Aug 5, 2013
Executives
Nancy Woo - VP, IR Paul Wright - CEO Paul Skayman - COO Fabiana Chubbs - CFO
Analysts
John Bridges - JPMorgan Josh Wolfson - Dundee Securities Anita Soni - Credit Suisse Kerry Smith - Haywood Securities David Haughton - BMO Capital Markets
Operator
Good morning, ladies and gentlemen. Welcome to the Eldorado Gold Corporation Second Quarter 2013 Results Conference Call.
This call is also being webcast and is available on the Eldorado Gold website at www.eldoradogold.com. I would now like to turn the meeting over to Ms.
Nancy Woo. Please go ahead.
Nancy Woo
Thank you operator. This presentation includes statements that may constitute forward-looking statements or information.
Any forward-looking statements made and information provided reflect our current plans, estimates and views. Forward-looking statements or information, which includes 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 is 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 August 2, 2013. I will now turn the call over to Paul Wright, CEO of Eldorado Gold.
Paul Wright
Thank you, Nancy, and good morning, ladies and gentlemen, and welcome to Eldorado Gold's Second Quarter Financial and Operating Results Conference Call. Joining me today in Vancouver are Paul Skayman, Chief Operating Officer; Fabiana Chubbs, Chief Financial Officer; and of course Nancy Woo, Vice President of Investor Relations.
We will follow with the usual format. In a few minutes Paul will review the quarter’s operational results and provide some comments regarding the outlook for the balance of 2013.
Fabiana will follow up with a brief summary of the financial highlights and then we will open up for questions. We are very pleased with the solid performance of our operations in the quarter with gold production of 183,971 ounces in the quarter, being over 30% ahead of the 2012 equivalent quarter, and cost of capital of 2012 levels.
This performance supports our guidance for 2013, 745,000 ounces and cash cost of $520 an ounce, well within the range provided at the beginning of the year. In the quarter, it was particularly pleasing to see the solid progress at our Efemçukuru mine with production up to an excess of 26,000 ounces from little over 19,000 ounces in the first quarter of this year and cost declining from $582 an ounce to $519 an ounce.
The mine hours producing levels envisaged and the focus will continue on reducing our cost structure. With July behind us I can say that the operation is after a very good start for the third quarter, with gold production being ahead of plan for the month.
On the development front, still the progress has been made, our Skouries, Olympias and Certej projects as described in our disclosure. In regards to Perama we continue to wait for final approval of the environmental impact assessment and are on regular discussion with the Greek government on this matter.
We continue to be encouraged by this engagement and anticipate final approval prior to year end. In regards to Eastern Dragon discussions with the working group including the Heilongjiang provisional government and members of the government of Canada have concluded that the final approval for this project must be made by the National Developmental and Reform Commission only known as the NDRC.
We are presently engaged in preparing the necessary documentation for the application to be submitted to the NDRC. In mid-July we provided guidance in regards to how Eldorado would adapt its strategy to successfully progress our business in a low gold price environment.
The only additional comment I would like to make in that regard, relates to the disclosure, as of today relating to our dividend policy, where in essence we have fine-tuned our dividend policy to be in balance with the corporations best use of cash and cash flows. Now I will hand over to Paul
Paul Skayman
Thanks, Paul. Good morning, everyone.
As Paul said, a pretty good quarter, all operations were running higher than budgeting Q2 and over the quarter lower cost than budget. Kisladag had solid quarter, 3.3 million tons placed on the pad and nearly 77,000 ounces (ph) sold for the quarter.
Year-to-date very slightly behind budget but production was strong at the end of the quarter and is continuing in this quarter. So we do expect to hit gardens for the year.
Cash costs are low at $327 an ounce mainly due to higher grade material been placed on the pad. Efemçukuru, Paul has mentioned briefly mine and treatment plant performing on budget with 109,000 tons of ore being processed at nearly 9.3 grams and about 25,000 ounces sold, which is above budget for the quarter.
The mine and mill are now operating at expected capacity on throughput and slight improvements on design for recovery. Cash operating cost for the quarter were at 519 per ounce.
Concentrate continues to be sold without problems and work continues on the Kisladag concentrate metallurgical test work plan with results expected by the end of the year. Tanjianshan had a good quarter with 273,000 tons treated and nearly 28,000 ounces of gold sold, again slightly above budget and cost were below budget at 398 per ounce.
