Eldorado Gold Corp (EGO) 2014 Q4 法說會逐字稿

Good morning, ladies and gentlemen. My name is Aaron and I will be your conference operator today.

At this time, I'd like to welcome everybody to the Eldorado Gold year-end 2014 financial and operating results conference call.

(Operator Instructions)

I will now turn the call over to Paul Wright, CEO of Eldorado Gold. Mr. Wright, you may begin your conference.

Thank you, operator. Good morning, ladies and gentlemen, and welcome to Eldorado Gold Corporation's 2014 year-end and fourth-quarter financial and operating results call.

Joining me this morning in Vancouver are Norm Pitcher, Fabiana Chubbs, Paul Skayman and Krista Muhr.

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 our news release.

We will follow the usual format with Norm providing commentary on both the operational highlights of 2014 and our guidance for 2015. Fabi will follow with a brief review of the year-end financials and then we'll open up for questions.

The past year was another year of significant accomplishments with the production of 789,224 ounces being a record for the Corporation. The Company continues to have one of the lowest cost structures in the sector.

Particularly when you consider the absence of base metal byproduct credits with all in sustaining costs of $779 an ounce and cash operating costs of $500 an ounce. The strong operational performance enabled the Corporation to maintain its healthy balance sheet of $876 million of liquidity at year-end after its investments in its growth projects.

Reserves decreased year-over-year by 6.4% reflecting depletion and a redesign of the Kisladag pit whereas reserve grade for the Corporation increased by 4.3%.

Looking ahead to 2015, we will experience a temporary decline in production for the Corporation to 640,000 ounces to 700,000 ounces with operating costs of $570 per ounce to $615 per ounce.

This reduction in production in 2015 is largely attributable to the planned mine grade of Kisladag, decreasing to 0.7 grams per ton for the year. As highlighted in our disclosure today, we see Kisladag production increasing in years 2016 to 2019, from approximately 225,000 to 380,000 ounces per atom reflecting higher grades in the completion of the Kisladag expansion.

Turning briefly to China, we are making good progress in resolving outstanding permitting issues enabling the completion of construction to be accomplished this year. A new EIA for the project has been approved and we expect project permit approval application to be submitted to NDRC within the next two weeks.

Greece, of course, is in the daily news and is experiencing significant turbulence affecting the economy as well as the broader society. This turbulence has created a lot of noise and commentary regarding our investment has been a small part of the noise.

However, today as yesterday as last week as last month over 2,000 persons are at work progressing our projects in Greece. This progress is continuing with the broad support of local society and the Company, the communities, the unions and our stakeholders continue to engage constructively with the new government in Athens.

I'll leave it to Norm to comment on the goal projects. However, suffice to say, good progress is being made in Skouries and the Olympias projects, and along with our consultants we're working hard to complete a feasibility study for Certej, which is due in the second quarter.

With that, I'll hand it over to Norm.

Thanks, Paul, and good morning, everyone.

I thought we'd do things a little differently this time and instead of going through the numbers that you can find either in the operational results with the guidance we just released, so I'm just going to hit on what I see as the pertinent points for the various operations and development projects.

Starting at Kisladag, a very good year there in 2014 as we mined at the bottom of a mining phase that was above reserve grade resulting in over 311,000 ounces of production for the year.

As most of you're aware, 2015 production is lower and costs are higher largely due to the reduced head grade, which is closer to the reserve grade, as we start in the next pit phase. We'll put about 12.5 million tons of crushed ore on the leach pad this year at about 4.5 million tons of running mine material.

In terms of the expansion, we deferred that until 2017, which will allow us to complete Skouries and Olympias Phase 2, and we'll see the benefit of expanding the crusher capacity to 20 million tons starting in 2018. In terms of reserves, we ended up with just over 8 million ounces, so when you count for depletion for mining in 2014, that's about a 10% overall decrease in Kisladag P&P. At Efemcukuru we had a good year and almost 100,000 ounces, looking at a similar year in 2015.

Jinfeng also had a solid year as we got back into the open -- bottom of the open pit. Less ounces and so much higher costs in 2015 as we finished in the open pit and transitioned to primary underground ore.

