Eldorado Gold Management Discusses Q2 2012 Results - Earnings Call Transcript

Jul.27.12 | About: Eldorado Gold (EGO)

Eldorado Gold (NYSE:EGO)

Q2 2012 Earnings Call

July 27, 2012 11:30 am ET

Executives

Nancy E. Woo - Vice President of Investor Relations

Paul N. Wright - Chief Executive Officer and Director

Norman S. Pitcher - President

Fabiana E. Chubbs - Chief Financial Officer, Treasurer and Risk Manager

Paul J. Skayman - Chief Operating Officer

Analysts

Kerry Smith - Haywood Securities Inc., Research Division

Joung Park - Morningstar Inc., Research Division

Cosmos Chiu - CIBC World Markets Inc., Research Division

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

Steven Butler - Canaccord Genuity, Research Division

Anita Soni - Crédit Suisse AG, Research Division

David Haughton - BMO Capital Markets Canada

Patrick T. Chidley - HSBC, Research Division

Chris Martino

Dan Rollins - RBC Capital Markets, LLC, Research Division

Operator

Good morning, ladies and gentlemen. Welcome to the Eldorado Gold Second Corporation 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, Ms. Woo.

Nancy E. 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 subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in or suggested by the forward-looking statements or information.

Consequently, undue reliance should not be placed on these forward-looking statements and information. The information contained in our Annual Information Form and in our annual quarterly Management's 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 expressed, qualified in their entirety by the cautionary statement and cautionary statements contained in our press release dated July 27, 2012.

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

Paul N. Wright

Thank you, Nancy. Good morning, ladies and gentlemen, and welcome to Eldorado Gold's second quarter financial and operating results conference call.

Joining me this morning in Vancouver are Norm Pitcher, President; Fabiana Chubbs, Chief Financial Operating Officer, Paul Skayman, Chief Operating Officer; and, of course, Nancy Woo, Vice President of Investor Relations.

In a few minutes, Norm will take you through an operational update, followed by Fabiana, who will comment on the financial highlights of the quarter.

The second quarter has been a somewhat frustrating and disappointing one for the company. The continued difficulties in processing concentrate efficiently from our Efemcukuru mine has adversely affected production for the quarter and will result in an underage at the mine for the year.

The inability to date to conclude permitting activities at the Eastern Dragon project has resulted in us not being able to be in a position to complete construction of Eastern Dragon in 2012. And as a result, we now do not anticipate meaningful production until 2014 from this asset.

The combination of Eastern Dragon and Efemcukuru has resulted in a reduction in planned production to 660,000 ounces at average cash cost of $465 for the year.

As disappointing as this is, it's important to highlight the fact that the combined production of Jinfeng, Kisladag, White Mountain and Tanjianshan mines remains on track to produce 595,000 ounces for the year at cash operating cost of $471 an ounce, and this is completely in line with the original plan for these assets for the year 2012.

In the quarter, we experienced a 3-week temporary suspension of tree cutting activities in Greece sensibly affecting our Skouries project.

As annoying as this was, we were extremely pleased to see the integrity of our permits, supported and respected by the council of state decision to promptly revoke the suspension and allow us to get back to work.

I'm very pleased with the progress being made in Romania, where subsequent to quarter end, we were granted the environmental permit for Certej. We are now continuing to finish off the land acquisition prior to application for the construction permit.

In Brazil, very good progress is being made on both feasibility, engineering and permitting in the quarter on the Tocantinzinho Project.

And having spent some time in the quarter with our team and with Para state officials, I remain confident in our ability to bring this project to a construction decision by year end.

Returning to Greece, good progress is being made in terms of development, reactivation of the Olympias mine and exploration, all of which will Norm will speak to in some detail momentarily.

With the establishment of the new government in Greece, we've experienced good progress in the permitting of a Perama Hill Project. Where as part of the EIA process, we expect public consultation to commence this quarter.

Again as with Certej and Tocantinzinho, we expect to be through the major permitting by year end and be able to make construction decisions on these 2 or 3 projects.

As a recap, although this was indeed a weak quarter for the company, the broader business is in good health and we are diligently working to remedy the deficiencies that have contributed to this weak quarter.

With that, I'll hand over to Norm.

Norman S. Pitcher

Thanks, Paul. Good morning, everyone. Let's start in the operations side. We'll begin in Kisladag, where we produced 61,575 ounces at a cash cost of $333 per ounce.

Gold production was slightly lower for the quarter mainly due to the stacking and leaching schedules. However, we set a project record during the quarter for ounces placed on the pad and we'll see the benefit of that in the coming months.

At Tanjianshan, we produced 21,172 ounces at $432 an ounce and had no operational issues there.

Jinfeng produced 25,630 ounces at $786 per ounce. We continue to feed the mill from the underground and low-grade stock piles, while the open pit is in a stripping phase.

At White Mountain, we produced 18,095 ounces at $622 per ounce. During the quarter, there was a one-time charge of crusher repairs, which increased the cash cost slightly.

