Eldorado Gold's CEO Discusses Q4 2010 Results - Earnings Call Transcript

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Eldorado Gold (NYSE:EGO)

Q4 2010 Earnings Call

February 18, 2011 11:30 am ET

Executives

Nancy Woo - Vice President of Investor Relations

Paul Wright - Chief Executive Officer, President and Director

Ed Miu -

Norm Pitcher - Chief Operating Officer

Analysts

Josh Wolfson - Stifel, Nicolaus & Co., Inc.

Barry Cooper - CIBC World Markets Inc.

Kerry Smith - Haywood Securities Inc.

Michael Curran

Lihor Abraham

Anita Soni - Crédit Suisse AG

Joung Park

Rahul Paul - Canaccord Genuity

Operator

Good morning, ladies and gentlemen. Welcome to the Eldorado Gold Corporation 2010 Fourth Quarter Financial 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 the 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 or 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 our annual quarterly management discussion 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 could cause actual results to differ. All forward-looking statements and information made or provided during this presentation are expressly qualified in their entirety by this cautionary statement and the cautionary statement contained in our press release dated February 18, 2011.

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

Paul Wright

Well, thank you, Nancy. Good morning, ladies and gentlemen. Welcome to Eldorado Gold's Fourth Quarter 2010 Financial and Operating Results Conference Call. Joining me this morning in Vancouver are Norm Pitcher, Chief Operating Officer; Ed Miu, Chief Financial Officer; and Nancy Woo, Vice President of Investor Relations.

In a customary manner following a brief introduction from myself, Norm will take you through the fourth quarter operating results and then provide some color in terms of what you can expect operationally in 2011. Ed will then provide a recap on the fourth quarter financials, and then we will open up for questions.

We are very pleased to have ended 2010 with a strong performance from all of our mines. With 148,000 ounces produced in the quarter, the company completed the year producing in excess of 632,000 ounces and a cash operating cost of $382 an ounce, while in line with our upwardly provided guidance in the year of 625,000 ounces at $375 an ounce.

In the quarter, we made very good progress at Efemçukuru, with our Turkish mining contractor putting in an excellent performance in terms of advancing on three declines concurrently, and by year end, we had accessed the ore zone. Going into 2011, we are now on track to start processing ore through the mill early in Q2. Following substantive progress in the permitting of the Eastern Dragon project in China, we resume construction in the fourth quarter and are continuing through the winter.

In Brazil, our Vila Nova Iron Ore Project started production in the fourth quarter, and by year end, we'd completed two shipments of lump and sinter. We're continuing operations into 2011, and we're extremely pleased with cash margins that now approximate $100 per ton.

We entered 2011 in a strong financial position with an excess of $360 million of cash. We're looking forward to further production growth with continued low costs. The focus this year will be to ensure on-time delivery of new production from both Efemçukuru and Eastern Dragon.

In addition, over the next 12 months, you will see us delivering plans associated with expanding production from our existing asset base, which will support our planned production growth to approximately 1.5 million ounces over the next five years from assets that we presently own and control. We are finishing up our year end 2010 reserve and resource estimates, which were delayed slightly to ensure inclusion of all drilling results in the year just gone by, and we expect to be releasing these results very early in March.

Although not complete, it is clear that the company will have increased both its reserves and resources beyond depletion in both total terms and also on a per share basis. We have significantly increased our planned exploration budget to $54 million in 2011, and look forward to reporting on these on this progress.

With that, I'll hand over to Norm.

Norm Pitcher

Thanks, Paul, and good morning, everyone. As usual, I'll certainly go to the operations first and then on the development and then on to exploration.

So let's start with Kisladag. At Q4, we sold 59,815 ounces, cash cost to $383. That gives us for 2010 274,592 at a cash cost of $329. We have provided our 2011 guidance, which is 270,000 to 285,000 ounces at $350 to $365 per ounce. A little bit higher cash cost in the quarter, mostly due to less ounces being sold, a little bit higher strip ratio. We had a little bit excess capacity because we reached our 10 million EIA limit on ore, as we mined a little bit extra waste and put a little bit less on the pad than usual.

We have completed the recent metallurgical column testing program, which is now indicating average sulfide recoveries of approximately 65% versus 60% that was used in the feasibility study. Oxide remains the same at about 80%. The expansion of the project to 12.5 million tons per year is on track and is scheduled for mid-March start-up.

