as we budgeted, I think typically we end up spending a little bit less each year. That is just a pattern if you go back through history.

Yes. Then, Paul, you brought up the Chinese assets. I noticed that the grade profile was pretty good in Q1. Is that a sustainable for the rest of 2014? (inaudible) at White Mountain?

It's probably a little higher, particularly White Mountain. That was very good grade, and it'll come back down as of the year wears on, and the same to a lesser extent at Jinfeng.

Okay. Maybe if I can ask a question, Fabi, to be quite honest, I don't really understand all the workings behind the 51% tax rate, the increase. But I guess, more importantly, how should we look at it in terms of tax assumption? Or what should we put into our model for the rest of 2014?

On the tax rate you will consider probably a tax rate around 30% to 33%.

Okay, so more normalized then?

Yes, but then you had to include the fluctuation in currency. For each move that the Turkish lira had, the 10% move in the Turkish lira will cost us $11 million into your deferred tax. A 10% in [R&B] movement will cost you around $16 million. For instance, in this quarter we have an almost 3% move in the Turkish lira, and that in itself gives you $3 million to $4 million impact on your rate.

Yes. But Fabi, that's only deferred taxes, so it is not cash taxes then?

Yes, that is the thing. It's still non-cash, so it's volatility on your income statement (inaudible) impacting your EPS calculation, so your effective tax rate too. But it's not cash at all.

Then, they are they going to get the opposite impact to it, if the currencies turn in the opposite direction?

In a way, yes.

Okay. There is no tax impact, or cash impact, sorry.

Mark it deferred taxes almost.

Okay. Cool. Thanks again and congrats on a very good quarter, and keep up the good work. Thanks.

Our next question comes from Kerry Smith from Haywood Securities.

Thanks, operator. Norm, or maybe Paul Skayman, the timing on the expansion study for Efemcukuru, is that something that you think you would have done this year then? You said you were going to do it, but you really didn't talk about timing. I'm just curious when that might be finished.

Yes, midyear. I think we've done most of the plant information. We're just waiting for a life of mine plan of the different rate.

Okay.

Midyear, probably.

Would expansion by 25% require an amendment to your permit?

No. We've already got the amended permit. We're capable of going past that 500 if we wanted to.

Okay. Then thirdly, so let's say you finish the study by midyear, and it was approved. I presume it sounds like it could be something that could be implemented within three to six months, like it would be running at the expanded rate for 2015? Would that be fair?

Probably six to nine, Kerry, so end of the year, first quarter, next year were we to make that decision.

Okay. Great. Then secondly, and maybe Norm or Paul might be able to answer this, you didn't talked in the [MB&A] about status of the permit application for the EIS at Perama. I just wonder has anything change there? Do you have any perspective on where you're at in that process?

Yes, Kerry, I try to cover it in my introductory comments. As we have previously mentioned, we're on hold both waiting for the results of the election so that we can reengage on the government on this particular outstanding permit. The reality is, to be blunt, it's all about political will at this point.

The permit application has gone through full review within the Ministry of Environment. It's been signed off by the Ministry of Environment, including full local consultation. It's just simply waiting for sign-off within the government. It's been suggested that we revisit this post the elections in May, and that's what we'll be doing. Hence my guidance, by the time we report on our second quarter, you can expect some commentary from us on where we are on that.

Okay. I apologize. It took me a while to get logged in, and I caught the second quarter comment. That all is all I caught, so I apologize

Okay. No problem.

Thirdly, maybe Fabi knows, on Skouries, I would be curious how many dollars have been spent of the budget so far as of the end of March. How much have you actually spent on that project?

As far as a specific?

5% of the budget, $16 million.

That was this quarter, $16 million this quarter. But that's what he said, to the end of March.

Just in total (inaudible) if I wanted to try and compare it to the project budget, I'm curious how much you've spent.

I may have to send you that information. I don't have it today.

That's fine. Sure, if you could do that. Also just a percent completion on the project too, that would be helpful. At least I know where things sit. Maybe the last question, Paul, your guidance for the year on your all-in sustaining cost is this $915 to $985 range, and Q1 obviously was significantly below that. I was wondering can you make any comment at all as to how the Q1 actual all-in sustaining cost was as related to say the internal budget that you might've had for Q1? I'm curious if the cost in Q1 was lower because the grades were up, but was it better than maybe you expected, and on a go-forward basis here in the next few quarters the grades will drop so the costs are going to move up? I'm trying to get a sense for how that Q1 number was relevant to what you might've expected.

