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Eldorado Gold Corporation (NYSEARCA:ELD)

Q3 2009 Earnings Call Transcript

October 30, 2009 11:30 am ET

Executives

Nancy Woo – VP, IR

Paul Wright – President and CEO

Norm Pitche – COO

Earl Price – CFO

Analysts

Tony Lesiak – Genuity Capital

David Haughton – BMO Capital Markets

Anita Soni – Credit Suisse

Steven Butler – Canaccord Adams

Barry Cooper – CIBC

Steven Kipsy [ph] – CDP [ph]

Paul Burchell – Dundee Securities

Dan Rollins – UBS Securities

Robert Danielle

Heather Douglas – Thomas Weisel

Operator

Good morning, ladies and gentlemen. Welcome to the Eldorado Gold Corporation third quarter 2009 financial and operating results conference call. This call is also available on the Eldorado 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 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 subjected 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 forum and in our annual quarterly management discussions and analysis available on our website and on CEDAR identifies factors and assumptions upon which a 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 the entirety by this cautionary statement.

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

Paul Wright

Thank you. And good morning and gentlemen, and welcome to Eldorado Gold’s third quarter conference call. Joining me this morning in Vancouver are Earl Price, Chief Financial Officer; Norm Pitcher, Chief Operating Officer; and the voice you just heard from Nancy Woo, our VP of Investor Relations.

We will follow the usual format. Following my introductory comments, Norm will walk you through the quarter and provide some commentary in terms of the balance of the year. Earl will then carry on with the summary of our financial results for the quarter, and then we will open up for questions.

We are all very pleased with the progress made in the third quarter. Operationally, our mines continue to perform in accordance with the plan. And with October’s production coming in at approximately 33,000 ounces, we continue to maintain our guidance of 330,000 ounces at cash costs of $300 an ounce for 2009. I will remind you all that this guidance for 2009 has remained consistent since first being provided in December 2008.

In the quarter, we announced the Sino Gold transaction, which has received wide endorsement by both sets of shareholders and remains on schedule to close December 15th. We look forward to integrating the Sino Gold and Eldorado teams and the opportunity to continue to strengthen and grow our business in China.

As you have seen in recent announcements, Eldorado through drilling has continued to expand its reserve and resource space at Efemcukuru and at Kisladag. And in addition, our recent announced discovery of Tanjianshan highlights the prospectivity of that land position and the continued opportunity to further improve that mine site’s performance.

In summary, the company remains financially strong. As evidenced by its continuing growing cash balance is executing in accordance with plan operationally in its development projects and post the Sino Gold close, we will continue on the path to build what we consider to be the premier intermediate gold company.

With those comments, I will hand over to Norm.

Norm Pitche

Thanks, Paul, and good morning, everyone. It was another busy quarter in all fronts at Eldorado. And I will take you through the operations, development and exploration.

Starting with operations in the Kisladag mine, we produced 57,902 ounces of gold at a cash cost of $276 per ounce. During the quarter, we placed 2.52 million tons of ore on the pad at 1.22 grams per ton. We spent approximately $5.8 million on CapEx, the major components of which were leach pad, work, core drilling and building upgrades. We also released a new resource that has the measured and indicated increasing by 2.5 million ounces to 10.4 million ounces. And we are looking forward to seeing the impact of that on the reserve base.

At the Tanjianshan mine in China, we produced 31,016 ounces of gold at cash cost of $338 per ounce. We processed 257,703 tons at 5.73 grams per ton. We spent about $5 million on CapEx, which included a tailings dam lift and process plant equipment. The roaster performance continues to improve at Tanjianshan. We have finished the installation of the ceramic disk filter which has improved the density of the roaster feed. So we are seeing a steady improvement there.

On the development side at Efemcukuru in Turkey, we announced a 23% in proven and probable reserve ounces. And the question has been asked how of this came from cut-off grade and gold price. It’s less than 10%; it’s a very small amount, because most of these materials fall in well above the cut-off.

Major earthworks were completed during the quarter at site including the plant site retaining wall and bridge foundations. We began pouring concrete for plant site foundations and continued to work on the water treatment plant.

We expect to start underground development in the first quarter of next year, which will allow us time to finish the water plant ahead of completed and tested. Spending in the quarter at Efemcukuru totaled about $8.7 million.

