Eldorado Gold Corporation
Q1 2010 Earnings Call Transcript

Published: 8 May 2010

[Operator:]

Good morning, ladies and gentlemen. Welcome to the Eldorado Gold 2010 First Quarter Financial and Operating Results Conference Call. This call is also being webcast and is available on the Eldorado Gold website at www.eldoradogold.com. I would now like to turn meeting over to Ms. Nancy Woo. Please go ahead.

[Nancy Woo:]

Thank you, operator. This presentation includes statements that may constitute forward-looking statements or information. Any forward-looking statements made and information provided reflect our current plans, estimates and views. Forward-looking statements are information, which include all statements that are not historical facts, are based on certain material factors and assumptions, and are subject to certain risks and uncertainties that could cause action results to differ materially from those anticipated in or suggested by the forward-looking statements or information. Consequently, undue reliance should not be placed on these forward-looking statements and information. The information contained in our annual information form and in our annual quarterly management discussion analysis available on our website and on SEDAR identifies factors and assumptions upon which the forward-looking statements or information are based on, and the risks, uncertainties and other factors that could cause actual results to differ. All forward-looking statements and information made or provided during this presentation are expressed qualified in their entirety by this cautionary statement and the cautionary statement contained in our press release. I will now turn the call over to Paul Wright, President and CEO of Eldorado Gold.

[Paul Wright:]

Thank you, Nancy, and good morning, ladies and gentlemen. And welcome to our First Quarter Financial and Operating Results Conference Call. Joining me today in the call from Vancouver are

[Norm Pitcher:]

Thank you, Paul, and good morning, everyone. I guess, if I had an option not to say anything about the operations, I'll do that, because I think the results sort of speak for themselves. But I would like to thank all of our operating team throughout the world for an outstanding quarter. We have some hard-working, dedicated employees out there. And we've got some hard-working and dedicated new employees as well from the Sino Gold transaction. We're working very, very hard to make this work along with our own operating teams. On the Kisladag, we produced 82,240 ounces at cash cost of $305 per ounce, which is a quarterly record for gold production. We placed a 2.9 million tonnes of ore on the leach pad, a 1.12 grams per ton. And we mined at a strip ratio of 1.17

[Edward Miu:]

Thank you, Norm. Good morning, ladies and gentlemen. As mentioned by both Paul and Norm, Eldorado had a very strong first quarter in terms of production and operating costs. That translated into very strong financial performances as reflected in the financial statements. Starting off on the balance sheet. First quarter and asset balance increased for 2009 year end balance by approximately $49 million. Cash balance was $283 million, an increase of $18 million from year end. Plus $25 million increase in mining interest as a result of capital expenditures in both Turkey and China during the quarter. On the liability side, the first quarter recorded a decrease of about $20 million in total liabilities from the 2009 year end balance. The lion's share of the reduction was from the payments of transaction fees related to the Sino Gold transaction, which was showing as outstanding liability at year end last year. Moving on to the statements of operations and retained earnings. This year first quarter's gold sale revenues of $181.5 million exceeded first quarter 2009's revenues by $129 million, or 248%. This was accounted for by production increases in both the Kisladag and Tanjianshan mines, coupled with the addition of Jinfeng and White Mountain from the Sino Gold acquisition. Another contributing factor for the substantially higher revenue is the fact that realized gold price per ounce increased from $909 in quarter one '09 to $1,110 in the first quarter this year. With the higher production and the Sino Gold inclusion, operating cost, DD&A and interest expenses all went up year-on-year. G&A costs also increased by $6.8 million, mostly due to stock-based compensation being higher as a result of the Sino Gold acquisition. Net income of $52.8 million in the first quarter increased from the same period last year by almost $40 million or, 304%. In terms of earnings per share, it was $0.10 this quarter versus $0.04 for Q1 2009, an increase of 150%. On the cash flow statement, close to $81 million of cash was generated from operation in the quarter, compared to $20.7 million in Q1 '09. In spite of that overage, net increase in cash in the first quarter this year was $17.7 million, which was less by comparison to the $46 million increase in Q1 '09. The year-on-year decrease was attributable to capital expenditures being $28 million higher this year, coupled with the $30 million cash receipt in Q1 last year pertaining to the sale of São Bento. All in all, that was a very strong quarter for Eldorado in terms of financial performance all around. With that, I'll now turn the floor back to Paul.