If we look at each mine in the quarter, all the mines did better on an operating cost basis that we expected in the quarter. All the mines did a little bit better on production than we expected. As Norm and Paul have described, our sustaining capital spend for the year, it's not a divide by four situation. For the reasons previously described, the sustaining capital during the year was down.

We try to be fairly conservative on this, and our pattern as in previous years will be following the second quarter, we'll give you new guidance as appropriate as it relates to both production for the year. We'll peg that number, and we've also peg the number for all-in sustaining costs. Certainly although, as Paul has described, we expect rates to come down a little bit at White Mountain, we expect rates to come up a tad at Jinfeng. I think we're set up for a decent year where there's probably room for a little more upside than there is downside in terms of how we view the balance of the year. You're going to have to wait until second quarter before we give you any firm revisions.

Okay. That's helpful. Thanks. I appreciate it.

Our next question is from David Haughton from BMO.

Yes. Good morning, Paul, Norm, Fabi, and of course Nancy, who's cleverly slipping away before the next preparation of a quarterly report. Just a question for you on Efemcukuru, if I may, you were talking about modifying mining methods to reduce dilution. My recollection is you've got cut and fill there, and a fairly distinct hang and foot wall. How are you proposing to reduce the dilution? Is it just getting smaller gear in there? What's the idea?

That's certainly part of it. You're correct. We're using a mechanized cut and fill mining method. We're still mining a fair bit over the middle, and I guess about half of the middle ore chute right now which is pretty chunky. You're 8 plus meters in there. South ore chute, north ore chute, a little bit narrower. We've had some pretty good success with longhole mining actually, and getting some pretty good dilution control on that. That may be one of the things that we look at.

It'll probably in the end be a combination of gear and mining that. We're certainly not looking at changing the overall mining method up in Efemcukuru. When you're in a couple meter wide vein, how are we handle that? Either by longhole or maybe smaller equipment, and stay with mechanized cut and fill.

Okay, because the trick's not so much in expanding the plant; it's getting the feed to that plant?

Yes. Exactly.

Okay. That looks promising. Back to Kisladag, staying in Turkey, you've already purchased quite a bit of fleet for the phase 4 expansion. You noted that in your [MD&A]. What's happening with that fleet? Is that being utilized at the moment, or is it just sitting around? Can you just explain what the intention there is, and where you might move forward on it?

Maybe just before Paul jumps in, you need to clarify between, we've got both mining fleet as well as about $50 million or $60 million worth of crushing and screening equipment.

Okay, I meant mining fleet.

The answer here, Paul will provide it.

Yes, I thought you were concentrating on the mining fleet, and that's certainly in operation now. The two shovels have been electrified. We're running those, and the truck's currently running on diesel, but obviously larger equipment and more efficient. The mining equipment's all at work. The crushing equipment is really what we're looking at utilizing in terms of considering expansion options at the moment, so that's been sitting around.

All right.

If I can just jump in here for a moment, I think it's safe to say that all the new fleet is not being fully utilized at today's productions rates.

Right. Also at Kisladag, are you still putting ROM onto the pad and that had pulled the average grade down in the quarter?

We put a very small amount of ROM on the pad. The lower grade is per the plan. This year the grade of the mine plan is simply lower.

What we tend to do, David, is mine the higher levels while it's wetter and tougher conditions, so the first quarter generally is lower grade than the expected average for the year. It's mainly crushed material. This not a lot of run-of-mine going on in the first quarter.

All right. Would you be able to have a ball park kind of tonnage there, if you've got it in your head? Otherwise, don't worry.

I'd guess 500,000 or 600,000 tonnes.

Okay. That's good. Over to Olympias, you made reference to the decline progress and water ingress, et cetera. What kind of timeline do you have for completion on that decline?

A few years.

Still a couple years out?

Yes, three to five, let's say. It's a 8-kilometer plus tunnel, and we're 1.5 in right now.

Okay, 1.5 in. Have you done any exploration of that tunnel? That always seemed to be a promising prospect.

Not really. Of course we're mapping and [sampling] as we go in, haven't really hit anything yet. I don't think we're really in the area where we would've expected to.