At Jinfeng we sold 29,000 ounces and at a cash cost of $757. Again on budget per ounces sold and under on cash operating cost.
We are producing oil back out of the open pit. We mined approximately 140,000 tons out of the open pit in the quarter.
Underground ore tons also slightly ahead on budget. The higher ounce productions the main driver for the low year-to-date operating cost at Jinfeng.
At White Mountain we produced 17,500 ounces at $742 an ounce. Cost was slightly high for this quarter but lower year-to-date than expected budget mainly due to grade variations.
And Vila Nova in Brazil, in late March the Agua Branca facility suffered a collapse with the ship-loading system and we haven’t been using it for shipping our product since then. We work with the local authorities and now shipping on all from the nearby public.
Two shipments were sold during Q2 and we’re hoping for another six to eight shipments by the end of the year. The operation continues at a slightly slower pace as we continue to sell our existing stockpiles.
At Stratoni in Greece the mine is performing reasonably well producing 600,000 tons of concentrate cash cost of $829 per ton. Costs were higher in the quarter, due to low mine activity than budget and some retroactive payroll benefits and the change in allocation of overhead.
We’re reassessing the division of those overheads and should have more detail in the next quarter. In Olympias we traded 117,000 tons of tailings and produced 6,600 payable gold ounces.
Commissioning continued in the plant during the quarter and we sold crew classifier to handle the cost tail that’s working well. We’re now working on piping and pumping modifications and we expect to declare commercial production during Q3 of this year.
In development Kisladag phase four, as we’ve announced previously we’ve elected to defer the expansion pending and improvement in metal process. We’re continuing the purchase of the larger mining equipment and working on electrification of the same equipment.
We have one Hitachi large direct divider and nine Hitachi trucks on site. The larger equipment will reduce moving cost as we bring it fully online later this year and into 2014.
And Skouries site work continued on clearing, grabbing and glutting of the plant area, and geotechnical drilling and tree cutting in the Talisman (ph) area. At Olympias, we continue work on the nine day plan (ph).
During the quarter this was hampered by groundwater inflows. We’re working on grouting and sort of earlier warning of that event.
And we’re continued on the (inaudible) diversion and rehabilitation of the existing underground Olympias. In Certej exploration drilling was completed during the quarter.
We’re now working on updating the resource model. Geotech drilling was also carried out on pit area for slope stability in the proposed plant area.
Metallurgical test work continues on the previous pit volume and the deeper sections that are included in the recent resource model. At TZ we continue to work on the review of the feasibility costs and considering options to reduce capital operating or both.
We expect this work to be essentially complete by the end of this year. In exploration, we completed 65,000 meters of drilling during the quarter.
Of note, we currently drilling a Piavitsa in Greece and exploration drilling is recently being completed in Certej in Romania. We continue to drill Brownfield targets around all of our Chinese operations and at Efemçukuru in Turkey.
With that I will hand it over to Fabiana.
Fabiana Chubbs
Thank you Paul. Good morning everyone.
Before I go through the financial statement I would like to correct a typo in our press release. The headings on the tables should read quarter ended June 30th, instead of March 31s.
I will now go through the financial statement highlighting changes in significant accounts. Commencing with the balance sheet, we ended the quarter with a cash and cash equivalent balance of $522 million compared to $870 million at the end of 2012.
The decreasing cash balance is a result of cash generation of operations, net of amount invested in term deposit, the uses of cash for dividend payment and capital program. The $4 million decrease in inventory relates to the sale of Efemçukuru concentrated circuit at Kisladag, net of increase of supply inventories at Kisladag and Olympias and production inventory at Vila Nova.
In relation to our property plant and equipment, we have completed an assessment of external and internal factors and concluded there are no indications of improvement as of June 30, 2013. As reported in Q1 this year, the $125 million increase in the deferred tax liability balance relates to the increase in the great income tax rate from 20% to 26% Moving on to the income statement, we reported a loss attributable to shareholders of the company of $43 million or $0.06 per share, compared to a profit of $47 million or $0.07 per share in the second quarter of 2012.
Revenues for the quarter of $267 million are up $23 million from a year ago due to higher gold sales volume offset by lower gold prices. Production cost increased by 23% or $22 million compared to the second quarter in 2012 reflecting higher sales volumes on essential crude on Kisladag.
