Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

David Reading - CEO

Tim Morgan-Wynne - CFO

Mark Rachovides - Non-Executive Directors

Analysts

Mark Smith - Dundee Securities

Stephen Walker - RBC Capital Markets

Mark Smith - Dundee Securities

European Goldfields Ltd (EUG) Q4 2007 Earnings Call March 19, 2008 10:00 AM ET

Operator

Good morning ladies and gentlemen, thank you for standing by. Welcome to the European Goldfields 2007 results conference call. (Operator Instructions)

I will now turn the conference over to David Reading, CEO. Please go ahead.

David Reading

Thank you very much operator. Good morning ladies and gentlemen in North America and good afternoon to anyone listening in from London. I'm talking to the presentation expanding in Europe 2007 results which is on our website and deals with our annual results for the year.

I'm also accompanied by Tim Morgan-Wynne, our CFO and Mark Rachovides, one of our Non-Executive Directors.

Talking to page two, 2007 highlights. I'm pleased to announce very positive results for the year. Sales were up 65%. We had cash flow for the year of $44 million. We hold a cash position of $219 million in the bank and our profit before tax was $33.4 million for the year.

Additional highlights in 2007 include the fact that we consolidated the partnership with the Aktor EL Tech group. European now holds 95% of the projects in Hellas Gold. Aktor now holds just under 20% in European and our total acquisition position to get to 95% of the projects in terms of costs, cost us about $25 an ounce on a gold equivalent basis per reserve ounce which I think I can state fairly safely is a very good cost per ounce these days. The company raised up to over $180 million through equity financing plus other small forward sales in gold concentrates.

Stratoni production was up 27%. I'm pleased to say that we added another -- at least another year to the life of the mine in terms of reserves. You will see the presentation that we have really begun fabrication of the long lead equipment items for Skouries. In the case of Olympias, we announced a six-fold increase in gold sales and we still have 395,000 ounces of gold reserves on the surface. The Certej project completed its key feasibility studies and we advanced in the permitting process there as well as in Greece.

We completed an airborne geophysical survey in Greece which has highlighted some very exciting new targets which I will be talking about later in the presentation and we signed a Heads of Agreement with Ariana, a resource stock in AIM for a Turkey JV in the eastern Pontides.

Finally the Company was admitted during the year to the TSX Gold Index and more recently it’s been announced that we will be admitted to the TSX Composite Index.

I'm now going to hand over to Tim Morgan-Wynne, the CFO to deal with pages three and four of the financial highlights of the Company’s annual results.

Timothy Morgan-Wynne

Thank you, David. Moving on to page three, we saw as David said a 65% increase in sales year-on-year in 2007 to $86.4 million. $72.2 million of that came from base metal sales and we saw a very positive lead price environment slightly offset by falling zinc prices. But net we had higher realized prices and also we were selling more material in the year. We will have the benefit of an additional revenue stream coming on in size as we shipped significant levels of gold concentrate.

Gross profit was at $43.8 million, over 50% gross profit margin, 60% up from the prior year. And after interest effects, other expenses we yielded a profit before tax for the year of $33.4 million as opposed to $12 million in the prior year.

Net profit after tax and outside shareholder interest was $23.2 million.

Commenting on the fourth quarter very briefly we saw a general dip in commodity prices which affected our sales and so in general, the level of profit before us in Q4 was lower than previous quarters in the year.

Turning to page four, operating cash flow for the year was a very positive $43.5 million, up significantly from the prior year. Working capital changes was an outflow but we are currently awaiting about $8 million or $9 million VAT repayment which will becoming through in this quarter or early next.

Investing activities was -- at least CapEx of Skouries, Olympias and Stratoni totaling a fraction over $40 million for the year. It also increased the cash element of the acquisition of the additional interest in Hellas Gold.

The financing activities for the year. We raised almost $190 million providing very strong platform for financing the growth profile the Company has. Over $120 million came from an equity issue halfway through the year. Prior to that in April we had raised almost $60 million from the sale of silver to Silver Wheaton and then about $6 million or $7 million we also realized through prepayments on gold concentrate sales.

So overall we ended the year with $219 million in cash making up the vast majority of the working capital bonds in $226 million. David?

David Reading

Thank you very much Tim. Turning back to presentation page five, the Company’s attributable reserves continue to be well over 9 million ounces of gold, 74 million ounces of silver, 1.6 million tons of led and zinc metal and 750,000 tons of copper. As I have mentioned previously Hellas Gold acquisition cost to get to the full 95% to $25 an ounce from a gold equivalent reserve ounce basis or $50 an ounce on gold ounce as only and the discovery cost per ounce in Sertage is approximately $20 an ounce for the reserves we have at the moment.

