Eldorado Gold Corp (EGO) 2014 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Eldorado Gold Corporation second quarter 2014 financial results conference call. I would like to turn the meeting over to Mr. Paul Wright, Chief Executive Officer. Please go ahead, Mr. Wright.

Good morning and thank you for joining us. Welcome to our second quarter financial and operating results call. Joining me here today are Norm Pitcher, President; Fabiana Chubbs, Chief Financial Officer; Paul Skayman, Chief Operating Officer; and Christian Muir, our Vice President of Investor Relations. As always, we have provided detailed financial and operational information in today's press release.

Before I begin, I need to remind you that any projections and objectives included in our discussion today are likely to involve risks which are detailed in our 2014 AIF and in the forward-looking statement disclaimer at the end of the news release. We will follow the usual format with myself providing some general comments on the Company's business and our results and release. Norm will then provide some operational detail followed by a brief walk through the financial statements led by Fabi, then we'll open up for questions.

First of all, I'd like to extend my appreciation to all of our Eldorado teams who have again contributed to another solid performance for the Company. Operationally, another strong quarter with 200,551 ounces produced, all-in sustaining costs remain low at $829 an ounce and cash costs well in the bottom quartile at $489 an ounce.

The strong performance at mid year and our positive outlook for the year has resulted in improved guidance for 2014 with total production now charged at 790,000 ounces, cash costs of $495 an ounce, and all-in sustaining costs targeted at $850 an ounce. Year-end projections for capital spend, that is sustaining and growth capital, see us about 15% under our original guidance at approximately $435 million versus original budget at $515 million.

Turning to our three permit watches, and we'll start with Turkey. At Kisladag we received in the quarter EIA approval to expand the mine up to a production rate annually of 35 million tonnes. And as you've seen now, we've obtained approval from our Board to reactivate the expansion and we'll be proceeding with a planned expansion to 20 million tonnes with a target completion date of mid 2016. Additional capital to complete the expansion will be approximately $90 million.

We will, in September, incorporate in our corporate presentation additional information relating to the details of this expansion and resulted operational performance. So, the information, as I know you analysts would like to have today, I'm afraid you'll have to bear with us until we're able to put it into a format and release it to you early in September.

In China, good progress is being made on the Eastern Dragon project with the completion of the new EIA. We are now in the process of submitting that document to central government authorities. In Greece, we unfortunately remain stalled in relation to our outstanding EIA approval for the Perama Hill project. Subsequent to the municipal and European elections, we have engaged the government at ministerial level on this topic and unfortunately, I'm not in a position to provide a clear timeline for this approval.

You will notice in our outlook our stated intention to examine the possibility of enlisting on the Hong Kong exchange for our Chinese assets. Preliminary investigation has suggested this avenue may provide an opportunity for enhanced value for the Eldorado shareholders.

I just want to comment and clarify, because there was some commentary made initially this morning, that would suggest that we were looking at an alternative listing or an additional listing for Eldorado. This is not the case. The examination is solely on the basis of considering pending our Chinese assets into a new listed company. And, with that, I'll hand over to Norm.

Thanks, Paul. Good morning, everyone. I'm going to depart from my usual routine of going through mine by mine and giving commentary on each operation. To be honest, it was a very straightforward quarter and I believe that the numbers speak for themselves. There really weren't any operational issues at any of the mines but, of course, Paul Skayman, myself, will be happy to answer any of your questions at the end of the call.

Production wise, 200,551 ounces at a cash operating cost of $49 per ounce was an excellent quarter and has allowed us to peg our outlook for the year and at the high end of the ounce range and the low end of the cost range. I would like to provide some more information regarding what's involved in the Kisladag expansion.

We looked at three different production scenarios. One was keeping it as it is at 12.5 million tonnes of pressure throughput. We looked at 17 million tonnes per annum of pressure throughput and also 20. The 20 million tonnes per annum give us the best utilization of existing equipment purchased in the previous expansion and also the best production profile on a yearly basis.

