Eldorado Gold Corp (EGO) 2016 Q3 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 third quarter results conference call. (Operator instructions) Thank you. Paul Wright, President and CEO, please go ahead.

Thank you, operator. And good morning and welcome to our third quarter 2016 financial and operating results call. I am here today in Vancouver with Paul Skayman, our Chief Operating Officer, Fabiana Chubbs, Chief Financial 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 in the forward-looking statement disclaimer at the end of the news release.

We will try to make this another brief call. Paul and Fabi will review the operations and financial results, while I want to touch on the overall outlook and where we currently stand in China and Greece specifically.

We have updated our full year guidance which still includes discontinued operations but uses the actual 2016 closing date for the Jinfeng transaction of September 6th and assumes a mid-November, 2016 closing date for the transactions with the entire resources.

Full year gold production is forecast at 495,000 ounces with average cash costs of $575 per ounce, and all-in sustaining cash costs of $915 per ounce. In regards to Kisladag, we do expect production at Kisladag to return to Q4 2015 levels and we presently forecast around 75,000 ounces for this quarter. Month to date production, daily production is running in excess of 750 ounces.

Looking at sustaining capital for the year, it is now forecast at $80 million compared to the previous guidance of $95 million. In new development capital, we expect to spend approximately $230 million compared to the guided number of $250 million previously.

On September 6th, we completed the transaction with China National Gold concerning the Jinfeng transaction and Fabi will review the financial reconciliations associated with this close is a few minutes. The Yintai transaction relating to the sale of White Mountain, TJS and Eastern Dragon remains on schedule, and our current guidance reflects a mid-November closing date.

Once this transaction is completed, the Company will be left with an even stronger balance sheet as we are looking at netting just over $800 million from these two sales. Add that to our current total liquidity and we're looking at having over $1 billion in total liquidity by yearend on the balance sheet.

Which leads me to the question of where we are going to spend these funds to bring on our next phase of growth. We did present our plans for our assets with the emphasis on Olympias Phase II, Skouries development, Kisladag expansion, and the Tocantinzinho project during our inaugural Investor Analyst Day in September. Please do reference the extensive materials that we presented which are on our website to review the capital development plans for the next three years.

With that said, I'm happy to report that the final development at Olympias Phase II is moving ahead rapidly now and we remain on track for production to commence in the first quarter of 2017.

In exploration, our level of activity has increased through the quarter and we are now actively engaged in drilling programs in Brazil, Greece, Romania and Serbia. In Greece, development of the Mavres Petres hanging wall exploration crosscut continued through the quarter and at current rates of advance, the first drill stations will be available in late Q4. We also recently commenced drilling at the [Pasoka] porphyry target in Halkidiki.

Earlier this quarter we announced the receipt of the exploration license for the Bolcana porphyry project in the Certej district in Romania. Drilling in the Bolcana area commenced this week. We are also drilling throughout the quarter at the nearby Sacaramb deposit, testing long strike extensions of historically mined veins.

In Brazil, Eldorado signed option agreements both with Votorantim Metais covering over 3,750 square kilometers of licenses and license applications and Minas Gerais and Pernambuco states. This agreement provides Eldorado with the opportunity to earn up to 70% of the licenses and delivery of a bankable feasibility study. Drilling commenced late in the quarter on these licenses at the Vulture showing and the Pernambuco state.

Eldorado continued drilling at our new KMC skarn project in Serbia where four drill rigs are currently active. Our first hole at the Shanac target intersected 298 meters grading 0.78 grams per tonne gold and 0.14% copper. With the magnetite-bearing skarn, drilling will continue through most of Q4 at KMC.

Updated guidance for 2017 and yearend operating results will be provided in the second week of January. And just before I turn over to Paul and Fabi, I would like to take this opportunity to welcome George Albino to our board of directors. Many of you know George well and have worked with him over the years. His knowledge and experience will be invaluable to our board and management team moving forward.

With that, over to you, Paul.

Thanks, Paul. Good morning, everyone. Overall, a tough quarter with Kisladag and Tanjianshan underperforming our expectations. To start in Turkey, Kisladag produced just less than 50,000 ounces in Q3. Longer lead cycles and material being placed on higher sections of the leach pad continued to contribute to slower ounce production.