At Jinfeng, we produced 37,560 ounces in Q4 at $486 per ounce. That gives us for 2010 181,950 at $425 per ounce, and we had given our guidance for 2011 at 175,000 to 185,000 ounces at $445 to $465. A little bit higher cash cost in Q4 at Jinfeng, mainly again due to less ounces sold. In this case, it was the result of treating some lower-grade material towards the end of the year.

In 2010, we continued on a major underground drilling program, which will be incorporated into the resource and reserve update coming out in March. Jinfeng is a structurally complex ore body, but I think we made great progress in advancing our understanding of the structural controls on mineralization there.

Tanjianshan for Q4 did 30,709 ounces at $349 per ounce. That gives us for 2010 113,863 ounces at $383, and our guidance for 2011 is 110,000 to 120,000 ounces at $410 to $430 per ounce. Q4 is a good quarter for Tanjianshan. It continues to be a very solid performer for us.

At White Mountain, strong fourth quarter. We did just over 20,000 ounces at $494 per ounce, and that gave us for the year 62,132 ounces at $486 per ounce, and we have given guidance for 2011 at 70,000 to 75,000 ounces at $485 or $500 per ounce. It was a good quarter, and I think that we're starting to see the benefits of the measures we have put in place to improve the underground operating conditions there.

Vila Nova, as Paul mentioned, in Q4, we mined 164,000 tons of run-of-mine ore and made two shipments, one of lump and one of sinter fine. And our guidance there is we're looking at about 10 ships, so it's going to be 440,000 to 480,000 tons of product in 2011.

Onto development. At Efemçukuru, did very well in the quarter. We continued dry commissioning of the concentrator, continued work on the tailings filtration and backfill plants, finished it up various buildings, administration, mine dry and the warehouse and maintenance shop. Pre-production development has moved ahead on the three main declines. We have crosscuted the Middle Ore Shoot with about an 18 meter intersection there, and we're currently driving parallel to the ore zone in the South Ore Shoot.

At Eastern Dragon, we made good progress despite severe winter weather focusing on enclosing the concentrator building and pouring foundations. At Tocantinzinho, we will complete the pre-feasibility study this quarter, and we'll continue to evaluate both capital and operating costs to optimize the project.

Perama. The Ministry of Environment continues to review the PEIA, the Pre Environmental Impact Assessment, and we continue to work with the Greek government to advance the permitting.

On the exploration front, let's just take a look at Q4 first, and I'll talk a little bit about this year. At Kisladag, we finished the Phase 2 resource. In Turkey, with Kisladag, we finished the Phase 2 resource drilling. During the quarter, those results have been incorporated into the updated block model. One interesting aspect of this is the discovery of ore grade mineralization in the basement schist, which we hadn't really had before. That was, in the past, treated as an unmineralized unit, which opens up the area to the west of the main intrusive bodies at Kisladag.

At Efemçukuru, most of the geologic work during the quarter consist of the mapping and sampling the three declines. Exploration drilling in 2011 will target the Northwest extension of the main ore zone, as well as the parallel Kokarpinar vein. On recon in Turkey, we're active on six projects during the quarter, including drilling on four of them, and three of these projects will see follow-up drilling in 2011.

I'm on to China. At Tanjianshan, we finished the 2010 drilling program in the 323 Zone. We now have an inferred resource of approximately 160,000 ounces that will upgrade in 2011. We also completed rotary air blast drilling in the ZXS prospect, which is located between the 323 Zone and the main JLG pit are that we're mining now, and that RAB drilling will allow us to find drill targets in 2011.

At Jinfeng, as previously discussed, the focus has been on underground drilling to better define the structural controls on mineralization, as well as some drilling of targets around the main Jinfeng ore body.

At White Mountain and the surrounding area, we intersected 24.7 meters at 8.7 grams per ton. This intersection comes approximately 200 meters down dip from the main ore zone. It would appear that this is a separate ore lands. We, obviously, from one drill hole, don't have all the answers to it yet, but it is still open along strike and down dip.