[Paul Wright:]

Thanks, Ed, and thanks, Norm. And operator, we'll now open up the questions, please?

[Operator:]

[Operator Instructions] Your first question is from Haytham Hodaly with Salman Partners.

[Haytham Hodaly:]

Just a quick question. Kisladag, obviously, production there was phenomenal last quarter and the measures you've taken to improve recoveries have done very well. What would you say, just based on a cursory look, your overall life of mine recovery potentially could go up by, based on the implementation of these new measures?

[Norm Pitcher:]

I don't think we'll put a number on that yet, Haytham. Part of what's going on to is we finally got the -- don't underestimate the ability of the intermediate leaching, because we're now starting to pull ounces off the inventory in the pad as well. And the bigger the pad you have, the more flexibility it gives you to be able to do stuff like that. And we're just now getting to a point where we can start to do that so...

[Haytham Hodaly:]

Is there any limiting factors going forward here, Norm? Is there any reason why you couldn't keep doing exactly what you're doing and keep recoveries in this range?

[Paul Wright:]

It's very important to -- I think what Norm is trying to highlight here is the effect in the first quarter was very much due to the fact that we put a lot of extra ounces out on the pad in the fourth quarter. And secondly, as Norm has described, we now have the leach pads big enough that we can do counter current leaching, which means that you have an ability to be able to increase the frag [ph] grade that you plant through the solution. And that's largely because you got an excess inventory of ounces on the pad that you can gain access to. On the issue of ultimate recoveries, we are very cognizant of the significance of potentially getting higher recoveries from these pads. And that's why we're going to be very, very cautious and appropriate in terms of doing the level of metallurgical test work we need before we come out with any type of suggested number, numerical increase, because we are aware of the significance of that number, given the size of the resource and reserve that it could become applicable too.

[Haytham Hodaly:]

Just maybe could you give us your current guidance for Kisladag for this year? Roughly, production wise?

[Paul Wright:]

I think we've given you upward guidance for the year.

[Norm Pitcher:]

Yes, we said our original guidance for Kisladag was 230 and 240 at cash cost of $310 to $330. We've upped our guidance -- we've sort of taken the middle range of the guidance and upped that so...

[Operator:]

Your next question is from Dan Rollins with UBS Securities.

[Dan Rollins:]

Just one on Vila Nova, when you start to actually shipping ore out, are you going to be declining that commercial production so it'll all go to the revenue line, or will it be backed out against capital cost?

[Paul Wright:]

Well, I guess, we haven't made that decision yet.

[Dan Rollins:]

Moving on quickly to Efemcukuru, what's the current status of the land acquisitions?

[Paul Wright:]

We're basically done there. We have acquired the vast majority of the private land now. Yes, it's pretty much done.

[Operator:]

Your next question's from David Haughton with BMO Capital Markets.

[David Haughton:]

I've got a few questions, probably for Ed, but Paul, you can decide. It's in relation to the depreciable rate at both Jinfeng and White Mountain, quite a bit lower than what I've been anticipating, and I saw some commentary with regard to preliminary allocation of purchase cost. Can you just talk us through what we should be expecting?

[Edward Miu:]

What we are expecting for Jinfeng is about $230 per ounce; White Mountain, $280; and for Tanjianshan, $210.

[David Haughton:]

So then what we saw in the first quarter of around about $120, say, at Jinfeng is still awaiting the full allocation of the purchase price?

[Edward Miu:]

No, that already includes the allocation of the purchase price.

[David Haughton:]

I guess I got a little bit surprised to see the lower rates, and it's quite a little bit lower than what you just ran through. So I guess I will just adjust it for the balance of the year. Having a look also on an accounting issue, TJS, there's quite a change between production and sales. Is this just a buildup for inventory that you'd expect through timing differences to flush through the balance of the year or is there something else there?

[Edward Miu:]

The short answer is yes. Inventory in the first quarter did play a role in the financial numbers.

[David Haughton:]

Okay, but we'd expect that to be caught up for the balance of the year?

[Edward Miu:]

Over the balance of the year, that will be adjusted going forward.

[David Haughton:]

Another question, I guess for Norm. Having a look at the met issues at White Mountain, can you just give us an idea as to when this is a portion of the ore body or whether it's pervasive? Will it be sequenced in or out? Can it be diluted? How should we be thinking about it?