At Efemcukuru, the mine and the mill at site performed well, mining 90,500 tonnes at 10.3 grams per tonne and running 95,000 tonnes through the mill at 9.6, through the flotation circuit. The paste fill plant is now operational, as is the underground crusher.

At the Kisladag concentrate treatment plant, which treats the flotation concentrate from Efemcukuru, an additional filter press has been installed and is being commissioned to address the shortfall in filter capacity. By the end of the year, we plan to install an additional thickener tank and Isa fine grinding mill. And at the end of the quarter, we had approximately 42,000 in situ ounces stored on the leach pad at Kisladag.

At Vila Nova, we sold 172, 000 tonnes of lump and sinter during the quarter at an average price of $85 per tonne with operating cost averaging $62 per tonne.

At Stratoni in Greece, we produced 17,300 of concentrate at an average cost of $593 per tonne and sold 15,800 tonnes of concentrate at average price of $843 per tonne.

Mine and mill operations at Stratoni were normal during the quarter.

On to development. As Paul mentioned at Eastern Dragon, we were informed in early July that the Provincial Development and Reform Commission, PDRC, was referring our permit application to the National Development Reform Commission, NDRC, for final approval.

We're currently in the process of compiling and preparing the documents to support the application and are scheduling meetings in August and trying it with both PRC and NDRC to further clarify the permitting time frame, and we expect to provide an update in the next quarterly conference call.

I guess, in broad terms, the move to go to NDRC is unfortunate in that if we've done it 16 months ago when we started our application with PDRC, I think we had a good chance of having that permit already in place. So I don't necessarily see the permitting process at NDRC more difficult than at PDRC, it's just the time that's been spent going through the application process at the state level.

Tocantinzinho, public meetings were held during the quarter and the input from the state quarter was positive. We're on track to have the feasibility study done late this quarter and the EIA approved by the end of the year. At Perama, the EIA has been submitted and is being processed on the fast-track program. We started geotechnical drilling on site and we'll start exploration drilling this quarter.

At Olympias in Greece, mine development went well during the quarter where we are rehabbing the main decline as well as establishing a new access from the underground to the recently refurbished mill. The mill is in commissioning at this point and we started to run tailings through. We continue to evaluate options for sale of the concentrate product, including Jinfeng, and in the meantime, have secured sufficient storage nearby to handle near and midterm production.

At Skouries, we continue with site work including mobilization of support equipment and personnel and tree cutting.

At Certej, we have reached a major milestone with the approval of the environmental permit and I'd like to take this opportunity to congratulate our team in Romania.

Land acquisition will continue throughout the rest of the year as a precursor to applying for the construction permit.

On to exploration, but since we have just put out an update at the end of June on exploration, I'm not going to cover much there at all, just a few observations at Kokarpinar, at Efemcukuru is looking quite good. We're starting to find a couple of ore grade shoots there that seems to be a little narrower than the main Kestane Beleni vein, but with some very high grades in that.

Piavitsa in Greece is shaping up pretty much as we hoped it would and we're quite encouraged by the results coming out of Jinfeng.

We currently have 25 drills turning around the world and we look forward to providing another update later in the year.

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

Fabiana E. Chubbs

Thank you, Norm, and good morning, everyone. I will go through the financial statements, highlighting changes in significant accounts.

Before I go into the details of my comments on the financial statements, I want to bring to your attention that there is a typo on our MD&A on Page 12 where we have the reconciliation for non-IFRS measurements. For the second quarter in 2012, we inverted the total cash cost per ounce with the cash operating costs per ounce so total cash cost per ounce should be $550 per ounce while the cash operating should be $480.

Now I will provide the comments on the financial statements. Commencing with the balance sheet, we ended the quarter with a cash and cash equivalent balance of $315 million, compared to the balance of $394 million at the end of 2010.

The $79 million decrease in cash is mainly related to the usage of cash in our capital program, offset by cash flows generated from operating activities.

The $50 million increase in inventories relates mainly to the buildup of concentrate inventoried at the venture [ph]group. That accounts for near $29 million and the balance is the addition of the Stratoni inventories.

During the quarter, we sold 8,798 ounces of pre-commercial production concentrate.

As a reminder, the revenue from the sale of pre-commercial production concentrate is recorded as a reduction of property, plant and equipment.

On the liability side, the debt balance increased by $39 million as a result of a $30 million drawdown in our credit facility and a repayment of $11 million of our debt with Chinese funds.

The acquisition of European Goldfields completed in the first quarter had the substantial impact on property, plant and equipment, which increased by $3 billion; goodwill with an increase of $300 million and deferred income taxes, which increased by $542 million.

Moving on to the income statement. Net income attributable to shareholders of the company were $47 million or $0.07 per share, compared to $75 million or $0.14 per share in the second quarter of 2011.