At the Xiaoshiren, we finished late in the year seven diamond drill holes, several of which hit mineralized breccia, with the best intercept of 7.8 grams per ton over 6.5 meters. We'll continue to explore Xiaoshiren in 2011, and we see this project as having the potential to add supplemental feed in a fairly short time period to the White Mountain mill.

At Eastern Dragon, most of the work focused on activities designed to generate targets for the 2011 program and included a ground magnetic survey of the full property, as well as float and outcrop sampling.

Onto Brazil. At Tocantinzinho, we drilled 13 holes, both for resource infill and infrastructure condemnation. We also did soil sampling at Agua Branca and Piranhas projects, both in the Tapajós, which will define drill targets for 2011.

Just a couple of comments about exploration in 2011. We've got $54 million budgeted. It's a big program for this year, with over $30 million targeted for near mine drilling. We feel that we have exceptional targets out and around our existing operations, and we intend to maximize this potential aggressively in the coming year, while also taking advantage of the regional potential of the jurisdictions in which we work.

In Turkey, drilling will start in Efemçukuru in March, followed by Kisladag. In China, we will start drilling in the second quarter at White Mountain to explore the recently discovered down-dip lands, and the once field conditions permit, we will recommence drilling at Xiaoshiren and Dongdapo.

By the end of Q2, we will be drilling at Tanjianshan at the QLT deep target, and we'll move from there to the ZXS prospect and 323 infill extensions by midyear. Drilling will continue throughout the year at Jinfeng from surface and underground on the main ore body and surrounding targets.

In Brazil, we will continue the ongoing drilling program at Tocantinzinho, and in Q2, start drilling at Agua Branca, followed by Piranhas.

With that, I will turn it over to Ed Miu.

Ed Miu

Thank you, Norm. Good morning, ladies and gentlemen. Starting off on the balance sheet. 2010 year ending asset balance of $3.78 billion increased by approximately $23 million in the fourth quarter and $340 million for the whole year, mainly due to increases in cash, capital investments and the Brazauro acquisition.

Total cash balance at year end was $367 million, a decrease of $25 million in the quarter, but an increase of $51 million for the year. At year end, total liabilities amounted to $770 million, a decrease of $29 million in the fourth quarter, due primarily to bank debt reduction and essentially unchanged from year end 2009.

Moving on to the statements of operations. Fourth quarter's gold sale revenues of $213 million had a year-on-year increase of $60 million or 48%. The significant increase was accounted for by a 15% increase in gold sold over fourth quarter 2009 in terms of assets, coupled with the average realized gold price being $1,373 in fourth quarter of 2010, a 24% increase from the same quarter in 2009.

Another contributing factor was the production commencement of Vila Nova in the fourth quarter of 2010, which generated $8.3 million of revenues in the quarter. With the higher production in the Sino Gold acquisition, operating cost, DD&A and interest expenses all went up year-on-year.

Kisladag's current operating permit has limits of 10 million tons of ore to be placed on the leach pad, which resulted in its fourth quarter production assets being lower and operating cash cost higher than the preceding quarters. Incidentally, Kisladag plans to increase throughput to 12 million tons in 2011 upon approval of an amended permit.

Fourth quarter G&A costs also increased by about $12.5 million from 2009, primarily due to stock-based compensation being higher as a result of the Sino Gold acquisition, higher legal and compliance costs, and several non-recurring charges. Note that 2009 P&L statement numbers contain only one month's worth of Sino Gold's numbers, which was December 2009 versus the whole period in 2010, which also explains part of the year-on-year variances.

There was a non-cash foreign exchange unrealized loss of $6.5 million in Q4 2010, primarily as a result of the weaker U.S. dollar's impact on future income tax liabilities denominated in the operating local currencies. The quarter's net income of $44 million increased from the same period last year by $11 million or 31% and by $103 million for the total year, an increase of 201%.

In terms of diluted earnings per share, it was $0.08 this quarter, which was the same as Q4 2009. Excluding the non-recurring charges and the non-cash foreign exchange unrealized loss from the equation would have increased the earnings per share $0.11 for the quarter. For the total year, earnings per share was $0.38 in 2010 versus $0.26 in 2009, an increase of 146%.

