Paul Wright - Chief Executive Officer
Eldorado Gold Corp. (EGO) Denver Gold Forum Conference September 24, 2013 3:50 PM ET
Good afternoon. Welcome to the afternoon of the second session of the Denver Gold Forum. Congratulations. We’re past noon on the second day. So we are officially halfway through the show. If you haven’t found a gold company to make your way yet, I have got five contenders here for you to see this afternoon, Eldorado, Gold Fields, Polymetal, NewGold and Alamos.
We’ll begin with Eldorado in the form of Paul Wright, who joined the company in 1996. Has a history in operations. The company is focused on finding and operating mines with low cash cost and operates in Turkey, China and Brazil. Paul, would you like to come and talk. Thank you.
All right. Well, thank you, [John] [ph], and again, thank you the Denver Gold Group for providing this opportunity today to update you on Eldorado. Look the time allotted here is really brief and sort of 20 minutes and I think I certainly would like to provide some time for questions. So I’m going to rattle through the front part of this presentation fairly quickly over the next 15 minutes. I won’t get into the detail on any of the specific operations or the projects that we are building but happy to respond to any questions and as we get to that point.
First of all, just to sort of throw something very controversial out there is, from our perspective there is a lot of talk about how bad the metal prices are right now. Our own view is $1,300 gold is not a bad metal price at all. The issues that that the industry is experiencing are not related to metal price but frankly more largely related to inappropriate behavior shall we say over the last decades.
All right. We’ll get past just a little bit of fine print. The company, who we are right now? 2012 we produced about 660,000 ounces of gold. We would be in production for about 20 years. We continue to be one of the lowest cost operators with very strong margins and a strong balance sheet. We have an experienced management team that successfully has built and operated mines in China, Turkey, Brazil, and now we are doing the same thing in Greece and Romania.
We’ve operated in a variety of different jurisdictions, in various technical environments ranging from open pit to underground, from roasting to pressure oxidation to bioxidation. And I will suggest for a company our size have a fairly talented group of people and some well-developed skills.
We have a solid reserve base which is approximately now around 30 million ounces. These reserves are calculated at $1250 gold. And we have a transparent dividend policy which links our payout from dividends to both gold produced, as well as realized prices. So as investor you can - to look at our projections for gold production, you can take a view on the realized price and you can calculate what you are going to be paid as a dividend every six months.
A quick look at our map in terms of where we operate, our portfolio is in three broad regions, starting with China, where we operate three mines all in joint venture structures; they being Jinfeng, Tanjianshan and White Mountain. We have a fourth project called Eastern Dragon up in the -- up in the Russian border and we’ve operated in China since 2005.
Moving to the west in Turkey, we operate two mines, cornerstone asset for the company, of course, is the Kisladag mine, which represents the discovery that we made back in the late 1990s, an asset that we took through various stages of exploration, permitting, engineering and construction. Reserves are around 10 million ounces. This years’ production will be little under 300,000 ounces.
Our second project in Turkey is - our second mine I should say in Turkey is our Efemcukuru mine which is a relatively high-grade underground epithermal vein, which started production last year, again I think it would be a very successful mine for us.
In 2008, we entered Greece through the acquisition of a project called Perama Hill in the northeast of Greece, that’s a project where we expect to start construction early next year. We are waiting for our final permit approval on that project which we expect to receive prior to year end.
In Greece, we operate the Stratoni mine which is a relatively small silver, lead, zinc mine. In addition, we are building the Skouries copper, gold project, one of the highest grade, highest quality copper, gold porphyries in the world undeveloped and construction is well underway on that project.
Olympias is a preexisting mine, underground polymetallic, lead, zinc, silver and gold, that mine has been refurbished and is back operating.
To the north, we have the Certej project, which came as part of our European Gold Fields transaction. It came at a point where we had resource of around 2.5, 2.4 million ounces. In the last 15 months we’ve increased that resource to in excess of 5 million ounces. This project has received full environmental approval and we’ll be proceeding with construction at Certej.
Down in Brazil, our investments in Brazil right now are fairly minimal. Historically, we were in Brazil through 1996 and operated the Sao Bento mine in Minas Gerais for the better part of 11 years.
Presently our exposure in Brazil is limited to a small iron ore project in the Northeast of Brazil, a development stage project in the Tapajos called Tocantinzinho, as well as some exploration projects. The development project Tocantinzinho does not appear in our production schedules at present.
Just looking at our track record, I mean, over the past five years, we have doubled production. We’ve significantly increased reserves and resources per share. Reserves per thousand shares have gone from 10 to 40 in the last five years and we’ve continued to maintain our cost in the lowest quartile and expanded our margins.