A large part of the expansion is of course on the crushing, screening, and conveying side. Currently, we run a primary crusher, one secondary, and five tertiary crushers. The 20 million tonne per annum expansion circuit has a new primary crusher, two secondary crushers, and seven tertiary crushers. Of these 10 crushers, all of them are either in the existing circuit or have been purchased.

We are also replacing the course or stockpile and we are upgrading the 42-inch overland conveyor with a 48-inch unit and expanding ADR capacity. Installation of the components described make up the bulk of the capital for the project. Following detailed engineering, construction will begin in 2015 and be completed in 2016.

While we're on the subject of Kisladag, let's talk everyone's favorite subject which is run-of-mine ore. We had originally in 2014 budgeted our usual 12.5 million tonnes of crushed ore and about 5 million tonnes run of mine ore. Of this run-of-mine ore, about half was oxide and half was sulfide. In the past, we have put run of mine oxide on the pad. We get good recovery. We'll continue to do so. That's not a question.

It's really the sulfide run-of-mine and when we were getting a little bit delayed on the EIA so with the expanded rate we decided to cut back on run-of-mine production. We're now able to put it back on the pad, but what we're looking at for this year is the 12.5 million tonnes of crush material and probably about 3 million tonnes of run-of- mine which is, again, that 3 million tonnes will be about half oxide and half sulfide.

I would view the sulfide as almost sort of a big test pit or test pad at this time and in the expansion study we haven't considered sulfide run of mine. There will be some oxide run-of-mine put on, but there's not a lot of oxide material left. So, there you are with run-of-mine.

At Efemcukuru we plan to do a modest expansion of plant capacity to bring the plant to 5000 tonnes per annum. After reviewing the mine plan and associated grade profile, we expect production to continue to be in the 100,000 to 110,000 ounce per year range.

On Eastern Dragon, as Paul mentioned, the new EIA has been completed and will now be submitted to the Minister of Environmental Protection in Beijing, and we're looking at somewhere to a three month review period by them.

On the exploration side, during Q2, we drilled in Greece, Brazil, and China. There was no exploration drilling in Turkey or Romania during the quarter. Our results for most of the programs are pending. However, we do have some interesting results from so-called condemnation drilling at Olympias, that wasn't successful in condemning anything, in an area outside of the current resource. Significant results there include 5 meters at 10.8 grams per tonne gold and 86 silver, 13 meters at 7.5 grams gold and 67 silver, and 30 meters at 6.2 grams per tonne gold and 55 grams per ton silver. With that, I'll turn it over to Fabi.

Thank you, Norm. Good morning, everyone. I will go through the financial statements highlighting changes in significant accounts. Commencing with the balance sheet, the most significant changes from the December 31, 2013, balance sheet related to the account for the acquisition of [Glory] resource and the strategic agreement we entered with CDH in relation with our Eastern Dragon project, both transactions were completed in the first quarter of this year.

This resulted in $10 million decrease in investment in associate balance, an increase of $45 million in property planning equipment, and a net increase in liabilities and equity of $4 million. The balance of the changes relate to our normal course of business including a reduction of $11 million in the inventory balance, represented a reduction of gold insert with inventory build up at ELM at our Chinese operations, and an increase of $10 million in the deferred income tax liability balance, mainly related to higher withholding tax accruals on dividends from our Turkish and Chinese subsidiaries.

Moving on to the income statement, we reported a net profit of $37.6 million or $0.05 per share for this quarter compared with $43.3 million or $0.06 per share in the second quarter of 2013. Revenues for the quarter of $265 million were 1% lower than a year ago as higher gold sales volumes were partially offset by lower gold prices. The 24% increase on the precision and amortization over the second quarter of 2013 was a result of higher sales volumes.