At Vila Nova Iron Ore, the project remains on care and maintenance. We are seeing a slow improvement in iron ore prices. We are now looking at the possibility of reopening the mine and have entered in discussions with the couple of different groups have been interested in purchasing the project.

At the Perama project in Greece, the PEIA has been submitted which was the first step in the permitting process there. This PEIA incorporated some major design changes including a dry stock tailing at all the facilities in one infrastructure which we think will help with the overall permitting process. We expect approval now that PEIA probably in Q2 2010. However, we are still on track for the overall EIA approval estimated in the second quarter of 2011.

On the exploration side at Efemcukuru, we finished the North Ore Shoot drilling and moved the drill over to the Kokarpinar structure which is a parallel structure to the main Kisladag main vein. We are looking at a five to six-hole program over there.

At Sayacik, which is the volcanic center next to Kisladag, we finished the planned drill program which was two diamond drill holes and six RC during the quarter and the interpretation of those results are ongoing. We are also active on two new projects, where we did first pass soil and rock chip sampling.

In China, as Paul mentioned, the exploration focus there was the new 323 zone which looks like as an extension of the QLT structure in the northern part of the property. We drilled 15 holes there, diamond drill holes during the quarter. And it’s an interesting zone, and it does appear to be an extension where it’s still early days there, but that will be a focus for the rest of this year and next year as well.

Finally in Tocantinzinho, we finished – in Brazil, we finished the planned drill program during the quarter and are now interpreting results and doing recon type work in the surrounding area.

With that, I will turn it over to Earl Price.

Earl Price

Thank you, Norm. Good morning. As usual, I will quickly go through each of the financial statements highlighting the accounts with significant changes, and then we will turn the call back to Paul from which we will then take questions.

Commencing with the balance sheet, under the assets, cash and cash equivalents in Q3 2009 of $149.551 million compared to year-end 2008 of $61.851 million. This increase in cash is really directly related to the monetization of the Anglogold shares that we carried over till January of 2009 in higher gold prices and continued strong production during the year.

Marketable securities Q3 2009 of $10.854 million compared to year-end 2008 of $43.610 million is the result of the monetization of the Anglogold shares which I referred to in the cash balance from the sale of Sao Bento in 2008.

Inventories of $117.477 million Q3 2009 compared to $86.966 million at year-end 2008 have increased as mining at TJS continued during the start of phase of the sulfide treatment plant. This increase in inventory and the resulting gold productions during that period resulted in an increase in ore inventories and process inventories within the process circuit. This inventory will begin to come down now as the grocer is operating at full capacity.

Mining interest of $345.415 million in Q3 2009 is the marked-to-market of the Sino Gold shares acquired from gold fields in July of 2009.

Those are my comments on the balance sheet since there were no really significant changes in the liabilities. I will make one comment. In the past, we have had our restricted cash balance of approximately $5 million that is no longer showing on the balance sheet. That was related to a loan facility at our TJS mine site. That loan was paid off in the quarter. There was no loan in December 2008, and so that’s why it doesn’t appear. But all the restricted cash has now been released to the company and the loan has been paid.

Moving on the statement of operations. Revenue gold sales of $81.608 million for Q3 2009 compared to $65.013 million were higher as a result of increased gold price during the year in volume. When comparing comparable nine-month results higher gold price offset lower production in 2009, therefore, both 2009 and 2008 appear with very similar results.

Interest and other income nine months 2009 of $1.583 million compared to nine months 2008 of $9.366 million was lowered due to the fact that in 2008, we were selling electrical power during this period from our Sao Bento mine which was shutdown. At the end of the year, the Sao Bento mine had been sold and so there are no longer power sales from that operation.

Expenses depreciation of $9.017 million Q3 2009 compared to $6.772 million in Q3 2008. This increase is due to the additional CapEx roaster at site that were completed during the year and is now flowing through to the P&L from the inventory capitalization on our balance sheet.

Income taxes, current taxes Q3 2008 of $13.812 million compared to Q3 2008 – I should say Q3 2009 of $13.812 million compared to Q3 2008 of $8.976 million has increased due to an increase in the tax rate in China.

During the quarter, we were notified by the Chinese Government that all preferred tax treatments for the gold industry were cancelled and that the standard tax rate of 25% was now applicable back to the beginning of 2008. This higher tax change reflects the additional tax for both 2008 and 2009. On a go-forward basis, all taxes in China now for income tax purposes for the Gold industry should be calculated at 25%.

