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Executives

Nancy Woo – VP, IR

Paul Wright – President & CEO

Norm Pitcher – COO

Earl Price – CFO

Analysts

Anita Soni – Credit Suisse

David Haughton – BMO Capital Markets

David Christie – Scotia Capital

Barry Cooper – CIBC

Eldorado Gold Corporation (EGO) Q2 2009 Earnings Call Transcript July 31, 2009 11:30 AM ET

Operator

Good morning, ladies and gentlemen, welcome to the Eldorado Gold Corporation 2009 Second Quarter Conference Call. Please be advised that this call is being recorded on 31st July, 2009 and will be available at Eldorado Gold website at www.eldoradogold.com.

I would now like to turn the meeting over to Ms. Nancy Woo. Please go ahead, Ms. Woo.

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 reflects 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 actual 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 discussions and 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 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.

I will now turn the call over to Paul Wright, President and CEO of Eldorado Gold.

Paul Wright

Well, thank you, Nancy. And good morning, ladies and gentlemen and welcome to the Eldorado Gold Corporation second quarter financial and operating results conference call. With me today in Vancouver are Earl Price, our Chief Financial Officer; Norm Pitcher, our Chief Operating Officer; and the voice you just heard, Nancy Woo, our Vice President of Investor Relations. We will follow our usual format with Norm and Earl providing you with some commentary and color in regards to the quarter's operating and financial performance and then we'll open up for questions.

We are very pleased with the quarter's results. Both Kisladag and Tanjianshan are performing in accordance with our expectations and continue to support our guidance for approximately 330,000 ounces of production at cash cost of $300 an ounce for 2009.

Briefly on the mines, Kisladag has settled into its run rate of approximately 20,000 ounces monthly and the team along with our corporate technical staff and consultants, are busy detailing our planned expansion, which we expect to be confirming in the next three to four months.

At TJS, as evidenced by our July production where we anticipate between 10,000 ounces to 11,000 ounces, we have had a successful commissioning and are now settling into the run rate necessary to reach our stated target of 95,000 ounces to 100,000 ounces for this year. Mine construction, project development, and exploration in the company are all progressing well and Norm will provide some details on the specific projects in a moment.

At the beginning of the second quarter, we announced our intention to acquire Gold Fields' 19.8% interest in Sino Gold and subsequently on July 27th, closed on that transaction. We view this stake as part of our strategy to create value for our shareholders in a region that we've committed to growing our business.

In summary, the company is in excellent shape. We are financially strong with $135 million of cash. We have some of the lowest costs in the industry based on mines that are performing to our expectations, and a pipeline of projects that will continue to deliver quality growth and ensure that Eldorado remains in the lower quartile of production costs.

With that, I'll hand the floor over to Norm.

Norm Pitcher

Thanks, Paul. Good morning, everyone. Let's start with the operations first and we'll start with Kisladag. During the quarter, we produced 62,985 ounces at $269 per ounce.

The weather improved at Kisladag starting in March. We are now into a typical hot, dry summer. As I indicated in the last conference call, we are well ahead on water compared to where we were last year. I am quite happy to say there is really no operational issues or problems to report at Kisladag. The mine is operating very well as our leach pads and plant.

During the quarter, we spent $5.5 million on CapEx, mostly on leach pads 14 and 15, of course the diamond drilling program and crushing circuit upgrades. We are maintaining our guidance of 230,000 ounces to 240,000 ounces for 2009.

At Tanjianshan, we produced 21,587 ounces at $390 per ounce. I should probably talk a little bit about recovery because there has been some confusions there I think and we are – you can’t really take the tons and grade and then the ounces produced and calculate a recovery because we are producing more floatation concentrate that we are putting through the roaster right now. Until all of that material has gone through, calculating a total recovery, well, you can't really do it.

Having said that, we are getting fairly close to our budget – our budget recoveries. The roaster continues to perform well and the recoveries are improving. We need to do some more work on the floatation recoveries and concentrate dewatering. Both of those areas are being addressed now. We are maintaining our guidance of 95,000 ounces to 100,000 ounces for 2009.