We expected solution grades to increase earlier in Q3 and this was slower than anticipated. However, since late September, ounce production off the pad has increased noticeably and we're now extracting around 750 to 800 ounces per day. We continue to maintain our guidance of 225,000 ounces for the year.

During 2016, pad inventories increased by around 45,000 ounces and we expect to start growing this down in Q4. We're also currently installing two more absorption trains to increase our absorption capacity by around 65%. This will help reduce the amount of gold sitting in solution in the pad and actually being pumped back onto the pad as part of the intermediate leaching process. We expect to commission these extra leach trains in early November and these should provide ounces for sale before the end of the year.

Tonnes of ore mined and ore placed on pad were well above budget but a higher grade than planned. The year-to-date strip ratio is 0.83 to 1 and we've placed around 800,000 tonnes of runner mine material on the leach pad in Q3 given the higher gold prices we're seeing compared to what we budgeted at the beginning of the year. Year to date we've placed approximately 2.4 million tonnes of runner mined at around half a gram.

At Efemcukuru, the project again performed well during the quarter, reporting better tonnages at slightly lower grades than expected. This led to a budgeted 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 guidance.

In China for Q3, production totaled 43,100 ounces. Obviously, this only includes Jinfeng through to the sale date of the 6th of September. Prior to the sale, Jinfeng produced just under 20,000 ounces for the quarter at lower cash costs than budget, and over 2016 Jinfeng produced nearly 67,000 ounces at just over $700 per ounce with costs better than budget and at the low end of the guidance.

Tanjianshan had another slow quarter, with mined tonnes from Jinlonggou over the budget, but again, at lower grade than anticipated. As explained in the previous call, the lower grade is a combination of narrower ore zones in the lower sections of the Jinlonggou pit causing higher dilution and also lower grades than calculated on ore stockpiles. Processing tonnes were down as was the grade of ore treated.

And as we indicated in the previous call, the mill at Tanjianshan suffered a crack in shell and was shut down for repair. The repairs were completed in three weeks and this resulted in a 26% reduction in mill tonnes for the quarter. Cash operating costs were correspondingly high due to lower ounce production with similar spend.

White Mountain was on target for tonnes mined and treated, but 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. Steel erection and equipment installation is well advanced and also the mill was being lifted into place earlier this month. Most of the major equipment is in place on site. Parking and electrical installation are the next major tasks. Preparations also continue underground with rehabilitation of the existing workings and new development proceeding at budgeted levels. We continue to expect to commission the plant in Q1 2017.

At Skouries we continue to work on earthworks, building erection and site clearing. This includes preparation works for the stockpile dome embankment and preparations for the tailings thickener area retaining wall. At both Certej and Tocantinzinho, continuing to work on optimization studies as well as preparation for permit progress.

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

Thank you, Paul, and good morning everyone. I will go through the financial statement highlighting changes in significant accounts. We ended the quarter with cash, cash equivalents and term deposits balance of $412 million, including $43 million reported under assets held for sale compared to $292 million at the end of 2015. The increase in cash balance is mainly the result of $79 million generated by operations before changes in working capital, proceeds of $296 million received from the sale of Jinfeng, net of $31 million of cash held by (inaudible) at the time of the sale, and $206 million usage of cash for capital programs. Net cash used by discontinued operations was $12 million.

During the quarter, we sold our interest in Jinfeng for receipt of $296 million net of taxes. Just to clarify, the composition of this amount reflects a selling price of $300 million, adjustment for cash and working capital of $25 million, and income tax of $29 million. The balance of our Chinese assets are expected to be sold during the fourth quarter and the respective assets and liabilities are presented on the balance sheet as current assets held for sale and current liabilities held for sale.

On the income statement, the result of the Chinese operation is shown in a single line as discontinued operations, including the $3 million loss related to the sale of Jinfeng.

Profit attributable to shareholders of the company was $21 million, or $0.03 per share for the quarter compared with a loss of $96 million, or $0.13 per share, in the third quarter of 2015. Excluding transaction costs and unrealized losses totaling $12 million, we reported adjusted net earnings of $34 million or $0.05 per share for the quarter compared to an adjusted net loss of $4 million or $0.01 per share in 2015.

Gross profit from continuing operations for the quarter of $49 million increased 63% year-over-year as the impact of lower sales volumes was offset by higher gold prices and lower unit operating costs. Gross profit from discontinued operations for the quarter was $22 million.