Just a very quick look at our Q2 highlights for 2012, as well as the Q1 highlights for, sorry, 2013, as well as Q2 for 2012. Not want to get bogged down on many of the numbers I think the most significant numbers are really looking at the total cash costs that have remained fairly flat over the last couple of years.
It’s something I think we take great pride in is our ability to operate with relatively low costs and our ability to be able to predict accurately from year-to-year what our production levels are going to be and what our costs are.
The balance sheet remains strong. We are approximately three quarters of a $1 billion of cash available to us and an undrawn revolver of $375 million.
Just looking at our guidance for this year, we are guiding towards just under three quarters of a million ounces of production. You can see in the first half we are looking at around 350,000 ounces produced.
Again, looking at the 2013 estimate for cash operating cost, we are looking at 520; at midyear we were at 492. So we are well on track to meet our guidance and suffice to say as the third quarter comes to a close we’re very comfortable with the guidance we provided for year end.
Sort of a closer look at the guidance, the mechanics in terms of how we provide guidance at the beginning of each year, we start the year off with a bracketed range for production and a bracketed range for costs. After our second quarter is over, we fix the number in terms of gold production and we fix the number in terms of cash operating cost. And you can see that the little yellow line has moved in appropriate direction in both charts, down in terms of cost, up slightly in terms of ounces for the year.
Of course there is a lot of talk in terms of how companies are going to survive and prosper given a reduction in gold prices in recent years. Our approach has really been to look hard at the corporation and to take a view that gold will for the foreseeable future remain at $1250 an ounce.
We’ve made certain changes in our business to ensure that we can continue on focusing on building a long-term high quality low-cost business. And we’ve modified our operating plan. We’ve reduced our exploration expenditure. We’ve reduced the -- modified the dividend policy slightly to reduce the payout on the dividend policy. And we’ve elected not to increase the gearing on the company. And we’ll simply live within our means.
We look critically at all of our growth projects. We’ve elected to defer the Kisladag expansion and we focused on the highest return new projects and continuing to build those new projects out. So simply put our operations continue to operate in efficient manner. We have not made changes to sustaining capital because sustaining capital is frankly what ensures predictability of performance from our operations and the effect of a lower gold price has simply been to slow the rate of new growth.
Yeah, we have somebody in our office who is now very adept at producing these colorful charts. So you’re going to have to be exposed to these. I mean, this is obviously just a reduction in terms of our capital expenditure from $670 million for the year down to $430 million and our exploration budget from $98.5 million to $51 million.
On dividends, we established a dividend policy a number of years ago. It was structured in the manner I described. It’s dividend that is paid out twice annually. It’s based on the preceding six months for production and the average realized price determines the dollar per ounce that is then multiplied by the ounces establishing a dividend pool.
The structure in terms of the dollars per ounce ascribed to the different ranges of gold price was deliberately struck to ensure that we had a balance within the corporation in terms of monies available for exploration, monies available to grow our business as well as a return to our shareholders. Just looking at the last two years, 2011, 2012, Eldorado has continued to have one of the highest percentages of adjusted earnings paid as dividends.
Margins are incredibly important to us. It’s how we run our business. We don’t lose track of generating free cash flow. We don’t or plan our mines to maximize gold recovery. We’re very conscious of the absolute necessity to have real margins in our operations. And again on the left hand side you can see the -- how we’ve been able to take advantage of the escalation in gold prices and again on the right hand side, you can see a comparison that was done with our peer group in terms of our profit margins versus the peer group.
What’s topical today of course is all-in sustaining cash costs. Again on the left hand side, looking back you can take a sense as to where we sit relative to the industry. And on the right hand side is the chart courtesy of TD Securities that suggest that we’re probably at the right end of the curve.
Look, I mean, the reporting for all-in sustaining cash cost will commence at the end of the year. I think this is going to be a useful tool for the investors and the industry. However, I’m still little bit concerned that the industry has not gone far enough yet to accurately define all of the elements to go into sustaining cash costs. And I don’t -- I wouldn’t suggest that this number will be a plethora for all ills. I do believe investors will still have to frankly understand financial statements to be able to understand the real performance of a company.
So in terms of why one should consider investing in Eldorado, we’ve very strong foundations of five producing gold mines, strong reserve base, experienced proven management team and a record of growth at low cost. We have the balance sheet that allows us to move forward with the assets I have described and the flexibility to respond to whatever metal prices are in front of us.
With that, I’ll be happy to answer any questions.
Okay. While somebody is thinking of a question I don’t want to jinx you, but you’ve had a great record of developing mines in immature mining spaces in China and in Turkey, what’s your secret? How -- what’s the element of Eldorado that’s allowed you to develop these things with these low cost and high cash flows?
