Eldorado Gold Corp (EGO) 2014 Q3 法說會逐字稿

Good morning ladies and gentlemen. Welcome to the Eldorado Gold Corporation third quarter 2014 financial results conference call. I would now like to turn the meeting over to Paul Wright. Please go ahead, Mr. Wright. Paul Wright^ Thank you Operator. Good morning and thank you all for joining us. And welcome to our third quarter financial and operating results call. In Vancouver this morning we have Norm Pitcher, President, Fabiana Chubbs, Chief Financial Officer, Paul Skayman, Chief Operating Officer, and Krista Muhr dressed as a monkey, our Vice President of Investor Relations. As always we have provided detailed financial and operational information in yesterday'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 is which are detailed in our 2014 AIF, and in the forward-looking statement disclaimer at the end of our news release. We will follow the usual format with myself providing some general comments on the Company's business in our results and release, Norm will then provide some operational detail, followed by a brief walk through the financial statements led by Fabi, and then we will open for questions. I'm very pleased to report another strong quarterly performance, with $263.5 million in revenues from metal sales, and adjusted net earnings of $0.05 per share. Excellent operating results from our gold mines, with and gold production totaling 192,578 ounces, cash operating cost of $488 an ounce, and all-in sustaining costs of $735 an ounce, that contribute to our maintaining guidance for the year of 2014.

Our guidance to remind you is producing 790,000 ounces at year-end, with cash costs associated of $495 an ounce. We are making good progress on our development projects, specifically in our principal project under development which is the Skouries Project in Greece, where we completed our mill foundations in the quarter and are busily setting the mills in place, and expect to have all mills in place by the end of the fourth quarter. Total employment levels now in Greece are in excess of 2,000 persons, and we are pushing forward to develop both Skouries, as well as prepare Olympias for Stage 2 operations. The Company's balance sheet remains strong, with $937 million of liquidity, including $562 million in cash. With gold presently hovering at or below the $1200 level, with a strong balance sheet low production cost and very high quality development projects, Eldorado remains one of the very few gold companies capable of continuing to grow a real profitable business. With that, I will hand it over to Norm.

Thanks Paul. Good morning everyone. I will be brief in my remarks as usual, since it was a very straightforward quarter operationally. Hats off to our operating teams as they continue to focus on maintaining our position as a low-cost producer. Let's start in Turkey. Kisladag we produced 78,030 ounces at cash operating costs of $411 per ounce, sustaining capital of $5.4 million, and we began work on engineering of the expansion crushing and screening circuit, which will increase crushed ore to the pad to 20 million tonnes per annum. Development capital spending in Kisladag was $6.8 million during the quarter.

I will take this opportunity to sort of remind people on how you calculate recovery, or don't calculate recovery on a heap leach operation, and you can't simply take tonnes and grade and ounces, and calculate recovery off of that, because of the leach cycle, and inventory being built up. So not similar to a milling operation. And Efemcukuru, we produced 26,838 ounces, at cash costs of $547 per ounce, sustaining capital of $7.7 million. You will notice about a 2,800 ounce difference between ounces produced and sold, this is due to the timing of concentrating shipments during the quarter. Onto China. Tanjianshan had a great quarter 25,387 ounces, at cash costs of $381 per ounce. Sustaining capital spending was $2.1 million. Jinfeng also a good quarter 39,429 ounces at $609 per ounce, and capital spending was about $1 million.

At White Mountain we produced 18,130-ounces at $648 per ounce. With capital spending of $5.8 million US dollars. Eastern Dragon, we continue the permitting effort in order to obtain the project permit approval. As I noted in the press release, the EIA for the project will be approved at the provincial level. This is a positive development but not a large change in the permitting process with the PPA still being reviewed and approved centrally by NDRC. Over in Greece Stratoni, Stratoni is having a very good year we're quite happy with the progress made at that operation during the quarter they produced 14,363 tonnes of concentrate, at a cost of $737 per ton.

On to Skouries as Paul mentioned things are going quite well there now. Two important milestones during the quarter, the being the start of the installation of the SAG and ball mills as mentioned, and the second was approval of the technical study for the tailings dam, which has allowed us to start our construction work on that dam. We also are moving forward with the selection of the open pit mining contractor, capital spend during the quarter was $35.4 million, we now have over 600 workers on-site at Skouries alone.

At Olympias we produced 4,772 payable ounces in concentrate. We're progressing to Phase 2 study during the quarter, which will transition the plant from tailings retreatment to processing underground ore, at a rate of up to 650,000 tonnes per annum. Capital spending was $28 million US, split between tailings processing, underground mine development, and Phase 2 development. In Brazil, at Vila Nova, we sold 135,000 tonnes or ore during the quarter, unfortunately due to the dramatic drop in iron ore prices, and we recorded a $7.6 million inventory write-down there, and are looking at placing the mine on care and maintenance.

