Eldorado Gold Corp (EGO) 2015 Q1 法說會逐字稿

Good morning. My name is Sharon, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Eldorado Gold First-Quarter 2015 Financial and Operating Results conference call.

(Operator Instructions)

I'll turn the call over to Paul Wright, CEO of Eldorado Gold.

Mr. Wright, you may now begin your conference

Thank you, Operator.

Good morning and thank you all for joining us this morning. Welcome to our first-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, 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, which are detailed in our 2015 AIF and the forward-looking statement disclaimer at the end of yesterday's news release. We'll follow the usual format, with myself providing some general comments on the Company's business and our results and release. Norm will then provide operational detail, followed by a brief walk-through of the financial statements led by Fabian. Then' we'll open up for questions.

First of all, I would like to thank all of our staff for their tremendous effort and ongoing effort that has delivered these excellent operational results for the start of 2015. With gold production of 189,414 ounces and holding sustaining costs of $729 an ounce, this performance provides solid support for the Company's operational guidance for 2015.

Despite ongoing capital spend on growth projects, our balance sheet remains very strong with total liquidity of $869 million. Before handing over to Norm, who'll provide the detail on our operations to loan projects, I'd like to share some of our thoughts as it relates to our business in Greece.

As you are aware, our Greek subsidiary Hellas Gold, at the end of February, received a formal notice from the Ministry of Energy revoking the approval required to complete the final construction of the processing plant at Skouries. We continue to believe that the decision of the Ministry has no legal basis and have taken appropriate legal action to protect the rights of the Company, our employees, and all stakeholders.

I'd like to remind all of the integrity of the EIA. The main permit supporting our projects in Halkidiki has been confirmed now by three separate rulings by the Council of State, which is Greece's Supreme Court on administrative environmental matters. Now, the origins of the attitudes and the actions taken by the Ministry relate to significant misinformation on our investment that was propagated prior to the government coming to power. The Company, our unions, and the local society will provide overwhelming support for the investment, are actively engaged at multiple levels within the government in what I refer to as an ongoing education process. Through the efforts of the legal framework, we believe that the Greek government will, in time, in due course, appreciate the merits of this investment; and the investment will continue in the matter described.

With that, I'll hand over to Norm.

Thanks, Paul.

Good morning, everyone.

As Paul mentioned, it was a good quarter operationally for us. I don't really have a lot of comments on the operations, but I'll just run through them quickly starting with Kisladag. We produced just over 79,000 ounces at cash cost of 5.22 per ounce. During the quarter, we mined about 4.5 million tons of ore, of which about 1,000,000 tons was sent directly to the leach pad as uncrushed run of mine. Our strip ratio for the quarter was 1.7 to 1 -- again, a little bit lower than budgeted.

At Efemcukuru, we produced just over 21,000 ounces at $604 per ounce. Very wet weather during the quarter slowed us down a little bit at Efemcukuru, as it hampered dry stack tailings placement and impacted site water management. Grade results a little bit lower than planned due to changes in the short-term mine plan. However, we've had a good month in April and are mostly caught up production-wise going into May.

In China, great start to the year at all three mines -- all of them producing more ounces at less cost than budgeted with really no operating issues there. At Jinfeng, we were 36,686 ounces at about $600 per ounce. White Mountain was almost 21,000 ounces at $600 per ounce, and Tanjianshan was 26,626 at $407 per ounce. That's it for the gold-mining operations

At the Olympias tailings retreatment, we milled 157,000 tons at 2.2 grams per tonne and produced just over 4,700 ounces of gold. And at Stratoni, we produced 12,478 tonnes of concentrate at cash costs of $738 per tonne sold.

Villa Nova was placed on care and maintenance in Q4 2014. A small amount of ore was processed during the plant shutdown, and we did have one shipment of about 48,000 tonnes of iron ore sold during the quarter.