On the income taxes spend, the effective tax rate of 36% served from a rate of 43% in the second quarter of 2012, mainly as a result of the impact of the recognition of investment tax credit in Turkey. On the statement of cash flows, during the quarter we generated cash flow from operating activities before changing in non-working capital of $85 million compared to $82 million in the second quarter of 2012.
The main uses of cash relate to our capital program $117 million and investments in tender profit of $63 million. Those are my comments on the financial statements.
I will turn the call back to Paul.
Paul Wright
Thanks Fabiana. Thanks Paul.
Operator, we'll open up for questions please.
Operator
(Operator Instructions). The first question is from John Bridges with JPMorgan.
Please go ahead.
John Bridges - JPMorgan
I just wanted to see the Turkish lira has weakened substantially. Just wonder how much that's affecting your cost structure in Turkey and how much of the cost that you report are lira based and dollar based?
Fabiana Chubbs
Our cost probably, hard to give you the exact number, we are looking at 40% will be Turkish lira based and the rest is other currencies, mainly U.S. dollars and some euro.
John Bridges - JPMorgan
And then as a follow up, Tony you mentioned that the number you reported this quarter was a bit abnormal. Could you tell us what a more normal number would be and what we should be plugging into the model for the rest of the year?
Unidentified Company Representative
That's a tough question I guess, until we sold out division of overheads. I would suggest something between the first and second quarter if I was forced to get for a number.
Paul Wright
Yes, what's happening there John is that it appears that we're misallocating a lot of the G&A in around the Halkidiki region to the Stratoni mine? I mean the Stratoni mine acts administratively as a center for all of our business interests in Halkidiki, Olympias, Stratoni and Skouries and it appears that frankly and it is probably just reflective of where we’re in terms of getting our systems in place that we’re misallocating a lot of the costs that are being dumped into Stratoni as an operating unit.
So just bear with us and we will get it frankly sorted out in the next quarter and you will see likelihood adjustment in the end of the third quarter and we will better equipped to give you some proper guidance.
Operator
Thank you. The next question is from Josh Wolfson with Dundee Securities.
Your line is now open. Please go ahead.
Josh Wolfson - Dundee Securities
My questions are with regards to Kisladag. Some of the CapEx it sounds like was allocated towards stripping.
With the deferral of Phase IV do you still expect to do additional stripping towards eventually proceeding with that expansion, or will it be reduced going forward?
Paul Wright
Where we are Josh right is sort of really looking at how we can take advantage of the operation in terms of the increasing throughput. We are in a stage where we expect to have the EIA for the expansion project completed the end of the year and although we won’t be at this point proceeding with expansion of the process facility crushing, screening process plant, we do clearly in the next few years have surplus mining capacity and we’re going to be looking with the EIA approval giving us access up to 35000 million tons a year.
We’re going to be looking at increasing our throughput to the leach pattern and frankly revising our mine plan to do that. So we won’t be looking at production levels obviously that where part of the expansion but we won’t be sort of reverting back to the production levels prior to the expansion being muted.
So we’re in the throws now of really redoing the mine plant, looking at that what we can do in terms of utilizing the existing mining fleet over the next few years as when we do have surplus capacity. So a long answer, as you are just going have to wait until we can update the mine plan.
Josh Wolfson - Dundee Securities
Okay. And at this point is there any ability to see what the impact would be to reserves and if there's still the ability to process the lower-grade material and some of the run-of-mine?
Paul Wright
No, no, this is what we looking at. We certainly see the opportunity to frankly increase the run of mine component taking again advantage of equipment that we have.
Josh Wolfson - Dundee Securities
And lastly just for the concentrate treatment plant, would you expect to see any change in the Efemçukuru costs when that plant is up and running, or will it be basically marginal?
Paul Wright
I wouldn’t even assume that the Efemçukuru concentrate plant gets back in running. At this point and I’m sure metallurgists and Paul are sitting across, I’m sure the metallurgists will come up with a fix for this plan but we’re receiving such frankly good concentrate treatment terms in the marketplace right now that my sense is it's going to be unlikely that you will see us investing additional capital to reactivate KCTP in the short term.
Operator
Thank you. The next question is from Anita Soni with Credit Suisse.
Please go ahead.