Net income for Q3 2009 of $30.154 million or $0.08 per share compares to Q3 2008 of $17.040 million or $0.05 a share.

Moving on to the cash flow statement; statement of cash flows, operating activities, cash flow from operations after changes in working capital were $27.585 million compared to $1.703 million in Q3 2008, the result of higher gold prices and strong performing operations. Investing activities, capital expenditures of $24.151 million Q3 2009 compared to $39.923 Q3 2008 were lower than expected due to the expenditure rate at our Efemcukuru construction site have been lower than planned.

Comprehensive income, usually we have not spoken about the comprehensive income statement, but this quarter other comprehensive income shows an extremely strong gain. This unrealized gain on available for sale investments represents the marked-to-market gain on the Sino Gold shares acquired gold fields in July 2009.

I specifically call to your attention on page 2 of our MD&A is a more detailed explanation of this calculation and the results in calculating the increase of the marked-to-market on the Sino Gold shares results in a liability increase in the future income tax that is also reflected on the comprehensive income.

Under the accounting rules, this liability increase on the comprehensive income is offset by a P&L impact on the P&L statement resulting in a $9.9 million increase in income on the P&L. Upon the completion of the Sino Gold merger, a successful completion of the Sino Gold merger, this $9.9 million would be reversed in the fourth quarter.

These are the summary comments that I have regarding the third quarter Eldorado Gold financial statements. I will now turn the call back to Mr. Wright.

Paul Wright

Thanks, Earl and thanks, Norm. Operator, we will open up the questions, please.

Question-and-Answer Session

Operator

Certainly. (Operator instructions) The first question will be from Tony Lesiak from Genuity Capital. Please go ahead.

Tony Lesiak – Genuity Capital

Good morning, everyone. Paul given the significant increase in the resource at Kisladag, has the magnitude of the ultimate expansion potential there been impacted positively?

Paul Wright

Tony, I think at this point we don’t know what the ultimate expansion or production capability of Kisladag is. I think we – as you know – and a couple of months ago, we made an announcement as it related to an initial study where we looked at frankly taking advantage of certain surplus capacity we had in the circuit and looking into what we could with fairly modest capital to take advantage of that. And we are surprised to say we are pushing on with that and expect before the year end to feel to make that decision and make that commitment.

That expansion really as I describe will take advantage of opportunity that we see in front of ourselves, and would really be done frankly even if there was no increase in resources and reserves, I mean that type of expansion would be justified strictly on the basis of the present reserve of 5.5 million ounces.

As you can see from this year’s drill results and normally you want to add some comment afterwards. We are still I think ways from knowing and defining the ultimate size of the mineralization that may be relevant in terms of defining what this ultimate mine looks like. We, each year we drill, when we drill some more we add ounces and we create new targets.

So there is – to me, I think to all of us, there is still a potential for frankly a much larger mine here. And we have to continue to frankly drill to try to gain answers to those questions, because all as you know starts with what is the size of the resource. A long waited answer, but that’s where we sit right now.

Tony Lesiak – Genuity Capital

Okay. And the – I guess, the plan is to announce that to the market before year end.

Paul Wright

Well, I think in terms of what I would call as a no-brainer expansion certainly. And that will – what we are wrestling with a little bit right now because of this year’s drilling results is how do we allow the type of expansion we’ve envisage is a fairly modest capital. How do we make sure that we don’t waste capital? Because clearly when you look at the way this body is growing, it would be a surprise if a few years from now you didn’t have a larger mine there.

Tony Lesiak – Genuity Capital

Okay. And just a question on TJS, obviously, the recoveries there is still below expectations. How would you expect the recoveries to improve on a – let’s say on a quarterly basis, so we could track that?

Paul Wright

Well, Norm – we are actually getting – every quarter getting closer and closer. We are very close now to where we expect to be. But Norm can give you some of the details of capital spend to get us there.

Norm Pitche

Yes, I mean we are looking at – the next improvements we are going to have will be on the floatation side with floatation recovery. We are putting a flash – a flash bolt system next year. That should get the float fairly close to where up to design. That will be the next big one. So I would look for sort of next quarter results on the recovery.

Paul Wright

One of the things, Tony, I have interesting to project that you may have trouble with, and I am sure you do is that, we are giving you the mine grade and we are giving you the ounces produced, but we are working with a lot of –

Norm Pitche

Concentrates.

