U.S. Markets open in 1 hr 38 mins

Edited Transcript of ELD.TO earnings conference call or presentation 28-Apr-17 3:30pm GMT

Thomson Reuters StreetEvents

Q1 2017 Eldorado Gold Corp Earnings Call

VANCOUVER May 2, 2017 (Thomson StreetEvents) -- Edited Transcript of Eldorado Gold Corp earnings conference call or presentation Friday, April 28, 2017 at 3:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Fabiana E. Chubbs

Eldorado Gold Corporation - CFO

* George Raymond Burns

Eldorado Gold Corporation - Director Nominee

* Paul James Skayman

Eldorado Gold Corporation - COO

================================================================================

Conference Call Participants

================================================================================

* Kerry Smith

Haywood Securities Inc., Research Division - VP, Senior Mining Analyst and Director

* Scott MacDonald

Scotiabank Global Banking and Markets, Research Division - Associate

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to the Eldorado Gold Corporation First Quarter Results Conference Call. (Operator Instructions) I will now turn the call over to George Burns, President and CEO. You may begin your conference.

--------------------------------------------------------------------------------

George Raymond Burns, Eldorado Gold Corporation - Director Nominee [2]

--------------------------------------------------------------------------------

Thank you, operator, and good morning, and welcome to our 2017 first quarter financial operating results call.

I am excited to be here as the new President and CEO of Eldorado Gold, as of this morning. With me here in Vancouver, I have Paul Skayman, Chief Operating Officer; Fabiana Chubbs, Chief Financial Officer; and Krista Muhr, our Vice President of Investor Relations.

We have provided detailed financial and operational information in the press release that went out yesterday evening. Before I begin, I want to remind you that any projections and objectives included in our discussion today are likely to involve risks, which are detailed in our 2016 AIF, and in the forward-looking statement disclaimer at the end of the news release.

As I stated yesterday at our Annual General Meeting, I took this job as I admire the work that Paul Wright and his team have accomplished over the years. I also see tremendous opportunity for growth based on our internal project pipeline. I visited our assets in Greece last month, and I must say that I was particularly impressed with the quality of work that is going into our development projects there.

Olympias 2 is in the final stage of commissioning, and we expect commercial production to be declared in the third quarter. During the first quarter, we announced that we have received multiple tenders for significantly better concentrate sales terms, which we expect will increase annual production from Olympias Phase 2 to approximately 85,000 ounces of gold.

At Skouries, a key growth project in Greece, work is continuing, with startup on track for 2019. During the quarter, construction was restricted due to poor weather, and necessary targeted work included tailings thickener secondary foundations and stockpile dome embankments. With that said, the engineering team continued to work on a integrated waste management facility and the filter plan. Both of these quality assets have mine lives in excess of 25 years, and combined are expected to produce over 240,000 ounces of gold per year, in addition to an equivalent value in silver and base metal credits, which, in turn, will translate into free cash flow.

I am looking forward to hosting many of you on the upcoming site tours in May and June. I strongly believe these visits will demonstrate to the market just how advanced both of these assets are and how quickly we expect them to be operating.

In Turkey, where I also recently visited, our teams and assets are second to none. Kisladag had 5 million ounces of reserves as a startup a decade ago, has produced 4 million ounces of gold in that time and still has 5 million ounces of reserves today. This asset, Turkey's largest gold mine, still has nearly 20 years of gold production ahead of it.

During the first quarter, Kisladag produced 52,644 ounces of gold at a cash cost of $446 per ounce. Cash costs were reduced year-over-year due to the higher average treated head grades and reduced operating costs related to labor and major consumables through our ongoing operational improvements.

Turning to Efemcukuru, which is as a mine site, an incredible feat of engineering and for those of you that have been there, you know how impressive it is. We expect this asset to keep delivering low-cost ounces for many years to come. During the first quarter, Efemcukuru produced 22,528 ounces of gold at a cash cost of $515 per ounce.

Looking at the expected gold production for the year, the company expects to produce between 365,000 to 400,000 ounces at a cash cost between $485 and $535 per ounce. I have no doubt that the operation teams will deliver.

Turning to exploration. The team is busy with a number of projects that fit into our future growth pipeline.

During the quarter, 13,600 meters of drilling was completed at our projects in Greece, Romania and Brazil. In Greece, exploration was focused on drilling extensions of the Mavres Petres ore body from our new hanging wall exploration drift, and testing new targets on the Fisoka porphyry system. Late in the quarter, we initiated the first ever drill testing of the Tsikara porphyry prospect area. In Romania, we continued drilling the Bolcana porphyry deposit [and] tested several epithermal vein peripheral to the porphyry.

