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Eldorado Gold (NYSE:EGO)

Q3 2012 Earnings Call

October 26, 2012 11:30 am ET

Executives

Nancy E. Woo - Vice President of Investor Relations

Paul N. Wright - Chief Executive Officer and Director

Paul J. Skayman - Chief Operating Officer

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

Analysts

Dan Rollins - RBC Capital Markets, LLC, Research Division

Anita Soni - Crédit Suisse AG, Research Division

Joung Park - Morningstar Inc., Research Division

Cosmos Chiu - CIBC World Markets Inc., Research Division

John Kratochwil - Canaccord Genuity, Research Division

David Haughton - BMO Capital Markets Canada

Kerry Smith - Haywood Securities Inc., Research Division

Martin Pradier

Operator

Good morning, ladies and gentlemen. Welcome to the Eldorado Gold Corporation Third Quarter Results Conference Call. This call is also being webcast and is available on the Eldorado Gold website at www.eldoradogold.com. I would 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 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 in 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 expressed qualified in their entirety by this cautionary statement and the cautionary statement contained in our press release dated October 26, 2012.

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

Paul N. Wright

Okay. Thank you, Nancy, and good morning, ladies and gentlemen, and welcome to Eldorado Gold's Third Quarter Financial and Operating Results Conference Call. Joining me this morning in Vancouver are Fabiana Chubbs, Chief Financial Officer; Paul Skayman, Chief Operating Officer; and Nancy Woo, Vice President of Investor Relations. Paul will be substituting for Norm Pitcher on this call on operations, as Norm is busy in China this week. We will follow with the usual format, with Paul providing operational commentary on the quarter just passed and then outlook for the balance of the year, whilst Fabby will cover the highlights of the quarter's financial statements. We will then open it up for questions.

Production in the quarter of 169,565 ounces at cash operating cost of $493 an ounce and earnings of $0.11 per share were largely in line with our own internal expectations for the quarter. We benefited from a strong performance at the Kisladag mine in Turkey, and were somewhat negatively affected by an exceptionally high rainfall event in Jinfeng, which impacted grade produced from the open pit in the quarter and the result, lowered production and heightened cost in the quarter. Efemçukuru mine and mill are now running at designed capacity with an excess of 93,000 tonnes mined and processed in the month, producing gold and concentrate of approximately 27,000 ounces.

Continued lower-than-planned recoveries from the concentrate -- at the concentrate -- Kisladag concentrate treatment plant that is early -- sorry, low to mid-80s percent recoveries versus low 90s, combined with favorable concentrate treatment terms have prompted us to temporarily cease production at the KCTP and sell concentrate in the market until modifications are made to improve recoveries. We will be making our first shipment in early November and anticipate making weekly shipments of concentrate with the objective to clear off the backlog of 51,000 ounces as quickly as possible by end of quarter with a view to catching up with production in Q1 of 2013. With payability on this concentrate in the low 90s and effective cost of transportation and treatment of concentrate close to $70 an ounce, we see the cost of treating this concentrate as being very close to that envisioned at KCTP. Whilst on the subject of concentrate, we are finalizing our concentrate -- contract for Olympias, and we have planned on making our first concentrate shipment prior to year end.

On a development front, good progress is being made on all of our projects. In Brazil, the Tocantinzinho project was granted its environmental license in September, and we are working to complete the feasibility study in November. In Romania, in July, our Certej project was granted its environmental permit by the Timisoara Regional Department of Environment, and land acquisition continues. In Greece, our Perama environmental impact assessment application is progressing through the Ministry of Environment and Forestry [ph], and we anticipate a positive decision in this regard prior to year end.

On the exploration front, we are having a very successful year and expect, as evidenced by our news release yesterday, to see a material improvement at year end in our reserves and resources. In addition, and for those of you who accompanied us on our recent trip to Greece and Turkey will appreciate, there remains considerable scope for further increases in reserves and resources, particularly amongst our Greek and Turkish assets.

With that, I'll hand over to Paul.