This represents a 38% decrease. The decrease in net income year-over-year was due to lower earnings before taxes from gold-mining operations, as well as higher general and administrative expense, exploration expense and tax expense.

Revenues from gold sales for the quarter of $214 million were down $30 million from the second quarter of 2011 due to lower sales, partially offset by higher gold prices.

Vila Nova and Stratoni contributed to $29 million of revenues in the quarter.

Production cost increased by 16% compared to the second quarter of 2011 mainly as a result of the additional Stratoni production cost.

General and administration expenses increased $6 million for the second quarter in 2011, mainly as a result of additional costs at our Athens and London offices following the acquisition of European Goldfields.

On the income tax expense, the effective tax rate for the quarter was 43% as compared to 31% in 2011. Items increasing the effective tax rate during the quarter include deferred income tax expense related to foreign exchange fluctuations, 5%; benefits on tax losses, which was not recorded, 4%; and withholding taxes spent on dividends paid by our subsidiaries, 3%.

On the statement of cash flows, during the quarter, we generated cash flow from operating activities before changes in nonworking capital of $82 million, compared to $150 million in Q2 2011. A decrease in cash flows year-over-year was due to lower operating cash flow from our mining operations.

The main uses of cash relate to our capital program and the payment of costs incurred related to the transaction with the European Goldfields.

Those are my comments on the financials statements. I will return the call back to Paul.

Paul N. Wright

Thanks, Fabiana. Thanks, Norm. Operator, we'll open for questions please.

Question-and-Answer Session

Operator

[Operator Instructions] The first question is from Kerry Smith from Haywood Securities.

Kerry Smith - Haywood Securities Inc., Research Division

Fabby, on the working capital changes, there's a big number in there for accounts payable. What is that related to? $103 million or almost $104 million?

Fabiana E. Chubbs

The bulk part relates to the liabilities that were accrued at the time of the acquisition European Goldfields. And that in the first quarter, we completed the transaction and we accrued all the costs and now those costs are being paid, so then the liability is reduced.

Kerry Smith - Haywood Securities Inc., Research Division

Okay. So it's the transaction costs as well are in there?

Fabiana E. Chubbs

Yes.

Kerry Smith - Haywood Securities Inc., Research Division

From the EGU DLA [ph]'?

Fabiana E. Chubbs

Correct.

Kerry Smith - Haywood Securities Inc., Research Division

Okay, okay. And Norm, can you just take me through -- it sounds like the facility at Kisladag for treating the concentrate from Efemcukuru that you are expanding and changing the circuit, can you just walk me through exactly what you're doing? I think you said you're putting in a small IsaMill and another thickener. I'm just curious exactly what you're doing and what the CapEx should be and when all that would be complete?

Norman S. Pitcher

We're not changing the circuit so much, Kerry, as we are -- we struggled with this filter press that we've got really right from the start there. This sort of should've been operating in about 5 tonnes per hour and we've got it up to about 4 or so now -- so we basically, we bought 2 Chinese filter presses and similar to the ones that you saw at White Mountain. The first one we flew over and was installed and is now being commissioned. It seems to be running okay, very early days on that. And that one's got capacity for about 8 tonnes per hour. So I have another one at the same size coming over. We're going to have a little bit, a lot of filter capacity here coming up, but then -- and this is also partly looking at the overall expansion. We are going to put in another IsaMill. We've already got a fine grinding IsaMill upfront to start with. We're going to put in an additional one in there and then basically increase our thickener capacity at the other end. So it's not changing the circuit so much as really now, the immediate thing is to add additional filter capacity and then make sure that we can also beef up the IsaMill and the thickener.

Paul N. Wright

Let me just jump in for a moment, Kerry. I think it's safe to say that as Norm described with our ambitions for Efemcukuru are obviously: one, to get beyond this lengthy teasing period, but beyond that, to frankly look to expand overall throughput from Efemcukuru. And the so changes that Norm described and were designed not only to fix the short-term problem, but to put us in a position so we can indeed increase throughput from the mine, through the mill and then eventually make sure we don't have a bottleneck at Kisladag.

Kerry Smith - Haywood Securities Inc., Research Division

Okay. And so is 8 tonne an hour what you -- or was 5 tonne an hour, Norm, what you needed in terms of capacity for...

Norman S. Pitcher

Yes. But we got -- the problem is, Kerry, we got behind on that, right? So now, we built up the access and we want to be able to treat that as well. So we're sort of -- it's sort of a belt and braces situation that we're doing here.

Kerry Smith - Haywood Securities Inc., Research Division

Right, okay. And so all of these modifications that -- or these additions to the plant what's called that you're adding, when will that all be up and operational? Is that like kind of Q1 2013 [ph] then?

Norman S. Pitcher

Yes, late this year, early next year on the IsaMill and thickener. The filter press, we'll be giving an update on the next quarter, but it's already -- we're already starting to run it, the Chinese one.

Kerry Smith - Haywood Securities Inc., Research Division

Now one in -- but I say, you have a second one, though, a second to install, right?