Paul Wright

A lot of concentrates and that’s in the system. So just doing the sort of metallurgical recovery to what’s being mined and checking against the ounces produced isn’t unfortunately going to give you the recovery for that quarter.

Tony Lesiak – Genuity Capital

Okay, because if I do the math, it’s about 65%. And if you could just remind me where the – I guess the feasibility parameter was?

Norm Pitche

It was up – it was low 80s.

Tony Lesiak – Genuity Capital

Okay. And where would you say it is right now if knowing all these balance issues?

Norm Pitche

Where it is right now is probably low-to-mid 70s.

Tony Lesiak – Genuity Capital

Okay. And just finally on Efemcukuru, obviously there has been a delay in the capital spend there, how comfortable are you that you will still hit your commercial production target by the end of next year?

Paul Wright

Well, I mean where we sit right now is we see production starting up in the final quarter end and commercial production is probably going to be in the beginning of 2011, Tony.

Tony Lesiak – Genuity Capital

Okay. Great, thanks very much.

Paul Wright

You’re welcome.

Operator

Thank you. The next question will be from David Haughton from BMO Capital Markets. Please go ahead.

David Haughton – BMO Capital Markets

Good morning, Paul, Earl, and Norm. I have got two accounting questions with regard to TJS. I had a look at the depreciation number and on a per ounce in the September quarter, it seemed very high getting up well over the 200 kilograms [ph]. Just wondering what it should be on a go-forward basis?

Earl Price

Well, what we have is we have coming through because of the inventory build that we have been placing on the ore stockpiles as we have been going through the flow. We have a major flow through coming as we are converting over to looking at how we are capitalizing depreciation into that inventory flow.

And so, what we have done is we’ve basically have a $2 million flow through in this quarter that will no longer be going through in the futures quarters. So take a look at your TJS depreciation, subtract the $2 million and that will become the go-forward depreciation.

David Haughton – BMO Capital Markets

Okay. That kind of brings me to the second question. And we have noticed over the course of this year quite a build in inventory. What does that represent in ounces in inventory and the kind of timeline that we can expect for that to unwind, is it all in the next year or it’s spread out over longer period of time?

Earl Price

No, it will be spread out over next year. I mean, because you are starting with a significant build. I don’t know the number of ounces. Norm and I will have to find that number out for you. But, it will flow through because it’s starting with the ore inventory in and out itself. There will be the inventories I think on the floatation that Norm referred to earlier which will get the recovery up. There is just a lot in the circuit as far as concentrates and –

Norm Pitche

And also the stock house that will be reduced during the spring festival.

Earl Price

So, you are going to see a flow through. I would say probably throughout the whole year, but a significant portion probably coming through in the first six months, seven months.

David Haughton – BMO Capital Markets

All right. Just a – looking at the resource statements, just for clarity, your M&I is inclusive of your pay reserve.

Paul Wright

Yes.

David Haughton – BMO Capital Markets

Okay, good. And having a look at the update for the CapEx for different period, you have got $152 million there, how much of that is already spent?

Earl Price

The number is above $50 million.

David Haughton – BMO Capital Markets

Okay.

Earl Price

Above $50 million.

David Haughton – BMO Capital Markets

All right. And the kind of profile that you have got for that expenditure, what would you expect for the balance of this year and into next?

Earl Price

Well, for the remainder of this year at Efemcukuru?

David Haughton – BMO Capital Markets

Yes.

Earl Price

We are looking at $25 million to be spent.

David Haughton – BMO Capital Markets

Okay. Does that take it to around about $50 million, $55-ish million for the year?

Earl Price

No, no, no.

Norm Pitche

$75 million.

Earl Price

It’s going to take you up to $75 million spent on the project, okay? And you subtract that from our current $152 million, what you are going to see is probably – the reality is you’re probably going to see $75 million spent, because you always get to the timing of the timing of the holdbacks on the construction projects such as this. And then the difference will be flow in through probably paid in the first quarter of 2011.

David Haughton – BMO Capital Markets

All right. That’s it from me. Thank you.

Earl Price

Thanks David.

Operator

Thank you. The next question will be from Anita Soni from Credit Suisse. Please go ahead.

Anita Soni – Credit Suisse

Good morning, Paul, Norm, Earl. Norm can you just give us an indication of what’s the strip ratios are this quarter, and what you are planning for 2010, and then also the sulfide-oxide split?