Paul J. Skayman

Thanks, Paul. Good morning, everyone. I'll start with operations. Now, Kisladag had another good quarter, 83,000, 750,000 -- 800 -- I'll start that again. 83,750 ounces sold for the quarter. That brings the year-to-date numbers to budget levels. Cash costs are low at $335 an ounce due to high-grade material being placed on the pad.

Tanjianshan continues to perform on budget with 28,900 ounces being sold at $396 per ounce and no real operational issues there. At Jinfeng, we produced 25,821 ounces at $946 per ounce. Year-to-date, Jinfeng is ahead of our budget on an ounce at end [ph] cost.

The project experienced significant rainfall during the quarter, affected our road access and limited our ability to remove high-grade material from the open pit. Virtually, we see -- or got 224 millimeters of rain in a day and the monthly average is 240. The shortfall in tonnes is being made up from low-grade stock piles and the cutback in the open pit continues. The underground performed on plan for the quarter. High costs were mainly due to the removal of low-grade material from the stockpile and inventory adjustments because of this material.

At White Mountain, we produced 16,342 ounces of gold at $766. Costs were higher than planned as we mined lower grades during the quarter. Grades are expected to improve slightly in Q4, and cash costs were higher than planned due to the lower head grades along with increased backdoor placement. Efemçukuru mine, as Paul said, is -- mine and treatment plants are now performing on budget, nearly 94,000 tonnes of ore processed at 9.3 and placed 27,000 ounces of material into concentrate. The KCTP is currently not running. We're working at what changes need to be made based on the operating data we've gained during 2012.

More recently, there's been high copper levels in the solution. It's given us some problems with the recovery of gold and placement of gold onto cappers. We're conducting another round of metallurgical test work and expect to have a solution within 3 to 6 months. This will most likely include a SART plant to remove the copper and may include some flow sheet changes.

In the meantime, we've signed a contract to sell concentrate while we complete the test work and also to remove excess stockpile material from the site. As Paul said, we're getting roughly equivalent turns for the sale, as we were getting in terms of -- or better than the recoveries we were seeing at KCTP. We're hoping this year for approximately 40,000 ounces by year end, and at the end of Q3, we had 50,000 -- 51,000 ounces on stockpile.

Villa Nova had a good quarter with 123,000 tonnes of ore sold. Iron ore prices aren't kind of great at the moment. The realized iron ore price FOB Santana Port was $59 a tonne and slightly above our current cash cost of $56. At Stratoni in Greece, the mine continues to perform well, producing 14,084 tonnes of concentrate with cash cost of $717 per tonne. Production is approximately on target at Stratoni. In Olympias, we commenced commissioning of the tailings treatment plant. We expect to be able to start concentrate sales in Q4, as Paul's indicated.

Moving on to development. Kisladag Phase 4, the engineering package for process circuit and mine infrastructure is being completed. The EIA is moving forward and still on track for the middle of 2013. Orders have been placed for long lead mining equipment in the quarter, and construction activity on site continues to poke some earthworks in the plant area.

Perama Hill, the EIA application's processed under the Fast Track legislation. And as Paul said again, we expect the decision before the end of year. On site, we're drilling -- geotech drilling both the pits and the plant sites. Olympias, the refurbishment of the mine access, a tunnel to move ore to the current plant site and the 8-kilometer tunnel to the base of the Olympias mine continued throughout the quarter without problems.

Site work continued at Skouries, mainly concentrating on tree cutting. At the end of the quarter, we had approximately 83 cutters working on the site. Things are progressing well. At Certej, the environmental permit was approved during Q3. We're completing some confirmatory metallurgical test work at the moment, and that'll be completed in Q4.

Eastern Dragon, the application for the project permit approval is currently being prepared for submission to the NDRC. We're expecting to submit that in Q4 2012. At TZ, the preliminary environmental license is being granted in Q3. We're working to complete the feasibility study for Q4.

Moving onto exploration. Eldorado completed 54,000 meters of drilling during the quarter on 21 exploration projects. At -- in Turkey, at Efemçukuru, continued drilling on Kokarpinar and the Kestani Beleni Northwest Extension, as well as some down-dip step-outs on the South Ore Shoot.