Looking at the income tax expense, the effective tax rate for the quarter was 39% compared to a rate of 36% for the second quarter of 2013. Effective tax rate for the second quarter of 2013 was lower due to a tax recovery related to recognition on impairment tax credit in Turkey partially offset by the impact of movements in the Turkish lira. Effective tax rate for the second quarter of 2014 was higher due to higher withholding tax accruals on dividends from our Turkish and Chinese subsidiaries.

On the statement of cash flow, we ended the quarter with cash, cash equivalents term deposit balance of $581 million compared to $624 million at the end of 2013. During the quarter we generated cash flow from operating activities before (inaudible) of non-working capital of $92 million compared to $85 million in the second quarter of 2013. The main uses of our cash during the quarter related to our capital program which was $109 million. Those are my comments on the financial statement. I will turn the call back to Paul.

Thanks, Fabi. Thanks, Norm. Operator, we're looking for questions please.

(Operator Instructions)

John Bridges from JPMorgan.

Congratulations on the results. Just wondered, small thing but I see you're building a road at Tocantinzinho in Brazil and I just wondered if that meant the project is up and running again? Is that a meaningful takeaway or is it just housekeeping?

Look, we obviously haven't made any decisions on Tocantinzinho in terms of the project development. We're working now to finalize the technical study here in the coming months, but what we have done is -- we are doing some additional exploration around Tocantinzinho and we elected to essentially push through I'll call it a bush track or a four-wheel drive along what would be the permanent road. It was something that enabled us to have a better handle on what the cost would be to build a final road and also it reduces the cost significantly in terms of supporting the ongoing exploration.

Okay. So, does that mean that it's more favorable than before or just [development]?

Yes. Look, we're not done yet on Tocantinzinho. Without getting into specifics, there are elements as we dug deeper into examining the project, which we're probably somewhat more encouraging than perhaps we were a year ago but, John, I think you have to sort of wait until we wrap up the definitive technical study which hopefully we'll have done here -- certainly by October, November time.

Okay. Olympias, sorry that you weren't able to condemn that ground, but did you then have a ground shortage or have you got other areas you can go to?

No, this is really -- if you sort of recall Olympias, there's an east ore zone and a west ore zone and we were driving a ramp, called East Ramp, over towards the east ore zone and sort of drilling ahead of it to see what was there and this material actually came in underneath where that ramp is going, so it's fine. And it's probably -- it's either in that trough between the two ore zones or it's an extension of the upper part of the East Zone.

It doesn't affect anything on surface, John. It's more just in terms of location.

It doesn't really affect where we're were putting our access in underground either.

It's all good news. Excellent. Thanks, guys.

David Barilla from JPMorgan.

Just one question. The lower CapEx for this year -- lower CapEx guidance, why -- well, it's actually more. Is it that more related to a deferral or a lower quantum?

It's more of a deferral. It just reflects the -- and it's not unusual in terms of our performance. I think every year we tend to probably be a little bit more aggressive in terms of our rate of spend on projects, but the cost is still out there. It'll just be incurred later.

Great. Thanks.

Andrew Quail from Goldman Sachs.

Congratulations on a very good quarter and some good news around some of these projects. Just a question on Kisladag, I think we're talking about half oxide, half sulfide at the end of the year. Grade was obviously very strong this quarter. Can you give just some color on where you think that is going to be this sort of second half and maybe if you can into 2015?

Look, just first of all to clarify I'll let Norm talk and I'll let Norm answer the bulk of the question, but I would have weighted in here. When we talk about half oxide and half sulfide, that only relates to the very small run of mine component. The majority of the material that is vast, majority of the material that goes through the crushing circuit is sulfide and has been for a number of years. So, the balance of the question yourself Norm, Paul, will answer.

The good grades will continue probably through Q3 and then as the weather gets a little rougher we drop the grade in Q4 and mine higher portions of the pit.

We're going to end up pretty close to budget.

Yes. Yes.

Very close.

