Good morning, ladies and gentlemen. My name is Aaron, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Eldorado Gold year-end 2014 financial and operating results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question, simply press star and the number one on your telephone keypad. If you'd like to withdraw your question, please press the pound key. I will now turn the call over to Paul Wright, CEO of Eldorado Gold. Mr. Wright, you may begin your conference.
Thank you, operator. Good morning, ladies and gentlemen, and welcome to Eldorado Gold Corporation's 2014 year-end and fourth quarter financial and operating results call. Joining me this morning in Vancouver are Norm Pitcher, Fabiana Chubbs, Paul Skayman, and Krista Muhr. 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 our news release. We will follow the usual format, with Norm providing commentary on both the operational highlights of 2014 and our guidance for 2015. Faby will follow with a brief review of the year-end financials, and then we'll open up for questions. The past year was another year of significant accomplishments, with a production of 789,224 ounces being a record for the corporation.
The company continues to have one of the lowest cost structures in the sector, particularly when you consider the absence of base metal by-product credits, with all-in sustaining costs of $779 an ounce and cash operating costs of $500 an ounce. The strong operational performance enabled the corporation to maintain its healthy balance sheet with $876 million of liquidity at year-end after its investments in its growth projects. Reserves decreased year over year by 6.4%, reflecting depletion and a redesign of the Kışladağ pit, whereas reserve grade for the corporation increased by 4.3%. Looking ahead to 2015, we'll experience a temporary decline in production for the corporation to 640,000-700,000 ounces, with operating costs of $570-$615 per ounce. This reduction in production in 2015 is largely attributable to the planned mine grade at Kışladağ decreasing to 0.7 grams per ton for the year.
As highlighted in our disclosure today, we see Kışladağ production increasing in the years 2016 to 2019 from approximately 225,000 to 380,000 ounces per annum, reflecting higher grades and the completion of the Kışladağ expansion. Turning briefly to China, we're making good progress in resolving the outstanding permitting issues, enabling the completion of construction to be accomplished this year. A new EIA for the project has been approved, and we expect project permit approval application to be submitted to NDRC within the next two weeks. Greece, of course, is in the daily news and is experiencing significant turbulence affecting the economy as well as the broader society. This turbulence has created a lot of noise, and commentary regarding our investment has been a small part of the noise. However, today, as yesterday, as last week, as last month, over 2,000 persons are at work progressing our projects in Greece.
This progress is continuing with the broad support of the local society, and the company, the communities, the unions, and our stakeholders continue to engage constructively with the new government in Athens. I'll leave it to Norm to comment on the gold projects. However, suffice to say, good progress is being made at Skouries and Olympias projects. Along with our consultants, we're working hard to complete a feasibility study for Certej, which is due in the second quarter. With that, I'll hand over to Norm.
Thanks, Paul, and good morning, everyone. I thought we'd do things a little differently this time and instead of sort of going through the numbers that you can find either in the operational results or the guidance we just released. I'm just going to sort of hit on what I see as the pertinent points for the various operations and development projects. Starting at Kışladağ, a very good year there in 2014 as we mined at the bottom of a mining phase that was above reserve grade, resulting in over 311,000 ounces of production for the year. As most of you are aware, 2015 production is lower and costs are higher, largely due to the reduced head grade, which is closer to reserve grade as we start in the next pit phase.
We'll put about 12.5 million tons of crushed ore on the leach pad this year and about 4.5 million tons of run of mine material. In terms of the expansion, we deferred that until 2017, which will allow us to complete Skouries and Olympias Phase 2, and we'll see the benefit of expanding the crusher capacity to 20 million tons starting in 2018. In terms of reserves, we ended up with just over 8 million ounces. When you account for depletion for mining in 2014, that's about a 10% overall decrease in Kışladağ P&P. Efemçukuru, we had a good year at almost 100,000 ounces. Looking at a similar year in 2015. Jinfeng also had a solid year as we got back into the bottom of the open pit.
