Eldorado Gold Corp (EGO) 2015 Q4 法說會逐字稿

Good morning. My name is Mike and I will be your conference operator today. At this time, I would like to welcome everyone to the Eldorado Gold Corporation year-end and fourth-quarter results conference call.

(Operator Instructions)

I will now turn the call over to Paul Wright, President and CEO. You may begin your conference.

Thank you, operator, and good morning and thank you all for joining us. And welcome to our 2015 fourth-quarter and year-end financial and operating results call. In Vancouver this morning, we have myself, Fabiana Chubbs, Chief Financial Officer; and 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 the press release from yesterday evening.

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 the news release.

We will follow the usual format with myself providing some general comments on the Company's business and our results. Paul then will provide some operational detail followed by a brief walk through of the financial statements led by Fabi, and then we'll open up for questions.

Getting right into the full year with highlights, I'd like to congratulate our teams who have had their best safety year on record with a global lost-time incident rate of having decreased by 25% in the year. Our teams in China have achieved zero lost time injuries in 2015.

That said, while we had no fatal accidents in 2015, I am deeply saddened to report the tragic death of Constantinas Jonas, an experienced underground miner at our Stratoni mine in Greece just last month. The inspection immediately following the incident found no substandard operating conditions; however, we're working very hard to ensure that similar incidents do not happen again.

Moving on to the operations themselves. I'm very pleased to report strong operational results, as all of the mines have again delivered to or exceeded full-year guidance that had been set in early 2015. Gold production totaled 723,532 ounces, average cash operating costs were $552 per ounce, and all-in sustaining costs averaged $842 per ounce.

Looking back at the original guidance for 2015, we had expected production to come in between 640,000 to 700,000 ounces at cash costs between $570 and $615 an ounce. This 10% favorable increase in production was primarily due to leach pad inventory draw down at Kisladag. Cash costs were lower than budgeted due to continued cost-saving efforts at all of our sites, combined with weaker operating currencies and lower energy prices.

Additional targets that our team accomplished for the year included the receipt of the Eastern Dragon project permit approval from NDRC in China, the completion of positive feasibilities for both Certej and Tocantinzinho, and in Greece, five rulings in our favor by the Council of State, all upholding the validity of our permits and investments in the Halkidiki development projects and mines.

We ended 2015 with proven and probable gold reserves of 624 million tonnes at 1.24 grams per tonne gold, slightly in excess of the grade of the previous year, and contained 24.9 million ounces. The 4.1% decrease in gold reserves was mainly driven by depletion from mining during the year. The complete mineral reserve and resource data set can be found at the end of the news release and includes all the [days per] tonnes, grades, and ounces.

In regards to the US $1.5 billion impairment noted in the release, the largest component is attributable to Skouries at approximately $700 million. This change relates to the delays in construction associated with permitting challenges and cost resulting. In addition, a preliminary study completed by AMC supports anticipated higher capital and operating costs for the plus 20-year underground mine, which follows a seven- to eight-year initial open pit phase of the operation.

Two days ago we received our installation permit for the Olympias project allowing us to proceed with a mill refurbishment required for Phase II. In January, as a result of the Council of State's positive decision in our favor, we also received a building approval for Skouries. We are now awaiting the approval of the revised technical study for Skouries, which we expect in the near term.

We believe that the Ministry has taken positive first steps in granting the building permit for Skouries and approving the installation permit for Olympias. With that said, not only will we require additional permits over the duration of these operations, but we will also need a cooperative and willing government who chooses to work with us and all of our stakeholders over the long lives of these significant assets. I believe at this point in time, we are making constructive progress in that regard.

And just to provide additional clarity as it relates to the Olympias project, our decision to move forward with the completion of Phase II is predicated on the timely granting of the approval of the technical study for Skouries, which again, we anticipate in the near term.