On the cash flow statement, $83 million of cash was generated from operations before changes in non-cash working capital in the quarter, a 40% increase over Q4 '09. For the total year, it was $352 million or 140% over 2009. In spite of the higher cash generated from operations, the cash balance had a net decrease of $25 million in Q4 2010, which was accounted for by the quarter's capital and exploration expenditures and the bank loan prepayment more than offsetting the cash generated from operations. By contrast, Q4 2009 had a net increase of $116 million, mostly due to the Sino Gold acquisition.

I'll now turn it back to Paul.

Paul Wright

Thanks, Ed. Thanks, Norm. Operator, we'll open up for questions now, please.

Question-and-Answer Session

Operator

[Operator Instructions] We do have a question from Rahul Paul from Canaccord Genuity.

Rahul Paul - Canaccord Genuity

Just quickly, could you refresh us of the applicable tax rate at the Chinese operations.

Ed Miu

The tax rate in China is 25%.

Rahul Paul - Canaccord Genuity

And what about royalties at Jinfeng, White Mountain and Tanjianshan?

Ed Miu

The total royalty for 2011?

Rahul Paul - Canaccord Genuity

Yes.

Ed Miu

On a per-ounce basis is $18.

Rahul Paul - Canaccord Genuity

Now the reason I was asking is like, if I look at Jinfeng, for example, the difference between total cash cost and cash operating cost, it's about $100 an ounce. Is that all royalties, or is that something else that goes in there?

Ed Miu

I believe it's all royalties.

Rahul Paul - Canaccord Genuity

It implies about 7% or so, so I was just wondering if there were maybe one-time items or something in there.

Ed Miu

On a per-ounce basis, the royalty in Jinfeng is about $36, and White Mountain is about the same. So on a total company basis, it averaged out to be about $18.

Rahul Paul - Canaccord Genuity

What I was trying to get at is, what else other than royalties are included in the total cash cost for Jinfeng? I mean, you had $486 in cash operating cost and $585 in total cash cost. So if I take royalties of $30 an ounce, it's about $70 an ounce there?

Ed Miu

The production tax is also included as well.

Rahul Paul - Canaccord Genuity

And how much is that?

Ed Miu

Which amount to about $18 in the case of Jinfeng on a per-ounce basis.

Rahul Paul - Canaccord Genuity

Is that the same at -- I assume that will be the same at Tanjianshan as well?

Ed Miu

Tanjianshan is higher. Tanjianshan is about $40, close to $50.

Rahul Paul - Canaccord Genuity

And that's in production tax?

Ed Miu

Yes.

Rahul Paul - Canaccord Genuity

And just moving on to Vila Nova Iron Ore. I mean, I see that you made two shipments during the quarter, and the split was about 50-50 sinter fines and lumps. Is that represented of the mix that we should expect going forward?

Paul Wright

Yes.

Norm Pitcher

Yes, it is pretty much. I mean, it's 50-50 because you do a ship of -- you either do a ship of lump or a ship of sinter. And, yes, that is about the split going forward.

Operator

The next question is from Anita Soni with Credit Suisse.

Anita Soni - Crédit Suisse AG

Just a question with regards to Kisladag, actually, a couple of them. Did you say the average recovery for sulfide with metallurgical tests was now 65 versus 60 in original?

Paul Wright

That's correct.

Anita Soni - Crédit Suisse AG

And the oxides are the same, right?

Paul Wright

Yes, I mean, the oxides recovery is about the same. I mean, practically speaking, we're getting those recoveries with the course of crushing [ph] we originally planned for, Anita.

Anita Soni - Crédit Suisse AG

And then just a question on Kisladag. I did ask Nancy, but it seems to me, going through a lot of your statements, I'm not quite sure if it is in fact a typo, but the fourth quarter cash operating cost is higher than the total cash cost. Was there an adjustment to some sort there?

Paul Wright

I see what you're saying, Anita. You caught me sort of flat-footed here.

Anita Soni - Crédit Suisse AG

No, I just wanted to confirm because it wasn't just in the one press release. It seems to be in all your MD&A and everything.

Paul Wright

It looks like it's been transposed.

Anita Soni - Crédit Suisse AG

But they were consistent about transposing it. That's why I was trying to double check. And then just in terms of the strip ratio at Kisladag, is that going to -- I mean, you've given us guidance obviously for the full year, but could you just kind of give us an idea, Norm, of how that's going to spread out through the course of the year? It's been trending up since 2010, so will we expect to see higher strip ratio for the first and second quarter as well?