Norm Pitche

Strip ratio at Kisladag was about 1.4 to 1 I think for the quarter. Tanjianshan was probably – just hang on a second. I think Tanjianshan was about 5 to 1. And will probably – I think the life of mine in Kisladag is about 1.1 to 1, so we will get back to that either this quarter or the next quarter. And Tanjianshan should continue to go down. We have finished the major part of the stripping in Tanjianshan.

Anita Soni – Credit Suisse

So, the life of mine at Kisladag is 0.8, right?

Norm Pitche

I think it was 0.96 at the – as of the 2008 end of year reserve last year.

Anita Soni – Credit Suisse

Okay.

Norm Pitche

And as you appreciate [ph], we haven’t – we are in the froze of updating the reserve reflecting the new resource statement now.

Anita Soni – Credit Suisse

Just in terms of I guess following up on Tony’s question with regard to the planned expansion, when would you – what is the next stage for engineering design in terms of figuring out what expansion, what type of expansion you’re going to do?

Earl Price

Well, again, I think you can assume that the type of expansion – the first – the Phase 1 expansion is – we are very close to finalizing in terms of being able to disclose what we visited in the terms of the capital and schedule and make up. But that’s going to be – call it a modest expansion similar to what we have previously described.

The question and the opportunity I suppose is as it relates to how large this resource becomes and that’s a very different question on a very different timeline. And realistically we are probably two years away from answering that, because we clearly have to do – that’s a significant decision that can only be made when we have a better handle on what the ultimate resource size here is.

Anita Soni – Credit Suisse

Yes, when I was converting above 50% of your measured and indicated and I have it going out to 2030, so pretty long line up.

Earl Price

Yes, it is a bit.

Anita Soni – Credit Suisse

And then, just with respect to the $9.9 million liability – sorry with the $9.9 million gain on the P&L, did that come through this quarter or is that coming into the future quarters?

Earl Price

No, no, that’s come in. That’s reported in this quarter. And that’s why we are making note that once the Sino Gold transaction is completed, that $9.9 million will reverse out of the P&L.

Anita Soni – Credit Suisse

Sure. So, where exactly in the P&L?

Earl Price

Under the future income taxes.

Anita Soni – Credit Suisse

Future income tax. Okay. All right.

Earl Price

So that's why you got a current charge of $13.8 million. But now you have a recovery of $8.8 million. That $9.9 million is inclusive of the recovery of $8.8 million.

Anita Soni – Credit Suisse

Okay. All right.

Earl Price

Okay.

Anita Soni – Credit Suisse

And then, just one last question with the regard to the tax rage. What was the current tax rate that you were paying at in China?

Earl Price

We were paying 15%. We had a preferred tax rate that was drawn through 2010. And that has now been cancelled.

Anita Soni – Credit Suisse

Okay. And the impact of that, you’ve retroactively taken that this quarter already or is that going to flow through?

Earl Price

No, that’s all been – that was actually made retroactive by the Chinese Government to January 1st of 2008.

Anita Soni – Credit Suisse

And I am just wondering when – did you already take the hit on?

Norm Pitche

We have taken the hit.

Earl Price

It’s all been taken here. Everything has been taken.

Anita Soni – Credit Suisse

Okay. Thank you very much.

Operator

Thank you. The next question will be from Steven Butler from Canaccord Adams. Please go ahead.

Steven Butler – Canaccord Adams

Guys, just to clarify on the capital expenditures at Efemcukuru, it's rare that capital spend and committed is the same number. Excuse me, spent equals – it’s been a long day. $50 million, is that the exact amount spent and committed, because it’s rare that the two numbers equate?

Earl Price

No, no. That is not the case. Once just – where do you get the committed number of $50 million for Efemcukuru I guess?

Steven Butler – Canaccord Adams

I think, it was in your press release saying capital spent and committed to date is $50 million. So the question is what has actually been spent through the end of the third –

Paul Wright

It’s spent or committed.

Steven Butler – Canaccord Adams

Okay. So, can you tell me what’s spent through the end of Q3, Earl?

Earl Price

No, I think there is a mistake made there. We have spent $50 million.

Steven Butler – Canaccord Adams

Okay.

Earl Price

Commitment now and into the future actually reflects in our commitment schedule that there is an initial that's been committed of $9 million.

Steven Butler – Canaccord Adams

Okay.