At the Northwest Extension, a newly defined ore shoot was traced for approximately 400 meters along strike and remains open to the Northwest. We're also doing some more early work at Kisladag, looking for some mineralized satellite intrusions, and we've drilled a number of other operations -- a number of other exploration projects within Turkey.

In Greece, we've continued drilling at Piavitsa, targeting massive sulfide zones along the Stratoni fault. We drilled 23 holes to date, and all have intersected massive sulfide, disseminated sulfide or oxide material. Drilling will continue into Q4 with the objective of establishing a 200-by-200 spacing over at least 2 kilometers of strike length. We completed 17 infill and confirmation drill holes at Skouries, and we also did some drilling at Fisoka and in Perama Hill.

In Romania, the West Pit at Certej, the West pit and Link Zone drilling -- Phase 1 drilling programs have been completed. You would have seen yesterday's press release increasing the resource by 1.57 million measured and indicated ounces. And the second campaign of drilling is planned for Q4 on the northern Link Zone to follow up on an intercept of 101 meters at 4.07 grams in the final drill hole of the Phase 1 program.

In China, exploration continued near Tanjianshan, White Mountain and Jinfeng. At Tanjianshan, completed drilling on Xijingou and the Qinlongtan North project. Qinlongtan North, we've cut a high-grade intercept of 26 meters at 9.24 just north of and above and below the historically mined deposit, possibly representing a new ore shoot. Follow-up drilling is planned for Q4. Jinfeng, we've continued drilling mainly along the F3, F6 and F7 structures. We've also done some drilling at Shizhu and Weiruo, which are early-stage exploration projects close by. And at White Mountain, we conducted drilling at 3 exploration prospects close to White Mountain.

Finally in Brazil, exploration was completed during the quarter at Agua Branca, which is 35 kilometers south of Tocantinzinho and some fieldwork at early-stage projects.

With that, I'll hand it over to Fabby.

Fabiana E. Chubbs

Thank you, Paul, and good morning, everyone. I will go through the financial statements, highlighting changes in significant accounts. Commencing with the balance sheet, we ended the quarter with a cash and cash equivalent balance of $271 million compared to a balance of $394 million at the end of 2011. The $123 million decrease in cash is mainly related to the usage of cash in our capital program $304 million and dividend payments of $93 million, offset by cash flows generating from operating activities. The $52 million increase in inventories relates mainly to the buildup of concentrate inventory that essentially grew. Sales of these commercial production concentrate will start in Q4.

On the liability side, our debt balance increased $15 million as a result of a $50 million drawdown on our credit facility and the repayment of $35 million of our debt with Chinese banks. We continue to accelerate the principal payment on our Chinese debt and anticipate the repayment of an additional $35 million during Q4 of this year.

The acquisition of European Goldfields, completed in Q1 of this year, had a substantial impact on our property, plant and equipment balance, which increased by $3 billion; goodwill, which increased by $303 million; and accounts payable, which increased by $100 million; and deferred income taxes, which increased by $542 million.

Moving on to the income statement. Net income attributable to shareholders of the company was $76 million or $0.11 per share, compared to $103 million or $0.19 per share in the third quarter of 2011, representing a decrease of 26%. The decrease in the net income year-over-year was due to lower gross profits from gold mining operations, as well as higher general and administrative expenses and exploration expenses.

Revenue from gold sales for the quarter of $259 million were down $47 million for the third quarter of 2011 due to lower sales volumes and prices. Villa Nova and Stratoni contribute $22 million of revenue in the quarter. Production cost increased by 13% or $12.6 million compared to the third quarter of 2011 mainly as a result of addition of the Stratoni production cost of $11.3 million.

General and administrative expenses increased by $6 million from the third quarter of 2011 mainly as a result of additional cost at our Athens office as a result of the acquisition of European Goldfields. On the income tax expense, the effective tax rate for the quarter was 31% as compared to 36% in 2011. Foreign exchange fluctuation increased effective tax rate in 2011 over expected tax rate of 22%, while withholding taxes on dividends from subsidiaries increased the effective tax rate in 2012.