On the development side, at Efemcukuru progress has been a little slower than we would like and that's been mostly due to of course the rain early on in the season. We've encountered some additional cut material to plant site and productivity has been a little lower on that due to the constraints base that we are working on in the plant area.

Having said that, the access road is complete and resurfaced. The focus in the quarter has been on preparation of the plant site at administration areas and we expect the cut and fill of the plant to be completed in Q3. We also started work in the rock dump liner, took delivery of the water treatment plant during the quarter. Engineering and procurement are on schedule as are the long lead-time items including the mill.

At Vila Nova, we finished the construction and commissioning of the process plant and have put the project on care and maintenance pending higher iron ore prices. At Perama Hill in Greece, we continue to work on the 43-101 report, which will be submitted in the third quarter. Also continuing to work on the pre-EIA, which will also be submitted in Q3.

Turning to exploration, we'll start with Turkey. At Efemcukuru, we drilled 17 holes for 4,358 meters in the North Ore Shoot and in the transition area between the North Ore Shoot and Middle Ore Shoot. This drilling at Efemcukuru is really a combination of infill to upgrade resource categories in the North Ore Shoot and extension drilling, both along-strike and down-dip.

At Kisladag, we drilled eight holes for 5,568 meters during the quarter, mainly targeting zones in inferred resources adjacent to or just below the pit bottom. We are now going into the planning stage on a second smaller phase of drilling to follow up the initial results.

At Sayacik, the volcanic center adjacent to Kisladag, we have an ongoing large IP survey underway in diamond and our sea drilling to test for porphyry gold potential. We drilled seven diamond drill holes during the quarter and eight RC holes at Sayacik. In addition, in Turkey, we are active at two grassroots properties and participated in property options during the quarter.

Turning to China, at Tanjianshan, we drilled 216 rotary air blast holes. These holes are testing for anomalies south of QLT and between QLT and JLG, that's where we are mining now. And the diamond drilling for the QLT extension, both along-strike and down-dip will start in this quarter. In Nevada, we are active on five early stage properties with two joint-venture partners.

A little word on disclosure. I think there will be – Turkey will probably come first and that be should hopefully early in the fourth quarter, followed by China, which will be – because we are just in the heart of that program now, will be later in the fourth quarter.

With that, I'll turn it over to Earl.

Earl Price

Thank you, Norm. Good morning. As is my usual practice, I will review each of the financial statements covering the line items with significant changes.

Let me begin with the balance sheet. On the asset side, cash and cash equivalents Q2 2009 of $135.7 million compared to the year-end 2008 cash balance of $61.9 million. Our cash balances have increased from December 31st due to monetizing of the AngloGold shares and continued robust margins that the company is experiencing to date.

Restricted cash of $5 million on the balance sheet is related to the $5 million loan in China listed under liabilities that we have in place that was taken to complete the roaster construction. With a sulfide ore treatment plant in operation, we will pay off the loan by year-end and the restricted cash will be released.

The reduction in marketable securities and accounts receivable is the result of monetizing the AngloGold shares in Q1 of 2009. Inventories have increased as mining at both of our operations continued during the commissioning of the roaster at TJS, as well as during the rainy period in Q1 at Kisladag. And therefore, ore inventory and gold inventory in the floatation circuits at TJS have increased. Under liabilities, the debt of $5 million is the China debt, which I spoke about earlier. This debt will be paid off by year-end.

Moving on to the statement of operations, revenues, gold sales of $80 million – of $80.1 million in Q2 2009 were basically the same as Q1 2008 of $80.1 million. While the ounces sold in Q2 2009 were slightly less than Q2 2008, the price in Q2 2009 was higher, therefore offsetting the lower sales volume.

Gold sales year-to-date of $132.4 million Q2 2009 compared to $148.7 million Q2 2008 are lower due to lower production and therefore, lower sales in Q1 2009 due to the commissioning and the rainy weather at Kisladag and the commissioning at TJS.

Interest and other income of $0.4 million in Q2 2009 compared to $2.4 million in Q2 2008 is lower, a result of lower interest rates earned on our cash over the period to period and no excess sale of electrical power from the Sao Bento plant, which we of course owned during 2008.