Norm Pitcher

Anita, we don't get into giving quarterly guidance.

Anita Soni - Crédit Suisse AG

Quarterly guidance?

Paul Wright

No, we just don't.

Anita Soni - Crédit Suisse AG

You know I always try.

Paul Wright

I know you do. You and Carrie do a very good job of that.

Anita Soni - Crédit Suisse AG

And then lastly on the mid-March start-up at Kisladag. That was your tying in expansion of the circuits? Should you say that was...

Paul Wright

Yes, that's getting us up to the run rate of 12.5 million or 12 million tons a year. That's correct.

Operator

The next question is from Mike Curran with RBC.

Michael Curran

I saw you had a pretty high G&A in Q4. I assume that's not a good run rate. Is the $8 million to $10 million sort of range per quarter a better number going ahead?

Ed Miu

The fourth quarter actual number is not a good run rate. For the total 2011 G&A budget, we're looking at about $64 million. The Q4 numbers included some non-recurring one-time charges.

Operator

The next question is from Josh Wolfson with Stifel, Nicolaus.

Josh Wolfson - Stifel, Nicolaus & Co., Inc.

Just on Efemçukuru, I'm wondering if you can give us more context on how the underground development is going, in particular what depth the ramp is at and what sort of development rate you're running at?

Norm Pitcher

Well, the underground is going very well. We're at three different heading -- there are three different declines now. The contractor has pulled up his performance quite a bit. And as I say, we've already gone through ore in the Middle Ore Shoot, and we're running parallel, drifting parallel to the ore in the South Ore Shoot. I don't have the daily advance rates in front of me but...

Paul Wright

I mean, I was there a couple of weeks ago underground on all three declines. I mean, the conveyor decline now has reached the bottom where the ore bins are going to be located. The access to what will be the waste dump is in place and is at the level of the first ore drive. All three declines now have multiple headings. The ground conditions are very good, I would say generally, and the progress of the contractor I think is excellent to the extent that he's picked up his advance rate on each month since we've become engaged. Starting in April, when we start feeding ore through the mill, we're going to start be phasing out the contractor and bringing in our own crews to start taking on some of the development ourselves. Yes, I mean, I'm sure Norm can get back to you on all the minutia of how many meters a month, the meters a week we're doing on the different headings. We're happy to do that.

Josh Wolfson - Stifel, Nicolaus & Co., Inc.

Their release seemed a little vague because we had received some update that you've been down to 500 meters last quarter, and this quarter just said there's an improvement, but it didn't say exactly what the specifics were.

Norm Pitcher

Yes, I think we can provide sort of the total meters and meters per day advance.

Josh Wolfson - Stifel, Nicolaus & Co., Inc.

And I know this is a difficult question, and I'm not sure if you can answer it. But it looks like it'll be a good 2011 if you can deliver some updates on the expansion potentials. Now you said over the next 12 months, you'll be updating the market. Now should we expect updates at all of Kisladag, Efemçukuru, White Mountain and Eastern Dragon? Or is this going to be just the first Kisladag update will be in the next 12 months?

Paul Wright

No, our intention is sort of -- by this time next year to have laid out on all four areas where we see opportunities for expansion to lay out plans which will enable you fellows to build or put things in your model, understand what the thinking is, what the methodology is, what the capital requirements are, what the expectations are in terms of production operating costs and timelines. And the first deliverable on that will be what amounts are probably the largest element of the expansion opportunity, and that's Kisladag, and we'll be looking to do that at sort of following midyear. In July time, we'll be laying that out. Obviously, we haven't released our reserves and resources yet because we're just finishing off the exercise. But we've certainly seen a substantive increase in Kisladag, which just supports our belief that this mine can and should operate at a much higher production rates. That's the first one out the gate come midyear.

Josh Wolfson - Stifel, Nicolaus & Co., Inc.

So would you say it'd be safe to say that the other expansions would be as evident when the reserve and resource update is released?