On the theme of cash flow, during the quarter, we generated cash flows from operating activities before changes in non-working capital of $111 million compared to $160 million in Q3 2011. The 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 of $137 million and dividend payment of $43 million.

Those are my comments on the financial statements. I will turn the call back to Paul.

Paul N. Wright

Thank you, Fabby, and thank you, Paul. Operator, we'll open up for questions, please.

Question-and-Answer Session

Operator

[Operator Instructions] And your first question is from Dan Rollins from RBC Capital Markets.

Dan Rollins - RBC Capital Markets, LLC, Research Division

Paul, I was wondering if you could provide a little bit of insight into the permitting process at Eastern Dragon. With the permits expected to be submitted by the end of the year, do you have any indication how long it might take to get approval?

Paul N. Wright

No. Well, look, I mean, one of the reasons, obviously, that Norm is not with us with this week is that we're working hard with the government agencies to ensure that the file that presently resides at PDRC is indeed submitted to NDRC before the end of the quarter. Once that file is submitted and the meetings are held, we'll then have a better sense as to what the route of travel is going to be. But I'm afraid that's where we are down until -- let's say, until we actually have active engagement with NDRC, it's difficult to know what the timeline's going to be.

Dan Rollins - RBC Capital Markets, LLC, Research Division

And just maybe just on Jinfeng, when do you expect to be -- when do you expect mining in the open pit to sort of get back to the steady state level and therefore, you won't be pulling from the low-grade stockpiles? Is that another 3 or 6 months out?

Paul J. Skayman

Yes. Probably 6 months out. We're looking at -- we're a little ahead in terms of waste stripping. We're looking at getting back into those tonnes in Q2 next year.

Dan Rollins - RBC Capital Markets, LLC, Research Division

All right, perfect. And then maybe, Paul, just you commented on the mine site tour, that you sort of gave a range of estimates for the payable levels and cost on the treatment in -- I guess, on the terms of the Efemçukuru concentrate sales, is that -- what you told us on that tour, is that basically the same as what you're getting now in this contract?

Paul N. Wright

Yes, pretty well. Look, we're looking -- we're getting payabilities in the low 90s and the effective cost -- as you appreciate that, we've got concentrate with different grades, but if you sort of bulk it out based on the inventory and the grade of the inventory right now, it translates to about $70 an ounce of costs, which -- that's the cost of shipping and treatment, which is, to be frank, is very close to what we were looking at in terms of transporting the concentrate to Kisladag and the running costs at Kisladag. So it's basically -- essentially same as what would -- we would have realized if we had been operating KCTP to design.

Dan Rollins - RBC Capital Markets, LLC, Research Division

Okay. And then were you expecting still to ship the majority of that in Q4? Or is it more of a Q1, Q2 event now?

Paul N. Wright

No, we're pushing really hard now to try to get as much as we can out by the end of the year. I mean there are boats -- basically, there's a boat a week that goes out of Izmir Port, and we're working to basically secure space on each boat, and we'll be doing that until we catch up. Paul has given some guidance as to the 40,000 ounces as a target by the end of the year. We -- crudely speaking, Dan, I mean, we're -- we ended the quarter at 51,000 ounces. We're -- in the final quarter, we'll probably generate another sort of 28,000 to 30,000 ounces and then we're -- because we're at the full run rate for the mine. And it's -- the objective really is to get finally caught up probably by the end of the first quarter. Because, again, we keep making concentrate daily as well, so.

Operator

The next question is from Anita Soni from Credit Suisse.

Anita Soni - Crédit Suisse AG, Research Division

My question is with regards to strip ratios, probably for Paul. The strip ratio at Kisladag, could you give me an idea what that was this quarter?

Paul J. Skayman

Yes. Strip ratio this quarter was 1.8:1, which is a little higher than budget but on-line for the year sort of thing.

Anita Soni - Crédit Suisse AG, Research Division

And then, I guess, at Jinfeng, you mentioned that you were going to get back into the, I guess, the open pit ore. Can you give us a split of how much was open pit and underground at Jinfeng or sort of waste stockpiling in underground this quarter?