Operating costs have increased in 2009 compared to 2008 as both operations at Kisladag and TJS have completed the processing of oxide ore and are now processing sulfide and primary ore. The additional cost associated with this processing, the roaster at TJS, and the recovery at – rate at Kisladag, have resulted in higher costs in 2009 compared to 2008.

General and administration is lower in 2009 compared to 2008, mostly related to the granting of options in November of 2008 and not our usual practice at Q1 2009. Mine standby costs are related to the care and maintenance of the Vila Nova iron ore project. Our ongoing expenses are forecasted to be approximately $200,000 a month. Gain on the disposal of assets of $1.4 million is the valuation we have placed on the sale of our shares of the uranium project in Peru.

Net income of Q2 of 2009 of $25.9 million compared to $25.2 million in Q2 of 2008 and $38.9 million six months 2009 compared to $45.9 million six months of 2008. Our earnings per share were $0.07 and $0.11 comparative for this year – for this quarter and $0.11 for the year-to-date.

Moving to the cash flow statement. I have very few comments on the cash flow statement and in fact, my only comment on the cash flow statement is that the Q2 2009, we increased our cash by $27.8 million compared to $16.4 million in Q2 2008 and for the first six months of 2009, $73.9 million compared to $50.4 million in the six months of 2008. This increase in cash is related to the substantial margins we are gaining on our gold sales, as well as the monetizing of the AngloGold shares.

Commenting on the statement of the comprehensive income, the changes that have occurred on our comprehensive income are directly related to the investment on marketable securities that the company is carrying in the revaluations of the quarters and of the six months of those shares.

Those are my comments on the financial statement. I'll turn the call back to Paul Wright now for questions.

Paul Wright

Thanks, Earl; thanks, Norm. Operator, we'll open up for questions, please.

Question-and-Answer Session

Operator

Certainly, sir. (Operator instructions). And the first question is from Anita Soni at Credit Suisse. Please go ahead.

Anita Soni – Credit Suisse

Hi, good morning. Congratulations on a really solid quarter. My question is with respect to the bottlenecks that you referred to at Kisladag. Could you comment on those, Norm and let me know what those are about?

Norm Pitcher

Bottlenecks at Tanjianshan probably?

Anita Soni – Credit Suisse

Yes, sorry, at Tanjianshan.

Norm Pitcher

Yes. Well, it's really – it's concentrate dewatering is the main one. I mean, there is two areas that we need to improve as I alluded to. One is floatation recovery, which we are working on and the other is concentrate dewatering. And on the dewatering side, we are actually putting in a new filter system there to allow us to get more concentrate – to get the concentrate better dewatering were loaded into the roaster basically. The roaster itself is working very well and it's operating just as it should. It's really we just need to get the feed more consistent into it.

Anita Soni – Credit Suisse

Okay. That's it for my questions.

Operator

Thank you. (Operator instructions). And the next question is from David Haughton at BMO Capital Markets. Please go ahead.

David Haughton – BMO Capital Markets

Good morning and thank you. I have a question for you with regards to Efemcukuru. The capital spend was somewhat lighter than expected in the first half and obviously, the rain delays were a part of it. Do you plan to have a significant catch-up in that spend and in the program in the balance of the year?

Norm Pitcher

Yes, we will. Yes, we will catch up to where we thought we'd be.

David Haughton – BMO Capital Markets

And the kind of CapEx figure that I had been assuming, I think, provided on the previous call was about $80 million for the year. Is that still your target?

Paul Wright

Yes, I think we are going to be a bit light on that. I mean, we are just – we were delayed in the first quarter because of rains and in the second quarter, we are finding – I mean two things we are finding. Frankly, there is more cut and fill associated with the – with establishing where the plant is going to go. And the other thing that we are finding, it's such a small footprint that its productivity just is not as high as we would like it to be in that region and so, that's sort of backing things up a little bit. Well, certainly we are going as Norm described. We are going into a higher spend period now.

David Haughton – BMO Capital Markets

Yes. And at this stage, is it too early to make any adjustment to startup mid-2010 kind of time?

Paul Wright

Yes, I think right now our view is you are going to see that drifting towards the back part of the year.

David Haughton – BMO Capital Markets

Right.

Paul Wright

Because I – we are just not seeing – we are just not seeing our ability to build to catch up on the ground that we lost in the first quarter.