Our Brazil drilling programs this quarter targeted several early-stage orogenic gold targets with Borborema project area in the northeast part of the country. These programs are continuing into Q2, and we are also kicking off a 20,000-meter drilling program at our KMC project is Serbia.

We have additional future growth projects in our pipeline, including Tocantinzinho in Brazil, Perama Hill in Greece and Certej in Romania. I hope to have additional updates on Tocantinzinho in the near future.

I can't talk about our quality assets without recognizing the nearly 5,000 employees and contractors that make all this happen each and every day. We remain committed to developing our people and communities, and to operate in a safe and environmentally responsible way. Our industry peers are dealing with shorter mine lives, depleting reserves and declining production rates, while we quality assets, longer mine lives and the balance sheet to deliver long-term sustainable growth. As we continue to put our low-cost, long-life projects into production, I believe the market will recognize it, which offers tremendous upside to our investors.

And just before I turn it over to Paul and Fabby, I would like to take this opportunity on behalf of Eldorado team to thank Paul Wright for his hard work over his nearly 20 years leading this company. We look forward to having his continued support, as he moves into the Vice Chairman role on the Board. That's it for me. I'll turn it over to Paul Skayman.

--------------------------------------------------------------------------------

Paul James Skayman, Eldorado Gold Corporation - COO [3]

--------------------------------------------------------------------------------

Thanks, George. Good morning, everyone.

Starting with Turkey. Kisladag produced 52,600 ounces of gold, which was in line with our expectations for the quarter. I should remind everyone traditionally, Kisladag has a slow first quarter due to cold weather and rainfall. Inventory levels rose during the quarter, in line with material placed on the pad being better grade than previously ore had been placed at higher levels on the pad than previously.

Tonnes of ore mined and placed on pad were in line budget and the grade of the material exceeded our budget. However, 0.94 is still our predicted overall treated head grade for 2017. Year-to-date, strip ratio for Kisladag was 1.27, slightly above our Q1 budget number, but approximately in line with full year guidance of 1.18:1.

Cash cost for the quarter, as George said, very good at $446, a combination of currency exchange and site efficiencies were responsible for that number.

Also in Turkey, Efemcukuru turned in another solid quarter with production of 22,500 ounces. Tonnage mined and processed was slightly over budget, ounce production slightly behind due to lower treated head grade in Q1.

Cash costs for Q1 were $515 an ounce, and again, slightly lower than our guidance of $525 to $575.

Moving over to Greece. With Olympias in the final stages of commissioning, things appear to be progressing well. Materials being mined placed on surface, now moving through the circuit, and we're happy with how things are going. We remain on track for commercial production in Q3. And as George said, we're looking forward to hosting some of you over the next month or 2, as we get to see it yourself the progress on site.

At Skouries, I indicated earlier in the year, we had a slow start to 2017, with significant snowfall for most of the first 2 months over the site. With improving weather conditions, work is now moving forward again. We continue to work on areas in the process plant along with proprietary works around the tailings pond.

At Tocantinzinho, we received the installation license just this week. However, we're still waiting for permits surrounding the tailings dams and solution ponds. We're satisfying requests for extra work on these areas of the project, which are required due to design concerns on tailing dams, given the recent tails dam issues in Brazil. However, we do not anticipate any specific issues and expect to have these permits later this year. At the same time, basic engineering is nearly complete in Vancouver on Tocantinzinho.

And with that, I'll turn it over to Fabby.

--------------------------------------------------------------------------------

Fabiana E. Chubbs, Eldorado Gold Corporation - CFO [4]

--------------------------------------------------------------------------------

Thank you, Paul, and good morning, everyone. It was a quite first quarter for financial reporting. We ended the quarter with cash, cash equivalents and term deposit balance of $874 million compared to $888 million at the end of 2016. The decrease in the cash balance is mainly the result of cash flow generated from operating activities before changes in working capital of $28 million, net of usage of cash of $74 million in capital programs and $11 million in dividend payment to shareholders.

Net profit attributable to shareholders of the company was $3.8 million or $0.01 per share in the first quarter of 2017 compared to a loss of $2.5 million in 2016. Excluding the $3 million loss recorded on finalization of the sale of the Chinese asset, we reported adjusted net earnings of $8 million or $0.01 per share in Q1 2017 compared to an adjusted net loss of $0.7 million in 2016. Gross profits from continued operations for the year of $69 million was $3 million higher year-over-year, due to higher realized gold price and lower cash operating costs. The effective tax rate was impacted by withholding tax accruals in Turkey, foreign exchange effects and unrecognized losses in Canada and Greece. At a way of reference, a 10% changed in the exchange rate for the Turkish lira will result in approximately an $8 million adjustment in deferred taxes. These are noncash adjustments.