In Romania Certej we started on the full feasibility study, and received construction permits that will allow us to get a head start on some of the site earth works. Those are the major projects. On the exploration side we drilled 19,000 meters throughout the world in the quarter, and recently put out a press release detailing some of the results, and I will refer you to that release. With that, I will turn it over to Fabi.

Thank you Norm. Good morning everyone. I will go through the financial statement, highlighting changes in significant accounts. Commencing with the balance sheet, the most significant change in the quarter, as Norm mentioned, release to the inventory write-down related to Vila Nova that we saw with the reduction of $7.6 million in the inventory balance. Other significant changes from the December 2013 balance sheet relate mainly to transactions that have taken place in the first quarter related as to the acquisition of Glory, and the agreement entered into with CDH in relation with our Eastern Dragon project.

Moving on to the income statement we reported a net profit attributable to shareholders of the Company of $19.8 million for the quarter, compared to $36.4 million for the same quarter of the previous year. Net income was impacted as we indicated for the Vila Nova inventory adjustment. Adjusted net earnings for the quarter were $36.1 million, or $0.05 per share, compared to $54.4 million, or $0.08 per share for the third quarter of 2013. Revenue for the quarter were $264 million, or 9% lower than a year ago, due to gold prices and ounces sold. Exploration expenses fell $6.4 million year-over-year reflecting changes in our exploration program in response to lower gold prices.

Looking at income tax expense the effective tax rate for the quarter was 64%. The higher effective tax rate was due to the impact of the weaker Turkish lira on deferred tax balances, as well as an increase in the percentage of unrecognized losses due to lower profits in the quarter. As a way of reference, a 10% change in the exchange rate for the Turkish lira will impact approximately $11 million adjustment in the deferred taxes, and a 10% change in the RMB will result in a $16 million adjustment to our deferred taxes. On the statement of cash flows, we ended the quarter with cash, cash equivalents and term deposit balance of $562 million, compared to $624 million at the end of 2013. During the quarter we generated cash flow from operating activities before changing to non working capital of $79 million, compared to $105 million in the third quarter of 2013. The main use of cash during the quarter relates to our capital program, $103 million. We also paid a dividend during the quarter of $6.5 million. This dividend was in accordance with our dividend policies. There were no changes to our dividend policy that were published in the beginning of the year. Those are my comments on the finance statement. I will turn the call back to Paul.

Thanks, Fabi, thanks Norm. Operator we'll open for questions. Please.

Thank you. We will now take questions from the telephone lines. (Operator Instructions). The first question is from Dan Rollins with RBC Capital Markets. Please go ahead, yes.

Thanks very much. Just a couple quick questions. Paul, in the beginning of the year you had mentioned that you spent about $170 million out of your existing operations on sustaining capital. I think year-to-date it's closer to about $80 million or $90 million, and leaves a big chunk for Q4. Is that still a realistic number to assume for Q4 or should we expect some of that to be pushed into 2015?

Yes. Look you are going to see a big spend in the fourth quarter, our sort of view is that we will still probably be a bit shy at year-end, I would expect probably $10 million to $15 million short of the $170 million.

Okay great. And then just moving on to Vila Nova obviously not a material asset for you, but once put it on care and maintenance, is there a cost what's the estimated cost of putting it on care and maintenance, and should we assume some stand by costs, or would that all be fairly negligible going forward?

When we put the operation on standby previously, so I guess we can probably reference that as to what the costs are, it's not a lot. We are fairly good at mothballing this asset, so it will be minimal.

Alright. Perfect. Thanks, guys. Congratulations on the quarter.

Thank you. The next question is from David Haughton with BMO. Please go ahead. Dave Haughton^ Yes. Good morning, Paul, Fabi and Norm, thank you for the update. Just looking for a little bit of clarity on Eastern Dragon. Earlier this year you had to recast your EIA to go to a federal level as I recall, it's now being at the provincial level before moving on to the federal level, can you just talk me through that process is, and are there any timelines for decision making on any of those bureaucrats?

Yes. I mean what happened was, yes. We had to redo the EIA to fit it not format to submit centrally, okay? We also had to redo the EIA because certain requirements had changed, particularly in relation to groundwater monitoring, air and dust controls, that sort of thing. So it had to be redone any way. So we did that, presented it to MEP in Beijing, the federal authority, and they said look it, there's no reason that we need to review this. You've already had it approved once provincially a few years ago, go back to the province, and they can do it for you. So it's an easier step for us, the province will approve it. I think MEP probably ticks a box on it, and then the EIA goes along with the rest of the documents to NDRC for the PPA application.

Okay. And do any of those processes have a prescribed timeline that it has to be done within a certain period of time?