Tanjianshan was our lowest cost producer in 2014; looks like it will get the prize again for 2015. We started on the underground decline there to access the high-grade QLT Deeps deposit and expect to start underground drilling there in Q2 of this year.

White Mountain benefited by higher grades in 2014 which were partly due to stoke sequencing and partly due to a positive grade reconciliation in some areas.

Grade comes down closer to reserve grade in 2015, so it's somewhat effecting the ounces produced. On a positive note, we did well with underground exploration at White Mountain and saw a 20% increase in P&P reserves.

At Olympias, as part of the Olympias valley reclamation project, we continue to process tailings treating just over 625,000 tons in 2014. At the end of 2014, there were just over a million tons of tailings left still to process. Stratoni pretty regular year, 2014 and 2015, as well. Not much to comment there.

Vila Nova iron has been placed on care and maintenance. We did sell about 525,000 tons of iron ore in 2014.

On the development side, as mentioned our development focus right now is Skouries and Olympias Phase 2. At Skouries, engineering design work progressed well and we're over 80% completed at the end of the year.

Pre-stripping in the open pit is ongoing and over 500,000 bank cubic meters were removed in 2014. Foundations for the SAG ball and re-grind mills were completed and mill installations are ongoing.

We now have access to the base of the tailings stand and that will be a focus for 2015. For Olympias Phase 2 -- so for Phase 2 will be about 400,000 tons of ore for the underground mine with commissioning starting in mid-2016.

Capital spending over the next couple years for that project will be about $30 million. Underground develop work continues at Olympias where we rehabbed over 900 meters of existing drifts and put in over 3,000 meters of new development.

And the Olympias decline is at the 1.6 kilometer mark, which is about 20% complete. As Paul mentioned at Certej, the full feasibility study will be released in Q2 of this year. We're making good headway on that.

On Eastern Dragon, permitting is progressing well with excellent support from the Canadian government. The project permit approval will be submitted this quarter and we expect approval in Q2.

That timing will allow us to finish the additional steps required to restart construction during the summer field season. Last, but not least, on exploration during 2014 we completed over 58,000 meters of exploration drilling at our mines and exploration projects.

Much of our in mine resource drilling was focused at White Mountain. Also tested extensions to mineralized zones of Tanjianshan, within Kokarpinarand, Efemcukuru and Stratoni.

Outside of our mines, we've drill-tested five exploration projects in the Certej district in Romania continuing defining the [Piapitza] deposit in Greece and drilled three projects in Brazil. Our $40 million exploration budget for 2015 includes plans for over 68,000 meters of drilling split roughly evenly between in-mine and brownfields programs and earlier stage exploration programs.

With that I will turn it over to Fabi.

Thank you, Norm. Good morning, everyone. (Inaudible).

Commencing with the balance sheet we ended the year with cash, cash equivalent (inaudible) balance of $501 million compared to $624 billion at the end of 2013.

The decrease in cash balance is mainly the result of cash innovation from operations net of use of cash for dividend payment and capital (inaudible). The decline in iron ore prices impacted evaluation of the Villa Nova iron ore inventory, resulting in a write-down of $13.5 million.

Earlier in the year, we completed the acquisition of Glory Resources and entered into strategic agreements to advance our Eastern Dragon project. This resulted in a $10 million decrease in investments in associates, and an increase of $45 million in property, plant & equipment and a net increase in liabilities and equities of $12 million.

Moving onto the income statement, net profits for attributable to shareholders of the Company of $103 million, or $0.14 per share for the year compared to a loss of $853 million, or $0.91 per share in 2013.

The loss in 2013 was mainly due to an impairment loss net of tax in the amount of $685 million related to Jinfeng and Eastern Dragon, as well as a deferred tax charge of $125 million related to a change in income tax rate in Greece.

Revenues for the year of $1.1 billion are slightly lower from a year ago to failure to lower realized gold price, offset by a 7% increase in gold-face volumes.

Increase in the combined DD&A rate year-over-year is the result of higher volume of ounces sold in 2014 from Jinfeng and White Mountain, which have higher depreciation rates than the other mines.