On development projects -- at Skouries, despite the wet weather there, which is essentially the same weather we are seeing across the water at Efemcukuru, we continued to progress the project. Open pit stripping using a contractor continued during the quarter, and we expect to have the overburden and topsoil removal completed during Q2. In the plant site, we worked on piling and earthworks, as well as concrete foundations in the flotation area.

At Olympias, we restarted the main decline during the quarter by using cover grouting to control water inflows. We also continued on both underground rehab and new development in the Olympias mine. Engineering on the Phase II plant at Olympias was advanced during the quarter, including procurement of long lead time items and development of basic engineering designs.

Over in China at Eastern Dragon, the project permit approval has been submitted to NDRC in Beijing; and we anticipate approval of that application in May. Where we currently stand, we're probably about a month behind in the permitting process right now. So the timing of the post-PPA supplementary permits is critical to what we can get done during the field season this year.

And just a little more on permitting in China right now-- what we are seeing is any particular permit goes to an agency -- for example, NDRC -- and what they look for is consensus among other ministries. So they will reach out to Ministry of Commerce or Ministry of Land and Resources, just to make sure that everyone is in agreement. And we're seeing this as part of the focus on corruption in China, so that they just want to get a broad consensus. It doesn't really change the ultimate outcome. It just sort of slows the process down a little bit.

At Certej, we are still looking at the feasibility this quarter.

On the exploration side, generally Q1 is a relatively quiet quarter for exploration. However we did manage to drill just over 8,700 meters of drilling, most of which came from underground drilling at White Mountain. And then at Tanjianshan, development of the QLT-North decline proceeded on schedule during the quarter; and underground drilling there began in April.

With that I'll turn it over to Fabi.

Thank you, Norm.

Good morning, everyone.

Our results on the financial statement highlighted changes and significant outcomes. Commencing with the balance sheet, we ended the quarter with cash, cash equivalent, and turned a profit balance of $494 million, compared to $501 million at the end of 2014. The change in cash balance is mainly the result of cash innovation from operations net of the issued of cash for dividend payments and our capital program.

Weak iron ore prices continued during the quarter, resulting in a non-cash writedown of $6 million of iron ore inventory costs. The increase of $11 million in the first income tax liability balance relates mainly to the impact of Turkish lira exchange rate changes on the tax basis of our Turkish assets.

Moving on to the income statement, we reported a loss attributable to shareholders of the Company of $8.2 million, or $0.01 per share, for the quarter compared to a profit of $31 million, or $0.04 per share, in the first quarter of 2014. Adjusted net earnings for the quarter were $19.5 million, or $0.03 per share, compared to $37 million, or $0.05 per share, in the first quarter of 2014. The difference in adjusted profits year over year was mainly due to foreign-exchange losses of monetary accounts of our Canadian, Brazilian, and Turkish subsidiaries and a lower gross profit from gold mining operations during the quarter.

We reported revenues for the quarter of $238 million, compared to $280 million a year ago. Revenues were impacted by lower iron ore sales, $17 million, at 5% fall in realized prices and a 5% fall in the ounces sold. The higher effected income tax rate resulted from non-cash items, including the impact of the weaker Turkish lira on the deferred tax balances, as well as an increase in the percentage of unrecognized tax losses due to lower profits in the quarter.

On the payment of cash flows -- during the quarter, we generated cash flows from operating activities before changes in non-cash working capital of $59 million, compared to $95 million in the first quarter of 2014. The main uses of cash relate to our capital program, $75 million, and dividend payment of $6 million.

Those are my comments on the financial statements. I will return the call back to Paul.

Thank you, Fabi.

Thanks, Norm.

Operator, we'll open up for questions at this point.

(Operator Instructions)

John Bridges, JPMorgan.

Thanks Paul, everybody. Congratulations on the results.

There was a story on Mineweb earlier this week talking about an overturning of a 2013 decision. I just wondered how many meaningful that was and if you could give us some background.