Paul Wright

No, I wouldn't say so. I think in Efemçukuru, as an example, if you sort of go down the list, I think we're seeing opportunities within the existing plant as constructed to give us additional capacity. We're, certainly, I think, looking critically at the planned mining methods, and mining methods that will be implemented will probably see us shifting towards a method that has better control over dilution and thereby will increase their grade. So I think you'll see in Efemçukuru us commenting more probably towards the end of the third quarter once we have more operating experience underground with the mill. I mean, crudely put, the mill capacity that we're talking about is based on 50 tons an hour. There's certainly some indications that this mill, the mill circuit there is probably fully capable of operating at 65 to 70 tons an hour. So you don't have to be too swift to see how increase mill throughput, add perhaps 1 gram a ton on that head grade, you can realize this expansion fairly easily. But these expansion plans will come out as I described over the next 12 months.

Josh Wolfson - Stifel, Nicolaus & Co., Inc.

And I guess on Kisladag then, I guess in comparison to Efemçukuru where you can ramp up the existing operation, you'd be looking at much more significant capital cost?

Paul Wright

Yes, absolutely. I mean, the expansion that we're just completing that Norm spoken about where we're going up to about 12 million tons, that's essentially done, and that's really just been adding de-bottlenecking and adding some additional sort of secondary, tertiary and screening capacity. The type of expansion we're visiting now is an order of magnitude step-up, which will require, as you described, significant capital.

Operator

[Operator Instructions] The next question is from Joung Park with Morningstar.

Joung Park

So my first question was on Vila Nova. Were you guys able to ship out any additional iron ore shipments out of that mine during the quarter?

Norm Pitcher

We just had the two shipments in Q4.

Joung Park

So none in Q1 so far?

Paul Wright

We're shipping I think in the next couple of weeks, there'll be another shipment going out.

Norm Pitcher

Two.

Paul Wright

Two shipments, yes.

Norm Pitcher

We've had two.

Paul Wright

Sorry, we've had two already.

Joung Park

In Q1. And what kind of prices were you guys able to receive for those shipments?

Paul Wright

About $120 to $130 a ton.

Joung Park

And a follow-up question on Vila Nova. You guys mentioned that it has the capacity to produce more iron ore than your guidance, but there's some transportation logistics bottlenecks, so I was just wondering if you guys were able to make any progress on negotiations with Anglo.

Paul Wright

Work in progress, best way to describe it. Suffice to say, we're incentivized to look to try to enhance the performance of that operation through the year. We have a plant, as you acknowledged, that's capable of producing more. We have an ore body that's capable of producing more, and we're going to work with Anglo American to try to ensure that we're running at the best throughput possible. We're fully aware that we have approximately $100 margins on our present operating rate, and given our relatively high fixed cost element to the operation, the motivation is there obviously to get the divisor up.

Joung Park

And my final question was on Kisladag. You guys mentioned that the 12 million ton expansion will go online by mid-March. So I guess is it fair to say that you guys would expect the amended environmental permit to be received by then?

Paul Wright

Yes, that's right.

Operator

The next question is from Kerry Smith with Haywood securities.

Kerry Smith - Haywood Securities Inc.

Paul or Norm, just on the tie-in of the tertiary pressures in February, is there much downtime to actually doing that, or is that fairly quick? So you're not really going to have an issue in terms of getting tons [ph] through the plant?

Norm Pitcher

Yes, it's about a week or so, Kerry. It's not too onerous.

Kerry Smith - Haywood Securities Inc.

I think just from the last question, you're anticipating that permit for the 12 million ton per year rate by the end of March; right?

Norm Pitcher

Yes.

Kerry Smith - Haywood Securities Inc.

And it is 12 million, not 12.5 million; right?

Norm Pitcher

I keep saying 12.5 million. Yes, it's 12 million.

Kerry Smith - Haywood Securities Inc.

It's 12 million.

Norm Pitcher

Yes.

Kerry Smith - Haywood Securities Inc.

And just on White Mountain, maybe Ed knows the answer to this.

Norm Pitcher

It's 12.5 million.

Kerry Smith - Haywood Securities Inc.

It's 12.5 million.

Norm Pitcher

People keep saying 12 million, and they shouldn't.

Norm Pitcher

Well, I think it's because what's happened, Kerry, because we don't get to that run rate until part of the year, the budget shows 12 million tons for this year.

Kerry Smith - Haywood Securities Inc.

But with the permit in hand, you don't want to be constrained by your ability to get tons through the plant effectively.