Less ounces and somewhat higher cost in 2015 as we finish in the open pit and transition to primarily underground ore. Tanjianshan was our lowest cost producer in 2014. It looks like it will get the prize again for 2015. We've started on the underground decline there to access the high-grade QLT Deeps deposit, and expect to start underground drilling there in Q2 of this year. White Mountain benefited by higher grades in 2014, which were partly due to stope sequencing and partly due to a positive grade reconciliation in some areas. Grade comes down closer to reserve grade in 2015, so it's somewhat affecting the ounces produced. On a positive note, we did well with underground exploration at White Mountain and saw a 20% increase in P&P reserves. At Olympias, as part of the Olympias Valley Reclamation Project, we continue to process tailings, treating just over 625,000 tonnes in 2014.
At the end of 2014, there were just over 1 million tons of tailings left still to process. Stratoni, pretty regular year 2014, and 2015 as well. Not much to comment there. Vila Nova Iron has been placed on care and maintenance. We did sell about 525,000 tons of iron ore in 2014. On the development side, as mentioned, our development focus right now is Skouries and Olympias phase two. At Skouries, engineering design work progressed well, and we're over 80% complete at the end of the year. Pre-stripping in the open pit is ongoing, and over 500,000 bank cubic meters were removed in 2014. Foundations for the SAG, ball, and regrind mills were completed, and mill installations are ongoing. We now have access to the base of the tailings dam, and that will be a focus for 2015.
For Olympias phase two, so for phase two will be about 400,000 tonnes of ore for the underground mine, with commissioning starting in mid-2016. Capital spending over the next couple of years for that project will be about $30 million. Underground development work continues at Olympias, where we rehabbed over 900 m of existing drifts and put in over 3,000 m of new development. The Olympias decline is at the 1.6-km mark, which is about 20% complete. As Paul mentioned, at Certej, the full feasibility study will be released in Q2 of this year. We're making good headway on that. On Eastern Dragon, permitting is progressing well with excellent support from the Canadian government. The project permit approval will be submitted this quarter, and we expect approval in Q2. That timing will allow us to finish the additional steps required to restart construction during the summer field season.
Last but not least, on exploration. During 2014, we completed over 58,000 meters of exploration drilling at our mines and exploration projects. Much of our in-mine resource drilling was focused at White Mountain. We also tested extensions to mineralized zones at Tanjianshan, within Kokarpinar, and Efemçukuru, and at Stratoni. Outside of our mines, we drill tested five exploration projects in the Certej district in Romania, continued defining the Piavitsa deposit in Greece, and drilled three projects in Brazil. Our $40 million exploration budget for 2015 includes plans for over 68,000 meters of drilling, split roughly evenly between in-mine and brownfields programs and earlier-stage exploration programs. With that, I will turn it over to Fabi.
Thank you, Norm, and good morning, everyone. I will go through the financial statements, highlighting changes in significant accounts. Commencing with the balance sheet, we ended the year with cash equivalents, and term deposit balance of $501 million, compared to $624 million at the end of 2013. The decrease in cash balance is mainly the result of cash generation from operations, net of usage of cash for dividend payments and capital program. The decline in iron ore prices impacted the valuation of the Vila Nova iron ore inventory, resulting in a write-down of $13.5 million. Early in the year, we completed the acquisition of Glory Resources and entered into substitution agreements to advance our Eastern Dragon project. This resulted in a $10 million decrease in investment in associates and an increase of $45 million in property, plant, and equipment, and a net increase in liabilities and equity of $12 million.
Moving on to the income statement. Net profit attributable to shareholders of the company of $103 million or $0.14 per share for the year, compared to a loss of $853 million or $0.91 per share in 2013. The loss in 2013 was mainly due to an impairment loss, net of tax in the amount of $685 million related to Jinfeng and Eastern Dragon, as well as a deferred tax charge of $125 million related to a change in income tax rate in Greece. Revenues for the year of $1.1 billion are slightly lower than a year ago due to lower realized gold price, offset by a 7% increase in gold sales volumes. The increase in the combined DD&A rate year-over-year is the result of higher volume of ounces sold in 2014 from Jinfeng and White Mountain, which have higher depreciation rates than the other mines.