No. No. Not really. I mean we're provincially for the EIA I don't think we are a talking months. We're probably talking weeks it a couple months sort of thing, to get that approved, and you're into the PPA, but no there really isn't a prescribed timeline.

And then once the PPA goes up to the national level there?

Yes.

It's uncertain how long that may take you?

There well, I think generally it shouldn't take more than a couple of months.

Okay.

Yes.

The general view, David, is that the progress we're making is consistent with what we have described in the guidance to be in a position next summer to resume construction. And I think what we will obviously do, and whether it relates to the EIA or the PPA, if we see or become concerned about any aspect of that process, delaying things we will obviously tell people, but right now as Norm has described, we're satisfied the progress we're making is consistent with that objective.

Okay. From what I recall having a look at previous presentations that you've made, of photographs of the facilities there. It looks pretty well advanced.

It is. No. I was just up there a couple weeks ago and it looks good. It's almost ready to go. There's clearly I mean there's some work on the tailings to get done, and some stripping in the pit, but we have ore exposed right on surface, so it won't take too long. The Mill itself is ready.

Yes. And I guess in light of what we have going on yesterday and today, low metal prices I presume you have got flexibility if needed to preserve cash flow, by slowing down expenditure on these various projects that you have got under way right now? Have you had to think through any of those or not?

We do have flexibility and right now it's not something we're spending a lot of time thinking about, David, we're running our business on the basis that the gold price is going to be in the $1,200 to $1,300 range. The fact that it has dipped below $1,200 for a day or two is not causing us any cause for concern. I mean if we see an extended decline and believe that to be persistent, we will sort of look at things, but this year has been a very good year for us. I mean the reality is that our corporate plan for 2014 assumed a realized price of $1,200. We're probably close to $80 to $90 an ounce ahead of that year-to-date, our operating costs are lower than what we planned, production is higher and we have seen some savings, and delays on some of the capital spend. So in reality our balance sheet is stronger than we expected. So this period that we're experiencing right now is not causing any cause for certain. Reassessment of the plans.

Yes.

But we will of course in late January give guidance for 2015, and that guidance will reflect sort of our outlook for the next 12 to 18 months.

Yes. Needless to say over the last couple of days we've had lots of requests on where the people stand on their, AISC, their breakeven cost, all sorts of things, so hence the question?

Yes. Alright. I think we're at the right end of the curve, aren't we?

Yes. True. Thank you Paul and Norm.

Thanks.

Thank you. The next question is from Andrew Quail with Goldman Sachs. Please go ahead.

Hi. Morning guys. Good work on another strong quarter. Just wanted to dive into Skouries a bit more, if I can we've all got the numbers, can you--, obviously it seems like it's on track. Do you see any upside or downside, or any sort of headwinds for a CapEx number, or the timeline, and can you just outline exactly how much you have spent to-date, and what you would think in Q4, and how much that ramps up into 2015, just curious?

Yes. Still guiding on producing material for late 2016. I don't have a number off the top of my head for total spend to-date. We are starting to spend at an increase rate with the receipt of the permit for the title stand construction, and obviously 2015 and 2016 are going to be fairly solid years. We're sorting of putting budget numbers together for 2015, and that will come out in January, I guess.

I mean I think if you just, the bigger question I mean we're a lot of the foundation work has now been done. We're moving into tailings dam construction. There was a lot of pre purchased equipment already that we have inherited, and if you look at typically where projects potentially overrun, schedule aside, it tends to be more in the civils. I would say that we're within six months now of having a very good view on the civils, and then a lot of the procurement behind us. So I don't think there's a lot of discomfort with the numbers to cost to completion. As we do every year, and in January we will be giving you updates on what we expect to spend in the year, and what we see as being cost to completion at that time, but there aren't any alarm bells going on here.

Right and then just that additional 60 for the underground that's not upfront, is it? Is that delayed after the start?

No, we're working on the D plan at the moment, so we've got an amount in to continue that development during pre-production, or during construction now.

But he have a lot of flex there we're starting the underground well in advance of what was originally envisioned, so if we wanted to save some money over the next year or two, that would be the one to where we would look to sort of throttle back on.

Got you. Thanks very much, guys.

Thanks.

Thank you. The next question is from Anita Soni with Credit Suisse, please go ahead.

Hi. Good morning first question is with regards to Kisladag, wondering if you could walk us through the plans on the run of mine or on the pad, for the remainder of the year I guess. Just to give us a split of sort of what happened in Q3 on run of mine versus the mill?

Yes. We've put some run of mine material on for the year, there's going to be a fair bit more going on over the last quarter. At the moment we're sort of planning on a total of getting on for sort of 5 million tonnes of material, about a quarter to a third of that will be run of mine material placed on the pad.

In the fourth quarter?

In the fourth quarter, yes.

Okay. So total for the year how much would have been run of mine then?

A little shy of 3 million tonnes total will be run of mine, based on the current.