Yes, it relates to the legislation that existed at the time under which we were dealing a delay in approval of various permits. It's been superseded by new legislation, John; so the significance is somewhat muted. However, I guess I would say broadly speaking, it tends to lend credence to the argument that I obviously made earlier that we have the support historically of all of the decisions that have been for the project itself.

So this is just, yet again, another decision by the Council of State supporting the validity of our investment in the country So it all bodes well for future decisions, I would suggest

Okay. And then I'm just wondering. Obviously, Greece is a sovereign country and makes its own decisions. But to what extent is there an interplay between Greece rules and those of the European market?

As it relates to? I'm sorry.

Would the would the Euro community have an interest in these decisions?

One would suggest so because through the development of employment and taxes, the economic benefits accrue to the state of Greece, which ultimately is what the country needs to diminish its need for funds from the EUs and others. So, yes, major investment is indeed relevant. And I think it's safe to assume that our engagement includes the Europeans.

Okay. And then just on the operations. You've granted the Olympias ramp. How's the advance going that was slowed by the water? Is it improved now?

Yes, the grouting is working quickly. It's not as fast as if you weren't having to do that, but we do. We can get sort of 30 meters ahead on the grouting curtain. And then once we've drilled those holes, then you're just developing within that

I think we have a system now, John, that works. It's a matter of working to refine to get the productivity within that system as good as it can be. But certainly for the time being, we're going to have to continue to operate under grout cover. But it's a matter of continuing month by month to perfect the efficiency of the elements of the cycle -- I guess is the best way of putting it.

What sort of advance rate are you working on at the moment?

Projected advance rates?

Yes.

70 to 80 meters per month, (inaudible).

Okay, great. Thanks a lot.

Kevin Chiu, CIBC.

Good morning, Paul and team. Congratulations on a good quarter.

I had a few questions. Maybe we can start with Kisladag. You talked about the benefit of the higher-grade price on the pad at the end of 2014. Just wondering, do you expect that to have any sort of trickle effect going forward?

The inventory has been (inaudible) down fairly strongly there, so I wouldn't expect it to have as much effect as we carry on. We should be fairly clean now in terms of gold on and gold off, I think.

And the grade should stay consistent at that 0.7 gram per tonne?

Yes.

Okay. And maybe a question on the CapEx. It's well understood that the first quarter tends to see the lower capital spend. Maybe for the Greek assets in particular, could you comment on if you're still on track or expect to spend the $200 million and the $110 million that was budgeted earlier in the year?

I think the impact of weather on Skouries has sort of slowed down progress. Certainly the outstanding issues we have as relates to permits, depending on how long it takes to resolve this, could impact both progress as well as spend. So there's certainly some potential for slippage in terms of the spend rate and the schedule on Skouries. The Olympias, however, is unaffected; and I think at this point, we're going full speed ahead

And the weather too. The first quarter, as I've said a couple times, was pretty darn wet. So our ability to do earthworks was limited. And now we're getting into the better weather, and they can start ramping up on that.

Okay. And lastly, if I could ask about the Eastern Dragon. In terms of the PPA, is that the key bottleneck? Or maybe if I ask another way -- are any of the supplemental permits challenging to get approval for?

They're not nearly as big as the PPA because the PPA is what sort of makes it an official project approved by NDRC. So that's by far the big one. After that we've got the EL, the exploration license gets turned into an ML. That's done by Ministry of Land and Resources centrally. And then there are some forest permits that are done, both locally and in Beijing. And that's really it; they are not like the PPA.

Thanks, that's all for me.

Michael Gray, Macquarie Capital.

Good morning. I've got a question on the Stratoni results you released -- the apparent thickness of 26 meters near the mine. Number one, the gold credit showing up -- you've documented -- maybe comments on that because I haven't seen that before. And also what the plan is going forward -- down dip expiration wise.

