VANCOUVER Jul 31, 2015 (Thomson StreetEvents) -- Edited Transcript of Eldorado Gold Corp earnings conference call or presentation Friday, July 31, 2015 at 3:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Paul Wright Eldorado Gold Corporation - CEO * Norm Pitcher Eldorado Gold Corporation - President * Fabiana Chubbs Eldorado Gold Corporation - CFO * Paul Skayman Eldorado Gold Corporation - COO ================================================================================ Conference Call Participants ================================================================================ * Cosmos Chiu CIBC World Markets - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good morning, ladies and gentlemen. My name is Aaron, and I'll be your operator today. At this time I'd like to welcome, everyone, to the Eldorado Gold Corporation's second-quarter results conference call. (Operator instructions) Now I'll turn the call over to Mr. Paul Wright. Mr. Wright you may begin your call. -------------------------------------------------------------------------------- Paul Wright, Eldorado Gold Corporation - CEO [2] -------------------------------------------------------------------------------- Thank you, operator. Good morning and thank you all for joining us. Welcome to our second-quarter financial and operating results call. In Vancouver this morning we have Norm Pitcher, President; Fabiana Chubbs, Chief Financial Officer, and Paul Skayman, Chief Operating Officer, and of course Krista Muhr, our Vice President of Investor Relations. As always, we have provided detailed financial and operational information in yesterday's press release. Before I begin, I'd need to remind you that any projections and objectives included in our discussion today are likely to involve risks, which are detailed in our 2015 AIF and in the forward-looking statement disclaimer at the end of yesterday's news release. We will follow our usual format with myself providing some general comments on the Company's business and the results and release. Norm will then provide operational detail, followed by a brief walk through of the financial statements led by Fabi, and then we'll open up for questions. First of all, I would like to thank all of our teams in the regions and in Vancouver for their continued efforts and dedication that have resulted in yet another solid quarter for the Company. With gold production of 181,160 ounces and all-in sustaining costs of $900 an ounce, this performance results in a guidance update for the full year of 2015, with now a total production target of 690,000 ounces with all-in sustaining costs of $925 per ounce. Year-end projections for sustaining capital have been adjusted downward somewhat for the original guidance of $165 million with a decreased spend of about 33% or approximately $110 million. In addition there will be a modest reduction in new project development going to approximately $300 million from the original bit budget of $345 million. Despite ongoing capital spend on our growth projects, our balance sheet remains very strong with total liquidity of approximately $825 million. In the quarter, we completed and released positive feasibility studies for Tanjianshan and Certej. In completing the studies, opportunities were recognized for improvement, and our teams are working to realize these opportunities. Before handing to over to Norm, I will just make a couple of brief comments on the Skouries development. As you are aware, actions taken by a Ministry of the Greek government have impeded our progress somewhat at Skouries, specifically the revoking of a tree cutting license and the suspension of the building approval. These actions have delayed the estimated completion time of Skouries from late 2016 into early 2017. Despite this impediment we had a busy quarter on site, as described in the news release. We expect favorable decisions from the Greek Council of State in regards to these challenges in this quarter, and the results of these decisions will remove the temporary obstacles allowing the Company to increase its manpower on site and work aggressively to complete the constructions of Skouries. Also at this time, we are finalizing the detail design of our tailings dam construction. With this completed and a positive decision in hand from the courts, we will be able to provide a more definitive schedule for the completion of construction of Skouries. With that, I will hand it over to Norm and Fabi. -------------------------------------------------------------------------------- Norm Pitcher, Eldorado Gold Corporation - President [3] -------------------------------------------------------------------------------- Thanks, Paul. Good morning, everyone. Let's start with the operations. With half a year now under our belt, all of the operations are performing well, both in terms of ounces produced and cash costs. Q2 was a very good quarter. I'd also like to thank our operating teams around the world for that performance. With that said, I'll be quite brief this morning and just provide some quick comments on the operations where appropriate. Starting with Kisladag, in Q2 we placed 4.9 million tonnes of ore on the leach pad of which approximately 1.4 million tonnes of that was run of mine material. This accounts for the lower recovery compared to Q2 2014 when we did not place any run of mine material on the pad. So, there's no recovery issues, it's just that we put expected lower recovery run of mine material on the pad in this quarter. At Efemcukuru, had a good quarter. Grade was up, and we made up for a slower start that was largely weather related in Q1. Now we are tracking the budget quite well. At Tanjianshan, as reported gold sales were lower due to June production not being shipped at month end. We actually had a big rainstorm in the area right at the end of the month and the shipment went out, unfortunately, on July 1 instead of June 30. Really, besides that, no other comments on the rest of the operations, but certainly happy to answer questions during the Q and A. On the development side, during the quarter we released an update on Olympias phase two. That one sees us spending around $45 million in 2015 and 2016 to upgrade the existing platte to process 285,000 tonnes of ore per year and produce about 60,000 ounces of gold plus silver, lead, and zinc at cash cost in the low $300s net of by-product credits. At Skouries, lots of earth works ongoing. Process equipment