Nov 4, 2014
Executives
Paul Wright - CEO Norm Pitcher - President Fabiana Chubbs - CFO
Analysts
Dan Rowlands - RBC Capital Markets Dave Haughton - BMO Capital Markets Andrew Quail - Goldman Sachs Anita Soni - Credit Suisse Cosmos Chiu - CIBC Frank Duplak - Prudential Financial
Operator
Good morning, ladies and gentlemen. Welcome to the Eldorado Gold Corporation Third Quarter 2014 Financial Results Conference Call.
I would now like to turn the meeting over to Paul Wright. Please go ahead Mr.
Wright.
Paul Wright
Thank you, operator and good morning and thank you all for joining us. And welcome to our third quarter financial and operating results call.
In Vancouver this morning we have Norm Pitcher, President; Fabiana Chubbs, Chief Financial Officer; Paul Skayman, Chief Operating Officer; and Krista Muhr, dressed as a monkey, 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 need to remind you that any projections and objectives included in our discussion today are likely to involve risks, which are detailed in our 2014 AIF and in the forward-looking statement disclaimer at the end of the news release. We will follow the usual format with myself providing some general comments on the Company’s business and our results and release.
Norm will then provide some operational detail followed by a brief walk through the financial statements led by Fabby and then we'll open up for questions. I'm very pleased to report another strong quarterly performance, with $263.5 million in revenues from metal sales and adjusted net earnings of $0.05 per share.
Excellent operating results from our gold mines for gold production totaling 192,578 ounces, cash operating cost of $488 an ounce and all-in sustaining costs of $735 an ounce, have contributed to our maintaining guidance for the year 2014. That guidance to remind you is producing 790,000 ounces at year end with cash cost associated of $495 an ounce.
We are making solid progress on the development projects, specifically in our principle project under development, which is Skouries project in Greece where we completed our mill foundations in the quarter and are busily setting the mills in place and expect to have mills in place by the end of the fourth quarter. Total employment levels now in Greece are in excess of 2,000 persons and we are pushing forward to develop both Skouries as well as prepare Olympias for stage two operations.
The Company’s balance sheet remains strong with $937 million of liquidity, including $562 million in cash. With gold presently hovering at or below the $1,200 level, with strong balance sheet, low production costs and very high quality development projects, Eldorado remains one of the very few gold companies capable of continuing to grow a real profitable business.
With that I’ll hand over to Norm.
Norm Pitcher
Thanks Paul and good morning everyone. I’ll be brief in my remarks as usual since it was a very straight forward quarter operationally.
Hats off to our operating teams as they continue to focus on maintaining our position as a low cost producer. Let’s start in Turkey.
At Kisladag, we produced 78,030 ounces at a cash operating cost of $411 per ounce, sustaining capital of $5.4 million and we began work on engineering at the expansion crushing and screening circuit which will increase crushed ore to the pad to 20 million tonnes per annum. Development capital spending at Kisladag was $6.8 million during the quarter.
I’ll take this opportunity to sort of remind people on how you calculate recovery, or don't calculate recovery on a heap leach operation. You can’t simply take tonnes and grade and ounces and calculate recovery off that because of the lead cycle and inventory being built up.
So not similar to a milling operation. At Efemcukuru, we produced 26,838 ounces at cash cost of $547 per ounce, sustaining capital of $7.7 million.
And you’ll notice about a 2,800 ounce difference between ounces produced and sold. This is due to the timing of concentrate shipments during the quarter.
On to China, Tanjianshan had a quarter, 25,387 ounces at cash cost of $381 per ounce, sustaining capital spending was $2.1 million. Jinfeng also good quarter, 39,421 ounces at $609 per ounce and capital spending was about $1 million.
At White Mountain, produced 18,130 ounces at $648 per ounce and with capital spending of $5.8 million. At Eastern Dragon we continue the permitting effort in order to obtain the project permit approval.
As note in the press release, the EIA for the project will be approved at the provincial level. This is a positive development but not a large change in the permitting process with the PPA still being reviewed and approved centrally by NDRC.
Over in Greece, Stratoni. Stratoni is having a very good year.
We’re quite happy with the progress made at that operation. During the quarter they produced 14,363 tonnes of concentrate at a cost of $737 per tonne.