On the statement of cash flows, during the year, we generated cash flow from operating activities before changes in non-cash working capital of $343 million compared to $382 million in 2013. The main uses of cash relate to our capital program, $411 million, and dividend payment, $13 million. In addition, cash flow of $27 million related to gold concentrate sales proceeds from tailings treatment was recorded as cash flows from investing activities. Those are my comments on the financial statements. I will turn the call back to Paul.
Well, thanks, Fabi, and thanks, Norm. Operator, we'll open up for questions, please.
At this time, if you'd like to ask a question, please press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the roster. Your first question comes to the line of Cosmos Chiu from CIBC. Please go ahead.
Good morning, Paul, Norm, and Fabi, and team, and thanks for hosting the call. Got a few questions here. Maybe first off, on the five-year projection. I'm just wondering if you can give us a bit more granularity in terms of the grade profile. I guess specifically, you're looking at grades that are ranging between 0.75-0.95 gram per ton ahead of your reserve grade. Is that sustainable? And are you stockpiling some of the lower grade material that you might be mining? And when would you reach the 0.95, which is the upper end, given that that's significantly higher than reserve grade?
Look, we're going to end up. It's going to be the same sort of wave motion that we've gone through here, right? Where you build up grade, you just start to the bottom of the phase, and then you're back into lower grade. Yeah. The grade will go down post this five-year plan. If you want to look at more detailed grades in that five-year plan, I can use my calculator, you can use yours. You know about what recovery is, and it's about 20 million tons through the crusher.
Mm-hmm
Once we get the expansion going. Yeah.
Yeah. In that case, Norm, just in case where the expansion doesn't go through, do you think you can ever go back to the 300,000 ounce per year level?
Ah.
No?
Yeah, that'd be tough.
Okay. The expansions.
I know I shouldn't.
Yeah.
You would hit it probably in nine years.
Yeah.
Yeah.
Mm-hmm.
Yeah. Look, we hit last year over 300,000 ounces, and our head grade was 0.95-1, as we've indicated in our guidance. We are going to see years in the next 5 years that hit similar grades.
Yeah
Therefore we would. As Norm says, I don't know how we can make it simpler here. This is a 20+ year mine life. If the reserve grade is 0.7, you're going to have years at 0.7, as we are this year.
Mm-hmm.
You're going to have years below 0.7, and you're going to have years above 0.7. As Norm has described, from the nature, this is a multi-phase pit, and you've got certain grades that the higher grades that exist at certain strata. As you go through those strata, those levels, those elevations on the different phases, you're going to have years of higher grade. That's what we're sort of starting to see over the next 2-5 years. After that, you're going to see some lower grades, and then we do the next phase, you'll see some higher grades again.
Mm-hmm. Yeah, of course, Paul. I guess, you've kind of confirmed that at least the next five years, the grades are going to be 0.75-0.95, ranging between those two numbers.
Yeah.
In terms of the throughput to come up with a five-year projection, have you considered, is it a combination of crushed ore plus run-of-mine ore? Is that kind of what we're looking at the next few years?
That's correct. As we step into the 20 and crushing capacity is not an issue, then we'll crush more and place less run-of-mine on. At the end of that five-year plan, it's predominantly crushed ore.
Mm-hmm. Great. Thanks, Paul. Maybe one more on Turkey. We're hearing that there could be the possibility of a new mining legislation that's being considered at this point in time. It seems like it's moving through parliament pretty quickly. Have you considered what the potential impact could be to Eldorado?
It is moving through fairly quickly. It doesn't have a lot of impact at these gold prices. The plan is a tiered royalty structure, so at higher prices, the royalty goes up a little.
Yeah. Our understanding is that it's been through parliament, it's been approved at parliament. It's now for presidential approval. Suffice to say, we were actively involved and consulted as part of the drafting of the new legislation, and it's not appropriate for us to comment on specifics because it hasn't been released yet, but we're not uncomfortable with what we've seen as part of the drafting exercise.
Yeah. I think part of it, as you said, Paul, would be the royalty, and another part of it would be mining licensing as well, right? That's my understanding.
Well, that's right. People tend to think of legislation as being negative. In this case, many aspects of the legislation are quite positive and designed to frankly facilitate the mining in the country. Without being specific, our understanding of what the modification of the royalty structure, we don't see that as being excessively onerous.