Norman S. Pitcher

That's correct, yes. I mean with these 2, we're going to have 13 tonnes per hour. Well, no -- 12 tonne per hour capacity if the first one starts, keeps running at 4.

Kerry Smith - Haywood Securities Inc., Research Division

Okay. And just on Eastern Dragon, how did PDRC actually approve the permit, but then said that it needed to go to the NDRC for the subsequent approval or did they just decide that they didn't want to deal with it and they want somebody else to make the decision?

Norman S. Pitcher

Well, they do have to deal with it in the end because when they send it -- what they're going to do is they're going to sort of give their -- they're going to give approval of the project, I guess, but not of the particular permit. So they're going to say to NDRC, we approve and want this project and they're willing to do that, but they want NDRC to give the final approval on it.

Kerry Smith - Haywood Securities Inc., Research Division

Okay. And have they given that project approval as it were?

Norman S. Pitcher

Well, no. I mean without...

Kerry Smith - Haywood Securities Inc., Research Division

Or they tell you they're prepared to do it?

Norman S. Pitcher

They said, yes, they're prepared to do it. Now it will be sort of part of what we're doing now with getting the -- getting all the documents and permits that we've gotten so far into a bundle to take to NDRC.

Operator

The following question is from Joung Park from Morningstar.

Joung Park - Morningstar Inc., Research Division

First question I had was Olympias. You guys mentioned that you would send the concentrate potentially off to Jinfeng. I'm just wondering, can you send it somewhere closer like Stratoni?

Norman S. Pitcher

Well, no, we can't. No, Stratoni doesn't have -- Stratoni doesn't -- Stratoni produces concentrate. It doesn't treat concentrate. But right now, we've run some tests at Jinfeng that look fairly encouraging through the BIOX circuit. But certainly, that's not -- we haven't decided that's the final destination. We're looking at various options and yes, of course, we're going to be producing this at a fairly modest cost out of the mill at Olympias, so we don't want to then whack it with huge transportation costs. So obviously, we're looking to find the best spot for it. In the meantime, as I mentioned, we've got a nearby storage capacity to handle lots of it, lots of the product.

Joung Park - Morningstar Inc., Research Division

Okay. And then what the annual production from the tailing portion look like again?

Norman S. Pitcher

Well, that's about 55,000 ounces at full production.

Joung Park - Morningstar Inc., Research Division

Okay. And then at Kisladag, can you just give an update on how the Phase 4 expansion project is going?

Norman S. Pitcher

Phase 4 is going fine. I mean, we are -- we have put down payment on most of the long lead time items. We're -- continuing with detailed engineering and yes, really no issues there so far. It's a very busy site right now.

Joung Park - Morningstar Inc., Research Division

Okay, I can imagine. And then for Jinfeng, what's the percentage breakdown between the ore that you sourced from the stockpile versus the ones that you got from the open pit and underground for the quarter?

Norman S. Pitcher

Tonnes or ounces?

Joung Park - Morningstar Inc., Research Division

?

Excuse me?

Norman S. Pitcher

Are you speaking in terms of tonnes or ounces?

Joung Park - Morningstar Inc., Research Division

Tonnes.

Norman S. Pitcher

Well, about 40% over the stockpile and the rest of it comes from the underground.

Joung Park - Morningstar Inc., Research Division

Okay. And then just a question for you, Paul. Is there any changes in the capital expenditure expectations? I believe when I asked on the first quarter call, you guys were expecting about $550 million for the year. Has the mining CapEx creeped in the industry affected you guys at all?

Paul J. Skayman

Well, we're not actually seeing -- we're not seeing any revision to our capital estimates as it relates to escalation prices. But I mean, we are certainly looking at a -- there'll probably an underage on capital spend this year compared to what we originally projected. Again, we had guidance at the beginning of the year which reflected our assets prior to the European Goldfields transaction being closed and us, subsequently in April, giving guidance on that. And I think if you add them up, we're probably going to be about $100 million light on capital at the end of the year and that's just timing, really. It's not change of scope, it's just timing.

Joung Park - Morningstar Inc., Research Division

Okay. So $450 million now?

Paul N. Wright

Well, I mean I think we're -- I mean year end, we're probably going to be looking at more like sort of $375 million to $400 million for the year.

Operator

The next question is from Cosmos Chiu from CIBC.

Cosmos Chiu - CIBC World Markets Inc., Research Division

Congrats on getting the permits at Certej, but now with the permit in hand, can you remind us of some of the upcoming key deliverables? I guess, you had mentioned land acquisitions, also the construction permit, but in the past, you had also talked about maybe a reserve resource update. You've also, in Q1, performed a detailed review of CapEx and a flow sheet and things like that. When might we start seeing some of that information come out?