[Norm Pitcher:]

You should be thinking about it as definitely in a portion of the ore body. This wasn't, to be honest, a surprise. They sign those [ph](22

[David Haughton:]

Can you have the option going forward to adjust your mining sequence to sort of blend it out or is it...

[Norm Pitcher:]

No. That's our first line of attack. Just don't mind so much of the stuff in a particular quarter. You don't need to -- once you get [ph](22

[David Haughton:]

And the final one, probably for you, Paul. I noticed in the press recently that European Council or European Parliament has vote in favor of banning cyanide in mining. Where do we go from here? What's the implication for your assets? And is it really going to be moved forward to a ban or is it just hypothetical at this stage?

[Paul Wright:]

It's the latter. The implication on us is zero. The commission's formal direction is to enforce the existing directives. So it really doesn't have any significance on our assets at present or in the foreseeable future.

[David Haughton:]

So a couple of parties that take a view of anti-mining, I guess, have just got an avenue of venting their hot air and it's not go any further?

[Paul Wright:]

That's our take on it at present.

[Operator:]

your next question is from Anita Soni with Credit Suisse.

[Anita Soni:]

Just a question with respect to the new zone that you're talking about, that Kisladag in terms of exploration. That you set was below the existing set limits. How far below is it now?

[Norm Pitcher:]

It's sort of parallel to the south wall. And it looks like it would daylight up into the south wall. So it's not entirely below pit limits. It's sort of a planar zone oriented east-west along the long side of the south wall basically.

[Anita Soni:]

Do you have any kind of any plans or section views on that or?

[Norm Pitcher:]

Yes, not really, yet. We'll put it out in our update.

[Anita Soni:]

Okay. And it'd be coming out at the end of this quarter?

[Norm Pitcher:]

Yes.

[Anita Soni:]

So I'm not quite sure I understood whether or not the Jinfeng 323 zone would be included in that...

[Norm Pitcher:]

Tanjianshan 32 [ph] (24

[Anita Soni:]

That will be a little after...

[Norm Pitcher:]

We may end up doing them all together, were both [ph] At the same end [ph](25

[Anita Soni:]

So we've got basically about two or three updates coming over the course of the end of Q2 to Q3.

[Norm Pitcher:]

Yes.

[Anita Soni:]

I just wanted to ask a little bit more about the recovery rate improvement at Kisladag, see if I could get a little bit more out of you in terms of the uptick. I think for the year, you guys were looking at somewhere in the mid-60s level. And this one going back -- not going to be about 73%. Could you isolate how much of that was due to extra ore being placed on the leach pad in Q4? And how much was through the actual process improvement?

[Paul Wright:]

Anita, if I can just jump in here for a minute here. I think it's really important -- I'm not trying to be flippant about this. But it's a heap leach circuit. So trying to on a quarter-by-quarter basis to calculate recoveries based on what's going on with that versus what's coming off is a bit of a mug's game. The guidance that we're giving now is the same guidance that we've given since the beginning of the project to the extent that oxide recoveries are in the low 80s, sulfide recoveries are in the low 60s. I think what we've seen over the last three or four years of operating, I think, is summarized very quickly is that on the oxide recoveries, we're getting the recoveries we expected. Maybe a little bit better at perhaps, of course, a crush evidenced by the fact that we put raw mine material out on the leach pad. I think, as Norm...

[Norm Pitcher:]

In a little bit faster rate...

[Paul Wright:]

A little bit faster rate, yes. And I think what Norm has highlighted is that as we're getting more and more sulfides and we're doing, as a result, more and more contest work on the sulfides, we're seeing that there are certainly parts of the pit in sulfides that are giving us higher recoveries than the low 60s. But again, because we're dealing with such a large resource and such a large reserve, we're very sensitive to the fact that small changes here can have a material difference. And therefore, we're hesitant to give you revised numbers until, frankly, we're comfortable that we've done sufficient met test work to justify that. But you are going to see the swings from quarter-to-quarter on production reflecting just ounces that go out -- the ability and the staging of putting areas under leach. And those are going to be exacerbated -- highly exacerbated positively obviously by the introduction of this countercurrent leaching. Sort of long-winded couple of comments but maybe, Norm, can give you a bit more detail on that.

[Norm Pitcher:]

I think you covered it well. It makes it difficult because when you look at a quarter like this, you got oxide ore that went on the pad late in 2009, you got the effect of the countercurrent leaching and the larger carbon columns. Maybe we're getting a little bit better recovery on some of our sulfide material as well.