Norm Pitcher

I think David, as we said earlier, when we come out with our refresh on the project in – towards the end of the third quarter, refresh being new reserves, new mine plan, new estimate for operating capital costs, we will be able to give you a more definitive schedule for completion at that point.

David Haughton – BMO Capital Markets

Okay. And can you – Norm, the – what was the status of the permits? Did you have all the permits in hand to start production there or is there something still pending?

Paul Wright

We have all the permits that are necessary to build the operation. The way it works in Turkey, once you've completed construction, you then have to apply for the operating permit, which is granted assuming you have satisfied all the conditions prior. So it's identical to Kisladag.

David Haughton – BMO Capital Markets

Okay. Changing now to your investments on balance sheet, do you have any AngloGold shares left or have they all gone?

Earl Price

They are all gone. Those are all sold in January.

David Haughton – BMO Capital Markets

And the investments that we see there of Solex and Brazauro's stake?

Earl Price

As well as a number of other –

David Haughton – BMO Capital Markets

Smaller things?

Earl Price

Yes, that we have. Yes, in other companies.

David Haughton – BMO Capital Markets

Okay. Now, just following up on TJS and the throughput and recoveries, what sort of profile should we be thinking about as far as the ramp-up of that roaster through the balance of the year?

Norm Pitcher

I mean, we are still maintaining our guidance of 95,000 ounces to 100,000 ounces. So you can see what we produced so far and do the math on that. We feel comfortable that we'll be able to put that through. It's really, as I said, it's just getting the floatation recovery up a little bit and getting the concentrate dewatered and through the roaster and both of those are – they are not – they are mechanical issues, these are not really fundamental metallurgical issues.

David Haughton – BMO Capital Markets

As far as the recoveries go, my recollection was that (inaudible) recovery was 85% out of the roaster. Is that still your thinking?

Norm Pitcher

Yes. Yes, a little bit lower – I mean, we budgeted it a little bit lower for this year because we are a little –

David Haughton – BMO Capital Markets

Yes, I'm not assuming 85% by year-end at this stage. And during the second quarter, was there anything going through the oxide circuit or was it 100% through the roaster?

Norm Pitcher

There was a little bit going through, it's very little. It's mostly going through the roasters.

David Haughton – BMO Capital Markets

Okay. And still in China, with your Sino Gold stake, have you had an opportunity to meet with the company and to visit their assets yet?

Paul Wright

Post the transaction, no, we haven’t visited the assets or had any meaningful discussions with them.

David Haughton – BMO Capital Markets

Okay. But I presume at some stage this will be on the agenda?

Paul Wright

Sure, we will have a very successful relationship.

David Haughton – BMO Capital Markets

All right. Thank you very much.

Operator

Thank you. The next question is from David Christie at Scotia Capital. Please go ahead.

David Christie – Scotia Capital

Good morning, guys. The other David asked most of my questions. Just on the roaster, is it – I guess maybe just give a little commentary, is it working the way you expected it to? Are things proceeding as planned?

Norm Pitcher

Yes. No, it is. As I've said, the roaster itself rolls just fine. There is no issues there. It’s really this – and our floatation, we’ve got quite good recoveries in the lab and we are just getting – we need to get up to where we are – what we are seeing in the lab on the production side and we are adding a flash float cell that we think is going to get us there and then it's simply the mechanics of dewatering the concentrate.

Paul Wright

I think David, I think just broadly speaking, we've had a – I would consider a successful commissioning, I mean, to the extent that we are maintaining our guidance for the year and hitting our targets for the year, but inevitably even when you move through your commissioning you recognize opportunities to improve the overall circuit as Norm described and that's what we are going to be implementing over the coming months.

David Christie – Scotia Capital

Excellent. And just a question on Sino Gold quickly. Will you guys be assuming a board position with that company?

Paul Wright

We've – nor have we been asked to take up a position and nor have we requested one at this point.

David Christie – Scotia Capital

Will that be something you would want to do to sort of help direct the company's future or how – what kind of on-the-line you can be with this company? 20% fixed –?

Paul Wright

David, if and when we are either offered a board position, I guess I can comment on that.