Anita Soni - Credit Suisse
The questions that I have are with regard, of course, to stripping at Kisladag. What was the strip ratio?
Paul Skayman
As strip ratio for the quarter was 1.5 and year to date was 1.5 fairly consistent.
Anita Soni - Credit Suisse
Tanjianshan?
Paul Skayman
Lucky I’ve got only that it’s the Anita Soni file that we’re drawing upon here.
Anita Soni - Credit Suisse
Well, I have to calibrate my costs right now.
Paul Skayman
Future Tanjianshan was 1.4.
Anita Soni - Credit Suisse
And the last one, Jin -- actually, could you just give me the underground open pit split on Jinfeng?
Paul Skayman
Underground open pit, great.
Anita Soni - Credit Suisse
Yes, the split between the tons of ore in the open pit and the underground?
Paul Skayman
The open pit was slightly less than half of the total mine and sort of 40/60 if you wanted.
Anita Soni - Credit Suisse
40/60, okay. And then I guess my other questions have been asked.
Thank you.
Operator
Thank you. (Operator Instructions).
The next question is from Kerry Smith with Haywood Securities. Your line is now open.
Please go ahead.
Kerry Smith - Haywood Securities
Paul, for Eastern Dragon now that you've finally decided or the regulators have decided that you have to go through the NDRC to get the approval, how long will it take you to actually prepare the documentation to be submitted to them?
Paul Wright
I honestly don’t know Kerry. To be blunt, we're thrashing out what exactly of the existing the documentation that has been with the provincial authorities, being reviewed by the provincial authorities can be simply transferred directly to NDRC and how much will have to reworked, how much will have to be modified.
That’s the process we’re engaged in. We just don’t have, in terms of time lines, that’s the level of certainty I can offer.
Kerry Smith - Haywood Securities
So without putting words in your mouth, it could be as short as three months or it could be as long as a year or do have a bracket?
Paul Wright
Well put Kerry. As it gets clearer, looking into the muddy bowl, we will obviously tell you what we see.
Operator
Thank you the next question is from David Haughton with BMO Capital Markets. Please go ahead.
David Haughton - BMO Capital Markets
Back to Kisladag, would you expect to see some cost improvements with this new fleet that you've got on board?
Paul Wright
Yes. If you look at the Kisladag expansion as originally envisaged, there is really two parts to it.
There was the part to it that was about how do you keep unit costs under control, down as you go forward and that was very much linked to the decision to invest in the new mining fleet, larger equipment in terms of both haulage and loading as well as electrification of the pit and that’s what keeps cost under control. The second component which was of increasing production levels was all about brining production forward earlier in the mine plant.
The nature of that type of expansion really doesn’t do much of anything to your unit cost. So the first part is what we have kept.
Now, because we are not expanding throughput in the manner first envisaged, what we are looking at is what is the opportunities within the existing infrastructure to increase throughput, predominantly through run a mine. Traditionally the run of mine component to Kisladag has been relatively modest, it has been frankly not necessarily as well is sort of cost effectively executed.
As one would think, there is not being a lot of effort gone into it I mean. Frankly we would pick it up out of the pit, bring it to the pit, dump it on the ground, pick it up again with the loader, put it into smaller contractor operated trucks, smaller trucks and then it would go secured route out of the leach pad.
What we're looking at now and what will be looking at over the next few months as the opportunities within the pit changing drilling and blasting patterns to increase fragmentation to make some changes in terms of our access roads to the leach pad to basically take material straight from the pit, straight to the leach pad and again we will benefit as we start incorporating larger loading and hauling equipment and as we go to electrification, all of this will contribute I think to our ability to able get ounces to the pad cheaper. So we are working our way through that David at this point and certainly by the time we give guidance for 2014 and the out years, that sort of work will be behind us.
David Haughton - BMO Capital Markets
So you're still ultimately working towards the potential of a 30 million ton per annum stacking rate, but the mix between what's crushed and what's just simply dumped is?
Paul Wright
I think it's unlikely that we are going to get close to the 30 million ton but I mean we are certainly looking at going beyond where we are right now and that’s the reason obviously we are completing the DIA process has been completed, to give us that license stability to increase tonnage to the leach pad.
David Haughton - BMO Capital Markets
And is there also a scope to tweak a little bit more out of the crushing circuit than what you've got so far?
