Eldorado Gold Corp (EGO) 2016 Q2 法說會逐字稿

Good day. My name is Steve, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Eldorado Gold Corporation second quarter results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. (Operator instructions) Thank you. Mr. Paul Wright, President and CEO, please go ahead.

Thank you, operator. And good morning, and thank you all for joining us, and welcome to our second quarter 2016 financial and operating results call. I am here in Vancouver this morning with 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 our news release.

I'm going to try to keep this call relatively brief, recognizing that most of us here in Canada are eager to get out of the office and enjoy the long weekend. I will cover off the comments in regards to the financials in Fabi's absence, and Paul will run through the operational results.

During the quarter, we announced two transactions relating to the sale of our Chinese assets. The transaction with CNG for Jinfeng is progressing on schedule, and we expect to close this within the third quarter. The timeline for the Yintai transaction for White Mountain, TJS and Eastern Dragon is also progressing to schedule, and we expect to close in the fourth quarter.

When these transactions close, it will leave the company with an even stronger balance sheet as we are looking at netting just over $800 million from these two assets, sorry, these two sales. Add that to our total current liquidity and we're looking at having over $1 billion in total liquidity by yearend on the balance sheet.

Leading on to Greece, development at our Olympias Phase II is moving along and we remain on track for production in the first quarter of 2017. At Skouries we are pleased to have received our approval for our technical study in May, and this decision, combined with the earlier granting of the building permit, has prompted us to restart construction activities at Skouries. We continue to remobilize our contractors and hire back our employees, and an updated schedule and forecasted cost of completion will be made available at our next corporate update in September.

In Turkey, our two operations there continued with no disruption, and all of our employees are accounted for and safe. Our experience in Turkey to date over the last 20 years has been nothing but positive. Our team is confident that the country will move past this period of headline risk and continue as they have in the past to progress going forward.

At Kisladag, despite a weaker second quarter, tonnes placement to the pad remains on schedule for the year, and our increasing daily production is now running at a rate consistent with meeting our guidance for yearend.

I'd like also to use this time to reconfirm guidance for the year. Gold production for 2016, including discontinued operations, is forecast to be approximately 570,000 ounces with average cash costs for commercial production of $595 per ounce, and all-in sustaining cash costs of $930 per ounce. Previous guidance was production of 565,000 to 630,000 ounces at average cash costs ranging between $585 and $620 per ounce, and all-in sustaining cash costs of $960 to $995 per ounce.

Capital spending for the year is forecast now to be $95 million in sustaining capital, and $250 million in new project development capital. This compares with previous guidance of $105 million for sustaining, and $235 million for new capital development. The forecast for new project development capital is slightly higher than original guidance, mainly due to projected higher capital spending at Skouries.

Now I'll move on and make a few comments as it relates to the financial statements, highlighting changes in significant accounts. We ended the quarter with cash, cash equivalents and term deposits balance of $203 million, including $72 million reported under assets for sale, compared to $292 million at the end of 2015. The decrease in cash balance is mainly the result of $38 million generated by operations before changes in working capital, a $30 million drawdown on our credit facility net of $116 million usage of cash for capital program. Net cash provided by discontinued operations were $17 million.

During the quarter, we announced two separate transactions to sell our interests in China for $900 million US. With these two sales, we will have effectively disposed of all of our Chinese segment, and accordingly the Chinese assets and liabilities are presented separate on the balance sheet as current assets held for sale and current liabilities held for sale. On the income statement, the results of the Chinese operations is shown in a single line as discontinued operations, including an after tax impairment of $339 million, representing the difference between the expected net proceeds on the sale of the Chinese assets and their net book value.

Loss attributable to shareholders of the company was [net] $330 million, or $0.46 per share for the quarter compared with a loss of $199 million, or $0.28 per share, in the second quarter of 2015.

Gross profit from continuing operations for the quarter of $42 million increased slightly year-over-year as the impact of lower sales volumes were offset by higher gold prices and lower unit operating costs. Gross profit from discontinuing operations for the quarter of $14 million decreased year-over-year due to lower sales volumes.

With these comments, I'll hand over Paul Skayman.

Thanks, Paul. Good morning, everyone. Overall, a somewhat tough quarter with Kisladag, Tanjianshan both performing a little bit under our expectations.

To start in Turkey, Kisladag had a slow quarter with ounce production lower than anticipated. Tonnes of ore and waste mined and ore placed on pad were above budget at a slightly lower grade. The year-to-date strip ratio is 0.92 to 1. We've continued placing run of mine material on the leach pad, given the higher gold prices we're now seeing compared to our budget at the beginning of the year. Ounce production is down year-to-date as we've been leaching the higher sections of the pad. Right now we're placing material on new pad and expect ounce production to increase in the second half, and we're still maintaining the initial guidance for Kisladag of 225,000 to 240,000 ounces.

At Efemcukuru, the project performed well during the quarter, reporting better tonnages at similar grades than expected. This led to a good quarter of ounce production with sales year-to-date slightly ahead of our budget. Cash costs have also been well contained, and year-to-date are tracking under our guidance.