Onto Skouries, at Paul mentioned things are going quite well there now. Two important milestones during the quarter, the first being the start of the installation of the SAG and ball mills as mentioned and the second was approval of a technical study for the Tailings dam which has allowed us to start construction work on that dam.
And we also are moving forward with a selection of the open pit mining contractor. Capital spending during the quarter was $35.4 million and we now have over 600 workers onsite at Skouries alone.
At Olympias, we produced 4,772 payable ounces in concentrate. We’re progressing the Phase II study during the quarter, which will transition the plant from Tailings retreatment to processing underground ore at a rate of up to 650,000 tonnes per annum.
Capital spending was $28 million but between Tailings reprocessing, underground mine development and Phase 2 development. In Brazil at Vila Nova, we sold a 135,000 tonnes of ore during the quarter.
Unfortunately due to the drastic drop in iron ore prices and we've reported a $7.6 million inventory write down there and are looking at placing the mine on care and maintenance. In the Romania at Certej, we started on the full feasibility study and received construction permits that will allow us to get head start on some of the site earthworks.
Those are the major projects. On the exploration side we built 19,000 meters, throughout the world in the quarter and we recently put out a press release detailing some of the results and I'll refer you to that release.
With that, I will turn it over to Fabi.
Fabiana Chubbs
Thank you, Norm and good morning everyone. I will go through the financial statements highlighting changes in significant accounts.
Commencing with the balance sheet, the most significant change in the quarter, Norm mentioned, release of the iron ore inventory write-down related to Vila Nova. That resulted in a reduction of $7.6 million the inventory balance.
Other significant change is on the December 2013 balance sheet relates mainly to construction that has taken place in the first quarter related with the acquisition of Glory and a statistic agreement entered into with CDH in relation with our Eastern Dragon project. Moving on to the income statement, we reported a net profit attributable to shareholders of the Company of $19.8 million for the quarter compared to $36.4 million for the same quarter of the previous year.
Net income was impacted as we indicated for the Vila Nova inventory assessment. Adjusted net earnings for the quarter were $36.1 million or $0.05 per share, compared to $64.4 million or $0.08 per share for the third quarter of 2013.
Revenues for the quarter of $264 million were 9% lower than a year ago due to gold prices and ounces sold. Exploration expenses were $6.4 million year-over-year reflecting changes in our exploration program in response to lower gold prices.
Looking at income tax expense, the effective tax rate for the quarter was 64%. The higher effective tax rate was due to the impact of the weaker Turkish lira on deferred tax balances, as well as an increase in the percentage of unrecognized tax losses due to lower profit in the quarter.
So just a way of reference, the 10% change in the exchange rates for the Turkish lira will impact approximately $11 million adjustment in deferred taxes and a 10% change in the RMB will result in a $60 million adjustment to our deferred taxes. On the statement of cash flows, we ended the quarter with cash, cash equivalent and term deposit balance of $562 million compared to $624 million at the end of 2013.
During the quarter, we generated cash flow from operating activities before changes in non-working capital of $79 million, compared to a $105 million in the third quarter for 2013. The main use of cash during the quarter related to our capital program is $103 million.
We also paid a dividend during the quarter of $6.5 million. This dividend was in accordance with our dividend policies.
There were no changes to our dividend policy that were published at the beginning of the year. Those are my comments on the financial statement.
I will turn the call back to Paul.
Paul Wright
Thanks, Fabi. Thanks, Norm.
Operator, we will open for questions please.
Operator
Thank you. We will now take questions from the telephone line.
[Operator Instructions]. The first question is Dan Rowlands with RBC Capital Markets.
Please go ahead.
Dan Rowlands - RBC Capital Markets
Just a couple quick questions. Paul, in the beginning of the year you had mentioned that you had spent about $170 million out of your existing operations on sustaining capital.
I think year-to-date it's closer to about $80 million or $90 million. It leaves a big chunk for Q4.
Is that still a realistic number to assume for Q4 or should we expect some of that to be pushed into 2015?
Paul Wright
Yes, look you are going to see a big spend in the fourth quarter. Our sort of view is that we'll still probably be a bit shy at year end and expect probably $10 million to $15 million less -- short of the $170 million.