On the statement of cash flows, during the year we generated cash flow from operating activities before changing no working capital of $343 million compared to $382 million in 2013. The main uses of cash relate to our capital program $411 million and dividend payment, $13 million.

In addition, cash flow of $27 million related to gold concentrate sales, proceeds from tailings pretreatment was recorded as cash flows from investment activities. Those are my comments on the financial statements.

I will return the call back to Paul.

Oh, thanks, Fabi, and thanks, Norm. Operator, we'll open up for questions, please.

(Operator Instructions) Cosmos Chiu, CIBC.

Good morning, Paul, Norm and Fabi and team and thanks for hosting the call. Got a few questions here. Maybe first off on the five-year projection.

I'm just wondering if you can give us a bit more granularity in terms of the grade profile. I guess specifically you're looking at grades that are ranging between .75 to .95 grand per tonne. Ahead of your reserve grade, is that sustainable and are you stockpiling sort of a lower grade material that you might be mining?

And when would you be reached to .95 which is the upper and given that that's significantly higher than reserve grade?

Yes. I mean, we're going to end up -- it's going to be the same sort of wave motion that we've gone through here, right, where you build upgrade, you just start to the bottom of a phase and then you're back into lower grades. So the grade will go down post this five-year plan. If you want to look at more detail grades in that five-year plan, I can use my calculator. You can use yours and just -- you know about what recovery is and it's about 20 million tons through the crusher once you get the expansion going, so yes.

In that case, Norm, just indicates where the expansion doesn't go through, do you think it can ever go back to 300,000 ounce per year level?

No.

No?

Yes, that'd be tough.

Okay. So the expansions --

You would hit it (multiple speakers).

Look, we hit last year over 300,000 ounces and our head grade was .95 to 1, as we've indicated in our guidance. We are going to see years in the next five years it hit similar great grades, so therefore we would, but I think -- I don't know how we can make it simpler here.

This is a plus 20-year mine life. You are going to have as a reserve grade as 0.7. You're going to have years at 0.7 as we are this year. You're going to have years below 0.7 and you're going to have years above 0.7.

As Norm has described, the nature of this is a multi-phase pit and you've got certain grades that -- higher grades that exist at certain stratus. I mean, you go through those stratus, those levels, those elevations on the different phases. You're going to have years of higher grade and that's what we're sort of starting to see over the next two to five years.

But after that, you're going to see some lower grades and then we do the next phase. You'll see some higher grades again.

Of course, Paul. I guess you've confirmed that at least the next five years should be -- the grades are going to be .75 to .95, ranging between those two numbers?

Yes.

In terms of the throughput to come up with a five-year projection, have you considered -- is it a combination of crushed ore, plus [run of mined ore], or is that kind of what we're looking at the next few years?

That's correct. Then as we step into the 20 and crushing capacity is not an issue, then we'll crush more and put (inaudible) run [of mine] (inaudible). So at the end of that five-year plan it's predominately crushed ore.

Great. Thanks, Paul. Maybe one more on Turkey. We're hearing that there could be the possibility of a new mining legislation that's being considered at this point in time.

It seems like it's moving through Parliament pretty quickly. Have you considered what the potential impact could be to Eldorado?

It is moving through fairly quickly. It doesn't have a lot of impact at these at these gold prices.

It's -- the plan is tiered royalty structure, so at higher prices, the royalty goes up a little. I mean, our understanding is that it's being through Parliament. It's being approved with Parliament. It's now for presidential approval.

Suffice to say, we were actively involved and consulted as part of the drafting of the new legislation and there's -- it's not appropriate for us to comment on specifics because it hasn't been released yet, but we're not uncomfortable with what we've seen as part of the drafting exercise.

Yes. I think part of that as you said, Paul, would be the royalty and another part of it would be mining licensing as well, right? That's my understanding.

Well, that's right. People tend to think of legislation as being negative in this case in many aspects of the legislation are quite positive and designed to frankly facilitate the mining [infrastructure] and without being specific, our understanding of what the modifications of the royalty structure, we don't see that as being excessively onerous.

Great. That's all I have. Thank you.