Well, it’s not a secret. I think it’s just a huge amount of attention to detail by the members of the team. This is just strength of the team. It’s the longevity of the team and the skills that you develop in one jurisdiction that you then apply to another.
People asked us after we built our first mine in China as to how we and why we were able to make it look easy and we were successful. And I sort of jokingly said that given the amount of bureaucracy that exists in China, my comment was really after spending a decade dealing with the remains of the bureaucracy associated with the Ottoman Empire in Turkey, we were probably better equipped in most to deal with similar challenges in China.
It’s patience and perseverance and it’s structuring yourself as an organization where you financially - and have the mindset to recognize that things will take time. I think where people run into difficulties in many of these challenging jurisdictions is not taking the time to understand, not having the people and being in [sort of a] [ph] ungodly rush to get there, you need to be able to take the time.
Okay. You mentioned sustaining costs and being a developing process. What additional things would you like to see included in that?
Well, I think the whole question is to what exactly is sustaining exploration, what exactly is sustaining G&A. I just think there needs to be a tightening up of the definitions to ensure that when investors and others are looking at these numbers that there really is apples and apples across the industry and there is not room for misunderstanding.
You recently announced a new set of reserves resources at Olympias, could you walk us through how far long that is and getting your hands around what you’ve got there at that large deposit?
Yes, look, I mean the Olympias is an extremely large polymetallic operation. We inherited a resource estimate which we were largely satisfied with but we felt it appropriate to -- from principles review all of our core re-logged -- all of the core and built our own geological model and calculated our new -- our own resources.
There was a certain amount of the drill hole data that hadn’t been included in the original model. So the new resource estimate reflects all of that and will be the basis obviously for reserve and mine planning. The Olympias ore body is quite a spectacular ore body. It’s at a strike length of approximately 800 meters.
The reserves that we have down to a relatively shallow depth include 4 million ounces of gold, as well as significant amounts of silver and lead and zinc. We have a - historically there was actually a hole drilled 650 meters below the last mineralization which intersected the ore bodies.
So we expect through ongoing exploration to significantly increase that resource. At the same time, we obviously announced updated resource at our Certej project in Romania where, as I mentioned, earlier the resources have increased now to 5 million ounces.
Would you like to comment on what’s going on at Certej, is - there is a lot of news coming out of there? But as we know there is often a difference between what’s in the newspapers and what’s actually going on?
Yes. Look, I think, in many ways what you are seeing in Romania is not as similar to what we experienced in very early days of Turkey where there was a project in Turkey that had attracted a lot of negative attention, that had great difficulty and certainly an investment community had created an environment where Turkey was viewed as being beyond the pale and certainly that was not the case for ourselves as we demonstrated through the development of Kisladag.
I’ve had a number of meetings with the Government of Romania including the Prime Minister earlier this year and I certainly believe in his commitment to see the resuscitation of the mining sector. The issue is of course Rosia Montana exists and then continues to be largely seen as being reflective of Romania, which certainly in our experience is not the case.
So we are pushing forward with, [practically] [ph] full support from local communities, as well as the government, I mean the government are very keen to see us develop Certej not least of all to put a different face on the country.
Any questions? Okay. One last one, then, Greece, again, there is a lot of noise coming out of there, but you all steadily advancing the projects. What’s the sense you are getting from government and the difference between what the government wants and what you are seeing in the news media?
Look, I mean, the government has been -- the government, the judiciary and the local populations have been incredibly supportive of other development for all of the obvious reasons. We do have some opposition to the company’s business in Greece. It’s largely restricted to the Skouries project. It tends to be a very small local minority who were fairly adapted at utilizing social media to pick themselves in a manner which in fact they aren’t. I would say that the ongoing process of increasing employment levels and just simply moving ahead with the project is continuing to reduce the amount of opposition.
In February of this year there was a significant decision by the highest court of the land which maintained or supported the integrity of the projects and our environmental approval and went further to actually endorse the development of these mines as being in the best interest of the Greek people.
As I say it’s - amongst the oppositions there are indeed groups that are just misinformed and we continue as we - well we should to work with these individuals and these groups to ensure that they are adequately informed. But there is an element of society that are just fundamentally opposed to development and there is nothing you can do to change them.
And the Internet gives them the megaphone to…
Yes, I mean unfortunately in my opinion the world that we exist in any idiot can talk to any other idiot at any point in time and they do on a regular basis. Let’s say it’s -- on a practical level with a Greek society concerned about mundane items like creating jobs and seeing investment.
Excellent. Thanks. Great presentation. Congratulations on all you have done, Paul.
Thanks a lot.