is being delivered. We began installing flotation tanks. Stripping into the open pit is now complete. We began the stream diversion channel and topsoil remover in the main starter dam of the tailings management facility. At Eastern Dragon, we received the PPA during the quarter, which is a big milestone for us and have recommenced work on site, finishing electrical works in the plant and the transformer station, constructing maintenance workshops for the plant and mine vehicles, and starting on foundations for the warehouse. Our remaining permitting consists of converting the EL to ML and then the forestry permits. For the ML we need to redo and environmental report, which should be done by mid August, and the ML application submitted a little early September. We're also in the process of looking at alternate lining configurations that would allow us to lay lighter during the colder months. On exploration, we drilled about 9,000 meters during the quarter at our exploration projects in China, Greece, Romania and Brazil, including underground drilling at the QLT deep structure at Tanjianshan, underground drilling at Stratoni and surface drilling in Romania and Brazil. We will look to provide a exploration update later in the year. With that, I'll turn it over to Fabi. -------------------------------------------------------------------------------- Fabiana Chubbs, Eldorado Gold Corporation - CFO [4] -------------------------------------------------------------------------------- Thank you, Norm. Good morning, everyone. I will go through the financial statements highlighting changes in significant accounts. On the balance sheet, we ended the quarter with cash and cash equivalents and turned to positive balance of $450 million compared to $501 million at the end of 2014. The change in cash balance is mainly the result of cash generation from operations net of use of cash for dividend payments and capital program. During the quarter we completed feasibility study of the Certej project. Based on the feasibility study's technical assumption, we assessed a recovery amount of property, plant and equipment for Certej. As a result, an impairment loss of $255 million was recorded against property, plant and equipment. A deferred tax recovery of $41 million was also recorded related to the impairment. These charges were reflected in income taxes spend on the income statement. Moving on to the income statement, we reported loss attributable to shareholders of the Company of $198 million, or $0.28 per share, for the quarter compared to a net profit of $37 million, or $0.05 per share, in the second quarter of 2014. Excluding the impairment assessment, we recorded adjusted net earnings for the quarter of $17 million, or $0.02 per share, compared to $36 million, or $0.05 per share, in the second quarter of 2014. I want to bring to your attention that on July 16, 2015 the government of Greece enacted legislation increasing the corporate income tax rate from 26% to 29% effective for FY2015. Under IFRS we are required to adjust our deferred tax liability related to our Greek assets, which will result in a one-time tax adjustment of approximately $65 million, or $0.09 per share in the third quarter of 2015. On the payment of cash flow during the quarter which generated cash flow from operations -- operating activities before changes in no working capital of $62 million compared to $92 million in the second quarter of 2014. The main uses of cash relate to our capital program, $91 million, and no repayments. Those are my comments on the financial statements. I will turn for turn the call back to Paul. -------------------------------------------------------------------------------- Paul Wright, Eldorado Gold Corporation - CEO [5] -------------------------------------------------------------------------------- Thanks, Fabi. Thanks, Norm. Operator, we will open up or questions now, please. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator instructions) Cosmos Chiu from CIBC. Please go ahead. -------------------------------------------------------------------------------- Cosmos Chiu, CIBC World Markets - Analyst [2] -------------------------------------------------------------------------------- Good morning and thanks. Paul and Norm, Fabi, Paul and Krista for hosting the call. A few questions here. Maybe first off, on the lower CapEx budget, in terms of sustaining CapEx. The lower CapEx budget, how much of that would you consider actual savings versus deferral? In the past, Paul, at Kisladag you had made some purchases for a phase IV expansion. Are you using some of that equipment? Is that how you can save on sustaining CapEx so far in the first half, for example at Kisladag? -------------------------------------------------------------------------------- Paul Wright, Eldorado Gold Corporation - CEO [3] -------------------------------------------------------------------------------- Yes, we are. The equipment we bought for the expansion has been used for over a year now. That is part of it. Then, I think how much is savings and how much is just deferred, it's hard to put a number to that. Half/half maybe something around there. Look, with these metal prices, we're, clearly, we are being a little more careful on spending in all the operations. -------------------------------------------------------------------------------- Cosmos Chiu, CIBC World Markets - Analyst [4] -------------------------------------------------------------------------------- Yes. Then, Norm, on the development CapEx then, in terms of the decrease of $45 million, would it be safe to assume that a lot of those deferral would be coming from Skouries. -------------------------------------------------------------------------------- Norm Pitcher, Eldorado Gold Corporation - President [5] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Cosmos Chiu, CIBC World Markets - Analyst [6] -------------------------------------------------------------------------------- Most of it? -------------------------------------------------------------------------------- Norm Pitcher, Eldorado Gold Corporation - President [7] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Cosmos Chiu, CIBC World Markets - Analyst [8] -------------------------------------------------------------------------------- Then, on the development CapEx, as well, Norm, I know previously you had included about $35 million for Eastern Dragon. How has that been updated in