Great. That's all I have. Thank you.
Yes.
Your next question comes from the line of Phil Russo from Raymond James. Please go ahead.
Yeah, good morning, guys. Just a quick one here. On Kışladağ expansion, can you remind us of the capital left to go on that?
Original guidance was, I think, around $90 million-$100 million for that. We haven't updated that yet.
Okay, good.
You're in that ballpark.
Okay, great. Thanks for that. Maybe just one second and last one here for Paul. Paul, maybe you can give us your read of Greece here. Is the new government, would you say that maybe they're looking to, if there's posturing here for potentially higher royalties or taxes, or you think common sense prevails, or how do you read what's happening in Greece?
Well, as I described, it is turbulence. Obviously, there's a lot of stress on the system. You've got a new government that's just finding its way forward. Various things have been reportedly said. I think it's premature to take anything that's been reportedly said and conclude that it will manifest itself in behavior or actions in the government. All I can say is that we obviously, for a variety of reasons, have sufficient confidence in the society and the government that our objectives will be aligned with their objectives as government. Otherwise, we wouldn't be continuing to invest in the country. Beyond that, I can say that there's engagement at various levels, in terms of the company itself, the unions, the society, the Canadian government with the government of Greece, and I believe that engagement to be constructive.
Okay. Thanks very much. Your next question comes from the line of Patrick Chidley from HSBC. Please go ahead.
Hi, yes. Good morning, everybody. Just wanted to ask a question about exploration. You've got some brief comments in the release here. Just wanted to maybe, if you could outline the three top exploration projects or advances for last year that we should maybe be focusing on.
Well, yeah. White Mountain was clearly a fairly big one, and we continue to drill both close to the existing ore zones and fairly significant step-out drilling to the north deeps there. We had good success at Tanjianshan. As I mentioned this year, we're putting in the decline there. We've already started on that, and it looks like we'll be getting down to start delineation-type drilling in the inferred in April and then getting deeper into it towards the end of the year with more exploration drilling. I think the other one for this year is looking at Certej and close targets nearby that.
Yeah, you mentioned about four different targets in terms of names at Certej. Those are all outside of the resource, are they? What stage are they?
Sure. It's a combination. A couple of them are way outside, like 10 or 20 km anyway.
Mm-hmm.
They're just exploration projects that we've picked up and we're drilling. There's some other ones that are fairly close by and conceivably could add to mill feed in the future. I'd say it's a combination of both.
Right. What's the progress on moving forward with Certej then?
Well, feasibility study in the second quarter. Hopefully early in the second quarter. With prices doing what they're doing over there and an exchange rate, I think we're feeling fairly confident about it.
We do, Patrick, have a valid EIA and construction permits, which enabled us to do a fair amount of work on site. I think when you see the feasibility study results in May, they reflect a level of engineering that is, in some cases, well beyond feasibility engineering, because we are doing certain work on site, particularly as it relates to geotech and civil designs, which will give us a much higher level of confidence as to what.
Right
... costs are going to be. I think we have approximately 100 people on site at Certej right now. There is physical activity going on in Certej largely to support the quality of the feasibility study that we'll be delivering.
All right. Thanks. Just on the technology you've chosen for Certej, it's obviously refractory processing. Is it going to be Albion process or just a POX plant?
No, it's not going to be Albion. Looking at pressure oxidation for that material.
Okay. When you finish the feasibility study, is there a lot of extra engineering for the pressure oxidation part of it, or is that already encapsulated in what you're going to deliver?
We're looking at it as a POX and doing engineering on that at the moment.
Okay. That would be on site or somewhere else?
On site.
All right. Thanks. I just saw that Piavitsa, I don't know whether that was in last year's numbers or not, but there's 1.9 million ounces of inferred. How's that looking in terms of being added to the general mine plan now, I guess, in terms of mixing it with Olympias?
Still early days.
Yeah, I would say down the road some. You've got that whole Stratoni Fault structure that goes from where we're mining now at Mavres Petres through Piavitsa. In the meantime, you've got sort of 20+ years at Olympias already. It's down the road.