Very good. Okay. Thank you very much guys, and farewell, Nancy, and thank you.

Our next question is from Josh Wolfson from Dundee Capital Markets.

Hi. Good afternoon, guys. Just a question on the Eastern Dragon sale and the put condition that was disclosed, could you talk about what the condition would be for that put to be able to exercised, and what the motivation was to incorporate that in the transaction agreement?

Josh, we're not going to get into discussion on non-material contract and a non-material asset. Suffice to say, we structured an arrangement with our partner to ensure that we had some congruence of objectives, in terms of ensuring these Eastern Dragon is up and running and is structured also in a way that would satisfy the requirements of a private equity group.

Okay. I guess my concern or the concern from [RENAT] would be related to the permitting which is relevant at the current time, but I understand if it's not material for you guys.

Just a question as well for Greek royalties, given that you've already received the joint ministerial decisions for a number of assets there, at what point would you finalize with the rates would be for Olympias and Skouries?

I think there's been rates presented, but as I understand it, it has to go through Parliament. I don't know that it's a negotiation with us individually.

It's just part of the mining lobby.

It's basically legislation that has to be enacted, Josh.

Okay.

Obviously, we've been involved in the process in terms of providing recommendations and input into the process, and I think it's safe to say that without being specific, we're comfortable with the direction that the government is going. We're really waiting (inaudible) for legislation to be enacted. Then we can give guidance once it's in place.

Okay. That sounds great. Thanks so much.

Our next question comes from Patrick Chidley from HSBC.

Hello, everybody, and congratulations, and thanks very much to Nancy for all her help. The first question on Kisladag. Sorry if I missed this earlier, but are you still waiting for permits on the expansion there, and what is the update if you are?

We're still waiting for the EIA to give us the expanded up to 33 million tonnes, I think, total here. We guided earlier midyear this year, and that hasn't really changed.

Still expecting that midyear. Is that just in a process at the moment, or is it installed?

Yes, it's just in the process.

Okay. By that time, you'll be able to give us more information on what the development options are?

Yes. It may not coincide with granting of EIA exactly, but it'll be probably a little bit later in the year.

Okay. Thanks. Just on Skouries, I wanted to get an idea where you think you'll be at the end of the year here in terms of construction. Obviously, it does seem to be going a little bit slowly. I just wondered what things will look like at the end of the year.

I'd expect we'll a fair amount of concrete in the ground, and you'll see some steel sticking up above it, bluntly speaking, Patrick. It'll start to look like a plant.

That's good. How about the pit?

We will send you pretty photographs. The pit is such where no matter which we're constructing this project, there's a fine balance between what we do in the pit and how we build the tailings down. The tailing construction comes from waste removal. You'll start to see the pit will be developed consistent with the rate at which the tailings dam is being constructed, is the best way of describing it.

Okay.

There is no waste dumped, per se. The waste from the pit goes to the tailings dam. It's not a case of us going out there and doing a pre-strip of the open pit because there really is no pre-strip.

(inaudible) see ores right at surface. We're really scheduling the waste removal around the pit to coincide with where the construction team are in terms of building the first tailings dam.

Great. That definitely helps visualize things. Thanks very much.

(Operator Instructions)

Our next question is from Anita Soni from Credit Suisse.

All of my questions have been asked, except for the strip ratio. I'm not sure; I might have missed it because I dialed in late.

You didn't miss it, Anita. We were waiting for you.

Okay. If you want to address now, or send offline, that's fine.

Paul Skayman can have the honors.

Strip ratio, I guess you're talking Kisladag, that's your main focus?

And Jinfeng usually. Kisladag, we're running just shy of 2 to 1, and that's in line with what we're expecting for the rest of the year. Jinfeng was running a little higher in the first quarter. We've done our major stripping now. It's running at 8 to 1, and that will drop down as the year wears on. Then sorry, Tanjianshan is also.

Tanjianshan is a bit of a bogus number because we're mainly mining off stockpile.

It's basically just a [waste] stripping campaign. You can't really assign a strip ratio to it per se.

Strip ratio in the quarter was 3 to 1, but they're such small numbers that it becomes a bit academic.

Thank you very much, and congratulations on a good quarter, and thank you very much, Nancy, for all your help throughout the years.

Our next question is from Dan Rollins from RBC Capital Markets.