David Christie – Scotia Capital

Okay, good. And Perama Hills, can you give me just a little update on the status of permitting and what not there?

Norm Pitcher

At Perama?

David Christie – Scotia Capital

Yes.

Norm Pitcher

Yes, we are going to put in the pre-EIA by – in September. It was delayed a little bit because the – there is a break in August and the reason they didn’t – they actually didn’t want it submitted, the government didn't want it submitted. So put that into September, we are looking for approval advancing by the end of the year, early next year and it will go into the EIA base. So we are on – we are – basically are still on schedule as to what we gave for guidance a few months ago.

David Christie – Scotia Capital

Excellent. Good quarter, guys. Thanks.

Norm Pitcher

Thanks.

Operator

Thank you. The next question is from Anita Soni at Credit Suisse. Please go ahead.

Anita Soni – Credit Suisse

Hi. Just a follow-up question with regards to actually grades at Tanjianshan and then also strip ratio at Kisladag for the remainder of the year.

Norm Pitcher

Well, the strip at Kisladag we have for the year is about 1.1 to 1. So we are a little higher in the third quarter and I think we are probably in the first quarter – so we are probably down 1.2, so it might be a little bit less than that 1.2 for the rest for the year at Kisladag. The grade at Tanjianshan, we had – virtually had budgeted around 5 grams. We are a little bit higher in the last quarter, but it will be around sort of high-4s, low-5s grams per ton.

Anita Soni – Credit Suisse

Okay, thank you very much.

Operator

Thank you. (Operator instructions). The next question is from Barry Cooper at CIBC. Please go ahead.

Barry Cooper – CIBC

Yes, just a couple of quick ones. I think on the last conference call for Vila Nova you indicated kind of holding costs of $1 million a year and I see in Q2, it was basically that $1 million is – is that run rate a little bit different now?

Earl Price

Yes, it is. In the Q2, it was initially – it's higher in Q2 because there was a reduction in headcount that occurred at the time we decided to put it on hold in maintenance and the resulting in Brazil is there are substantial amount of funds that had to be paid out and that's why we gave guidance that we are now looking at the run rate of – it should be around 200,000 a month going forward. So that is higher than the original guidance, but now we are in that and we have much better numbers.

Barry Cooper – CIBC

Right, okay. And then, can you give a little bit more color on the Tocant project down in Brazil? Well, kind of looks like it's being elevated in importance, but not much spend there. But just what have you learned since jumping on board with that project and where do you see it fitting in kind of the scheme of things for Eldorado?

Norm Pitcher

You are talking about Tocantinzinho?

Barry Cooper – CIBC

Yes.

Norm Pitcher

Yes. Well, we are sort towards the end of about a 20,000 meter drill program at Tocantinzinho and I think Brazauro has put out results on that. It's – I would say that we've confirmed pretty much what we thought was there to start with and now we are sort of – we got another year before the next decision point comes up and we'll just sort of be able to sit back and look at our results and run some economics and see where it gets us.

Barry Cooper – CIBC

And now, just going in – at least it was in the public domain somewhere around 2 million ounces there. Most of the drilling, I assume, is taking inferred into kind of more of a measured and indicated. Is that correct?

Norm Pitcher

Yes. Yes, that's correct.

Barry Cooper – CIBC

And any surprises there that would change that 2 million from kind of that number to something different?

Norm Pitcher

We have and obviously we are not recalculating at this point, but we – there haven’t been any big surprises.

Barry Cooper – CIBC

Okay, okay. And the metallurgical work there, is this a fairly straightforward thing or is there some –?

Norm Pitcher

Yes, no they are non-refractory. It's non-refractory that makes good concentrates. So you are looking at floating a con and then leaching the con. The metallurgy looks reasonable there.

Barry Cooper – CIBC

Right. Okay, good enough. Thanks a lot.

Operator

Thank you. (Operator instructions). There are no further questions registered at this time. I would like to turn the conference back over to you, Mr. Wright.

Paul Wright

Well, thank you very much, operator. Thank you for attending the conference call. And as always, we welcome your questions at any time. Have a good weekend. Thank you, operator.

Operator

Thank you. Ladies and gentlemen, your conference has now ended. All participants are asked to hang up their lines at this time. And thank you for your participation.

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