Okay. So just so similar to what you guided or same as what you guided in the last quarter then?

Yes.

Okay. And then of course my strip ratio question. What was the strip in the quarter?

Hang on a minute.

I will stop asking you when you put it in the disclosure.

Strip ratio in the quarter was around 2.4. A little bit higher than the rest of the year. And probably similar for the last quarter.

Alright. And then Jinfeng underground open pit split, and also strip ratio?

Maybe we will get back to you on those.

And then the last question maybe you can get back to me, of what's the sustaining capital versus growth capital spend run rate so far, if you could sort of give a little bit of even just a percentage disclosure on what you have spent to-date in the two buckets?

Well, sustaining and development.

Well, stepping we would I just commented on. Mine we have budgeted 170,000. We will probably end upcoming in sort of 155,000 to 160,000 year-end.

Okay. Yes, and then just last question. With regards to the Olympias, it seems like you had indicated that about 650 K ton per annum is the Phase 2 that you are looking at, and I apologize, I hopped on a little bit late on call, so I don't know if you addressed that, but could you just give a little bit more color on sort of timing, and how you see that unfolding over the next couple of years?

Well, yes. I mean we're saying up to 650,000. We're sort of looking at that right now, in terms of what we need for crushing and grinding capacity. And we will be updating that first quarter next year.

Okay.

When we gave our guidance for the year we will be detailed, laying out to you what our plans are in terms of capital investment for Olympias Phase 2, to bring the operation on as Norm described as ore processing. We certainly can see the opportunity to go in excess of what was originally envisaged, and we're detailing that out right now, but there would be whatever level is the ultimate level that we wish to reach there will be a ramp-up period to get there.

Alright. Thank you very much.

You've got sort of a year to 1.5 years of tailings retreatment still left. So it's all, yes. it's all going to merge together.

Alright. Thanks and congratulations on a good quarter.

Thanks.

Thanks.

Thank you. The next question is from Kevin Chiu with CIBC, please go ahead.

Hi it's actually Cosmos here. Thanks Paul, Norm, Fabi, and team. Yes we do switcheroos all the time, I'm still here, yes. Maybe when outright gold prices go lower, but I'm still here. But yes. So just following up on Anita's question on Olympias. Maybe Paul. Certainly earlier this year you had talked about maybe targeting 30,000 ounces to about 35,000-ounces for the year at Olympias, and you have gone to about 17,000-ounces so far. Certainly understanding that this is tailings reprocessing and targets are pretty fluid, and likely, that's going to be the answer to the question, but has there been any kind of unplanned challenges to the tailings reprocessing?

Well, Paul will give all the details but your word fluid is a very good description, it's a mucky mess that we're dealing with but a non-technical description.

Yes. It's certainly been a lot harder than I think anybody anticipated in terms of predictability, in terms of being able to feed, course versus very fine material, materials handling being an issue. Yes. It's been a lot harder than we anticipated.

I think we're all surprised how difficult it is to simply to dig up tailings and push through a mill, and it's been a real pain.

So I guess that kind of relates to my other question as well I guess. Earlier this year, Paul you had talked about CapEx of about $60 million for the year at Olympias. You have done through about $89 million so far. Are there areas of advancement that kind of allowed you to speed up development, or is this going back to your answer in terms of being harder?

Yes. No. I think what's happened there is, it's the not declaring commercial production on the tailings retreatment, and putting those operated, those costs into capital, in the capital cost is the difference. I don't think we're much, what we have spent underground in development to kind of the mine part of it is probably about what we thought.

Of course. And then in the past Norm or Paul, winter can be pretty harsh in Turkey. I guess we're not in the business of forecasting weather, but are you expecting any issues in terms of Turkish production this year?

No. I mean the usual. We all know that Kisladag tends to slow down a little bit in the winter months, but yes. I mean to be honest I haven't seen a weather forecast.

I don't think it would be too much different than, we can certainly expect the seasonal effects there.

Great. Thank you that's all I have. Congratulations on a good quarter.

Thanks.

Thank you. (Operator Instructions). The next question is from Frank Duplak with Prudential. Please go ahead.

Just wondering I saw you had a quick update in the release that talked about retaining Bank of America for the listing of the Chinese business. Any update on potential timing for that, how much of that business you might float, any kind of guidance there?

Look, I mean we will be getting started here with the first port of call will be to get the teams together in the next week or two, provisionally we're looking at being in a position by call it February time, mid February to have our A1 filing prepared. That's probably about as much guidance as I would like to give at this point, I mean in terms of timing to complete a listing if we elect to do that in Hong Kong, it's going to be dependent upon a bunch of factors, market consideration not least.

Thank you.

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

Alright. Well, thank you all for attending, and I look forward to chatting with you at the end of the fourth quarter. Have a good weekend.

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