Turning to page six. Aktor’s involvement in the Company is going to continue to grow as we develop the projects. Some of the pictures I show you there include the fact that Aktor now operates six quarries in Greece and is well placed in terms of construction of plants and rehabilitation of projects plus mining. They are very much a strategic partner which is one of the reasons why we secured a stronger alliance with them and have their support and full commitment for the next four years in the development of the projects.

Turning to page seven, the Company has a strong growth history; is underpinned by our delivery on the promises we made to the market and we continue to move forward in what we plan to do -- to take this Company to a mid-cap reducer. Turning to Stratoni more specifically on page eight the profit margin for the mine is approximately 50%, we had viable production for 2007 with 16,000 tons of zinc, 15,000 tons of lead and 1.2 million ounce silver.

Our sales increased 40% on those six. We sold 26 shipments throughout the year. We currently operate effectively at over 900 tons a day and we are ahead of forecast for this year. Our new audit is essentially complete, we are putting new development into the upper levels and our filter press technology has been effectively commissioned in this operating well and reducing our wet tailings re-handling costs.

If you look at page nine, I am please to say from our production figures that we ended the year on zinc rates which were just above life-of-mine, lead rates were well about life-of-mine and as we all know silver goes with the lead and that was 200 grams per ton average for the year.

Turning to page 10 I am pleased to announce that this year Stratoni added another 400,000 tones to the reserve at significantly higher grades then average life-of-mine. So showing the 10% increase in Zinc overall and closed it to a 20% increase in lead and silver content. Basically Stratoni is been mining for two years and still has a six year life so every year we’ve been able to at least replace what we mined. More importantly on page 10 we now have development or intercepts into extension areas to the east, west and far east of old body and all these areas will be drilling out over the course of this year and hope to add an additional three years by the end of this year.

Turning to Olympias, the Company has shown a six-fold increase in sales over the year. Effectively we sold virtually 30,000 or a 150,000 tons of gold cons where either sold or paid for in 2007. Company has 395,000 ounces of gold on the surface in the form of a stock pile and a tailings area that can be converted to a second stock pile forward of Hellas Gold in the pool of European Goldfields so it’s now given the Company permission to republish the plants to Olympias and that will be happening over the course of the next couple of months and as you know the whole story with Olimpias is that we have these gold reserves at the surface which effectively make the refurbishment of the Olympias mine a self funded project.

Turning to page 12, Olympias -- the big price for Olympias of course is this big old buddy with almost 4 million ounces of gold, 54 million ounces of silver and 1.3 million tones of led and zinc. We plan to start underground refurbishment hopefully towards the end of this year and early next year so that we can start underground production and remember Olympias is exactly the same style of mining as Stratoni and we already have the necessary skills to affect this.

Turning to page 13, our Skouries project is starting to take share. You can see form those photographs there that the, the SAG mills, Ball mills are now being constructed. Projects anticipated CapEx including some allowances for euro dollar, is approximately $300 million, our life-of-mine co-product cash costs are in the range of $250 to $300 announced and as you know we consider this our flag ship project because it had an opened pit with a low strip ratio and an underground core or highbred core of dept which can be mined by underground by detaining methods and that makes this because of the high grade core and the low strip, effectively a low cost producer.

Turning to page 14. The Company has experienced some short term delay in the fermenting process due to replacement of personal in the Ministry Of Culture. However we’ve taken the decision of board level that we wait for a very clear and qualified preliminary environmental impacts permits which we expect to be issued in the course of the next few weeks and then the Company will move on to the final permitting phase in Greece. Remember the preliminary environmental impact approval is significant endorsement in Greece and sets the path for the final development of the project.

In Rumania on page 15 I’m pleased to announce the Company has made very significant process in finishing all its key feasibility studied and these are all done. We now have detailed studies for plant and detail studies for curtailing mining design for the open pits and for the infrastructure. We are in -- we are finalizing our capital numbers which we will issue to the market in the course of the next quarter.

As you know the mine involves full 11 years production from open pits at about a 160,000 per year. Our metallurgical process involves floatation, the Albion leach and final CIL.

Turning to page 16, the Company has done very well in its permitting process. We’ve now finished the environmental impact study. We’ve already submitted technical feasibilities to the government. We’ve hold a valid time in the mining permit and certificate of urbanism. We have strong community support and we are in a public consultation process, we expect key permits by the end of the year.

I’m pleased to announce on page 17 that we’ve completed an airborne geophysical program in Greece. It was completed in January. We flew the whole 317 square kilometers of mining license in Greece with both aeromagnetics radio metrics and EM on the northern parts of the permit. The slide you see there on page 17 is the aeromagnetic results, which was a very pleasant surprise to us outlining a very large intrusive belt in the southern portion of the permit which hosts Skouries and a number of other porphyry bodies.