Moving on to China. In 2014, we announced that we were evaluating the merits of a potential listing of our assets on the Hong Kong exchange. Since then, we have had numerous approaches by Chinese mining companies looking to acquire these high quality assets. I am of the opinion that we will have a resolution to this value maximization exercise within the near term, and you should expect updates during the second quarter.

Despite ongoing capital spend on growth projects, our balance sheet remains very strong, with total liquidity of nearly $670 million, including $290 million in cash and cash equivalents and $375 million in undrawn lines of credit. Looking at the year ahead, our mines are on track to produce between 565,000 and 630,000 ounces of gold at an average cash cost ranging between $585 and $620 per ounce and all-in sustaining costs between $940 million and $980 per ounce. We will continue to advance our development projects in Brazil and Romania, while remaining financially prudent in today's challenging metal price environment.

With this, I will let Paul and Fabi dive into the operations of the financials in more detail. Over to you, Paul.

Thanks, Paul. Good morning, everyone. Today I'd like to comment briefly on the operations from Q4 2015 as well as provide some color around where we're at year to date in 2016. Generally, as Paul indicated, all the operations performed well over the year. The previous year with a solid performance both in terms of ounces produced, cash operating costs, and all-in sustaining costs.

Starting in Turkey, both Kisladag and Efemcukuru performed well, beating budget on both gold production and operating. Kisladag exceeded expectations with a solid 280,000-ounce production for the year, which is well ahead of our earlier predictions. This was done by increasing solution addition and by drawing down the inventory in the leach pad. So far this year, both of the mines are meeting targets year to date in terms of ounce production.

In China, Tanjianshan had a slow fourth quarter with low grade material being traded, resulting in lower ounce production and higher costs. Over the year though, they were essentially on target for ounces and slightly under on costs. Jinfeng had a good final quarter, rounded off the year with a beat on ounces and cash costs. And White Mountain also hit all of their targets. So far this quarter, Chinese assets have started slowly, mainly due to grade, but we don't anticipate any problems with the targets for the year.

On the development side, as you're all aware, we received the installation permit for the Olympias phase two a couple of days ago. We'd stopped processing phase one material at the end of February and have traded approximately 90,000 tonnes in the first two months. Work continues at the site on concrete demolition and structural mechanical disassembly. Purchase orders for phase two equipment are also well advanced.

At Skouries in Q4, we continued working on earth works and tree cutting in preparation for commencing work on the tails dam. The process plans also progressed well in the quarter with commencement of internal steel-work placement. We placed Skouries into care and maintenance early in January, and we've continued to take delivery of purchased items in preparing the site for care and maintenance. As Paul indicated, we continue to wait to sign off on our revised technical study for Skouries and that sign-off is expected shortly.

At both Certej and Tocantinzinho, we continued with optimization studies during the last quarter of last year. And at Eastern Dragon, we continue to work with the government on the mining license application. We recently received formal notice that the application had been accepted and we'll continue to update as things progress.

On the exploration side, a fairly busy quarter. For the year, we spent approximately $30 million, completed just over 58,000 meters of drilling. At our mine sites, we completed drill programs at Efemcukuru, targeting the Kokarpinar vein; Tanjianshan, with further drilling on the Tanjianshan North deposit, and at White Mountain, targeting extensions on the north and far north veins. Also some drilling at Stratoni in Greece.

We also completed brownfields drill programs at Jinfeng and at several targets adjacent to Certej. Finally, we completed work on early stage and project generation activities in Turkey, Brazil, and southeastern Europe. And with that, I'll turn it over to Fabi.

Thank you, Paul, and good morning, everyone. I will go through the financial statements, highlighting changes in significant accounts. We ended the year with cash, cash equivalent, and term deposit balance of $289 million compared to $498 million at the end of 2014. The decrease in cash balance is mainly the result of cash generation from operations before changes in working capital of $193 million, net of usage of cash for capital programs, $396 million, debt repayment of $16 million, and dividend payments of $11 million.