Dan Rollins - RBC Capital Markets
Okay great. And then just moving on to Vila Nova, obviously not a material asset for you, but once put on care and maintenance, is there a cost?
What's the estimated cost of putting it on care and maintenance, and should we assume some standby costs or would that all be fairly negligible going forward?
Paul Wright
Right. And we put the operation on standby previously.
So I guess we can probably reference that as what the costs are. It's not a lot.
We're fairly good at mothballing this asset. So it will be minimal.
Operator
Thank you. The next question is from David Haughton with BMO.
Please go ahead.
Dave Haughton - BMO Capital Markets
Just looking for a little bit clarity on Eastern Dragon. Earlier this year, you had to recast your EIA to go to a Federal level as I recall.
It's now being assisted at the provincial level before moving on to the Federal level. Can you just talk me through what that process is, and are there any timelines for decision making on any of those bureaucrats?
Paul Wright
Yes, I mean what happened was yes, we did, we had to redo the EIA to fit it into the format to submit centrally. We also had to do read through the EIA because certain requirements had changed, particularly in relation to groundwater monitoring, air and dust control that sort of thing.
So it had to be re-done anyway. So we did that, presented it to MEP in Beijing, the federal authority and they said look, there is no reason that we need to review.
You've had it approved once provincially a few years ago. Go back to the province and they can do it for you.
So it’s an easier step for us. The province will approve it.
I think MEP probably ticks a box on it and then the EIA goes along with the rest of the documents to NDRC for the PPA application.
Dave Haughton - BMO Capital Markets
Okay. And do any of those processes have a prescribed timeline that it has to be done within a certain period of time or is it [indiscernible]?
Paul Wright
No, not really. I mean we’re -- provincially for the EIA I don’t think we’re talking months.
We’re probably talking weeks to a couple of months sort of thing to get that approved. And then you’re into the PPA.
But there really isn’t a prescribed timeline.
Dave Haughton - BMO Capital Markets
And then once -- if the PPA goes up to the national level.
Paul Wright
Yes…
Dave Haughton - BMO Capital Markets
It’s uncertain how long that might take you?
Paul Wright
Well, I think generally it shouldn’t take more than a couple of a months. The general view, David is that the progress we’re making is consistent with what we've described in the guidance to be in a position next summer to resume construction.
And I think what we’ll obviously do and whether it relates to the EIA or the PPA if we see or become concerned about any aspect of that process delaying things, we’ll obviously tell people. But right now as Norm has just described, we’re satisfied with that the progress we’re making is consistent with that objective.
Dave Haughton - BMO Capital Markets
Okay. And from what I recall, having a look at previous presentations, you've made photographs of the facilities there.
It looks pretty well advanced.
Paul Wright
It is. No I was just up there a couple of weeks ago and it looks good.
It’s almost ready to go. Clearly -- there's work on a tailings to get done and some stripping in the pad, but we have ore exposed right on surface.
So it won’t take too long. The mill itself is ready.
Dave Haughton - BMO Capital Markets
And I guess in light of what we have going on yesterday and today, low metal prices, I presume you've got flexibility if needed to preserve cash flow by slowing down expenditure on these various projects that you've got under way right now? Have you had to think through any of those or not?
Paul Wright
We do have flexibility and right now it’s not something we’re spending a lot of time thinking about David. We’re running our business on the basis that the gold price is going to be in the $1,200 to $1,300 range.
The fact that it’s dipped below 1,200 for a day or two is not causing us any cause for concern. If we see an extended decline and believe that to persist then we’ll have to sort of look at things.
But this year has been a very good year for us. The reality is that our corporate plan for 2014 assumed a realized price of $1,200.
We’re probably close to $80 - $90 an ounce ahead of that year-to-date. Our operating costs are lower than what we planned.
Production is higher. And we’ve seen some savings in delays on some of the capital spend.
So in reality, our balance sheet is stronger than we expected. So this period that we’re experiencing right now is not causing any cause for concern or reassessment of plans.
But we will of course in late January give guidance for 2015 and that guidance will reflect sort of our outlook for the next 12 to 18 months.