Paul J. Skayman

In Q3, 70% came from underground. 5% came from the pit, with 25% from the stockpile.

Operator

The next question is from Joung Park from Morningstar.

Joung Park - Morningstar Inc., Research Division

At Jinfeng, once we get past the stockpiles in Q2 of next year like you mentioned, what would production and costs look like once that happens?

Paul N. Wright

Well, look, I mean, we'll be giving you guidance, detailed guidance, early in the new year for the year. So I mean, I can give them -- you can look to the guidance that we have in our corporate plan for next year, but that's -- we can't really improve upon that. We're in -- as you appreciate, we're in the budgeting process right now, and we'll be looking to finalize budgets and plans in mid-December and giving guidance early in the new year.

Joung Park - Morningstar Inc., Research Division

Okay, fair enough. And...

Paul N. Wright

I mean, we -- Jinfeng for this year was always viewed as being a low-production year and a high-cost year because of the reasons that we've described historically, that is, our dependence on the low-grade stockpile for a significant part of the production feed. Certainly, we don't see ourselves being that dependent on the stockpile next year.

Joung Park - Morningstar Inc., Research Division

Sure. And then on Kisladag, can you remind me, do you guys have the permits already to ramp up to the 25 million tonnes per year? Or are you still operating with the smaller 12.5 million tonne permit?

Paul N. Wright

No. We're operating at -- with the permits that allow us to operate at 12.5 million tonnes a year. We are applying for what will be our second supplementary EIA. We expect that application towards the end of the year and approval by mid next year. A lot of the expansion is within the existing permitted boundary and as such is -- those activities are continuing. Engineering, procurement of equipment is continuing and that with the timeline, let's say, in terms of obtaining final approval for the expansion itself is mid next year, and that timing doesn't impact on our expansion schedule.

Joung Park - Morningstar Inc., Research Division

Okay. And -- but would that potentially impact Q4 given the strong ore production during the first 9 months?

Paul N. Wright

No. No, I mean, we -- Kisladag is basically in accordance with plan right now. I mean if you look at -- as I am glancing at our daily sheet, we're literally within 1,000 ounces year-to-date of where we expect to be.

Joung Park - Morningstar Inc., Research Division

Okay. I guess, I was referring more to the tonnes of ore placed on the pads.

Paul J. Skayman

Tonnes of ore will be 12.5 million.

Paul N. Wright

12.5 million tonnes, exactly.

Paul J. Skayman

We kept at that and we'll place all of that.

Joung Park - Morningstar Inc., Research Division

Okay, sure. And then final question. So, Certej got the environmental permit during the quarter, so congrats on that. And what other permits would you guys need to start construction at Certej? And also if you could just kind of could comment on permits you need at Skouries as well?

Paul N. Wright

Yes. Look, I mean, Certej, we have to complete the surface rights acquisition, and I think we're around 85% complete at present. Following that, we would submit an application to the county government for a construction permit, and then we'd be able to get started. In terms of Skouries, we have all the permits required to commence construction, and construction activities are really under way. Initially, as you appreciate, we have been in a forested area. We have to clear trees in and around the mine site, plant site and tailings down the area, and that's what we're doing. We've cleared in the area of the underground portal and started on portal excavation work. So activities are underway there, and we have all the permits necessary, the major permits necessary to start construction.

Operator

The next question is from Cosmos Chiu from CIBC.

Cosmos Chiu - CIBC World Markets Inc., Research Division

I've got a few questions here. First off on the Efemçukuru. I guess, when you put out your revised guidance back in Q2 of 660,000 ounces, you had included about 65,000 ounces from Efemçukuru. In the past, to count towards production, you actually counted the gold poured at KCTP. But considering that KCTP is currently not in operation, what are you going to be counting towards Q4 production for Efemçukuru?

Paul N. Wright

Okay. Look, we've produced, I think, year-to-date -- in terms of gold production, I think there's around 27,000 ounces that's sort of noncommercial production. That's historically. Everything that you're going to see going forward through the concentrate sales starting in the next couple of weeks will be deemed as commercial production, right?