In China for Q2, production totaled 50,800 ounces. Tanjianshan had another slow quarter, with good tonnage rates mined and processed over the quarter, albeit at lower grade than planned. The lower grade's a combination of narrower ore zones in the lower sections of the Jinlonggou pit causing higher dilution and lower grades than calculated on ore stockpiles that are supplementing the mill feed. Cash costs were correspondingly high due to lower ounce production with similar spending.

As we stated yesterday, at Tanjianshan we noticed a crack in the mill shell of the discharge and manhole, and have had to shut it down for repair. This shell has cracked in a similar location previously, and we have the team and the knowhow available to weld it up relatively quickly. It's expected to take three to four weeks to get back into full production.

Jinfeng had a reasonable quarter, doing better than budget on both ounce production and costs.

White Mountain was slightly behind on tonnes mined and treated, and also behind on grade. This left us with higher cash costs than expected due to the lower ounce production.

On the development side, work is continuing well on the construction of Olympias Phase II. Demolition work is now complete; steelwork is starting to arrive and be erected on the site. Most of the long lead items have arrived at site, and structural and mechanical contracts have been awarded, with one of the contractors already mobilized and at work. Preparations also continue underground with rehabilitation of existing workings, and new development is proceeding at budgeted levels.

As indicated on the previous call, we received approval for the updated technical study on May 9th for the Skouries project. We've now put some of the teams back to work, with the ramp up of the site expected to continue over the next quarter. The focus of this work will concentrate on those items that benefit from the excellent weather over the summer period. This work includes earthworks and building foundations, as well as improvements to the access road to the tailings management facility.

At both Certej and Tocantinzinho continue to work to optimization studies on opportunities identified earlier in the year. At Eastern Dragon we continue to work with the government on the conversion of the exploration license to a mining license.

In exploration, we completed 7,000 meters of exploration drilling at our projects during the quarter, as well as target generation work for drill programs planned for Q3, Q4.

And with that I'll turn it back over to Paul.

Well, thanks, Paul. And operator, we'll open up for questions now, please.

(Operator instructions) Your first question comes from Cosmos Chiu with CIBC. Your line is now open.

Hi, Paul, Paul and Krista, and thanks for hosting the call. Just a few questions here. Maybe first off on the new guidance, the refined guidance, the 570,000 ounces. Just want to confirm, that includes the Chinese assets for the full year, right?

That's correct.

Okay. And I guess, you know, and from that perspective, the actual number for ounces produced will likely be different depending on the closing of the two Chinese transactions?

Absolutely. Yes.

And then, Paul, on that, I see that there was a crack in the mill, the mill shell in the quarter. Could that potentially have any kind of impact on the closing of any of the Chinese deals?

No, we don't see that as affecting us there.

Okay. Okay. And then, Paul, you kind of talked about Turkey and the political situation there. I'm trying to approach it from a different perspective. In terms of the, I would say, weakening Turkish lira, could that have any kind of potential positive impact on your cost?

Well we have historically benefited from a weakening Turkish lira. Eventually inflation tends to claw this back, but I would say this year in the countries that we operate where we've seen a devaluation of the local currency against US dollar, that devaluation has been in excess of inflation. So yes, there is some potential for incremental gain.

Okay. And then maybe one last question from me. I noticed that the grade at Efemcukuru was off a bit during the quarter. Could you comment maybe on what the grade -- are we going to see an increase in grade in the second half? Is Q2 representative of the future?

We do a little bit better. And in fact year-to-date it's fairly close to budget, so Q2 was a little bit lower than 1. And year-to-date we're sort of pretty well where we want to be, I guess.

Great. That's all I have. Have a good long weekend.

Likewise, thanks Cosmos.

Thanks, Cosmos.

Your next question comes from the line of Dan Rollins with RBC Capital Markets. Your line is now open.

Yes, thanks very much. I was wondering if you guys could maybe just comment on the costs. Obviously you've taken your production to the low end of guidance, but your costs are still remaining quite low, and specifically excluding the Chinese assets since they will be divested, but both Kisladag and Efemcukuru, you're probably about $50 to $75 an ounce right now below on your range for the full year on operating costs. Is that a reflection of the currency, which is down, I guess, around 5% to 6% versus your guidance, or is there some other aspects at work there that are allowing you to have lower costs than expected starting the year?

I guess currency has helped a little. I'm trying to recall what we sort of put the budget together at. I think we're still pretty close to where we -- (multiple speakers) -- in terms of a TL exchange rate. Inventories increased slightly at Kisladag, and I think that's probably had a positive effect on the cash costs in the short term. And the guys, particularly at Efemcukuru, continue to sort of grind away in terms of efficiencies, and I think we're seeing that too. So some kudos, obviously, to the guys operating those projects in Turkey.

Yes, as Paul alluded to, I don't think there's anything other than currency that we can specifically point to, Dan. It's a combination of frankly working, working to make the operations better.

Okay. So on a local currency basis, you're pretty comfortable that the current run rate is sustainable, excluding the impact on the strip ratio moving, ebbing and flowing over the next few years?