During 2015, we recorded non-cash impairment charges to [total $1 billion] in property, plant and equipment net of deferred income tax recovery of $476 million in goodwill. The impairment of property, plant, and equipment included $740 million related to Skouries and $214 million related to Certej, which was recorded in Q3 2015.

On to the income statement, net loss attributable to shareholders of the Company was $1.5 billion, or $2.15 per share, compared to a net profit of $103 million, or $0.14 per share in 2014. The loss in 2015 was mainly due to the impairment charges referred above, a deferred income tax charges of $63.5 million related to change in income tax rate in Greece, and lower gross profit from gold mining operations. Revenue for the year of $863 million and gross profit of $230 million are lower from a year ago, due to lower realized gold prices and lower gold sales volumes at Kisladag and our Chinese mines.

These are my comments on the financial statements. I will turn the call back to Paul.

Thanks, Fabi. Thanks, Paul. Operator, we'll open up for questions now, please.

(Operator Instructions)

Your first question is from John Bridges from JPMorgan.

Good morning, Paul, everybody. Congratulations on the results. I was just wondering, given the cash you're sitting on, your liquidity, are you having interesting people coming in the door with ideas as to alternatives while you wait for all the permits for Skouries?

Well, John, I could be flippant and say that the mining society is full of interesting people. So yes, interesting people do appear on our doorstep that occasionally have interesting ideas, not a lot. We are clearly in the mode of being open for interesting ideas going forward.

In the event that we did elect to divest ourselves of the Chinese assets, we would be looking at some point in how we replace that production, both internally and externally. I would suggest we're probably a little bit more alive to external opportunities now than we were, say, a year or two ago.

But there isn't a lot, John. There's not a lot of gems just waiting on the curb to be picked you up.

Understood. And then in that light, I was intrigued by your early-stage exploration around Kisladag. Is that a due diligence exercise or has that got real potential? How excited are you about that study?

Don't know where you saw that, we're not doing a lot of early-stage exploration.

You're looking for porphyries and things around that.

Yes.

Yes, that's very early stage. We've been obviously looking for a while on, for a second Kisladag because these porphyries tend not to be one-offs. It's been a bit of a struggle to have any success. There's nothing I could point to at this point, John.

Okay cool. Thanks, guys. Good luck.

The next question is from Phil Russo from Raymond James.

Yes, thanks. Good morning, Paul, and team there. On the Greece positioning here, I thought I heard you say in your comments there that approval for the tech study there is what you're looking for now for Skouries, if that's correct.

And then I thought I also heard you say that you're expecting that shortly. I'm just curious what you're seeing to make you think that, that would be coming imminently.

Well, there is a statutory limit on the time that the government has to review and approve these submissions, and that's really driving our expectation that a decision will be due shortly. I would say that we've seen more encouraging engagement between ourselves and the Ministry over the last month or two. Which has, I think contributed towards the timely granting of the building permit following the Council of State decision, and more recently, the Olympias installation permit.

And our intention to proceed with Olympias reflects the, as I say, the granting of the installation permit but also our expectation that this more positive engagement will result in the timely approval of the technical study for Skouries. And those two combined would allow us to reactivate -- not reactivate but reactivate certainly the Skouries project and proceed with the completion of phase two of Olympias.

So Olympias, you're a week away there from pausing it almost, but you'll keep it going as a sign of good faith here that you can get this tech report from Skouries and move forward with both.

Just to be clear, the messaging that we sent externally in January, it remains consistent. And that is that we needed to see an ability to move forward with both Skouries and Olympias, and that would come through not only the granting of the permits, but a more constructive relationship with the government.

And I think what I'm signaling here now is that we are, in our opinion seeing a more constructive relationship emerging, manifested in the recent approvals. And our expectation is that will continue with the Skouries technical study approval.