Paul J. Skayman

Well, we're just, as you described and as Norm described and I think we all described, the big environmental permit is behind us. It's a matter now of the mechanics of completing the land acquisition, which is well underway. And then the application of the construction permit. In parallel with that, we are doing exploration as Norm described. We think there's some excellent opportunities to expand the resource base. We're doing some confirmatory metallurgical test work to help us refine our own expectations in terms of final metallurgical recoveries and operating capital costs. I mean our objectives are here is to bring this all together. And as I said in my introduction by year end, be able to make a construction decision, which frankly necessitates us being able to be firm on expectations for capital and operating. We may -- our -- my expectations that we probably will have an updated resource estimate before then. And certainly, when we make a construction decision, we'll be giving you our full guidance as it relates to reserves and capital and operating at that time.

Cosmos Chiu - CIBC World Markets Inc., Research Division

Great. And on your new guidance of 660,000 ounces, I just want to make sure I confirm that. Does it include pre-commercial ounces at Efemcukuru? And if that's the case, how much of the 65,000 ounces coming from Efemcukuru will include -- would be noncommercial versus commercial ounces?

Norman S. Pitcher

It does include that material, that 66,000 ounces from Efemcukuru. In terms of commercial, probably 25,000 of that 66,000 will be commercial, 25,000 to 30,000.

Operator

The following question is from John Wolfson from Stifel Nicolaus.

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

Just moving back to Certej for a minute for the land acquisitions, what sort of requirements or what's the process for this being done? Is this all local community land owners and is there any sort of protest against the mine that would hold up that process that you need to get?

Norman S. Pitcher

No. Let's say it's mostly local in the main. In the pit area and plant area, it's pretty much all local landowners. Yes, I think they're kind of 85% to 90% complete already on that and there's not a lot left there. The village of Certej, which is about 10,000 people, sits kind of 50k from the mine. It's an old mining town, extremely supportive of the operation, so really no issues there. Up in the tailings area, part of it is forestry, and that's -- you're doing a forestry lease on that and we don't see any complications there either.

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

And the process that's being permitted or that it was permitted for is Albion, correct?

Paul N. Wright

That's correct.

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

Okay. And so there's no issues with cyanide use in land tenements?

Paul N. Wright

No, it's always been -- yes, it's always been cyanide.

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

Okay, that's good to hear. And then also for the land acquisitions at Jinfeng, what percentage of that is completed this current time?

Norman S. Pitcher

Yes, over 80%.

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

Over 80%?

Norman S. Pitcher

Yes.

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

And the expectation is still to get that done in the third or fourth quarter or?

Norman S. Pitcher

Yes, I say I think from by the end of the year, early next year, we'll have what we need. We don't see it holding up the open pit mining schedule.

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

So your expectation is to keep feeding the stockpile basically until that's finished?

Paul N. Wright

Yes, until -- like we are stripping right now in the pit. It's -- we're mining waste at a fairly good rate, so that the pit wall's being brought down to access the ore at the bottom of the pit and over in the wrong band area. Yes, so we will continue to feed from the stockpile until sort of the end of the year, then we'll be back into open pit material early next year.

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

Okay. I guess the last question. We see HSBC covenants. I guess, that was negotiated before the European Goldfields acquisition. Has there been any sort of consideration of looking at new debt terms or renegotiating that, so that you would be able to secure additional debt assuming all the projects are built over the next year or 2 basically?

Paul N. Wright

Look, I mean we're looking at how we could have strengthened our balance sheet from the debt perspective to ensure that through a period of 2 to 3 years, I think tens of capital investment that we have, the ability to build, execute the plan, recognizing the volatility and the metal prices. So we're -- suffice to say, we're looking at expanding our safety net accordingly. My own view is it's quite possible and likely that we're going to see gold bouncing around in the sort of $1,500 to $1,800 range for the next couple of years. And what we want to make sure is that we have protection on the downside perhaps beyond that such that we don't have any interruptions with our construction on that. If you do the arithmetic, we do and suggest that we probably should look to expand the facility in one form or another. So we're going through that review process to consideration. We're also looking at it from the perspective of optimal scheduling of capital spend over the next couple of years at the same time. And certainly prior to year end, you're going to see us giving you some guidance on what we see as sort of the optimal capital spend over the next 2 to 3 years and again, our approach to strengthening the balance sheet. But I emphasize, it's going to be on the debt side.

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

Okay. So if you're looking at, I guess, bank debt or a high-yield market or even maybe looking at forward selling some of the base from those production?

Paul N. Wright

We're not looking at forward selling production.

Operator

The next question is from Steven Butler from Canaccord Genuity.

Steven Butler - Canaccord Genuity, Research Division

It's Steven Butler today. Well, I'd like to change my name some days. But anyway guys, at Efemcukuru, you're talking to Cosmos about the commercial production. Norm, you hesitated a little bit, but maybe I was just doing your math, 25,000 to 30,000 ounces. Is that suggesting there for that we wouldn't really see much commercial production, your best guess from Q3 at Efemcukuru?