Those are my comments on the financial statement. I will turn the call back to George.

--------------------------------------------------------------------------------

George Raymond Burns, Eldorado Gold Corporation - Director Nominee [5]

--------------------------------------------------------------------------------

With that, operator, we will open it up for questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) And first question is from Kerry Smith of Haywood Securities.

--------------------------------------------------------------------------------

Kerry Smith, Haywood Securities Inc., Research Division - VP, Senior Mining Analyst and Director [2]

--------------------------------------------------------------------------------

Paul, for Skouries, there you only spent $14 million in Q1 on construction. Was that kind of in line with what you were budgeting? Or did you actually spend less than you expected there because the weather was worse than you had anticipated?

--------------------------------------------------------------------------------

Paul James Skayman, Eldorado Gold Corporation - COO [3]

--------------------------------------------------------------------------------

Yes, a little less than we anticipated. I mean, Q1 was never going to be a big quarter, but it was certainly -- I mean, I've never seen snow like there was on site when I was there during that first quarter. So, obviously, we were fairly well hampered for that period, so under what we thought we might.

--------------------------------------------------------------------------------

Kerry Smith, Haywood Securities Inc., Research Division - VP, Senior Mining Analyst and Director [4]

--------------------------------------------------------------------------------

Okay. And so do you think you'll still kind of be on budget there and on schedule, given that you had this slow start?

--------------------------------------------------------------------------------

Paul James Skayman, Eldorado Gold Corporation - COO [5]

--------------------------------------------------------------------------------

Yes, I mean, it's early days. We're hoping, obviously, to sort of catch that up as we move through the year, Kerry.

--------------------------------------------------------------------------------

Kerry Smith, Haywood Securities Inc., Research Division - VP, Senior Mining Analyst and Director [6]

--------------------------------------------------------------------------------

Okay, okay. And Olympias 2, I guess, most of the CapEx got spent in Q1. Is that project still going to kind of come in on budget. I think you were talking $55 million this year and you've spent $37 million already?

--------------------------------------------------------------------------------

Paul James Skayman, Eldorado Gold Corporation - COO [7]

--------------------------------------------------------------------------------

Yes, pretty close. I mean, we're done in -- there's a few sort of hangover payments to do on Phase 2, but we're pretty well there.

--------------------------------------------------------------------------------

Kerry Smith, Haywood Securities Inc., Research Division - VP, Senior Mining Analyst and Director [8]

--------------------------------------------------------------------------------

Okay. And then the incremental 15,000 ounces that you expect to get out of the better pay factors on the concentrate out of Olympias Phase 2, is that -- that's starting in 2018, obviously. I think you've suggested 5 years. Is that 15,000 ounces per year for 5 years? Or how long should we think about that better pay factor?

--------------------------------------------------------------------------------

Paul James Skayman, Eldorado Gold Corporation - COO [9]

--------------------------------------------------------------------------------

I mean, they are the sort of numbers that I'll be using for that 5 years, Kerry. They'll start as we start production later this year. And then the 15,000 ounces is a full year, obviously. So '18, '19 and onwards, assuming the head grade stays where it is, we would expect that extra ounces.

--------------------------------------------------------------------------------

Kerry Smith, Haywood Securities Inc., Research Division - VP, Senior Mining Analyst and Director [10]

--------------------------------------------------------------------------------

Okay. So you're kind of assuming that incremental improvement until Phase 3 comes on and then however long that takes.

--------------------------------------------------------------------------------

Paul James Skayman, Eldorado Gold Corporation - COO [11]

--------------------------------------------------------------------------------

That's correct, yes.

--------------------------------------------------------------------------------

Kerry Smith, Haywood Securities Inc., Research Division - VP, Senior Mining Analyst and Director [12]

--------------------------------------------------------------------------------

Okay. I got it. Okay. And just 1 last question. What does the installation license at TZ actually allow you to do, Paul?

--------------------------------------------------------------------------------

Paul James Skayman, Eldorado Gold Corporation - COO [13]

--------------------------------------------------------------------------------

Well, it allows us to move forward with works on-site in terms of construction on the plant, et cetera. But obviously, we're still waiting on tailings dam and solution ponds, couple of small CIL ponds that are going in. So it allows us to move forward, but not with the whole site.

--------------------------------------------------------------------------------

Kerry Smith, Haywood Securities Inc., Research Division - VP, Senior Mining Analyst and Director [14]

--------------------------------------------------------------------------------

Okay. So it's more like road construction, but you could actually start plant construction if you wanted with that license?