Okay. And then obviously last thing, I was curious about -- last question, is that deferral, is that sort of more we see that going into 2015 or is it getting pushed out to more 2016, that [third of 80]?

It'll be spread over the two in reality. We're probably a month or two now from ramping up significantly on the manpower. We're running right now at around a little over 500 people. We're projecting by year end to be in excess of 850 people. And so once we're into that, then rate of spend goes up significantly. We're getting set now to bring the mills to site to start setting the mills and once we get into that mode you're going to see the spend rate going up.

Great. Thanks very much, guys.

Dan Rollins from RBC Capital Markets.

Norm, I was wondering if you could provide a little bit of color on the success you've had at especially Jinfeng and White Mountain and getting the costs down and keeping those costs fairly low? Has there been some stepwise changes there? Is this a function of grade or is there more going on there?

Part of it -- certainly in the case of White Mountain part of it's grade and we'll come down a little bit in the second half on grade to about what we predicted for the year, but I think in general at all of our operations the guys were given a pretty clear mandate of the start to try to get their costs down and I think that our teams in China have done a particularly good job of doing that. So, I don't think you can put your finger on one particular thing. They've just gone through the entire mining, milling processing type functions and tried to reduce and do things a little bit better everywhere. We run a pretty lean ship to start with, so it's pretty good that they could do what they've done.

For sure. I know, Paul, you mentioned that we'd be getting an update in September. I'll try one question.

Of course. (Laughter)

The current reserves for Kisladag, do they include run of mine ore?

The reserves as -- they do. Yes.

Okay. Perfect. Okay. Thanks.

Patrick Chidley from HSBC.

Just a question on Jinfeng and just a little bit more detail there in terms of what's the current underground open pit split on that? Is that --?

Just bear with us, Paul Skayman's here, he's rustling through some papers.

Okay. Followup question, grade at Jinfeng, what sort of grade are you forecasting for the rest of the year?

Drops off a little bit for the rest of the year but not significantly. And I guess split is getting close to 50-50 for open pit underground.

Okay. Thanks. And just a final question on the Hong Kong listing for the Chinese assets, what stage are you at with respect to this, would you say? And if you could give some color on what sort of percentage would you be looking to list on the plan there?

Look, we can't really give you any color as it relates to percentages. It's early days. We've had I'd say preliminary discussions with the exchange. We're going to be following up here in the coming weeks in terms of having our people over there to extend those discussions.

We've certainly had some significant encouragement relating to the appetite for type of vehicle that this would represent in Hong Kong. I think clearly we've seen some very strong signals from some very strong potential investors that are very high quality gold company with good corporate governance and transparency would be extremely well received, but it's very early days, Patrick. It's a process and we just have to sort of peel our way forward here.

Thanks. Great initiative by the way. Thanks very much and congratulations on the quarter.

Thank you.

David Haughton from [BMO Capital Markets].

Thank you for the update. Norm, probably for you. Back when the idea of the 35 million tonne per annum expansion at Kisladag was considered there was the idea of the pit ultimately taking out some of your infrastructure. Now that you're stepping it down to the 20 million tonnes, does that occur or is it just a smaller footprint?

It occurs to a much smaller extent. The -- we moved the primary crusher anyway. So, that does get moved. In terms of office buildings, they don't. Truck shop, partly, yes -- but it takes out less than what the big pit did for sure.

Okay. And if I understand your commentary, the reason that you've got just only $90 million spend here is that most of that crushing combination at the front end is done and the $90 million is really just for the conveyor and the ADR?

No, it's also installation. Like there's a lot of concrete and structural steel going into the -- moving the primary crusher. The whole circuit gets moved over to the east, I guess. So, a lot of it's installation and then it's ADR and then, yes, it's overland conveyor.

Most of the hardware is there, David. It's the installation costs that we're talking about.

Okay. And what about the fleet? That's already there as well?