Okay. Great. And then maybe just one more. Just on the Chinese approaches you're having, I'm just wondering just what on the price is that you're seeing from the Chinese.

I'm just trying to get a sense of how far apart the goal posts are here. Are the pricing in line, near your expectations? I ask the question in terms of what is the likelihood you can get a deal done with the Chinese here? Are they offering reasonable valuations?

Any potential sale of these assets is reflective of our intentions to do better for ourselves and what the alternatives are, which are continue to operate in China. We're acutely aware of the way we value these assets inside the Company. And we're also aware of the way the market values these assets.

And that's probably about as vague or specific as I can be in terms of what we may or may not do as it relates to divestment and pricing attached to that. We're not considering our divestment option to disappoint ourselves and the marketplace, is the best way of describing.

Understood. Thanks, Paul.

The next question is from Cosmos Chiu from CIBC.

Good morning and thanks, Paul, Paul, Fabi and team. A few questions here. Maybe first off, maybe a question for Fabi.

After the $1.5 billion non-cash write-down, could you give me your carrying value or book value for your Greek assets, such as Olympias, Skouries, and maybe Certej as well?

The Olympias is still about $1 billion.

Okay.

I believe it's $1.3 billion. Skouries is in the $300 million -- a little bit over $300 million. Certej is always in the $350 million range, I don't remember the exact number.

Okay.

But that's the range.

Great. And then earlier this year, you had talked about you have given the CapEx budget for 2016. I'm just wondering how much of that has been spent so far specifically. Olympias, you had budgeted $155 million for the year.

How much of that has been spent so far year to date? Skouries is $15 million, how much of that has been spent? Certej, $20 million.

Very little.

Don't have the exact numbers. From our side, we're a little behind where we thought we would be after a couple of months.

But the bulk of the spend is reflective of the Olympias construction. The phase that we've been engaged in and still are is more, frankly, destruction and that is dismantling and creating areas for the new equipment to go into, Cosmos.

We'll report that at the end of the first quarter. We'll give you the year-to-date spend.

Of course, yes. That, as you had mentioned in the press release earlier this year as well, as you say, Olympias spending is predicated on getting the permits and whatnot, so. And on that, in terms of the permits then, following up on some of the questions that have been asked, could you remind me again in terms of do you now have all the key permits that you need at Olympias with the installation permit being granted two days ago?

And beyond the signing off of the technical report at Skouries, what else should we be looking for in terms of permitting? In terms of key permits. Of course, I know there's a lot of routine permits.

The problem is most of this stuff is routine and it's become elevated because of problems actually receiving them. We would go through a similar process of both installation permit allows us to complete the construction. There are, as you say, few other more routine permits.

But Olympias, we're effectively now able to move ahead and complete the construction. The Skouries technical study allows us to continue with certain parts of the project that have changed from the original technical study, and that would need installation permit.

But again, it should be a fairly routine process. We see the technical study as the catalyst hopefully.

The bigger picture on this, Cosmos, as it relates to the permitting environment in Greece is that as you've seen over the last year or two, we've struggled to obtain permits. And the way we've returned -- we retained or received permits has been through the courts.

What's significant about the -- obviously the installation permit for Olympias, and we expect the approval of the technical study on Skouries, is that these approvals are being granted by the Ministry. As opposed to us having to wrest them free through legal action.

This is really what my messaging was all about in January is we have to get to a normalized working relationship. And the encouragement that we're seeing based on the dialogue and based on, obviously, this most recent grant is indicative of the fact that we are, I believe, moving to a better place here.

And yes, as Paul described, in the case of Olympias, the installation permit gives us the ability to basically complete construction. In the case of Skouries, the technical study is important because of what I've just described.

Are there other minor licenses and permits that are required before we can flick the switch on the Skouries plant? Of course there are. But I think the importance of the technical study is it sets the ground for, I think, a more constructive and logical approach to the granting of routine permits going forward and that's what's important to us.