Dave Haughton - BMO Capital Markets
Yes. Needless to say that over the last couple of days we've had lots of requests on where do people stand on their, AISC, their breakeven costs, all sorts of things.
So hence the question?
Paul Wright
I mean I think we’re at the right end of the curve, aren’t we?
Operator
Thank you. The next question is from Andrew Quail with Goldman Sachs.
Please go ahead.
Andrew Quail - Goldman Sachs
Good work on another strong quarter. I just wanted to dive into Skouries a bit more, if I can.
We've all got the numbers and I mean can you -- obviously it seems like it's on track. Do you see any upside or downside risk to or any sort of headwinds for the CapEx number or the timeline?
And can you just outline exactly how much you have spent to-date, and what you would think in Q4 and how much that ramps up in 2015, just curious?
Paul Wright
Still guiding on producing material sort of like 2016. I don’t have a number off the top of my head for total spend to date we are starting to spend at an increased rate with the receipt of the permit for the Tailings [ph] dam construction and obviously ’15 and ’16 are going to be fairly solid years.
We’re sort of putting budget numbers together now for ’15 and that will come out in January I guess.
Norm Pitcher
I mean I think just the bigger question -- we’re -- a lot of the foundation work is now being done. We're moving into Tailings dam construction.
There's a lot of pre-purchased equipment already that we've inherited. And if you look at typically where projects potentially overrun, schedule aside, it tends to be more in the civils.
I would say that we're within six months now of having a very good view on the civils and a lot of the procurement behind us. So I don't think there's a lot of discomfort with the numbers to cost of completion.
As we do every year, in January we'll be giving you updates on what we expect to spend in the year and what we see as being cost of completion at that time. But there aren’t any alarm bells going on here.
Andrew Quail - Goldman Sachs
Right. And then just that additional 60 for the underground, that's not upfront, is it?
Is that delayed after the start?
Norm Pitcher
We are working on the D Plan at the moment. So we've got an amount in to continue that development during pre-production, or during construction now.
Paul Wright
So we have a lot of flex there Andrew. I mean we're starting the underground well in advance of what was originally envisaged.
So if we wanted to save some money over the next year or two that would be one to where we would look to sort of throttle back on.
Operator
Thank you. The next question is from Anita Soni with Credit Suisse.
Please go ahead.
Anita Soni - Credit Suisse
First question is with regards to Kisladag. I was just wondering if you could walk us a little bit through on the plans on the run of mine ore on the pad; for the remainder of the year I guess, just to give us a split of sort of what happened in Q3 on run of mine versus the mill?
Paul Wright
We put some material -- some run of mine material on for the year. There's going to be fair bit more going on over the last quarter, where at the moment we're sort of planning on a total of getting on for sort of 5 million tonnes of material.
About a third of that -- a quarter to a third of that will be run of mine material placed on the pad.
Anita Soni - Credit Suisse
In the fourth quarter?
Paul Wright
In the fourth quarter, yes.
Anita Soni - Credit Suisse
Okay. So total for the year, how much would it have been run on mine then?
Paul Wright
A little shy of 3 million tonnes total will be run on mine.
Anita Soni - Credit Suisse
Okay. So just so similar to what you guided or same as what you guided in the last quarter then?
Paul Wright
Yes.
Anita Soni - Credit Suisse
Okay. And then of course my strip ratio question.
What was the strip in the quarter?
Paul Wright
Hang on a minute.
Anita Soni - Credit Suisse
I will stop asking you when you put it in the disclosure.
Paul Wright
Our strip rate during the quarter was around 2.4, a little bit higher than the rest of the year. And probably similar for the last quarter.
Anita Soni - Credit Suisse
All right. And then Jinfeng underground open pit split, and also strip ratio?
Paul Wright
We're looking back at [indiscernible] some of those.
Anita Soni - Credit Suisse
Sure. And then the last question, maybe you can get back to me, what's the sustaining capital versus growth capital spend run rate so far?
If you could sort of give a little bit of -- even just a percentage disclosure on what you've spent to-date in the two buckets?
Paul Wright
Well sustaining and development.
Norm Pitcher
Well sustaining, I just commented on it. We've budgeted a $170.