Fleet's good. We don't get to buy anymore.

And that's with the electrification option?

No. Electrified the shovels and the drills. At the moment, we're still running the trucks on diesel. That's something we need to do some more work on to move forward on electrifying the trucks for the longer holes -- the deeper holes.

All right. Thank you very much. Look forward to the additional details later in the year.

(Operator Instructions)

Kerry Smith from Haywood Securities.

Paul, you, you didn't say anything in the MD&A about Olympias on the drift. I just wonder how all that's coming along.

Sorry. Say that again, Kerry.

Just the drift that you're driving over to Olympias from the one side to the other from -- (multiple speakers).

No. It's back advancing. As you know, we've had -- we went through a process of having a lot of water which stalled us for a while. Then we came up with a methodology to be able to advance under grout cover. We're doing that. I think it's safe to say that we're not overwhelmed with the rate of progress right now. The progress has been fairly slow and, as a result, fairly expensive. They're shutting down for a couple of weeks here in the summertime and we may, frankly, extend that and have a bit of a think, frankly, as to how we may improve what we are, how we can improve upon that performance.

Water continues to be present and as you appreciate, Kerry, if you're developing under grout cover, it affects your advance and your costs. The reality is unfortunately because of the location it's very difficult for us to get good information as to how we're going to be in this. One of the things that we'll be looking to do is to put some long holes out ahead during the shutdown to try to get a better handle as to what the conditions are and maybe make some changes to improve upon the situation.

Right. So, do you have any thoughts as to the timing to actually finish that tunnel? Is it going to be six months longer than you thought -- or like just rough order?

It's going to be longer. How much longer, I think remains to be seen. And I think the fact that it's going longer is also prompting us to sort of reassess really Phase II of Olympias and whether or not we should actually look at making Phase II a little bit larger so that we can get higher production earlier out of Phase II, rather than just wait until Phase III.

So, would you be able to give us sort of a more detailed update on your thought process for that project sometime this year or is that going to be next year?

No. We will. Certainly by the end of the year we'll have a much clearer view on what Phase II will look like, what Phase III will look like in terms of timeline.

Okay. And then just on the Hong Kong listing, I must admit I sort of read it too quickly because I thought it was suggesting you were going to list your shares in Hong Kong and I see now it's relatively clear so I apologize for that. But are you -- conceptually, are you thinking that you would maintain some level of ownership in that company or are you thinking of spinning the whole entity into a new standalone company?

It's all about what the value proposition is, Kerry.

Okay. So, there's been no decision made either way as to how you might do that.

No. Not at all.

And then the time, do you have an internal timeline to when you'll actually make a decision? Is that a this year event or next year's event?

The process is typically sort of a 9 to 12 month process for the listing and we're sort of entering the process now and it is a process. And as we feel our way forward and make decisions that are material, we'll of course let you know, but that's the timeline for the Hong Kong listing.

Right. Okay. So, you'd make a decision before that point in time, but it would be 9 to 12 months to actually get you through if you decided to go with the listing then if I understand you correctly?

That's correct.

Okay. And then just last question on the 20 million tonne expansion at Kisladag, you mentioned that the average production for the first five years was 325,000 ounces. Right now you're running at almost 300,000 ounce a year run rate, so how does the math work when you're basically increasing your tonnes by 60% but the productions only going up by 15% or 20%, what am I missing?

Well, you're missing the fact that we have been for a while mining above the reserve grade, Kerry.

Okay. So, at reserve grade, that would -- okay. Okay. So, are you expecting that you would be back to reserve grade once that expansion started then? Is that the expectation?

Well, if you run for a number of years above reserve grade, you're going to run for a number of years below reserve grade and you're going to have some years at reserve grade.

Right. Okay. I guess -- that's good. Thanks very much.

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

Thank you, Operator, and thank you everybody who's joined us today. And enjoy your weekend and look forward to talking to you next quarter.

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