Paul Wright
Probably not. I think we're just about there.
It's 12.5 million to 13 million tons. I think we're just there on the crushing side.
But obviously what we have looked at a mining rate where we would preferentially put higher grade material through the crushing plant and run a mine on lower grades.
David Haughton - BMO Capital Markets
And on the grade front continue -- you appear to continue to get over call in the current quarter. Is that something that you can predict going forward, or you're just taking as it comes?
Paul Wright
It will vary up and down over sort of periods but it actually reconciles very closely over a longer term. So we're not predicting a factor in there.
Paul Skayman
And when we do our reserve updates obviously David we take the blast hole skin and we incorporated. So we are refining our model as we go forward and as Paul said usually on a growth scale, we're very close.
It's just that we've continually I suppose benefited somewhat. There's been more upside then downside I guess, but I don't think where we want to assume that for the future.
David Haughton - BMO Capital Markets
Okay, and revised Cap Ex numbers, now looking at the 340 together with the expiration of 51, the first quarter was fairly slow in that spend. Its looks like it's catching up in the second quarter.
Is there scope for you to meet that or a bit of an under spend. What’s your thinking at the moment about that pace through the course of the year?
Paul Wright
Well, we revisited it only a month ago. So I think it's probably out, I think we would expect to spend that over the time we've got left.
Paul Skayman
Activities at Skouries are ramping up frankly every month. So I think that's a good number, David.
David Haughton - BMO Capital Markets
And finally looking at Olympias, you've got some pre commercial sales. I presume that it's a concentrate sale.
Are you happy with the terms, are they up to the expectations that you've spoken about previously?
Paul Wright
Happy. There's always scope for a few more percent but pretty well in line with what we had indicated or what we thought initially.
David Haughton - BMO Capital Markets
So in line with the cost guidance that you had provided some time ago.
Operator
Thank you, the next question is from (inaudible) with HSBC. Please go ahead.
Unidentified analyst
I have a couple of questions. One thing on Olympias, I believe that initially commercial production was expected actually in the second quarter but it has been pushed I believe to the third quarter now.
Is there anything operationally that precluded (ph) you guys from declaring it this quarter.
Paul Wright
Yes. It's simply not up to the throughput that would trigger commercial production.
Unidentified analyst
And when in the third quarter do you expect to get to that throughput?
Paul Wright
Well, month of July is the behind us and July won't be commercial. .I believe its two more months.
Either August or September, I'm not trying to be flippant but…
Unidentified analyst
All right, the other question would be, have you guys done the impairment test like many of your peers and if you have what gold price did you use and just trying to figure out, which of your assets would be in danger of impairment if gold prices come down more.
Fabiana Chubbs
I prefer, our view, first the factors that are in there and we use consensus prices. So those are in the 1300 range for long term.
Unidentified analyst
And none of your assets really were impaired I guess when you did that.
Fabiana Chubbs
No.
Unidentified analyst
Any particular ones that would be in danger. Let's say if price dropped to $1,100 or $1,200, if you had to revise your long term expectations?
Paul Skayman
We would look at it at that point I think, because I think you know, the point you have to look at is if gold, certainly in our view or my view is that if you see gold down a $1000 or thereabouts you're going to looking at inputs. So you're cost structure's not going to be the same.
We haven't looked at the assets at a $1000 of gold in terms of critically what the cost structure would look like and therefore what would be the potential for impairment.
Operator
T
Anita Soni - Credit Suisse
I hadn't asked, this the breakout in Kisladag on sustaining in growth, could you give us the split for the, I know you gave us the aggregated capital but I would appreciate a split.
Paul Wright
For this year, growth or versus?
Anita Soni - Credit Suisse
Just for the quarter.
Paul Skayman
Don't know that I have those for the quarter. Just bear with us Anita.
Unidentified company representative
I think it's 35.3 million for the entire quarter for Kisladag.
Paul Skayman
About 20% of that was sustaining, Anita.
Operator
(Operator Instructions). There are no further questions registered at this time.
I would now like to turn the meeting back over to Mr. Wright.
Paul Wright
Well thanks Operator, and thanks for attending the call and look forward to talking to you at the end of the next quarter. Enjoy the rest of the summer.
Thanks again.
Operator
Thank you. The conference call has now ended.
Please disconnect your lines at this time. Thank you for your participation.