Cosmos Chiu - CIBC World Markets Inc., Research Division

Okay. So it's going to be based on the actual concentrate, too?

Paul N. Wright

That's correct, yes.

Cosmos Chiu - CIBC World Markets Inc., Research Division

Okay. That's makes sense. In terms of the lower grades experienced at White Mountain in Q3, has that kind of impact Q4? Or how should we be looking at gold and ore for White Mountain's head grade?

Paul N. Wright

You know, we -- I mean, I think we -- if you look crudely at the -- at our plans for the year, I mean, we were looking at a year-to-date grade target right now of around 4 grams per tonne, and we're sitting at around 3.7 grams per tonne, and we see the grade gradually going back up again. I mean, in reality, again, our year-to-date target for production at this point is 62,000 ounces, and we're 61,500. So we're actually quite close to where we expected to be and that despite the shortfall in grade, we've picked up a little bit in terms of tonnes through the mill and slightly better recovery, so.

Cosmos Chiu - CIBC World Markets Inc., Research Division

Okay. And then the -- maybe switching gears to Certej -- and I saw the press release that came out yesterday, and I noticed that -- this might be too early, but I noticed that the resource grade has decreased somewhat. How would -- for purposes of my model, how should I look at it? Should I look at the new resource grade as the long term -- new long-term grade? Or are we still too early at this point?

Paul N. Wright

Yes. I mean, the fact that the resource grade lowered is not necessarily reflective of the mineralization that's being identified as being lower grade. If anything, I think it's probably slightly -- we're seeing signs of there being some slightly better grade in the system. It's more a reflection of us electing to lower the cut-off grade for resource statements. The historical resource grade that was previously stated by European Goldfields was at 0.8, and that was a grade that was reflective of, I think, a $620 gold price. Based on our sort of view of the economics as it relates to reserve calculations, we deemed 0.7 as the more appropriate cut-off grade to state the resource. So that's the sort of background to the resource. I mean, clearly, as Paul has described, some of the last couple of holes in the northern area, the Link Zone have created a fairly attractive target to us that we will be following up this quarter and hoping to incorporate that -- drilling results in the balance of the year and our year-end resource and reserve estimate. So I can't -- I mean, that's -- I'm not trying to obfuscate here, but I can't really tell you where we're going to go on reserves. But I think implicit with what you're seeing in resources is likely to be an improved reserve statement.

Operator

The next question is from John Kratochwil from Canaccord Genuity.

John Kratochwil - Canaccord Genuity, Research Division

I just had a couple of questions, I guess, to follow up on Cosmos there. The resource that was put out yesterday, do you have an idea, just a general thought in your head how much of the M&I could be converted into a mineable resource? Or is this a little too early still?

Paul N. Wright

You're right. It's a little bit early. It's -- look, I mean -- yes, I mean, you're going to have to sort of do your own. I mean, we've clearly -- clearly, you had, in essence, sort of 2 pits, which look like now becoming 1, which is good news. And as I said, the overall tenor of the mineralization I don't think has necessary decreased in quality. So I'd be surprised if we were not able to convert a significant part of that increase in M&I into P&P. Engineers love to do what engineers get paid to do, I guess.

John Kratochwil - Canaccord Genuity, Research Division

Absolutely. Absolutely. And then switching just over to Efemçukuru, how much work is still needed to be done in order to get concentrate going through Kisladag rather than getting it through a third-party processor?

Paul J. Skayman

Yes, we're completing -- we ultimately ended up with recoveries in the same sort of mid- to high 80s. Really, really we want to see that in the 90s. So we're looking at the data that we generated during Q2. We need to do a little bit more work on sort of optimizing filter presses. So there's a little bit of work to do, a little bit of metallurgical work. But that's ongoing, so it's probably a little premature to sort of give you a lot of direction at this point.

John Kratochwil - Canaccord Genuity, Research Division

Okay. Okay, but fair enough. I mean, it's pretty -- like you said, it's pretty on par between getting it shipped externally and doing it yourself, so I guess, it's not that big a difference either way.