Of course, yes, there's as you said, Paul, you need to look at the bigger picture as well. Maybe one last question from me in terms of the dividend.

Certainly the suspension of the dividend I must think was a pretty difficult decision. But given your balance sheet, and to me it's pretty solid in terms of your cash position and there's no short-term debt, I would have thought that you would be able to maintain that dividend. What's the thinking behind that?

We are going to -- at the present time, the decision was made with lower gold prices. We're looking at the beginning of the year, below $1,100. We are going to look at this again and revisit it later in the year.

Cosmos, because we're not paying a dividend at this time at the six months, don't assume there will not be a dividend before the end of the year, all right.

Okay.

Okay. That's the best I can -- all right.

For sure.

Rest assured, the decision not to pay a dividend at this point in time was not lightly taken and there's a significant discussion ongoing as to when and how we can resume dividend payment.

Of course. Thanks Paul and team. That's all I have. Thank you. Have a good, long weekend.

Thank you.

The next question is from Anita Soni from Credit Suisse.

Good morning, Paul, Paul, and Fabi. My first question is with regards to Tanjianshan. I'm just looking at the reserve statement and your inferred category, even when you -- it's about [3.9] gram per tonne material.

And even if you add in dilution, it seems like it's comparable to your reserve grade. What would it take to convert that inferred at this point?

I think that material that you're referring to is Qinlongtan material, and it's really more drilling to convert that across. It's underground material at Qinlongtan, I suspect.

So it would then require a higher grade than what your open pit is, your comparable reserves in open pit then.

Yes, and some drifting and driving to get access into there as well, but yes. In terms of geology, et cetera, it's reasonably well understood. We just need to do more work on converting that. I think there's a reasonable expectation of conversion on that material.

And then just with regards to Kisladag, the expansion plans, are there any changes to the outlook that you put out about a year ago at this point or it's just basically exactly the same at this point?

Trying to think what we put out a year ago. Which one are you referring to?

I think it's around [250] for the next couple of years and then 2018 had it upticking a little bit, and then 2019 had it in the [360].

If you look at our corporate presentation, we have updated our ounce production through 2019, and that's reflective of not a -- no expansion. It's just simply -- and the gold production goes up to around 300,000 ounces, reflective of a projected increase in grade between now and 2019 where we end up at around a gram per tonne.

So I don't have a copy of the corporate presentation right in front of me, but if you go online, you'll see that in the Kisladag section. There is a bar at the bottom that shows the ounces per year through the period. Any decision to complete the Kisladag expansion obviously would impact on that.

All right. Thank you very much.

Your next question is from Sid Subramani from Veritas Investment Research.

Hi. Thanks, Paul and team. Just got a question about the Skouries project. You're waiting on the technical study or the approval, but I seem to recall there was also a technical report for Olympias. Is that going to be -- is that what you're referring to when you're saying the Skouries one or are there two separate reports?

There's two separate applications that were in the Ministry. One was for the installation permit for Olympias which has been granted. The second is for a technical study, which is really an updated technical study on Skouries, and that's outstanding and we would expect to receive that shortly.

So the one -- the technical report, the study for Olympias is still approved and there's no issues with it then?

That's right.

Yes.

Okay. But then a follow-up was the issue with Skouries around flash melting, wasn't it? But I thought that there was also a parallel issue with the flash melting for phase three.

No, there's no -- you're getting things muddled here a little bit. There have been various legal challenges to the process to the permit, all of which have been ruled in our favor.

And there were challenges related to the use of flash melting as part of the manner in which the process was designed and permitted. All of those have gone through the courts to basically the Council of State, where decisions were rendered in favor of the permits and the process.

All right, so --

This has got -- application we have in the Ministry's has got nothing to do with flash melting. It's simply that as in any normal project, as you work your way through the project and you complete detailed design, you have minor changes to locations, orientations of buildings that necessitate us to resubmit the technical study, to gain approval of these minor changes in, as I said orientation some places, location in others of specific building. It's got nothing to do with the process, per se.