terms of the CapEx now needed for Eastern Dragon? I've looked at pictures in the past. It's pretty fully built. I'm just wondering what you'll need --? -------------------------------------------------------------------------------- Norm Pitcher, Eldorado Gold Corporation - President [9] -------------------------------------------------------------------------------- Yes, will be hard pressed to spend that money this year. Some of that's going to, clearly, bleed into the first half of next year. There is a chunk in there for land payments that probably could be made this year still, and that's in excess of $10 million so -- but we're not going to spend all that, half of it, probably, something like that. -------------------------------------------------------------------------------- Paul Wright, Eldorado Gold Corporation - CEO [10] -------------------------------------------------------------------------------- Overall, Cosmos, the overall estimate to completion hasn't changed. It's just as Norm described, depending on when we actually finalize the ML and the tree cutting -- depending on how much of that gets spent this year versus early next year. -------------------------------------------------------------------------------- Cosmos Chiu, CIBC World Markets - Analyst [11] -------------------------------------------------------------------------------- For sure. Certainly congrats on getting the permits at Eastern Dragon. Could you maybe talk a little bit about the timeline? Because I think previously you have been pushing towards a start of production in Q4 2015, now it looks like it could be the first half of 2016. Are you just being conservative, Paul? -------------------------------------------------------------------------------- Norm Pitcher, Eldorado Gold Corporation - President [12] -------------------------------------------------------------------------------- No, I think we're being realistic as to where we are now. As Paul just mentioned, the big permits are converting the existing exploration license to a mining license, and then it's tree cutting permits, which are given both locally and centrally. So, as I mentioned, we had a -- there is one part of -- the ML application, there's 15 or something documents attached to that. One of that was an environmental one that we've had to redo, so they're doing that now. It's going to be done by mid August, and we will submit that and -- that sort of puts us submitting the ML in September. They've got to look at that and then get the tree cutting. So, Murphy's law is, we'll probably get it all about the time it starts to get cold there. -------------------------------------------------------------------------------- Cosmos Chiu, CIBC World Markets - Analyst [13] -------------------------------------------------------------------------------- Yes. Can you remind me how the CapEx At Eastern Dragon works, as well? I remember you had sold off about 20% interest to a third party. Is it just your portion that you're contributing to in terms of CapEx? -------------------------------------------------------------------------------- Paul Wright, Eldorado Gold Corporation - CEO [14] -------------------------------------------------------------------------------- No, we are completing towards the whole, at this stage. -------------------------------------------------------------------------------- Cosmos Chiu, CIBC World Markets - Analyst [15] -------------------------------------------------------------------------------- Okay. Maybe one last question here in terms of moving back to Kisladag. You mentioned that there was some run of mine ore stacked in Q2. Norm, can you remind me, again, in terms of what your budget is for run of mine ore in 2015, and how much of that -- so are we looking at the same level in Q3 and Q4? -------------------------------------------------------------------------------- Norm Pitcher, Eldorado Gold Corporation - President [16] -------------------------------------------------------------------------------- We are set of looking at -- maybe I'll let Paul answer that. -------------------------------------------------------------------------------- Paul Skayman, Eldorado Gold Corporation - COO [17] -------------------------------------------------------------------------------- I think it's around 5 million tonnes of run of mine planned. We've probably gone a little harder in the second quarter, particularly, then perhaps the run rate for the rest of the year. -------------------------------------------------------------------------------- Cosmos Chiu, CIBC World Markets - Analyst [18] -------------------------------------------------------------------------------- Okay. Thanks. That's all I have. Congrats, again, on a very strong first half, and have a good long weekend. -------------------------------------------------------------------------------- Paul Wright, Eldorado Gold Corporation - CEO [19] -------------------------------------------------------------------------------- Thanks. -------------------------------------------------------------------------------- Operator [20] -------------------------------------------------------------------------------- Michael Gray from Macquarie. -------------------------------------------------------------------------------- Paul Wright, Eldorado Gold Corporation - CEO [21] -------------------------------------------------------------------------------- I suggest you move to the next caller, operator. -------------------------------------------------------------------------------- Operator [22] -------------------------------------------------------------------------------- (Operator instructions) We have no further questions in the queue. Mr. Wright, I will turn the call back over to you. -------------------------------------------------------------------------------- Paul Wright, Eldorado Gold Corporation - CEO [23] -------------------------------------------------------------------------------- Well, I guess we've succeeded in being successfully boring again. Thank you. (laughter). Thank you very much for all who joined us today and enjoy the long weekend. Thanks, operator. -------------------------------------------------------------------------------- Operator [24] -------------------------------------------------------------------------------- This concludes today's conference call. You may now disconnect.
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