Paul Russo, Raymond James.

Yes, good morning, guys. Just quick one here. This -- on (inaudible) expansion, can you remind us of the capital left to go on that?

Original guidance was I think around $90 million to $100 million for that and we haven't updated that yet.

Okay, good.

By -- near that ballpark.

Okay, great. Thanks for that, and then maybe just one second and last one here for Paul. Paul, maybe you can give us your [rate] of grace here.

(Inaudible) would you say that may be they're looking to -- there's posturing here for potentially higher royalties or taxes or you think commonsense prevails? Or how do you read what's happening in Greece?

As I described it as turbulence. It's obviously, there's a lot of stress on the system. You've got a new government that's just finding it's way forward. It's -- various things have been reportedly said. I think it'd premature to take anything that's been reportedly said and conclude that it will manifest itself and behavior or actions in the government.

All I can say is that we, obviously, for a variety of reasons have sufficient confidence in the society and the government that our objectives will be aligned with their objectives as government. Otherwise, we wouldn't be continuing to invest in the country. Beyond that, I can say that we're -- there's engagement at various levels in terms of the Company itself.

The unions, the society, the Canadian government with the government of Greece and I believe that engagement to be constructive.

Okay, great. Thanks very much.

Patrick Chidley, HSBC.

Yes, good morning, everybody. Just wanted to ask a question about exploration. You've got some brief comments in the release here. I just wanted to -- maybe if you could outline the three top exploration projects for advances for last year that we should maybe be focusing on?

Yes. White Mountain was clearly a fairly big one and we continue to do -- continue to drill both close to the existing ore zones, and fairly significant step out drilling to the north deeps there.

We had good success at Tangjianshan, and as I mentioned, this year we're putting in the decline there. We've already started on that and it looks like we'll be getting down to start delineation type drilling in the inferred in April and then getting deeper into it towards the end of the year with more exploration, drilling. I think the other run for this year is looking at Certej and close targets nearby that.

You mentioned about four different targets in the names at Certej. What's -- they go outside of the resource, are they? What stage are they?

Sure. It's a combination. I mean, a couple of them are way outside, like 10 or 20 kilometers anyway. They're just exploration projects that we've picked up and we're drilling.

Then there's some other ones that are fairly close by and conceivably could add to mill feed in the future. It's a combination of both.

All right. What's the progress on moving forward with Certej then?

Feasibility study in the second quarter, hopefully early in a second quarter, with prices doing what they're doing over there and an exchange rate, it's -- I think we're feeling fairly confident about it.

We do, Patrick, have a valid EIA in construction permits which enabled us to do a fair amount of work on site and I think when you see the feasibility results in May, they reflect a level of engineering, that is in some cases well beyond feasibility engineering, because we are doing certain work on-site, particularly as a relates to Certej tech and civil designs, which will give us a much higher level of confidence as to what else they're going to be.

There is -- I think we have approximately 100 people onsite at Certej right now, so there is physical activity going on in Certej largely to support the quality of the feasibility study that we'll be delivering.

Thanks, and then just on the technology you've chosen for Certej, is it -- obviously, it's for [refracturing process]. Is it going to be [albion] process or just (inaudible) run?

It is not going to be albion looking at pressure oxidation for that material.

Okay. When you finish feasibility study, is there a lot of extra engineering for the pressure oxidation part of it or is that already encapsulated in what you're going to deliver?

We're already looking at it as a [option] doing engineering on that at the moment.

Okay. That would be onsite or somewhere else?

Onsite.

All right. Thanks. Then I just saw that it appears (inaudible) don't know if that was in last year's numbers or not, but there's 1.9 million ounces of inferred.

How is that looking in terms of being added to the general mine plan there, I guess, in terms of mixing it with Olympias?

Still early days. I would say down the road some. You've got that whole Stratoni Fault structure that goes from where we're mining now at [MavosPetra] through [PiaVista].

In the meantime, you've got 20 plus years at Olympias already. It's down the road.

Okay. All right, thanks very much.

Kerry Smith, Haywood Securities.