[Anita Soni:]

And so that metallurgical test work, when is that coming...

[Norm Pitcher:]

We are always running columns. And now we're going to -- over the next few months, we're going to take a look at the results. And try to see if we can pin something down, if we can pin something down.

[Anita Soni:]

With respect to timing, I didn't catch it quite -- Eastern Dragon, when is that starting up again?

[Norm Pitcher:]

We're permitting right now and doing some exploration there. We're looking at the second half of this year.

[Paul Wright:]

Starting construction.

[Norm Pitcher:]

Yes.

[Anita Soni:]

And also Kisladag, the comment that you made about getting some 12 million tons per annum, what was that by year-end?

[Norm Pitcher:]

Where next year, we are on track for that.

[Anita Soni:]

For early next year?

[Norm Pitcher:]

Yes.

[Operator:]

Your next question is from Kerry Smith with Haywood Securities.

[Kerry Smith:]

Norm, if you can give me some sense as to how many extra ounces you think you might have got off the pad from the leaching or is that something that's kind of obsolete... [ph](29

[Norm Pitcher:]

Like I just said with Anita, it's all three factors combined, right?

[Kerry Smith:]

And the news on Kisladag, can you just give me some indications as to how many holes you have in that zone now? And can you give me some sense of the size of it?

[Norm Pitcher:]

We've got four holes in there so far as defined over -- a couple hundred meters of strike so far. Yes, and it's sort of sitting, like I said, it's sitting in the south wall fairly steeply dipping. And it looks like projected up, it would daylight up into the south wall.

[Kerry Smith:]

So it's sort of dipping away from the pit wall, as it where to the tip of south base, well, I guess is what your saying, right?

[Norm Pitcher:]

It's no, it's pretty steep. I mean that south wall is dipping to the north, right? The zone is dipping fairly steeply.

[Kerry Smith:]

And the permits that you need for Eastern Dragon. Can you just remind me exactly what your permit -- I know there's a bunch of them. But what are the main ones that you still would need to get there before you could start construction? Or can you start construction with those permits still in process?

[Norm Pitcher:]

Yes, you can start construction with the permits in progress. The main one is something called the project permit approval. That's the big one that we really want to have before we pull the trigger.

[Kerry Smith:]

So you need that one in place before you would start construction then?

[Norm Pitcher:]

Yes.

[Kerry Smith:]

Then we should just watch for that sometime in Q2, Q3 then, I guess.

[Norm Pitcher:]

Yes.

[Kerry Smith:]

And can you give me any sense just to what the unit costs are to Kisladag just on a per ton basis? Like what your mining costs and your processing costs and the rest of that? Or do you have that handy?

[Norm Pitcher:]

I don't have that handy but I'll get it for you.

[Paul Wright:]

Kerry, I jump in there, I was just thinking as you ask that question and Norm answered on the contribution of the countercurrent. We actually could -- I mean, it's probably a bit of a meaningless number, but we could actually calculate that because obviously, on a daily basis, we know the tons of solution that went into the first stage of leaching and we know the solution grade that came off that. So we could actually calculate the number but to be perfectly frank, we haven't done. And I'm not sure it would do you -- I'm not sure what you would do with that number if we give it to you, to be honest.

[Kerry Smith:]

But I guess as you do the secondary leaching and this intermediate leaching, you will be able to progressively do that on new sections of the pad. So you should be able to get an ongoing benefit from that in terms of extra ounces going to the columns, right?

[Paul Wright:]

Yes. That's the way it works. I mean basically, if you remember, one of the few on the call, Kerry, that we remember high crop. It's what we do to high crop. You basically take your barren solution and you put it over the older ore that's already been leached. To just boost the prior [ph](32

[Norm Pitcher:]

And then we'll be looking at an upgrade in throughput as well, Kerry.

[Kerry Smith:]

Just I think I heard you correctly, Norman. Perama, you said your intention was to start construction in the second half of 2011 and perhaps in 2013, is that correct?

[Norm Pitcher:]

That's correct.

[Kerry Smith:]

And that would, I guess, we would just assume 24 months of construction or 18 months or....

[Norm Pitcher:]

Yes. 18 probably.

[Operator:]

And next question is from David Christie with Scotia Capital.