Thanks very much. Great start to the year, guys. Norm, I don't know if it's possible but could you elaborate on some of the optimizations or the modifications that are currently being contemplated for Kisladag?

We're really just looking at different production rates using what we've got, using the current mining fleet, and more or less using what we've got in terms of crushing and screening equipment. We're looking at, right now, we're a nominal 12.5 through the crushing plant, so we're looking at increments from there, 15, 20, plus 20, sort of thing. Then you're looking at the capital and operating costs associated with each of those and coinciding that with the production plant from the pit as well.

Basically, it's the same expansion but maybe more in the staging approach going forward?

If you look at what the mine looked like under the original phase 4 expansion, what it's going to look like regardless of any expansion we do, is quite similar. The leach pad expands out to the north, and there's a new north rock [dump]. It's very similar. It's just at what rate are you mining it and crushing and screening.

It follows that your project based developments are all based on the IRR, and this is a way to look at potentially boosting the IRR of that expansion?

That's right. We're just taking advantage of the fact that the time really to fine tune and better understand what the options are between where we are right now, and what we've previously been working towards. Stepping off of the fact that, as we previously mentioned, we have $50 million to $60 million of gear sitting there. What gives us on a go-forward basis at these metal prices, what gives us the best return on investment, within the range between 12.5 and 25?

Where simplistically, previously we'd looked at going straight from 12.5 to 25, plus 8 million tons of run-of-mine, that was predicated on a higher gold price. It may be if we take a view that we're in a $1,200 to $1,400 range, there may be frankly a rate lower than that that gives us a better rate of return than doing the full expansion, and is also a lower capital investment, given where we sit. That's the type of exercise that we're going through right now.

That'd be great. Then a confirmatory question, with respect EIA the expansion to 33 million tonne capacity, that includes all run-of-mine and/or that would be crushed and then directly (inaudible)

Yes. That's just a number. That's not something we're necessarily targeting. We're not talking that production-wise.

It's just a lot (inaudible) limit.

Think of it as ore or it's a leach pad.

Perfect. That's great. Thanks very much, and again, we'll miss you Nancy, but you did a great job. Enjoy the weekend.

Our next question is from Andrew Quail from Goldman Sachs.

Good morning, guys. Thank you very much for taking the question. Pretty much all of my questions have been asked. I just wanted to confirm any guidance you can give at Kisladag with grades going forward, given what happened in Q1? I think guidance is about 0.9? Is that right?

A little tiny bit more than that is guidance for the year at the moment.

That hasn't changed.

That hasn't changed. As I said, Q1 normally is a bit of a lower grade because we're mining the periphery rather than getting into the heart of the deposit while it's wet.

Until we change our guidance, our guidance remains the same to the year.

You guys don't see any change to guidance with the permitting process, if it was pushed out?

Not at this stage.

If we did, we would have said so.

Okay. All right. Thanks very much for your help, Nancy. Thanks, guys.

Our next question is a follow-up from Kerry Smith from Haywood Securities.

Thanks for taking my second call. I wondered on Efemcukuru one other thing, would there be some time required to develop more headings and more scoping areas to get, to build deliver 500,000 tonnes a year? Or do you have enough development now, Paul, that you could probably do that with no issues?

Yes. I don't think there's a lot of underground infrastructure that we need to be, a little bit. As Paul alluded to, Paul Wright, in his comments, the other thing that we're looking at is getting ounces to the mill by reducing dilution a little bit. We're not bad on dilution, but that's another way by upping the grade to do it as well. I guess it could be a combination of the two. As I mentioned, we're not looking at radical changes in the mining method or [money] method, or anything else. It could be a little bit more underground development, but not significant.

Okay. The critical path to get to a higher production rate, let's call it whether it's ounces or tonnes, it would be the construction, not necessarily any underground development that you'd have to do?

It wouldn't be underground development, I really don't think.

It's reasonable to assume, Kerry, that in the time it would take to implement whatever changes in the plant would be sufficient for us to (multiple speakers) whatever development underground.

Okay. That's great. Thank you.

Thank you. We have no further questions at this time. I'd like to return the meeting back to Mr. Paul Wright.

Thank you, operator, and thank you, everybody, who's attended of the call and for the questions. They're greatly appreciated, and we look forward to talking to you all at the end of the second quarter. Thanks again, operator.

Thank you. The conference call has now ended. Please disconnect your lines at this time, and we thank all who participated.