If we look at page 18, I’ve given you a blowup of that area. The Company has undertaken -- its geological team has undertaken ground-intruding of some of these targets. We can confirm a large intrusive complex next to Skouries and another one at Fisoka. Most of these targets are completely untested and were completely unknown before the survey.

Turning to Fisoka. This was known about to some extent; was previously drilled by a Greek Company some years ago, some 20 years ago. They didn’t assay for gold but they got 0.4% to 0.65% copper over significant widths in the northern porphyry. Further ground follow up is saying that there are central and southern porphyry bodies which are completely un-drilled and carry very exciting looking rocks on the surface. So one of our objectives this year is to drill some holes into these new porphyry bodies where we know already there is significant mineralization from historical drilling to the north.

Turning to page 20, we have now designed and approved an exploration program for our Piavitsa target. Piavitsa locates some 2 kilometers along from Stratoni. We have some exciting drill intercepts into the target already. We plan to drill another 40 to 50 holes this year which will in effect define a 2 kilometer area hopefully with continuous mineralization and will make this project if we are successful as large as Olympias.

Turning to Europe itself on page 21, I'm pleased to announce that the Company recently went into Turkey. We signed a Heads of Agreement with an AIM-listed resource Company, Ariana that holds a portfolio of licenses in Eastern Turkey. We start the joint venture with 51% with the ability to earn between 80% and 90% in projects as we take into feasibility level. We like Eastern Turkey, we like that region of Turkey. The geological belts that we know and have been exploring in Greece extend all the way across there. This is the region where Cayeli exists and has been producing for a number of years as well as the state copper mining company.

And turning to the Ariana JV more specifically on page 22. There is already an existing target called Ardala which has 12 holes drilled from previous exploration some time ago giving between 0.3% copper and 0.5 grams per ton gold into a porphyry deposit. The magnetic anomaly covers a much larger area and some of the focus of our exploration work starting in May of this year will be to see if we can understand the extent of this porphyry body and undertake some scout drilling.

Coming back to page 23 the growth strategy of the Company is clearly defined as if what has been we are in phase one so to tell you we will be ramping up to 290,000 this year. Olympias will continue to accelerate gold sales, we have virtually completed to feasibility studies and we are in the final stage of permitting. The Company plans to evolve to mid-tier producer by getting Olympias back into production next year getting Skouries into production in mid 2010 and getting Sertage into production in 2011.

Ladies and gentleman thank you very much for listening to the presentation and myself Tim and Mark will very happily take any questions you care to ask.

Question–and–Answer Session

Operator

Thank you. Ladies and gentleman we will now conduct a question-and-answer session. (Operator Instructions) Your first question comes from Stephen Walker from RBC Capital Markets. Please go ahead.

Stephen Walker - RBC Capital Markets

Good morning David, good morning Tim. Just a couple of things here. Can you expand on your expected capital spending for Skouries. We have seen cost score up across of the board at a number of feasibility stage projects and given the delays around the permitting here do you have an estimate on what capital could be at Skouries. I think we are modeling in $300 million now. Is that a reasonable number or should we be tweaking that higher?

David Reading

The team didn’t want me to go above 270 Steve and but I will took it up to 300 based on the euro dollar exchange. The long lead items have been secure. We have already signed a contract with Outotech for EUR 33 million and in fact they gave us a 3% reduction on the physical capital items. We don’t believe a lot of the plant items will cost us more than what we have estimated in the feasibility. If anything there could be an opportunity to save money here because the civil construction phase has been defined by external consultant assuming a 15% mark up for engineering contractors. I know that in Greece there is an opportunity to get things done in a slightly more cost effective way. My only reservation in saying “well this is it and this is fin al” is that we are still in a permitting process, so there could possibly be some modifications to our tailings design -- nobody has told us that they will be, but until we finished the EIS approval I’m a bit hesitant to give the absolute final definitive number.

Stephen Walker - RBC Capital Markets

Right and may be if I can just follow up with a question on your comments about permitting and where the EIS is at this point in time. It looks like it’s a moving target, we’ve kind of gone from mid year 2008 to the latter part of 2008. Can you talk a little bit more on -- I guess there is never any certainty around permitting but just given the delays and given I guess some of the issues at the ministry of environment -- the degree of certainty that we will feed EIS approved and permits issued her later this year.

David Reading

I think the first thing I would say is that the Ministry of Environment and the Ministry of Development are fully behind the projects and one of the delights we have experienced has been with one of the minor industries or ministries in the permitting process and unfortunately it’s caused a delay in the whole of Greece and the deputy minister culture was replaced and through that process everything got reviewed again. I think the final outcome in Greece is not in doubt. We have strong partners and we have strong ties but we are in a bureaucratic process which although we have not had any major issues, can be sometimes a little slower and more frustrating than we would like. I don’t know if you care to comment Mark on that?