Operator

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

David Haughton - BMO Capital Markets Canada

Paul, in your commentary, you had made reference to a better fourth quarter at Kisladag compared to the third quarter, which was pretty good already. Is that to do with the leach curve and the legacy of better grade earlier this year? Or is there something else?

Paul N. Wright

Well, there are 2 Pauls here, both beside each other. Who said that, David? I don't think we did say that fourth quarter was going to be better than the...

David Haughton - BMO Capital Markets Canada

I'm reading Page 2 of your release. "We expect to see an increase in production during the fourth quarter."

Paul J. Skayman

Well, it must be true then. I mean, we've certainly placed good grade material on the pad. Inventory has increased over the year, so I think it's fair to say we're expecting a reasonably strong fourth quarter.

Paul N. Wright

Well done, David, you've got 2 Pauls blushing here.

David Haughton - BMO Capital Markets Canada

And Nancy wearing a blank. That's a pretty good outcome, so...

Paul N. Wright

Especially for the accountant that wrote this. Look, Kisladag is going very well and obviously, October is largely done, and so we are seeing a strong performance. And as you appreciate, leachers are a bit like flywheels. And as long as you -- if you put a lot of ounces on, then you tend to gain the benefit from that. We saw that in the third quarter, and we're continuing to see it in the fourth quarter. So yes, it'll be healthy fourth quarter.

David Haughton - BMO Capital Markets Canada

All right. Turning our mind now over to China. TJS had pretty good throughput. Is that the kind of level of throughput that we should be thinking about going forward, the 280-ish thousand tonnes through the mill?

Paul J. Skayman

Looking at numbers here. Yes, I mean, we hit that sort of number back in Q4 last year. It sort of -- it varies around -- I think Q2, we actually had some -- like a power outage or some downtime. So it is capable of that. I mean, it sort of budget at about 1 million tonnes a year, so at best, you'll get sort of 1.1 million or something.

David Haughton - BMO Capital Markets Canada

Okay. So just a little bit of seasonal variation, but stick to more the 1 million tonnes per annum kind of thing is a better idea.

Paul N. Wright

Yes, I think it's the safer thing to do, Dave. Yes.

David Haughton - BMO Capital Markets Canada

All right. Eastern Dragon, I know it's a moving target at this stage, but if we were to think about start-up in mid-2014, is that a reasonable kind of thought given where you're at the moment?

Paul N. Wright

I think that's what we've guided for. I mean, David, we've taking the approach not to see any production until 2014, and I believe that's the guidance that's out there right now. As soon as we get -- have a reason to be able to revise that, we will give that. But right now, we're -- it's a bit of a vacuum.

David Haughton - BMO Capital Markets Canada

All right. And do you have any feeling about CapEx at this stage? Or are you still working on that?

Paul N. Wright

The balance for CapEx really hasn't changed in terms of what's outstanding.

Fabiana E. Chubbs

Around $45 million.

Paul N. Wright

It's about $45 million. I think $40 million to $45 million that's...

David Haughton - BMO Capital Markets Canada

Remaining to be spent?

Paul N. Wright

Yes.

Operator

The next question is from Kerry Smith from Haywood Securities.

Kerry Smith - Haywood Securities Inc., Research Division

Paul, if third-party costs are pretty similar for KCTP, why bother going through the hassle of building a start plant and trying to commission it and regaining the flow sheet? Why not just continue to sell concentrate there?

Paul N. Wright

Well, Kerry, that's -- way back when, when we were putting Efemçukuru together, we took a hard look at the option of just simply selling concentrate given our proximity to the port. At the time, when we looked at the metal price environment that existed and the concentrate, the payability and everything else just sort of allowed it -- we concluded on the base of that, it was preferable to build and operate our own plant, and so that's obviously what we did. You're right to a degree. I mean, in a perfect world where one could be -- could know forever that you're going to be able to get sort of treatment terms and payabilities that we're presently facing, you probably would not bother. However, what we're looking at is a situation where, hopefully, with some changes that we can make and without an exceptional, significant additional capital, we can equal, if not, do better that or slightly better than what we're faced with right now. And in doing so, have the comfort that we're not dependent upon what concentrate treatment terms may be next year or the year after. You know what I'm saying? I think that's the concern that we all have a little bit, is that, it's great that these -- the metal prices are what they are and the terms are what they are right now, but are they going to be there 2, 3, 5 years from now? But that's really the thinking behind it.