Paul Wright

The permit is for 12.5 million, but it's just that we don't kick it in until March. Therefore, we're going to only push 12 million tons through this year.

Kerry Smith - Haywood Securities Inc.

And then just at White Mountain in Q4, the cash costs were roughly $500 an ounce. It was $498, and I know that you had record throughput. The grades looked to be good. It sounds like the recoveries were better. I'm just curious why the costs were effectively actually higher than the last couple of quarters. Is there something else going on in there that your mining costs are going up? Or -- I just would've expected that the costs would've actually been lower given the throughput.

Paul Wright

Yes, but...

Norm Pitcher

No, you're right there, Kerry. It was mostly in the mining cost side, and that's just the function of putting a little more development in. We're trying to catch up so we can deal with the -- you've got voids in the ore body, you've got some water issues in some areas, and we've been trying to catch up to sort of give us more flexibility in the mine and plan to deal with that. And in Q4, I guess we just did a little bit better on catching up in terms of development.

Paul Wright

Just more ore development, Kerry.

Kerry Smith - Haywood Securities Inc.

So should we kind of assume that, that carries on through 2011, that kind of rate then?

Paul Wright

You should take the guidance we've given you, Kerry.

Kerry Smith - Haywood Securities Inc.

And just on the $54 million of exploration, how much of that, Ed, would be expensed this year, or will any of it be expensed?

Ed Miu

$25 million is going to be expensed. The remainder $29 million to be capitalized.

Kerry Smith - Haywood Securities Inc.

And then just on Perama, just as the last question, just the feedback you're getting. As part of the view, is there anything there that's happening that's either positive or negative, or is it kind of as you'd expected? Can you comment?

Paul Wright

I don't know if Greece is ever as you expected, Kerry. Look, to be perfectly blunt, it's a frustrating environment in which to make progress there. We are making progress, but it is -- I would characterize it, of all the jurisdictions we operate the most, probably the most frustrating. I mean, given the present conditions that exist in Greece, one would think it would be blindingly obvious why permitting projects that provide employment investment and tax base would move along fairly quickly. That's not what we're finding right now. Look, we are making progress, but certainly, as you probably detect that there is a note of frustration.

Operator

The next question is from Barry Cooper with CIBC.

Barry Cooper - CIBC World Markets Inc.

I'm just wondering what were the profit margins that you saw at Vila Nova?

Paul Wright

It's a bit early to say, Barry, to appreciate it. We really just got started in the fourth quarter.

Barry Cooper - CIBC World Markets Inc.

Is it fair to say there was a profit in Q4?

Paul Wright

Yes. But I guess if you're looking for implications on future based on what we did...

Barry Cooper - CIBC World Markets Inc.

Yes, I realize that, that's meaningless. I'm just wondering if there was a positive cash generation there.

Paul Wright

Absolutely. I mean, crudely speaking, as I mentioned, today's prices that we're realizing is almost $100 a ton cash margin on this.

Barry Cooper - CIBC World Markets Inc.

On Kisladag, because of the inability to put more tons to the pad, is it fair for me to assume that the strip ratio that you had in the fourth quarter was brought about by perhaps some advanced stripping such that for 2011 it would be down because you had equipment but you couldn't put the tons to the pad?

Paul Wright

Yes, that's correct.

Barry Cooper - CIBC World Markets Inc.

That's kind of what I thought. And then when you hit the ore at Efemçukuru, what exactly did it look like?

Norm Pitcher

It looked very nice.

Paul Wright

It looked marvelous, Barry. We waited a long, long time to see that ore.

Barry Cooper - CIBC World Markets Inc.

And in sampling, how did that more or less exactly what you thought with the grades?

Norm Pitcher

Yes, pretty darn close. And ground conditions not bad, sort of as you expect in an epithermal vein of this type. Given a Y intercept too, where there's over 80 meters more in there.

Paul Wright

On a comical lighthearted note, Barry, as you'll appreciate, we selected with great care where we would put the conveyor decline in what was meant to be waste between two shoots and lo and behold, what do we intercept but about 15 meters of ore.

Barry Cooper - CIBC World Markets Inc.

That's always a Hollywood problem, is that?