Thanks, operator. Paul, what are the next steps now for the Hong Kong listing that you're pursuing? I'm just trying to understand what has to happen now.

The whole progress on the Hong Kong listing is really paralleling the path that we're on to complete the outstanding permitting for Eastern Dragon. We've had a lot of the upfront technical work in terms of confident persons visiting the project, completing the reports is behind us.

But clearly any consideration to a Hong Kong listing is going to be driven principally by, not only obviously our eligibility, but really ensuring that we capture the value that's associated with Eastern Dragon; and that true value will not be liberated until it's clear that we're headed into production here. We're progressing consistent with the progress we're making on the permitting.

Okay.

Is the plan still to [paste in] 25% onto the Hong Kong market and you would retain 75%? Is that still kind of the rough thinking?

I would suspect we would retain less than that if we proceeded.\ It would be majority interest, but somewhere between 51% and what you described would be the model that we're assuming at this point. But I think it's important, Kerry, to understand that -- the Hong Kong listing will only progress if, in fact, it delivers a better result for the Corporation and doing what we're doing. All right?

That's going to be dependent upon the -- as well as obviously delivering on the Eastern Dragon, there's going to depend on Asian equity markets in that environment. And that's the basis for our decision.

Got you. Okay. Now, that's good. And then at one point in time you were working on an expansion at Efumcukuru to .5 million tonne a year. Did that study ever get done or just what is the status of that?

I guess what we've done is we've worked on debottlenecking existing. I mean, this year we are going to put through an excess of 400,000 tons. We're getting pretty close to that sort of 500 number. If we did, it would be more of a debottlenecking sort of exercise, pretty modest dollars, so it's -- not only it's a project we need to get into straightaway.

There's probably more at (inaudible), because there's probably more upside as we -- in future years, as we get out of the middle and into the North and more in the South [ore chutes] to minimizing dilution and maximizing the head grade.

Okay.

Which I think sort of we've mentioned before now. Yes, our first call. Yes.

Right. Right. Okay. Okay. Then just last question just on the tunnel at Olympias. Has the ground conditions in the (inaudible) advance been better now? Are they where you'd like them to be? How is that going on mining system?

Yes. We did take a break and then drilled a [geotec] hole and really ground conditions aren't the issue. It's just really dealing with the water which isn't a lot of water, but it's something that we have to -- we've got to deal with and so we're in a drill [grout] drill [blast] cycle which isn't the fastest.

Is it where we want to be? Probably not quite yet, but I think we're getting there.

Okay. Okay. So when would that tunnel actually be complete [now] based on what you know?

(laughter). That's a subject of much debate, Kerry. (Multiple Speakers). You can look at -- you can do the math and look at the current production rates and extrapolate it out, but suffice to say, we're looking at trying to get -- the sooner we can get this done, the better for Olympias Phase 3. So we're looking at various options here. I mean, one of the tough things, Kerry, is we really don't know how persistent this water's going to be over the next 7 kilometers. That's the tough part. I think we're all of a view that we can probably do quite a bit better.

We ourselves and the contractor are advancing this space and we've to apply ourselves to that. But ultimately, it's not as Norm said. It's not about the ground conditions.

It's the water and how efficient we can be dealing with the water in the grouting part of the cycle. I certainly have the view that we can be quite a bit more efficient than we are at present.

Okay. Okay. No, that's helpful. Thanks very much, guys.

Yes, thanks.

John Bridges, JPMorgan.

Good morning, Paul, everybody. Congratulations on the results. I just wanted to sort of follow on from Kerry's question. The -- you weren't -- you didn't have much reserves at (inaudible) this year. I'm just wondering if you're further along in figuring out how Stratoni, Olympias and maybe Piavista are going to dovetail together in a production profile?

Stratoni, John, Stratoni as you appreciate was -- has been a neglected asset for many years. It was operated European goldfields. It was really operated as a place to keep employment levels. There was really no investment in exploration and development and so we inherited an operation which was not [core] to the extent that we're a gold-mining Company, but however clearly has value.