Not sure I understood the question, there, Dan. Sorry.

Well, your unit cost on a local basis -- where you are today -- do you believe those are sustainable, what you're paying out in Turkish lira?

Well no, I think, as I mentioned earlier, I would expect that -- over time historically inflation tends to claw back most of currency gain. So live with us year by year on this, Dan.

Okay, that's fine. And then just on the sustaining capital, any change to the $50 million planned at Kisladag for the year and $20 million at Efemcukuru?

No.

Perfect. I'll look forward to September 7.

Thanks, Dan.

So will we.

Your next question comes from the line of Kerry Smith with Haywood Securities. Your line is now open.

Thanks, operator. Paul, I'm not sure you can answer it or not, but there was a big year-over-year swing in the accounts payable in the non-cash working capital change, and it was like $70 million. Do you know exactly what that was for?

Sorry, could you say that again, Kerry? I didn't quite get that.

There was a $70 million swing year-over-year on the accounts payable in the non-cash working capital, and I was just wondering what that was related to. I know Fabi's not there.

From what I understand, Kerry, it was the reversal of the CDH put option that primarily related to that during the quarter.

Sorry, the reversal of which?

CDH, the put option that we have with CDH, who is our partner in Eastern Dragon.

Oh, okay. Okay, I see. And then just on the guidance --

The put option expired, Kerry. That's why the change in the treatment.

Okay. Okay. And then just on the guidance, you said the production guidance hadn't changed for Kisladag. Paul mentioned that in his commentary. Is the Efemcukuru guidance that you had initially earlier in the year unchanged as well, the 90 to 100 then?

Yes, that's pretty well where we still think we'll end up, Kerry.

Right. And then the cash cost guidance that you'd given earlier on in the year, in January, what is the cash cost guidance now for the two Turkey operations? Is that actually the same as it was as well?

We haven't provided that, have we, Kerry?

No. No, so you're not going to provide that?

No, not at this time.

Okay. You've just given kind of the overall. Okay.

That's right.

And you talked, Paul, in the opening remarks about the $800 million of net proceeds from --

Thereabouts.

-- from the sale of the Chinese assets. Yes. Can you remind me what the debt is that will come out of the $900 million?

Sorry, the what?

The debt. I'm presuming it's debt, or what is the adjustment? Like why is it $800 million and not $900 million? I'm just trying to reconcile --

Well there's an allocation there as an assumption as it relates to withholding tax.

Oh, okay. Okay. So that's what you're working on. Okay, I got you.

Yes, we don't know the exact amount. We've given you an approximate level based on withholding tax.

Right. So, okay.

I mean, and then there's the usual adjustments for working capital, and we're obviously continuing to operate the operations, so we've given you the $800 million as an approximate number, making certain assumptions as it relates to withholding tax. And there will be an additional adjustment related to working capital, as well as frankly monies in accounts that have been earned through the period.

Got you. Okay, perfect. Thank you.

That's why we can't give you a nice number to two decimal points, but those are the components that go into what we'll -- and will end up occurring when the transactions close.

Okay. That's good. Thank you.

(Operator instructions) Your next question comes from the line of Anita Soni with Credit Suisse. Your line is now open.

Good morning, guys. My question relates to Kisladag. I was just wondering on the heap leach, you've maintained the production guidance for the year, so that partly answers my question, but you're expecting to get that slow leach out by the end of the year, or will it sort of push into 2017?

Well, I think what we described to you is the fact that we've had delayed production coming off the heaps because of the higher lifts, right.

Yes.

It's not associated with lack of ounces being placed, it's just the cycle at yearend in terms of delayed leach, and the leach needs time to get from the top of the heap to the bottom of the heap. You know, bigger scale, you know the ounces to the pad are essentially on track with where we expected them to be. The mine plan will see us continuing to load at an appropriate rate, and the daily ounce production has been rising to the extent that we can -- you know, projecting forward to yearend, we're satisfied with our guidance in terms of the range that we provided. That's what we said.

All right. Thank you.

Your next question comes from the line of Steve Butler with GMP Securities. Your line is now open.

Good morning, guys, to you out there. Paul, quick one just on the sale of the Chinese assets again: so let's look at the $71 million in cash sitting in discontinued assets for sale. So cash -- if there was any cash building, as there has been a somewhat a small amount, does that accrue to your account from negotiations from the Chinese point of view, cash in the assets, or is there a working capital adjustment that goes their way?

No, they are two separate issues. There will be a working capital adjustment that you typically see at any type of transaction at close.

Yes.

And then there will be the fact that we've been accruing through operations -- cash that generally accrues comes to ourselves because it's been earned by the period of our ownership, right.

Yes. Okay, Paul, that's good. Just wanted to clarify that. See you guys in September.

Likewise.

Thank you.

(Operator instructions) There are no further questions at this time. Mr. Paul Wright, I turn the call back over to you.

Okay, well, thank you, operator; and thank you, everybody, for joining us today. We hope everybody has a good weekend, and we look forward to seeing many of you, or hopefully most of you in September. Thanks, operator.

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