Okay. All right. Thanks very much.
Your next question comes from the line of Kerry Smith from Haywood Securities. Please go ahead.
Thanks, operator. Paul, what are the next steps now for the Hong Kong listing that you're pursuing? I'm just trying to understand what has to happen now.
Well, the whole progress on the Hong Kong listing is really paralleling the path that we're on to complete the outstanding permitting for Eastern Dragon. We've had a lot of the upfront technical work in terms of competent persons visiting the projects, completing the reports is behind us. But clearly, any consideration to a Hong Kong listing is going to be driven principally by not only obviously our eligibility, but really ensuring that we capture the value that's associated with Eastern Dragon and that true value will not be liberated until it's clear that we're headed into production here. We're progressing consistent with the progress that we're making on the permitting.
Okay. Is the plan still to say spin out 25% onto the Hong Kong market and you would retain 75? Is that still the rough thinking?
I would suspect we would retain less than that if we proceeded. There would be majority interest, but plus probably somewhere between 51 and what you described would be the model that we're assuming at this point. I think it's important, Kerry, to understand that the Hong Kong listing will only progress if it frankly delivers a better result for the corporation on doing what we're doing. Right?
Right.
That's going to be dependent upon, as well as obviously delivering on the Eastern Dragon, it's going to depend on Asian equity markets in that environment. That's the basis for a decision.
Got you. Okay, that's good. Paul, at one point in time, you were working on an expansion at Efemçukuru to 500,000 tons a year. Did that study ever get done, or just what is the status of that?
Well, I guess what we've done is we've sort of worked on debottlenecking existing. This year, we're going to put through in excess of 400,000 tons. We're getting pretty close to that sort of 500 number. If we did, it would be more of a debottlenecking sort of exercise, pretty modest dollars. I don't think it's a project we need to get into straight away.
At Efemçukuru there's probably more upside as we, in future years as we get out of the middle and into the north and more of the south ore shoots to minimizing dilution and maximizing the head grade.
Okay.
Which I think we mentioned before in a conference call, yeah.
Right. Okay. Just last question, just on the tunnel at Olympias. Have the ground conditions and the rates of advance been better now? Are they where you'd like them to be? Or how is that going, that mining, that system?
Yeah. We did take a break and then drill the geotech hole and really ground conditions aren't the issue. It's just really dealing with the water, which isn't a lot of water, but it's something that we've got to deal with. We're in a drill grout, drill blast cycle, which isn't the fastest. Is it where we want to be? Probably not quite yet, but I think we're sort of getting there.
Okay. When would that tunnel actually be complete now, Norm, based on what you know?
That's a subject of much debate, Kerry. We are
A while, as they say, right?
Yeah. You can sort of look at current, you can do the math and look at the current production rates and extrapolate it out, but suffice to say, the sooner we can get this done, the better for Olympias Stage 3. We're looking at various options here.
One of the tough things, Kerry, is that we really don't know how persistent this water's going to be over the next 7 kilometers. That's the tough part, and I think we're all of a view that we can probably do quite a bit better, we ourselves and the contractor, in advancing this space, and we've got to apply ourselves to that. But ultimately, it's not, as Norm says, it's not about the ground conditions, it's the water and how efficient we can be dealing with the water in the grouting part of the cycle. I certainly am of the view that we can be quite a bit more efficient than we are at present.
Okay. That's helpful. Thanks very much, guys.
Yeah, thanks.
Your next question comes from the line of John Bridges from J.P. Morgan. Please go ahead.
Morning, Paul, everybody, and congratulations on the results.
Thank you.
Just wondered, sort of follow on from Kerry's question. You didn't add much to reserves at Stratoni this year. I'm just wondering if you're further along in figuring out how Stratoni, Olympias, and maybe Piavitsa are going to dovetail together in a production profile.
Well, John, Stratoni, as you appreciate, it's been a sort of a neglected asset for many years. When it was operated by European Goldfields, it was really operated as a place to sort of keep employment levels. There was really no investment in exploration and development. We inherited an operation which was not, how to put it was not core to the extent that we're a gold mining company, but however, clearly has value. What we've been wrestling with here is just the timing and the magnitude of the development and exploration that needs to be done to realize the opportunity or the latent opportunity that sits there and how do we dovetail that into Piavitsa and where does it fit in terms of priorities?