[David Christie:]

On Kisladag, can you tell me what the sulfide oxide mix has been in the first quarter?

[Paul Wright:]

We're probably around 25% to 30% oxide.

[David Christie:]

And what will be for the rest of the year? Is going to stay at that sort of mix?

[Paul Wright:]

Yes. I'd say 20, but yes, it is.

[David Christie:]

And the tonnage rate that you did in the first quarter, is that actually going to be the same for the rest of the year?

[Paul Wright:]

Yes, it should be close to it.

[David Christie:]

How long does the construction period for Eastern Dragon?

[Paul Wright:]

About nine to 12 months.

[David Christie:]

And when you do your exploration update in the summer, will you have done enough drilling on those veins that you're going to drill that are proximal to Eastern Dragon?

[Norm Pitcher:]

No, probably not. That will come out in the next update.

[Operator:]

[Operator Instructions] Your next question is from Khaled Sultan with CIBC World Markets.

[Barry Cooper:]

It's actually Barry. Just wondering on Eastern Dragon. The expenditures were extremely low from mine that starting up from next year. I know you guys can be pretty frugal. But is there any chance that you are slipping on the timeframe of that at all?

[Paul Wright:]

We like to -- we thought it was frugal, Barry, thank you for that. It's tough when you're permitting isn't it really? Probably, we better be able to answer that question one quarter from now, Barry.

[Norm Pitcher:]

And those are expenditures, that was an expected level. This is cold, cold country up there and they traditionally they don't do much. I'm saying we wouldn't out [ph](35

[Barry Cooper:]

And is the $11 million that you paid on the agreement, is that part of the $50 million that you've allocated for capital or is that over and above that $50 million budget that you gave us a few months back?

[Edward Miu:]

It's over and above.

[Operator:]

Your next question is from Steven Butler with Canaccord Adams.

[Steven Butler:]

Jinfeng. The tonnage mill there, not too bad in mix as expected I think for the year between open pit and underground. When does this thing entirely transfer to underground in Jinfeng?

[Norm Pitcher:]

I mean that's what we're looking at with the open pit study right now, right? I mean, the current plan was -- I guess, it's a two to three-year pit right now. We think there's a -- or pretty darn sure there's a bigger pit than that. So you're looking out probably five years anyway, four or five years.

[Steven Butler:]

That's sort of mix of a open pit undergone production or will the underground ramp up?

[Paul Wright:]

Steve, that's what we're doing really is determining what that is. Because the one thing that's certain, the present plan is not going to be the plan that's going to be executed in the future. So bear with us and let us complete the exercise.

[Steven Butler:]

At the TJS, how are you doing? How comfortable are you guys on recoveries there? I think the implied recovery near kind of Q4 levels, which isn't bad, 79%. I think, were you expecting to still be higher in recoveries at Tanjianshan?

[Norm Pitcher:]

I think we'll slowly -- I think we'll get some gains their point-by-point. We're up just over 80 right now. We are right on where our budgeted recovery should be. We're doing a couple of different things. There's little things we can do in the processing circuit. Nothing that's going to give us sort of 5% jumps. But I think we can sort of squeak out kind of one and two percentages here over the next year.

[Steven Butler:]

And not to beat a dead horse on this intermediate leaching, but I may as well try. For all the historical production guidance since dating back to 2006 when the mines started up, is this intermediate leaching going to benefit the leaching stuff that was under prior leach? Is that part of the idea as well? Or is it only incremental or strapped to the pad [ph](37

[Paul Wright:]

Yes. Look, Steve, it allows us to -- we've been building up excess inventory on the pad because of leaching constraints. So it is going to allow us to access excess inventory because we have more leaching capacity, more in terms of solution going out. It allow us to -- and obviously, the second had benefit, not as we have a higher preg [ph](38

[Steven Butler:]

And remind me again, you mentioned them -- for low 60s was the current life of mine plan for sulfide, low 60s. And what is on the oxide life of mine plan?

[Paul Wright:]

Low 80s.

[Operator:]

There are no further questions registered at this time. I would now like to turn the meeting back over to Mr. Wright.

[Paul Wright:]

Thank everybody for attending the conference call. We look forward to the next conference call and we look forward to further discussion on countercurrent leachings. So with that, have a good, very good weekend. Thank you. Thanks, operator.

[Operator:]

Thank you. The conference has ended. Please disconnect your lines at this time. And we thank you for your participation.