Yes, I mean as much as the drilling results were impressive in terms of grade and thickness, unfortunately or fortunately, they relate to areas within our existing resource. What we're really doing right now is sort of infilling in the existing resource base. But at present, we don't have any ability within the flow sheet to recover the gold. It's sort of interesting, but not terribly relevant.

Okay, thanks.

Patrick Chidley, HSBC

Good afternoon, Paul and everyone.

Just on the Turkish operations. In the quarter, I understand you don't have any hedging for the lira. Can you outline how that affected the costs and how you see that going forward in the current quarter and this year?

In relation for Turkish lira, all our revenues are in US dollars. So in anticipation of continued at the same levels, there is no need to hedge. We do monitor it; but, having the revenues in US dollars this year, you can borrow when you need it

Right. Did we have a benefit that are in the costs from Q4 into Q1?

Yes, we did.

Great okay. And you just took a question on that Olympias decline then. Are you attacking that from both sides? I can't remember.

No, we're not right now. We do have the ability to. We need to get down a little bit further in the Olympias mine itself to be able to start coming in from that end.

I see. But that would be in the medium-term plan, I guess?

Yes, medium-term.

Yes because otherwise, it looks like it might take you a very long time to finish it?

Yes, for sure it would be more efficient to be able to start down below.

Part of the problem, Patrick, is we just don't have the hydrological information to know how long we're going to be in conditions which require grouting. That's part of the problem. So as Norm says, as soon as we can, obviously, we will get going from the other end. It's unfortunate because the actual ground conditions themselves are very good. It's the water that is what's obviously inhibiting our progress.

Okay, thanks.

And then last question-- just a follow-up from John's question earlier on the EU. Is there any legal recourse in terms of Brussels, in terms of if the Greek actions there are indeed illegal? Do you have any recourse in the courts in Europe?

It's not European issue. We operate with a contract. This project is embedded in a formal contract with the Greek Government. And it's a legally binding contract whereby the parties have responsibilities. And we're fulfilling our responsibilities. And we're clearly, as I've stated, we're taking the view on sound legal advice that the actions of the government are, frankly, without legal basis. And the courts function appropriately, responsibly in Greece. And as part of the defense of our stakeholders and the society's interest, we are and will pursue resolution favorably through the courts.

Now, part of our process is dealing with the issue. The other part, frankly -- and this is what I'd like to emphasize-- is the engagement that is ongoing between ourselves, the Company, the unions, [societies], the Canadian Government, to remedy, shall we say, the misunderstandings or the misinformation that has led to a certain position being taken by a Ministry in the Greek Government. It's really through a process that, my opinion is, you'll see long-term resolution

Okay, thanks.

And just on that progress at Skouries, obviously work is still continuing. Does this change actually impact the kind of work that you can, do or is it just you choosing maybe to slow down certain elements?

Well, we're having to work around some of the constraints as it relates to tree cutting. But at present, we have close to 800 people engaged in construction activities on Skouries; and there's lots to do. The major impediment in the first quarter was not really the action as it relates to the permits. It was more to do with the weather conditions and just where we were on earthworks. But now that we're getting into the dry season, we have a very large earthworks program planned for the next couple of quarters

Okay, thanks.

Kerry Smith, Haywood Securities.

Thanks, Operator.

Norm, for Kisladag, you put more tons in the pad in the quarter too than I thought you might have. Can you just remind me the tons that you think you will place in the pad this year?

I think it's around, yes, about 17.4 million, of which-- recall that we're permitted for about 12.5 million through the crusher -- or we can do 12.5 million through the crusher. The rest will be run in mine.

If we could put more through we would.

Yes, it's just crusher. We're limited by crusher capacity.

Right, okay. So really the tons (inaudible) in the quarter was actually roughly line with what you were budgeting?

Yes, that's about right. Yes

Okay. And then just on the CapEx for the year. Like in the quarter, you only spent about $14 million of CapEx at the operations. And your budget, I think, was $165 million; so you spent less than 10%. Just wondering how that incremental amount in that budget would get spent over the next three quarters.