Mark Rachovides

Steven, good morning, Mark Rachovides. We had a Board meeting yesterday in Athens of Hellas Gold and we took a very strong view that given the progress we have made with all of the major ministries that will be contributing to the decision we felt that the delays with the ministry of culture did not require us to do anything except continue towards a full and unqualified approval. We had been asked to consider as I told was reasonable -- maybe looking for some sort of qualified approval in order to get a preliminary approval quickly. We decided that there was no material reason to accept that. We are targeting the end of April to have received the preliminary approval and we are confident that such should be the case.

Stephen Walker - RBC Capital Markets

Okay, great, thank you for that Mark, thank you David.

Operator

Your next question comes from Mark Smith from Dundee Securities. Please go ahead.

Mark Smith - Dundee Securities

Yeah, hi guys. I just want to follow up on Steve’s question just a little bit just in terms of the capital spend, with the delay in permitting, what’s reasonable to look at -- for our capital budget for this year? What kind of a number you are looking at?

Timothy Morgan-Wynne

Mark, its Tim here. I think the Skouries -- to date we are committed to around $20 million and I think some additional 5 or so on top of that isn’t a bad number to be putting in for the current year. Then I think around $10 million at Olympias as we start refurbishing facilities there and I think Sertage probably around -- about $13 million as we are moving that projects on as well.

Mark Smith - Dundee Securities

Just let me get those again. So that’s Skouries $25 million and Olympias $13 million, what about Stratoni?

Timothy Morgan-Wynne

I think around 12. We have got quite a lot of underground capital to complete the full infrastructure and capital development and we are completing a new water treatment plant there as well.

Mark Smith - Dundee Securities

So basically out of $300 million that you are planning to spend on Skouries, you really don’t see any spend until next year?

Timothy Morgan-Wynne

The bulk of it will be fully into ’09 and ’10.

Mark Smith - Dundee Securities

Okay, so do you think you can spend that money fast enough to get it in line by sort of mid-to-late 2010?

David Reading

I think Mark if we get the necessary permits that we need this year as we plan, then, yes. The delivery time for the plant equipment is third quarter 2009 and say provided we can get our Sibyls in place for that we should still be in good shape.

Mark Smith - Dundee Securities

So, just most of us will look for the order books sort of thing. If we have their preliminary feasibility or preliminary approval sometime in May, by the time we get the final engineering done and the -- as it is now for the whatever modification we have to do in the EIS and could you at that point start ordering a fleet or would you have to.

David Reading

Well hope Aktor will assist us in that, they have quiet a lot of equipment themselves. As for the detailed engineering for the Skouries plant, well we are in that process already. Well to take off have been delivering detailed engineering diagrams as we speak.

Mark Smith - Dundee Securities

No, I just meant that there is final modification with respect to the.

David Reading

Well the EIS wouldn’t change the plant design, that wouldn’t change at all.

Mark Smith - Dundee Securities

Okay, so it will just be the earth works then.

David Reading

It will just be the earth works.

Mark Smith - Dundee Securities

Okay and so then following on that presumably, if you get approval by mid year for this project that you can actually start earth works and that would seem to be more than $25 million.

David Reading

Well the preliminary environmental is a very significant step in the process because it effectively gives you the template for design, but you still have to get the environmental approval.

Mark Smith - Dundee Securities

Okay

David Reading

That will probably take more towards the end of year I would have though.

Mark Smith - Dundee Securities

Alright, okay fine, good enough. Just then could you give me an idea on how much of the remaining 130 -- 1000 ounces for Olympias you intend to deliver this year?

David Reading

We would say in excess of 100,000 tons but more likely another 120,000, 130,000 tones.

Mark Smith - Dundee Securities

So, the remainder?

David Reading

Well if you look at the diagram.

Mark Smith - Dundee Securities

That’s fine.

David Reading

I got a 171,000 there I think.

Mark Smith - Dundee Securities

Yeah that’s fine. Alright thank you very much you guys.

David Reading

Thank you.

Operator

(Operator Instructions) Mr. Reading there are no further questions at this time, please continue.

David Reading

Well, thank you very much operator and ladies and gentleman thank you very much for listening to the European Goldfields conference call and webcast. Should you wish to ask us any further questions at some later stage I am always at the other end of the phone and so is Tim. Thank you very much, good bye.

Operator

Ladies and gentleman this concludes the conference call for today. Thank you participating. Please disconnect your lines.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: European Goldfields Q4 2007 Earnings Call Transcript
This Transcript
All Transcripts