We'll probably end up coming in the sort of a $155 to $160 at year end.
Anita Soni - Credit Suisse
Okay. Yes, and then just last question.
With regards to the Olympias, it seems like you had indicated that about 650,000 tonne per annum is the Phase 2 that you are looking at, and I apologize, I hopped on a little bit late on call. So I don't know if you addressed that, but could you just give a little bit more color on sort of timing of -- and how you see that unfolding over the next couple of years?
Paul Wright
We're saying up to 650,000 and we're sort of looking at that right now in terms of what we need for crushing and grinding capacity and we'll be updating that first quarter next year.
Norm Pitcher
Our guidance for the year, we'll be detailing out to you what our plans are in terms of capital investment for Olympias Phase 2 to bring the operation on as Norm described is ore processing. We certainly see the opportunity to grow in excess of what was originally envisaged.
And we're detailing that out right now but there would be whatever level is the ultimate level that we wish to reach. There will be ramp up area to get there.
Paul Wright
We've got sort of a year to a year and a half on tailings retreatment still left. So it’s all going to merge together.
Operator
Thank you. The next question is from Kevin Chiu with CIBC.
Cosmos Chiu - CIBC
It's actually Cosmos here. So just following up on Anita's question on the Olympias, maybe Paul.
Certainly earlier this year you had talked about maybe targeting 30,000 ounces to about 35,000 ounces for the year at Olympias, and you've gone to about 17,000 ounces so far. Certainly understanding that this is Tailings reprocessing and targets are pretty fluid, and likely, that's going to be the answer to the question, but has there been any kind of unplanned challenges for the Tailings reprocessing?
Norm Pitcher
Paul will give you all the details. But your word fluid is a very good description.
It’s mucky mess that we're dealing with. But that's a non-technical description.
Paul Wright
It's certainly been a lot harder than I think anybody anticipated in terms of predictability, in terms of being able to free cost versus very fine material handlings been an issue. It’s been a lot harder than we anticipated.
I think we’re all surprised how difficult it is just to dig up Tailings and switch to the mill [indiscernible]. It's been a real pain.
Cosmos Chiu - CIBC
So I guess that kind of relates to my other question as well I guess. Earlier this year, Paul you had talked about CapEx of about $60 million for the year at Olympias.
You have done through about $89 million so far. Are there areas of advancement that have kind of allowed you to speed up development, or is this going back to your answer in terms of being harder?
Paul Wright
No, I think what’s happened there is it’s the not declaring commercial production on the tailings retreatment and putting those costs into capital costs is the difference. I don’t think we’re much -- and what we spend underground in development in kind of the mine part of it is probably above what we thought.
Cosmos Chiu - CIBC
Of course, and then in the past Norm or Paul, winter can be pretty harsh in Turkey. I guess we're not in the business of forecasting weather.
But are you expecting any issues in terms of Turkish production this year?
Paul Wright
No. It’s the usual.
We all know that Kisladag tends to slow down a little bit in the winter months. But yes, to be honest, I haven’t seen a weather forecast but [indiscernible].
Paul Wright
I don’t think it will be much different than -- we can certain expect the seasonal effects there.
Operator
Thank you [Operator Instructions]. The next question is from Frank Duplak with Prudential.
Please go ahead.
Frank Duplak - Prudential Financial
Just wondering. I saw you had a corporate update in the release that talked about retaining Bank of America for the listing of the Chinese business.
Any update on potential timing for that? How much of that business you might float, any kind of guidance there?
Paul Wright
Look, we’ll be getting started here with the -- first protocol will be to get teams together in the next week or two. Provisionally we’re looking to be in a position by call it February time, mid-February, to have our A1 filing prepared.
That’s probably about as much guidance I’d like to give at this point. In terms of timing to complete a listing, if we like to do that in Hong Kong, it’s going to dependent upon a bunch of factors, market considerations not least.
Operator
Thank you. There are no further questions registered at this time.
I would like to turn the meeting back over to Mr. Wright.
Paul Wright
Well, thank you all for attending and I look forward to chatting with you at the end of the fourth quarter. Have a good weekend.
Operator
Thank you. The conference has now ended.
Please disconnect your lines at this time. And we thank you for your participation.