Earl Price

That's in our commitment schedule. So, that should be spent. We’ve spent $50 million.

Steven Butler – Canaccord Adams

Okay. Perfect. Sounds good. And just to clarify, Norm, you mentioned life of mine; the strip ratio will come down at TJS or Tanjianshan. What would that be roughly going forward, is it 4-to-1 or 5-to-1 roughly at that mine going forward?

Norm Pitche

Yes, four – 3-to-4.

Steven Butler – Canaccord Adams

3-to-4.

Norm Pitche

We haven’t read on the plant for next year yet obviously.

Steven Butler – Canaccord Adams

Okay.

Norm Pitche

That's not a bad range.

Steven Butler – Canaccord Adams

Okay. That's just all I have. Thanks guys.

Norm Pitche

Yes.

Operator

Thank you. The next question will be from Barry Cooper from CIBC. Please go ahead.

Barry Cooper – CIBC

Yes, good day everyone. Paul, just wanted to understand, at Kisladag, the resource increased and whatnot. Should I really look at this as a separate event from your expansion that you announced back in June or I guess it was maybe July. Presumably when you take the expansion plans in July, you knew that there was going to be this increase in resources. But did you – did you sort of count on that it talked about the resource increases or should I really treat them as two separate events and –

Paul Wright

They are really two separate amends Barry. I mean, I think the type of expansion that we articulated a number of months ago was very much based on the reserve that we had of 5.5 million ounces and the opportunities that we saw in the system to cost effectively improve the system, lower the cost and increase throughput.

It was a sort of – type of expansion, there is a type of expansion that you frankly General Manager after operating it a couple of years comes up with and says we should do this. This is a way of getting more out of the system. The backdrop to that was clearly an environment of which we had confidence that we were going to grow the resource base, but we recognized and continue to recognize that is going to take a time period measured in years to do so. And then ultimately this may lead to a much larger mine in the future.

But in the interim, if there was something that could be done relatively cheaply, relatively quickly, and where the results were going to be compelling, let's get on with it as long as we can do it in a manner that doesn't frankly waste capital and that's very much the exercise that we are doing right now.

So you have got two exercises going on, you've got the moving very quickly to finalize what I describe as a Phase 1 expansion. The other is starting to come to grips with the fact that there is a potentially something much larger, much more significant here and how do we get to decision points in a timely basis, recognizing it is years, it’s not months.

Barry Cooper – CIBC

Right. Okay. Then, I guess that sort of bakes the question when you back out your reserves from the resource figure, you are left with a let’s call it a mineralization not in reserves of an average grade of a little bit below 0.6 of a gram. So I am wondering just how much – and given that in your cross-section that you had where you show us where those ounces were lying, and they looked pretty deep and whatnot. How much should we realistically expect will come into some sort of an expectation for an open tip, is it half of that, is it three-quarters? Do you have any sense of something like that?

Paul Wright

Well, that's what's called the reserve estimate, Barry. And that's what we are doing right now. And I am not trying to be flipping the board, but that's exactly what we are doing.

Norm Pitche

And we are aware and you can see it in our simplified section here where we see targets which are lateral as opposed to at depth, which obviously will be targets for next year’s drilling program. And if we are successful in moving the mineralization laterally then that in itself is positive but also gives potential to maybe access some more this deeper mineralization.

Barry Cooper – CIBC

Okay. Well, let me try and ask question little bit differently to pick your paint once more. If you used a 0.3 gram cut-off which you implied, there must have been some expectation that material down deep would have been making it into the resource in the first place, because there is be it right or be it wrong, there is some implied economic parameters associated with that, correct?

Norm Pitche

Yes, I mean, Barry, look the reason we moved from a 0.4 to a 0.3 for the resource calculation is because we are actually mining at less than a 0.4. Our mining cut-off for some of the material is less than 0.4. So it was – in turn be consistent, it made no sense to have a resource statement a 0.4 when you are actually mining and producing gold at less than $275 an ounce using a cut-off rate that's between 0.3 and 0.4, so that's the backdrop. So again as the metal price gets higher, more and more of this mineralization becomes relevant.

Barry Cooper – CIBC

For sure. And then, the final question on that, what metallurgical tests have you done with those extremities there? Is it identical to what we have seen so far, I assume obviously it's going to be sulfide like the bottom of the pit, but you are probably still looking kind of low 60s as the recovery or is there something different that might change with depth or have you not done the work yet?