Perfect. Okay. Great.

That's what we're waiting on.

Okay. Perfect. That's it from me.

Thank you.

Your next question is from Stephen Shipman from Financial West Group.

Yes, I'm following up on Cosmos' discussion of the dividend cut to shareholders. I don't have the 20-F in front of me, but could you describe what the option grant package was this year and how you decided to make whatever level of grants you made on the option packages?

No, I can't, to be frank, because I don't have it in front of me either.

But someone must know about the option grants that were made, because it's been discussed. No? And again, the purpose is to try to get an understanding of the balance between cutting the dividend, the shareholder interest, and what's going on with management interest and incentives.

Well, the decision not to -- the decision not to pay a dividend at this point is not related to option grants.

I understand it's not related, but it's certainly related to the interest of the shareholders.

One is no cash, the other one is cash.

I'm sorry --

The other one is cash and the other one isn't cash, but it's also dilutive.

Look, I and nobody are sitting around the table has the option grants in front of us at this point in time. The option grants were provided in the formulaic manner that they have been in previous years and will appear in our -- in the disclosure.

Okay. So nothing different has occurred this year than in prior years.

No, no.

Okay. Fair enough. Thank you.

Your next he question is from Tanya Jakusconek from Scotiabank.

Good morning, everybody.

Good morning, Tanya.

Can I come back to Skouries? Paul, I just wanted to talk a little about the write-down that occurred. It was significantly larger than we had expected. And we did see that you mentioned that the capital and the operating costs at the operation have changed and was part of the reason for the write-down.

Can you talk a little bit about what has changed there from what originally was filed in your last technical report?

Look, we've got a fairly dated study that supported the reserves, Tanya, which we needed to bring current so that we could restate our reserves. And what we did is we engaged AMC to essentially take a look at the project right from beginning to end.

So we developed a first pass of what the 4.5 million tonne a year underground mine would look like and loaded it with everything, including the kitchen sink. And that's what we came up with was a project that clearly had higher capital requirements for the underground and higher operating cost over the 20 year-plus mine life.

Now is that necessarily the optimal design and plan for the mine? Not necessarily. The write-down itself was not simply limited to higher capital or projected higher capital and higher operating cost in the underground phase.

It was reflective also of the significant delays that we've had in implementing Skouries phase one and bringing the open pit into production. And, frankly, not only is the time frame associated with that but also the additional costs that have been incurred.

Okay. And so looking at the underground, Paul, what was originally contemplated at that time, when you went back and you loaded the capital in the underground, was there more development or has anything changed in the mine plan in the underground?

I think what we have is a much more comprehensive, complete mine plan than what existed in the study that we inherited and was formed -- and formed the basis of the value that was accorded to these assets at the time of the transaction.

Okay. So maybe things weren't included in there that you've actually then now included.

Exactly.

Okay. And then Paul, if I could turn over to Greece, you mentioned that we did get the permit for Olympias, which is great. And the relationships have taken a more positive turn.

Has the Greek government reached out and actually acknowledged that they want this to continue? What's made you more positive? Is it just because we got the permits or have we actually engaged?

No, look, the permit comes -- when you apply a permit, ideally you actually have people talking to each other and that, I can say, is happening.

Okay.

And that is, without being specific, there's actual engagement and through that engagement, the process has worked and we have, as demonstrated been granted a permit or the permit as it relates to Olympias. And our expectation is that will continue with the Skouries project as well.

And that wasn't the case, Paul, in January, so they've actually have started engagement talking with you?

That's correct.

Okay. That's positive. Thank you.

(Operator Instructions)

And we have a question from the line of Ian Bickis from the Canadian Press. Ian Bickis, your line is open.

There are no additional questions at this time. This concludes today's conference call. You may now disconnect.

Thank you all. Have a good weekend.