Norman S. Pitcher

Yes.

Steven Butler - Canaccord Genuity, Research Division

Right, okay. And what work would you look at and investigate in, I mean, if you expanded the capacity of the mine and the mill? And, Paul, are you talking about -- I remember at the site visit that a year or so ago, are a bit more -- is it about 25% level of expansion. Is that what you're thinking?

Norman S. Pitcher

That's what we're thinking. Yes, so that's what we see to the mine being able to go to and the milling capacity that we have invested in at Efemcukuru. So as I sort of more than alluded to, the fixes that we're making now at Kisladag are designed to make sure we get there in one fell swoop so that we're not a year from now, saying, "Oh, now we have to add another little bit." But frankly, we, obviously, we had deficiencies in the filter press. But to be perfectly blunt, we underbuilt the treatment facility at Kisladag, all right? So now we've got to fix it.

Steven Butler - Canaccord Genuity, Research Division

And if you put in -- is it the IsaMills, Paul or Norm, the 40,000 additional ounces of inventory you said your work is ongoing to determine an appropriate means to recover some of these ounces in an accelerated way. How -- if you expanded the mill for the 25% level, I mean does it -- is it take? How long may it take you to get some of those 40,000 ounces cycled through beyond the normal process of throughput coming from the mine on a daily or weekly basis?

Paul J. Skayman

You're going to get a fair bit of a through -- yes, once we sort of head our strats, I think you're going to see, as Norm sort of talked about, 7 tonnes an ounce is probably a reasonable throughput. So we are going to be moving ounces through reasonably quickly. We won't get them all through this year, though, I doubt.

Steven Butler - Canaccord Genuity, Research Division

Right. On those 40,000 inventory, Paul, you're saying?

Paul N. Wright

Yes, we're assuming that those will come out mostly early next year.

Steven Butler - Canaccord Genuity, Research Division

Yes, okay. Next year over a -- not in one fell swoop, I don't know sort of a steady or basis. Okay.

Paul N. Wright

I mean, I'm not saying , Steve, look. I mean, we've got 40,000 ounces of whatever sitting at the leach pad and we're producing ounces, bags of concentrate everyday at Efemcukuru. I mean, one of the things that we are looking at is an option frankly to take some of this concentrate and just -- and selling it. And that's just frankly run down the inventory a lot faster. But that's just a cost trade off. And as you appreciate, Paul and Norm or -- and the gang are just in the throws of seeing just how -- once we get these fixes made, how quickly can we run down the concentrate? What are our alternatives potentially selling concentrate? And then we'll decide on the offset and the benefit.

Steven Butler - Canaccord Genuity, Research Division

Okay. Last one, guys. Olympias commenced production, concentrate production from the tailings early in the third quarter. That sounds fine. And as you say, you're working with maybe not Jinfeng as a solution or elsewhere. Any discussions with elsewhere? In other words, concern here as to whether or not there'll be any commercial ounces at Olympias in the third or fourth quarter?

Norman S. Pitcher

We haven't put any into our guidance.

Steven Butler - Canaccord Genuity, Research Division

Okay, so it's -- I was wondering if your guidance says apples-and-apples, but you're saying you haven't put anything into your production profile from Olympias? Okay. I appreciate that.

Operator

The following question is Anita Soni from Credit Suisse.

Anita Soni - Crédit Suisse AG, Research Division

Most of the questions have been answered. Just one, what's the grade of vision from stockpile right now?

Norman S. Pitcher

It's a couple of grams.

Anita Soni - Crédit Suisse AG, Research Division

2 grams? Okay. And then just a second question with respect to the Olympias concentrate, what was the original plan for that concentrate? Or is it -- I'm just not quite sure why now it needs to be, I guess, shipped to China?

Paul N. Wright

Well, it doesn't need to be shipped anywhere, Anita. I mean, when we acquired the assets from European Goldfields, there were discussions going on with a certain North American company to ship concentrate there, okay? So there wasn't a plan per se. Suffice to say since we've taken over operations, we have alternatives that European Goldfields didn't have. We have the luxury, I suppose, of not necessarily having to turn it into metal immediately. And so we're really in the process of exploring what is the best thing to do with this concentrate. I mean as you appreciate, Anita, this -- what we're doing basically is digging up tailings, putting it through a mill to break up the lumps and then floating off a high-grade gold concentrate. The cost of putting that gold in concentrate is minimal, okay? The real cost is then tied to what do you do, what you then do with it. I mean, one of the alternatives that we may have is frankly, storing it for a considerable length of time because the cost of actually producing this gold is negligible. It's an obligation that we have in terms of the EIA or EIS, which is to clean up residual tailings. And that's really what we're doing here, is satisfying that requirement, cleaning up the tailings, getting rid of the old tailings and producing a gold-rich concentrate, which rest assured, we will one way or other derive the maximum benefit for the corporation from. But we're -- it's something that's really we're sorting out what's the best way to go with this.