What we've been wrestling with here is just the timing and the magnitude of the development and exploration that needs to be done to realize the length of opportunity that's there and how do we dovetail that into Piavista and where does it fit in terms of priorities? Because as you've seen we've been, won't say, vacillating, but toing-and-froing a little bit in terms of our allocation of capital in the Company for gold projects.

To cut through it all, I think there's a compelling case for us to make an investment in Stratoni. The opportunity is clearly there as identified by our explorationists to significantly extend the mine life. We need to do that from the underground.

We have to bite the bullet to get out into the hanging wall and there's been -- Stratoni Fault's a fairly big fault structure and there's been traditional reluctance to try to do much, either sort of in or through that fault; but that's what needs to be done to really get a decent handle on what potential reserves are. We need to get out there and put in some drill stations and start drilling along strike and down depth.

Because you have this structural trend that the face extends from the coast all the way through to the farthest extremity of a Piavista, and we're just getting started.

And clearly because we have infrastructure, we've got a mine and we've got employees there. We need, as Norm says, we need to come to grips with this pretty quickly here. Otherwise, you're going to continue to see declines in production and attended increases in unit cost.

Are you going to allocate more money for drilling wells this year or is the money going elsewhere?

Yes. What we're doing right now, John, is we're putting together design of a hanging wall drift, and then some drill stations, putting together the cost of drilling.

It's not included in this year's budget so far. Then we need our exploration guys to convince us what they see as the targets down (inaudible) long strike are worthwhile. It would be out of the budget, but I would expect we will do it this year.

Okay. So it's a work in progress? Okay.

Yes. Yes, it is.

Okay, great. Okay. Well done, guys. Keep up the good work.

Thanks, John.

(Operator Instructions) Tony Lesiak, Canaccord Genuity.

Good morning, Paul, Norm, everyone. Can you confirm some of the key life-of-mine parameters for the expanded Kisladag? I'm particularly interested in the operating cost profile and the sustaining capital.

Yes, probably have to get back to on that, Tony. Yes, we don't have the numbers right in front of us.

Okay. Then maybe your thoughts on the development runway. I mean, you're looking at completing Skouries, Olympias Phase 2 now, you've got Eastern Dragon, likely Kisladag [27]. Where does Certej and Olympias Phase 3 in that pipeline?

Olympias Phase 3 will largely be cash flow generating. It will come from cash flow generating capacity of Olympias Phase 2. Part of Phase 3, obviously, is underway right now which is the tunnel itself.

The Certej project, in terms of timing and financing, let's get the feasibility study out. I think the general mood around the shop is quite positive regarding the likely attractiveness of Certej's investment, and I think we, to date, have been taking the approach that we live within our balance sheet and cash flow generating capacity. And if we're to continue to do that in golds, continue to stay in the $1200 to $1300 range, realistically you would not see Certej seeing significant capital investment in construction for a number of years.

We are certainly giving some thought here as to the benefits of taking this project and bringing it along faster, if it's merited, and look at some form of project financing to enable Certej to be developed in a more timely manner. That's is current as we can bring you.

We're aware that there is more uncertainty as it relates to what the development program is [rather] now than there ever has been. And on these fronts, whether it's Olympias Phase 2 or Olympias Phase 3, Certej, we are working this year to try to bring that together in a more comprehensive development plan that we can share with you; but we're just not there yet.

Okay. Maybe finally on the Skouries underground. Can you talk to maybe some of the key parameters with respect to the new sublevel stoping methodology?

It's -- we're reviewing mining method, we're reviewing access, we're reviewing production rates, we're reviewing sequencing. All of that is being reworked.

What we've found, when we took on the European goldfields engineering was broad brushed. It was fine, but we've ended up doing a lot of work on the process plant, for instance, to make it something that really is what we wanted to build and likewise with the underground mine. A lot of work to be done on it.

But the plan is still to integrate it within the time scale of the open pit? You're not waiting to develop it after the open pit has been concluded?

No, the underground development is underway, has been for a couple of years.

Okay, thanks.

You're welcome.

There are no further questions at this time. I'll turn the call back over to the presenters.

Well, thank you, operator, and thank you, everybody, for attending and enjoy the weekend.

This concludes today's conference call. Thank you for joining. You may now disconnect.