Those are my comments on the financial statement. I will turn the call back to Paul.

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

(Operator Instructions). Andrew Quail, Goldman Sachs.

Good morning Paul and team. Thanks for the update. Fabi, thank you for clarifying that adjusted earnings number. I have a question on just on the CapEx split for the Kisladag expansion. Just more sort of a modeling question on how much obviously will be in 2017 versus 2018.

I guess it will kind of be reasonably evenly split. A little bit less in 2017, a little bit more in 2018, so sort of 40/60. And we're doing a little bit of work in this year, but it's fairly modest and not going to be a significant amount of cash sort of spent this year I guess.

(Inaudible) in September was 60 million to 70 million, wasn't it?

That's right.

So it's 30 next year, 40 --

Yeah.

Okay, and then Paul, one for you. Obviously, you guys hopefully mid-November you're going to be pretty cashed up. I do want to just touch base on potentially reinstating [divi] next year and just any comments around that. I know it's a board decision, but just if it was, regards about it, I just wanted to get a comment.

Yeah, look, I mean I think we've previously stated, with the gold price back up above 1,250, this is back on the table again. And we'll be looking to make that decision with the board when we conclude our yearend financials.

(Operator Instructions). Steven Butler, GMP Securities.

Good morning, Pauls, et al. Guys, you talked about the absorption rate onto the carbon Kisladag pole. Has this ever been experienced before where you've had this issue? Or is it just because you've been stacking some decent grades here at Kisladag here for the first half? Because it's obviously been a long-lived asset and why the extra carbon column is required now?

Yeah, it's not an issue with absorption per se. It's really material -- the reason for the lower production in Q3 is solution is just taking a long time to sort of come through and out of the pad. So that's the first comment. I guess we've now got higher pads than we've had previously, so the lag is more significant. The extra carbon columns, effectively we've got so much solution sort of running around the circuit, that some of the material is going back onto the pad with some gold in it. And we're looking to put that material through a carbon column so we're extracting that gold. So effectively putting all barren solution back onto the leach pad.

Steve, just to make a couple additional comments, I mean, think of it as a sponge that's been getting larger and larger and larger. And in the quantity of solution that we have now inside of the pad that's bearing gold has grown sort of year by year to the point that we're actually, we're holding up our return on monies by not having the ability to be able to run this material, this lower grade material, through the carbon columns.

Okay, that makes sense.

When that was a lot smaller, we were able to get the higher-grade solution and we didn't have such a big circulating load as we have right now.

Okay. And on the exploration side guys, in Brazil, maybe it's all fairly early stage projects with Votorantim Metais, but can you comment how early stage this first target is for drilling? Obviously, it's a big license, but how is it looking on target selection here?

No, no, these are -- I mean part of the attraction to doing the deal that we did is that we had drill ready targets. So we're not -- we are on targets, we are drilling, and we would expect to have initial results before yearend.

And what does the Vulture Target represent itself as?

It's a sort of -- these are [brecher] zones that we're initially drilling.

Cosmos Chiu, CIBC.

Hi. Thanks, Paul and team, for hosting the call. Maybe a quick question for Fabi. Just looking at the financial statements here, the cash flow operating, there was a big adjustment in the noncash working capital changes, or the working capital changes for purposes of your cash flow operating. For a minute, it seems like there was a big adjustment for the payables, but I can't seem to figure out how to link it to your balance sheet. Because I didn't, on your balance sheet, it didn't really seem like your payables went up by that much. My concern is that is it going to get reversed in a future quarter? Maybe, Fabi, if you can just walk me through that.

I may have to -- one other thing you will have to bear in mind here is that you do have, the working capital, you have to consider the change of the discontinued operations. If you want a bit more detail, I could send you an email on it because it will be quite accounting heavy.

Okay. And then, in the end, as I said, Fabi, my concern is that it's going to turn out to be a negative adjustment in a future quarter with a negative impact to your cash flow operating. Is that going to happen?

Probably not because its discontinued operation. But I will send you the information in an email.

Okay, great. That's all I have. Thank you.

(Operator Instructions). There are no further questions at this time. I now turn the call back over to the presenters.

Thanks, Operator, and thank you everybody for attending this call and wish you all a good weekend. Thank you.

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