Paul Wright

No, well, look, we have done extensive – we did extensive work originally in some of the deeper drilling. Obviously we have gone deeper than that, deeper drilling, and we are going to be doing more. But I think the general comment we make is that in the test work that we have done historically in the deeper drilling, the type of recoveries you’ve described are appropriate.

Barry Cooper – CIBC

Okay. Thanks a lot.

Paul Wright

Thanks.

Operator

Thank you. (Operator instructions) The next question will be from Steven Kipsy [ph] from CDP [ph]. Please go ahead.

Steven Kipsy – CDP

Hello. This question relates to Efemcukuru and really on the water usage. I am just wondering can you just map out for me that what are your sources of water that you are going to be using there, is it plain river, groundwater, precipitation or whatever? And how much of the water will be recycled? And the re-injected water into environment after its filtered, could you give us some idea of its quality and requirement of quantity that will be moved? And perhaps as a final question, which other users do you share the source of water with?

Norm Pitche

Well, yes, the water is coming from groundwater. I mean it is coming from wells. It’s anything that is put back into the system is treated through – it’s actually a double reverse osmosis systems, so it goes – I think it’s well above drinking water standards. And these – this particular – these wells we are not sharing with anyone else.

Steven Kipsy – CDP

Okay. Thank you very much.

Norm Pitche

Yes.

Operator

Thank you. The next question will be from Paul Burchell with Dundee Securities. Please go ahead.

Paul Burchell – Dundee Securities

Thank you, operator. Good morning, folks. Just a quick question. I was wondering in your MD&A you mentioned that you are now going to focus on interpreting drill results from Tocantinzinho. I was wondering if that is going to include a resource estimate that might be released to the market at some point. Thanks.

Norm Pitche

Well, the – because this is – we are still earning into this one and any resource update should come from Zoro and not from us. I mean, we obviously provide them with the data, but we don't intend to be putting out a resource on this.

Paul Burchell – Dundee Securities

Okay. Thanks a lot.

Norm Pitche

Yes.

Operator

Thank you. The next question will be from Dan Rollins from UBS Securities.

Dan Rollins – UBS Securities

Good morning. Just quickly on Vila Nova, you have stated that you are thinking in evaluating the potential to restart the operation or you have had interest from additional parties to purchase it. What would be the – what would be your best estimate of the time frame where you would actually go ahead and start producing this, turn this on again given the – proven the sea [ph] line iron ore market if you cannot sell the asset?

Paul Wright

Well, Dan, I think I have indicated previously that we would hope at year-end or by year-end to be able to provide clarity as to whether we are going to reopen or sell the asset and I think that’s probably still a reasonable timeframe.

Dan Rollins – UBS Securities

Okay, great. And then thanks a lot. And just quickly on interested parties, not mentioning any names or anyone, but is it a combination of existing iron ore producers, are you seeing interests from let’s say, Asian steel mills looking to quickly to get a hold of their own source of iron ore?

Paul Wright

I would continue to speculate if I were you, Dan.

Dan Rollins – UBS Securities

Okay, thank you.

Operator

Thank you. The next question will be from Robert Danielle [ph], a private investor. Please go ahead. Mr. Danielle, your line is now open. Please go ahead with your question.

Robert Danielle

Yes. My concern is in terms of financing. What is your overall long-term philosophy on hedging?

Earl Price

Look, I suppose – to simply put our philosophy is tied somewhat to the – to our philosophy as it comes to running the company and which is based on developing some of the best assets that the market has to work with. And as such we have our own natural hedge I think what's – as demonstrated by the cash flow and earnings quarter-to-quarter.

We certainly have a view – at this time the gold price is likely to continue to pride itself higher and frankly see no reason to limit the up side for our shareholders in participating in Eldorado.

Robert Danielle

Thank you.

Operator

Thank you. We have a follow-up question from Anita Soni from Credit Suisse. Please go ahead.

Anita Soni – Credit Suisse

Hi, could you just give me few minutes or 30 seconds and off the phone where it stands with the Sino Gold transaction, what is the next key analyst date?

Paul Wright

Yes, I mean there's a shareholder meeting as I suppose December the 2nd, Anita, really that's the next – and at this point, we have no reason to believe that the shareholders won’t endorse this transactions and the feedback we have had would support that. And then the formal closes is I think slated for December 15th.