Operator

The next question is from David Haughton from BMO Capital Markets.

David Haughton - BMO Capital Markets Canada

Probably for Norm, having look at Kisladag, good tonnes being stacked, good grades being stacked, but the ounces falling short. It looks like recovery ratio is down. Can we expect for that to be picked up in the next couple of quarters?

Norman S. Pitcher

Well, well, and I wouldn't necessarily say it's a recovery issue. I mean, if you're -- you've seen the pad there and it's a big pad and you're leaching and you're stacking in certain areas and leaching in others. And sometimes you're -- where you're expected to be leaching in a quarter, you may not finish on a particular cell. So you don't get on to the next cell. And that's really where we were in this one. So it's not or it's not a recovery. It's not a recovery issue.

David Haughton - BMO Capital Markets Canada

So it's just timing basically?

Norman S. Pitcher

Exactly, right.

David Haughton - BMO Capital Markets Canada

Okay. Earlier on, had mentioned a slower spend pattern this year than perhaps you would've thought earlier in the year. I'm presuming that most of that is in Greece. Is that correct?

Norman S. Pitcher

It's sort of -- it's spread around Turkey. I mean, it's -- you got a big lump of spending up front spending for Kisladag associated with a procurement.

David Haughton - BMO Capital Markets Canada

Okay. So I'll squeeze it around a bit and kind of bunch it up more into '13?

Paul N. Wright

Yes. I mean, Eastern Dragon, for instance. Obviously, we're not going to be finishing off Eastern Dragon this year.

Paul N. Wright

So it's spread around.

David Haughton - BMO Capital Markets Canada

Yes, Eastern Dragon relatively low CapEx so even if the costs went up a touch is really not going to do too much damage.

Norman S. Pitcher

No. Well, but I mean we had the Eastern Dragon originally planned for $45 million for investment this year. And obviously, we're not spending very much in Eastern Dragon this year so...

David Haughton - BMO Capital Markets Canada

Yes, as far as the grade sequencing out of Jinfeng, do you expect an improvement during the course of this year or should we save it up into 2013?

Paul N. Wright

Yes, I think it will stay about where it is for the rest of this year.

Operator

The next question is from Patrick Chidley from HSBC.

Patrick T. Chidley - HSBC, Research Division

Gentlemen, I just wanted to actually ask about the detail of that process at Kisladag in terms of the concentrate processing. Is it merely a filter press problem or is there -- and what's the experience for the -- respect to recoveries? Can you explain maybe a little bit more of the technical details of that?

Norman S. Pitcher

It's a fairly simple process. It's fine grinding down to sort of 10 or 15 microns leaching. Obviously, it's high-grade material and it's sulphidic, so a lot of cyanide and oxygen, and then a direct electro-winning process. Once -- well through thickening and then direct electro winning. So once the material's been thickened, then it goes through the filter press and it's really been a throughput issue in terms of getting the material filtered. So we're being limited in terms of our capacity to get that through. So with the Chinese filter, obviously, now we're looking at a faster throughput rate.

Patrick T. Chidley - HSBC, Research Division

So you're pretty confident that you are getting the recoveries that you -- it's designed for in terms of actually getting that -- the actual mill is actually working?

Norman S. Pitcher

We probably haven't sort of fully optimized. We're a little bit under what we'd like to see, but we are seeing improvement, so I think by and large, we're sort of getting there.

Patrick T. Chidley - HSBC, Research Division

Okay, so -- okay. And then just to confirm the 660,000 ounces this year includes 100% of the production you forecast from Efemcukuru this year including that which is inventoried?

Norman S. Pitcher

Yes.

Paul J. Skayman

Yes.

Patrick T. Chidley - HSBC, Research Division

Okay. And then just in terms of the tailings from...

Norman S. Pitcher

The 66,000 ounces total coming out of Efemcukuru this year.

Paul N. Wright

Which is included in the 660,000.

Norman S. Pitcher

Which is included in the 660,000.

Patrick T. Chidley - HSBC, Research Division

Right. And some of that isn't going to be produced because it's going to be carried over into 2013?

Norman S. Pitcher

No, all of that will be produced. And some of that is pre-commercial, but total production from Efemcukuru will be 66,000 ounces.

Paul N. Wright

And Patrick, we'll still, even with that, be left with an inventory. At year end, we anticipate to be around 40,000 ounces sitting, okay, which is not included in the 660,000.

Patrick T. Chidley - HSBC, Research Division

That's what I wanted to know. Yes, okay. And then just a quick question on Olympias, the tailings product there, the concentrate you're going to get there. Just remind us what the metallurgy of that? Is that just gold or is there base metals in it or what sort of...

Norman S. Pitcher

The -- yes, the base metals have been removed already, so it's pyrite/arsenopyrite concentrate.

Patrick T. Chidley - HSBC, Research Division

Is that something that can be interchanged with the material you're getting out of Efemcukuru?