--------------------------------------------------------------------------------

Paul James Skayman, Eldorado Gold Corporation - COO [15]

--------------------------------------------------------------------------------

That's correct, yes.

--------------------------------------------------------------------------------

Operator [16]

--------------------------------------------------------------------------------

The next question is from Scott MacDonald from Scotia Bank.

--------------------------------------------------------------------------------

Scott MacDonald, Scotiabank Global Banking and Markets, Research Division - Associate [17]

--------------------------------------------------------------------------------

I just had 3, hopefully, quick questions for you. Firstly, if you could maybe just walk us through a little bit how you see the next 3 quarters playing out over the course of the year, particularly at Kisladag, but maybe also at Efemcukuru and Olympias, just from an operating perspective?

--------------------------------------------------------------------------------

Paul James Skayman, Eldorado Gold Corporation - COO [18]

--------------------------------------------------------------------------------

I don't -- I wouldn't -- I would just point you back to guidance for that one, Scott. I'm not saying it being any different to what we've guided to.

--------------------------------------------------------------------------------

Scott MacDonald, Scotiabank Global Banking and Markets, Research Division - Associate [19]

--------------------------------------------------------------------------------

That's all right. I meant sort of like quarter-over-quarter, do you see it kind of directionally being fairly even over the remaining quarters that you see operations or do you see some ups and downs?

--------------------------------------------------------------------------------

Paul James Skayman, Eldorado Gold Corporation - COO [20]

--------------------------------------------------------------------------------

No, we don't generally give quarter-by-quarter guidance, Scott.

--------------------------------------------------------------------------------

Scott MacDonald, Scotiabank Global Banking and Markets, Research Division - Associate [21]

--------------------------------------------------------------------------------

Okay. Fair enough. My second question, just on Skouries. If you could maybe just point us to some of the critical path items we should be looking for over the next few quarters?

--------------------------------------------------------------------------------

Paul James Skayman, Eldorado Gold Corporation - COO [22]

--------------------------------------------------------------------------------

I guess the one that we do need to submit and work on is the dry stack permit. That's something that we're in the process of submitting now. And then it sort of has to go to the government process. So that's one that we'll be updating you as we move forward with that.

--------------------------------------------------------------------------------

Scott MacDonald, Scotiabank Global Banking and Markets, Research Division - Associate [23]

--------------------------------------------------------------------------------

Okay. Any sense now when you're kind of expecting that?

--------------------------------------------------------------------------------

Paul James Skayman, Eldorado Gold Corporation - COO [24]

--------------------------------------------------------------------------------

No, not at this stage. I mean, obviously, we'd be hoping for it by the end of the year, but I wouldn't...

--------------------------------------------------------------------------------

Scott MacDonald, Scotiabank Global Banking and Markets, Research Division - Associate [25]

--------------------------------------------------------------------------------

Okay. Just sometime this year, you're hoping?

--------------------------------------------------------------------------------

Paul James Skayman, Eldorado Gold Corporation - COO [26]

--------------------------------------------------------------------------------

Sure. Yes.

--------------------------------------------------------------------------------

Scott MacDonald, Scotiabank Global Banking and Markets, Research Division - Associate [27]

--------------------------------------------------------------------------------

Okay. And then maybe 1 just for Fabby. I noticed there was a pretty big VAT refund coming back on the cash flow statement this quarter. Just wondering if that's something you'd expect any more of those over the next few quarters or were those kind of a one-time thing?

--------------------------------------------------------------------------------

Fabiana E. Chubbs, Eldorado Gold Corporation - CFO [28]

--------------------------------------------------------------------------------

I can tell you we'd like to be able to report it. It depends on the government funded allocations. We do the presentation of the VAT returns with the deadline requirements unable. It's an internal process. Sometimes they work a bit faster than other times. So I kind of guarantee that will be in that form of -- there were 3 quarters that we haven't received any single VAT rebate, and then we'll receive them altogether in 1 quarter so.

--------------------------------------------------------------------------------

Scott MacDonald, Scotiabank Global Banking and Markets, Research Division - Associate [29]

--------------------------------------------------------------------------------

Right, okay. So it's not that reliable.

--------------------------------------------------------------------------------

Operator [30]

--------------------------------------------------------------------------------

There are no further questions at this time. I will turn the call back over to George Burns for closing remarks.

--------------------------------------------------------------------------------

George Raymond Burns, Eldorado Gold Corporation - Director Nominee [31]

--------------------------------------------------------------------------------

Well, thank you, everybody, for joining us today. And I look forward to hosting many of you on our upcoming site visits in Greece. Thank you.

--------------------------------------------------------------------------------

Operator [32]

--------------------------------------------------------------------------------

This concludes today's conference call. You may now disconnect.