Kerry Smith - Haywood Securities Inc., Research Division

Okay. And the second part of that question, what do you think the CapEx might be for the modifications that you would need to make, like just a rough ballpark?

Paul N. Wright

I mean, I -- it's a bit early, but I mean, if you want a -- sort of my own guesstimate, it's going to be -- it would be less than $10 million. I sort of see it as a $5 million to $10 million type of exercise.

Kerry Smith - Haywood Securities Inc., Research Division

For the start plant and then the flow sheet changes?

Paul N. Wright

Yes. I mean, at the end of the day, Kerry, look, what we're doing is treating like 100 to 110 tonnes a day of concentrate. This is a pretty small plant.

Kerry Smith - Haywood Securities Inc., Research Division

Right. Right, okay. And for Jinfeng, is there any potential, Paul Skayman, to increase the underground production rate? Or is it pretty much maxed out now?

Paul J. Skayman

We're continuing to increase year-on-year, and we're obviously, looking harder to -- at sort of budgets and plans to continue that increase. So no, I would say it's not maxed out. I think we're sort of opening up more levels, getting ourselves in a better position, so we can produce more out of the underground at Jinfeng.

Paul N. Wright

Well, the longer term is, Kerry, as you appreciate, is, it's all driven by lower -- not all, but it's largely driven by what are your reserves. And we're doing a lot of -- continue to do a lot of work in infill drilling, extension drilling to improve our understanding of the reserves and therefore, be able to do better mine planning, which is a precursor to being able to comment reasonably about production -- potential for production increase.

Kerry Smith - Haywood Securities Inc., Research Division

Right. Right, okay. And just a general comment on or a general observation on the Chinese operation. Generally, the grade profiles for all of your Chinese mines have been coming down sort of quarter-by-quarter this year. Jinfeng, obviously, that's specific to the stripping and the stockpile, but for the other operations, do you -- is Q3 kind of maybe the bottom of that decline in grade profile? Or should we expect that grades in Q4 might be down again?

Paul N. Wright

Tanjianshan is being sort of -- has come down a bit. Anyway, carry on.

Paul J. Skayman

No, I think White Mountain, we expect it to peak back up a little bit and Tanjianshan, I would suggest possibly as well. That is a little lower at sort of 3.5. Yes, so I think Q3 is probably the low point for those 2.

Kerry Smith - Haywood Securities Inc., Research Division

Okay. And then Jinfeng, obviously, will kind of probably be what is it until you get the ore from the open pit available?

Paul J. Skayman

That's right.

Kerry Smith - Haywood Securities Inc., Research Division

Yes. Okay. And then maybe just one last question if I could. The public meetings that you had at Perama, are there more public meetings required as part of the process? Or are you now done that, those public meetings?

Paul N. Wright

That part of the process is complete. We're now really responding to certain questions that were posed by the documentation that was sent out to the various authorities around that. And once that is complete, then it's really up to the Ministry of Environment to conclude the process. As I said in my commentary, the indications are that we can expect that prior to year end.

Kerry Smith - Haywood Securities Inc., Research Division

Right. So based on that comment, I guess, can I assume that the questions were modest in nature and there were no sort of critical issues that people identified as it relates to Perama?

Paul N. Wright

Yes, we don't see that there's anything of significance.

Operator

[Operator Instructions] And the next question is from Martin Pradier from Westwood International.

Martin Pradier

No, my question has been answered.

Operator

There are no further questions at this time, Mr. Wright.

Paul N. Wright

All right. Well, thank you, operator, and thank you, everybody, who's attended the call. And we look forward to talking with you in the new year. Thanks, operator.

Operator

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

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