Norman S. Pitcher

It's probably not dissimilar. It's lower grade. It's running sort of 20 grams to 30 grams. Efemcukuru is running sort of 3x that, I guess.

Patrick T. Chidley - HSBC, Research Division

Okay. So in the future you wouldn't want to take that to Kisladag, then?

Norman S. Pitcher

No.

Operator

The following question is from Chris Martino from Desjardins Capital Markets.

Chris Martino

I think this question was just answered, but I had to jump off the call quickly. Just wanted get to some clarity on Efemcukuru, you stated 65,000 ounces this year and you're in inventory of 40,000 in concentrate. So do we interpret that 105,000 or is the 40,000 included within that 65,000?

Norman S. Pitcher

The 40,000 is not included within that 66,000.

Chris Martino

Okay, 66,000?

Norman S. Pitcher

Yes.

Paul J. Skayman

And we will not be classifying that as production, that's strictly inventory at year end.

Chris Martino

Great. 40,000 year end inventory, okay. So the guidance includes the 65,000 ounces?

Paul J. Skayman

Only.

Operator

[Operator Instructions] Next question is from Kerry Smith from Haywood Securities.

Kerry Smith - Haywood Securities Inc., Research Division

On Piavitsa, what are the base metals that are within the ore intercepts that you reported there, Paul? Is it just copper or...

Paul N. Wright

It's very similar to -- it's similar to Olympias. It's a little bit lower than gold size. So it's galena [ph] and stylarite [ph], the solid of the base metals.

Kerry Smith - Haywood Securities Inc., Research Division

So it's Lead and Zinc, okay. And kind of --

Paul N. Wright

And silver, some silver as well, yes. It's very similar mineralogy to Olympias is the way we're seeing it so far.

Kerry Smith - Haywood Securities Inc., Research Division

Okay, okay. So that sounds good, okay. And then just so that I'm clear. I think I understand this, your through to the end of the year at Jinfeng. You expect to total about 40% of the tonnage from the stockpile. And so the grades should be roughly as they were this quarter through the end of the year? Is that correct, Norm?

Norman S. Pitcher

Yes.

Kerry Smith - Haywood Securities Inc., Research Division

Okay, so cash cost is going to be kind of similar to what we've seen this quarter then?

Norman S. Pitcher

Yes.

Operator

The next question is from Dan Rollins from RBC Capital Markets.

Dan Rollins - RBC Capital Markets, LLC, Research Division

Norm, Paul, maybe if you just touch base on Eastern Dragon? I'm just wondering what's changed with the provincial level to forces permitting up to the National level? Because you've been permitting for about 2 years now, I'm just wondering what's changed there?

Paul N. Wright

I guess Dan probably the major change just is change in people. We had a vice governor who directed us down a certain pathway and he -- they swap these officials out fairly regularly. He's now gone and you got a -- you've got some several new people at PRDC as well and that's really the main change.

Dan Rollins - RBC Capital Markets, LLC, Research Division

Okay. And then just on, we're going to the National level. With the changes in the hierarchy in China happening later this year, do you see that having impact at NDRC given just the bureaucratic nature of the Chinese?

Norman S. Pitcher

Well, I guess, it could. Yes, it could. I wouldn't want at this point really speculate on how -- what effect it would have.

Dan Rollins - RBC Capital Markets, LLC, Research Division

Okay. So what are you looking -- so time line, what have you been hearing from your people on the ground there? How long do you think it will take? 1 year, 1.5 year, something like that?

Paul N. Wright

As Norm said, we're going to give you guidance at the next call after frankly, Norm and others have met face to face with NDRC. You've heard me say that don't expect meaningful amounts of production until 2014. We're taking a pretty conservative view right now. If we can do better, obviously, we're pushed to do that. But I mean for us to say anything else right now is just speculations.

Dan Rollins - RBC Capital Markets, LLC, Research Division

Okay, and just to confirm, basically most of the mill is complete. It's just you're waiting for the permits for a lot of the earthworks and then to actually commence mining. Is that correct?

Paul N. Wright

That is correct.

Dan Rollins - RBC Capital Markets, LLC, Research Division

Actually, sorry, one question. The original, your guided grade for Kisladag this year is 108. You had a bang-out quarter on grade this year. This quarter is probably one of top ones over the last almost 3 or 4 years. Is 108 still a good number because you're well above that now? Or do you see it roughly maybe around the 1.15 level for the rest of the year?

Norman S. Pitcher

I think the grade will probably come up a little bit. I mean maybe 1.2, something like that. And we are -- the grade this quarter was a pleasant surprise. We are sort of mining in an area. We're having a positive reconciliation. We're mining where we thought we're going to mine, and the grades are a little bit better. Now the way things are, that can go the other way in subsequent quarters, so yes.

Operator

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

Paul N. Wright

Well, thanks, operator, and thanks, everybody, for being on the call. We do appreciate the questions and look forward to talking in the next call. All the best.

Operator

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

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