Anita Soni – Credit Suisse

Okay, thank you very much.

Paul Wright

It’s a fairly laborious, lengthy process unfortunately, but that’s –

Anita Soni – Credit Suisse

(inaudible) your information circular a couple of days ago, right?

Paul Wright

That’s right. It’s the – it was the Sino Gold – the book, the scheme, the booklet as is refer to which is a bit of a (inaudible) sent out. It’s on the Sino Gold site if you care to –

Anita Soni – Credit Suisse

Yes, no, I have seen it. Okay, thank you very much.

Paul Wright

The time reading.

Anita Soni – Credit Suisse

Yes, yes. Thank you.

Operator

Thank you. We have a question from Heather Douglas from Thomas Weisel. Please go ahead.

Heather Douglas – Thomas Weisel

Hi, good morning, everyone. I am sorry if I missed it at the beginning. Can you give us a little bit more color on how underground development is going at Efemcukuru? And then also what are the – in terms of the remaining capital to be spent? So what are the sort of the key milestones and what needs to be done to deliver the mine by the end of next year?

Earl Price

Heather, the underground development is going incredibly well right now because we haven't started. But Norm will – it will be – we will expect to be starting at – in the first quarter. But Norm will – can carry on from that.

Norm Pitche

Yes. And that’s really – we are waiting but we need to finish up the water treatment plant and get the rock dump completely finished before we can start underground. So that’s what we are looking at first quarter of next year. In terms of the spending, I mean it’s everything except $50 million – I guess $59 million out of a $152 million.

Earl Price

Well, yes, currently we have spent $50 million. The project is a $150 million, I am rounding here. I would state that while price has been $75 million in cash, now I am talking about next year, even though the mine will be completed and then the final $25 million will be paid for in 2011, because it’s just the whole facts that you have on construction, contracts and the final billings.

Heather Douglas – Thomas Weisel

So, most of that $75 million is that – will that just be the underground or is it still like the plant at Kisladag?

Norm Pitche

Yes. Actually, it’s in the press release what the overall capital is. So it is –

Heather Douglas – Thomas Weisel

Yes, I might be looking for what you get for the capital. So, like when should we expect the Kisladag plant to be completed? And –

Norm Pitche

The Kisladag plant will be completed by the end of next year. I mean you have got about $32 million in mining – this is total, so none of that is spent yet.

Heather Douglas – Thomas Weisel

Okay.

Norm Pitche

You have got almost $18 million in process. Probably most of that hasn’t been spent. Waste handling $14 million hasn’t been spent. I mean you can look at the – you can look at the capital cost breakdown in the press release and sort of assume the numbers we have given that have been spent and committed so far. And I think you can sort of see from there.

Heather Douglas – Thomas Weisel

Now, in terms of the underground work you did, hire a contractor though already, right?

Norm Pitche

Correct. Yes, we have got the contracts signed, and he is ready to mobilize.

Heather Douglas – Thomas Weisel

Okay good. Okay thanks.

Norm Pitche

Yes.

Operator

Thank you. We have a follow-up question from Anita Soni. Please go ahead.

Anita Soni – Credit Suisse

Hi, last one, I promise. The Efemcukuru, what was the reason for a little bit of a delay in spending in Q3?

Earl Price

Well, initially, if you remember we – when we talked about the first quarter where we had the significant range in the first quarter, that was the initial pushback.

Anita Soni – Credit Suisse

And it was the footprint, so is that still the issue?

Earl Price

That’s right.

Anita Soni – Credit Suisse

Okay.

Paul Wright

Everything, yes, I mean everything just basically got pushed out essentially a quarter. And that’s affected – that’s affected the development schedule, that’s affected the spent.

Anita Soni – Credit Suisse

Okay. Yes, (inaudible) whether or not there was a further push out.

Paul Wright

No.

Anita Soni – Credit Suisse

It’s just the same ones. Okay. Thank you.

Paul Wright

No. That’s the same thing.

Operator

Thank you. And there are no further questions at this time. So, I will turn the meeting back to you Mr. Wright.

Paul Wright

Thank you, operator. And thank you, everybody who’s participated and look forward to speaking with you again.

Operator

Thank you. The conference call has concluded. You may disconnect your telephone lines at this time. We thank you very much for your participation.

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Source: Eldorado Gold Corporation Q3 2009 Earnings Call Transcript
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