Would it be just equally split? Because that obviously had an impact on your all-in costs, which were lower, obviously, primarily because of that. I'm just curious how it would spread out over the over the next three quarters?

Kerry, you're always trying for quarterly guidance, aren't you? We admire your tenacity. I mean, at this point -- historically we've tended to spend a little bit less each year on sustaining capital. But I think you're going to hear a little bit less in the early quarter.

What I was actually getting at, Paul, was more do you think the $165 million will actually get spent this year? Or would it be a lesser number, just given that you spent so little in Q1?

We won't overspend, that's for sure. It's hard to say after one quarter worth of capital spending.

We tend to be a little bit light, and this is probably going to be the same. But the sustaining capital-- there is a lot of work that we need to get done; and we will spend most of the money, Kerry

Okay. Paul, just on this permit to finish the mill shale at Skouries -- when did that actually become a bottleneck in terms of the construction itself? Is it an event that wouldn't happen 'til next year, or is it something that might be later this year? Just wondering when it becomes critical for you -- or if it even does become critical.

You could suggest facetiously we could operate the mill as an open-air mill. Look, we are a number of months before it becomes an issue. I guess, Kerry, my view is that we will see resolution of this situation before it becomes a critical item.

A critical item, okay. Okay, that's great. Thanks, appreciate it.

Anita Soni, Credit Suisse.

Hello. Just a question with regard to the recovery rates at Kisladag. Could you just remind me -- actually, the oxides and the sulfides that are going through the mill -- do you have any oxides that are left that are going through the mill at this point?

There is still a little bit of oxide material, I think. We budget 80% recovery for the material that's crushed.

It would be less than 10% of what goes through the crusher, I would think.

Probably.

And then the sulfide stuff is around low 60%s, right?

That's correct, yes, depending on lithology, etc. But that's a reasonable number for the crusher to put through.

And run of mine was 40%s?

A little bit less than that -- sort of mid-30%s, I guess

All right, and since you've already addressed my strip ratio question, that's it for me. Thanks.

Since you are asking operational questions, Anita, it allows me to bring up a mistake I made during the call on Jinfeng. I put White Mountain costs on Jinfeng as well. So it's not $600 cash cost at Jinfeng. It's $517 per ounce C-1 cash cost

Thanks very much.

(Operator Instructions)

Dan Rollins, RBC Capital Markets.

Thank you very much.

Norm, just following up on your comment on China. You had a really, really good cost on the C-1 basis and total basis to start the year. Should we expect that to continue, or has something materially changed to get the cost down a lot versus guidance? Or should we just expect that to marginally move up throughout the year?

Yes, I mean, again, without giving quarterly guidance. We're not redoing our guidance yet. We'll do what we always do; mid-year, we'll peg it.

We had great costs. Is that going to continue on for the rest of the year? Give us to mid-year.

Okay, but are you seeing anything? Have there been any stepwise changes on our productivity or consumable costs that are driving that? Or is this just quarterly ebb and flow?

I think we're not seeing stepwise changes. We're still expecting the same number of ounces as we originally guided. Costs are a little bit lower because of exchange rates as much as anything else. Exchange rate and fuel is probably a little bit better than we anticipated at budget time.

Okay, that's great.

And then maybe, Fabi, just a quick question. You mentioned that there was an incentive tax credit provided Kisladag. Could you provide a little bit of color? Will that impact cash taxes paid going forward, or will that only relate when the Phase 4 expansion does occur?

It is cash going forward, but you have a limit of how much you can use each period. So it will be over two periods, probably.

Okay great, thank you

(Operator Instructions)

We have no further questions at this time. I will turn the call over to Mr. Wright

Thank you, Operator.

And thank you, everybody, for attending and participating in this call. And enjoy the weekend.

This concludes today's conference call. You may now disconnect