Paul Wright

Yes, exactly. So there are a lot of smiles in terms of Efemçukuru. We're obviously looking forward to getting it started here.

Barry Cooper - CIBC World Markets Inc.

At Kisladag again, the basement schist where you found the mineralization, is that of a similar grade? And how do you see that kind of opening up with respect to the amount of basement -- obviously there's a whole bunch of basement schist there? Is it a structural zone that is relatively combined, or is this...

Norm Pitcher

In terms of the grade, probably a little bit lower than average than sort of the 1 gram per ton, 0.9 gram per ton grade, but what this is, this is sort of a zone that we hit back, I guess, two years ago when we actually took some inferred resources off the books in that area because we thought it was cutting off the ore. So it's really mostly in the western part, and that's where we drilled it anyway, in the western part of the deposit. And into really -- it's a question we're going to have to answer this year with more drilling as to what the eventual significance of this is.

Paul Wright

But it also has implications, Barry, I think, in terms of our views on exploration in the district for other Kisladag look-alikes. I mean, we had certain views on the schist before in terms of types of models for exploration, and that obviously changes our thinking a little bit elsewhere.

Barry Cooper - CIBC World Markets Inc.

Yes, and is there much money then been allocated for that on a regional basis?

Norm Pitcher

Yes, there is. We're still over the side track, and we're going to start looking peripheral side track in the southwest. We'll start looking more in sort of the west and northwest areas of the deposit. And as always, budgets are budgets, but what we end up spending is going to be dependent on results.

Operator

The next question is from Lihor Abraham from Scotia Capital.

Lihor Abraham

First of all, on Eastern Dragon, you're saying the construction is going well through this winter. I'm just wondering if you are still expecting start-up for the end of this year?

Paul Wright

Yes. That's the plan.

Lihor Abraham

And then going back on the cost there, we talked about White Mountain, but I just wanted to ask also on Jinfeng. It seems overall the costs are creeping up, but especially at those two Chinese mine, and I'm wondering, why are you saying it is creeping up, and is it a trend that we're going to keep seeing?

Norm Pitcher

As I said when I was going through the operations, at Jinfeng in the fourth quarter, it was really less ounces sold in the quarter, and we treated some lower-grade material towards the end of the year. I would -- in terms of where it's going, I would look at what we've given for guidance for 2011, which is in the $445 to $465 range, yes.

Lihor Abraham

Quite a bit higher than your previous guidance. Is there any reason for that?

Norm Pitcher

More underground material probably, yes.

Lihor Abraham

And is it going to continue basically?

Paul Wright

Which previous guidance are you referring to? We've only given one set of guidance for 2011.

Lihor Abraham

Two years from now. I mean, I understand it's quite outdated. It was $370, $390 and $445, $465.

Paul Wright

Sure.

Operator

The next question is from Jason Dana [ph] with BC Investment Management.

Unidentified Analyst

Maybe just on, the reserve and resource update coming up in March, is there going to be a significant change in the Eastern Dragon numbers with respect to the outcropping quartz vein set [ph] that you've talked about before? Or is that going to be coming through in 2011?

Norm Pitcher

Yes, that will be coming in the future. I mean, at Eastern Dragon, as people are aware, we didn't drill this year. We did other exploration on the licenses, but we didn't drill anything. And really, the effective of -- it's a high-enough grade deposit that the effective change in the cut-off doesn't mean much, mostly goes as ore anyway.

Unidentified Analyst

And also on the expected increase in the reserves, is that going to be significantly going to change in the gold price? Or is it mostly through drill bit and sale extension drilling, that sort of thing?

Paul Wright

It's going to be both. And I'm afraid we'll have to defer until we lay out the details to be able to lay out properly.

Operator

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

Ed Miu

Let me spend one minute to go back to the question raised earlier as to why the total cash cost in Kisladag in the fourth quarter was lower than the cash operating cost. It has to do with the fact that in the fourth quarter, we reversed an accrual on tax, when we gained better clarity on the timing of the effective dates of the new tax loan. So that resulted in the reversal of overall accrual that we did. So that explains the reason why total cash costs were lower than the operating cost.

Paul Wright

Alright. Thanks, Ed. Thanks, Norm. Thanks, everybody, for attending, and look forward to talking to you in the end of the first quarter. Have a very good day.

Operator

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

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