Because as you've seen, we've been. I won't say vacillating, but to-ing and fro-ing a little bit in terms of our allocation of capital in the company for gold projects. To cut through it all, I think there is a compelling case for us to make an investment in Stratoni. The opportunity is clearly there as identified by our explorationists to significantly extend the mine life, and we need to do that from the underground.
Yeah. We have to bite the bullet and get out into the hanging wall. There's been Stratoni Fault's a fairly big fault structure, and there's been traditional reluctance to try to do much either sort of in or through that fault. That's what needs to be done to really get a decent, excuse me, handle on what potential reserves are. We need to get out there and put in some drill stations and start drilling along strike and down depth. Because you have the structural trend that basically extends from the coast all the way through to the farthest extremity of Piavitsa.
Yeah.
We're just getting started. Clearly because we have infrastructure, we've got a mine, and we've got employees there, as Norm says, we need to come to grips with this pretty quickly here. Otherwise, you're going to continue to see declines in production and attendant increases in unit costs.
Are you going to allocate more money to drilling there this year, or is the money going elsewhere?
Yeah. What we're doing right now, John, is, we're putting together a design of a hanging wall drift, and then some drill stations, putting together the cost of drilling. It's not included in this year's budget so far. We need our exploration guys to convince us that what they see as the targets down dip and along strike are worthwhile. It would be out of budget, but I would expect we will do it this year.
Okay. It's a work in progress. Okay, great.
Yeah, it is.
Okay. Well done, guys. Keep up the good work. Thanks.
Thanks, John.
Again, if you'd like to ask a question, please press star one on your telephone keypad. Your next question comes from the line of Tony Lesiak from Canaccord Genuity. Please go ahead.
Good morning, Paul, Norm, everyone. Could you confirm some of the key life of mine parameters for the expanded Kışladağ? I'm particularly interested in the operating cost profile and the sustaining capital.
Yeah, I'll probably have to get back to you on that, Tony. Yeah, we don't have the numbers right in front of us.
Okay. Maybe your thoughts on the development runway. You're looking at completing Skouries, Olympias Phase 2 now. You've got Eastern Dragon, likely Kisladag 2070. Where does Certej and Olympias Phase 3 fit in that pipeline?
Well, Olympias Phase 3 will largely be cash flow generating. It will come from cash flow generating capacity of Olympias Phase 2. Part of Phase 3, obviously, is underway right now, which is the tunnel itself. The Certej project in terms of timing and financing, let's get the feasibility study out. I think the general mood around the shop is quite positive regarding the likely attractiveness of Certej's investment. I think, we to date have been taking the approach that we live within our balance sheet and cash flow generating capacity, and if we're to continue to do that and gold is to continue to stay in the $1,200-$1,300 range, realistically, you would not see Certej seeing significant capital investment in construction for a number of years.
We are certainly giving some thought here as to the benefits of taking this project and bringing it along faster if it's merited and look at some form of project financing to enable Certej to be developed in a more timely manner. That's as current as we can bring you. We're aware that there is more uncertainty as it relates to what the development program is for Eldorado now than there ever has been. On these fronts, whether it's Olympias Phase 2, Olympias Phase 3, Certej, we are working this year to try to bring that together in a more comprehensive development plan that we can share with you. We're not there yet.
Okay. Maybe finally on the Skouries underground, can you talk to maybe some of the key parameters with respect to the new sublevel stoping methodology?
We're reviewing mining methods. We're reviewing access. We're reviewing production rates. We're reviewing sequencing. All of that is being reworked. What we found when we took on the European Goldfields engineering was broad-brushed, it was fine, but we've ended up doing a lot of work on the process plant, for instance, to make it something that really is what we wanted to build, and likewise with the underground mine. A lot of work to be done.
The plan is still to integrate it within the timescale of the open pit. You're not waiting to develop it after the open pit is concluded.
Oh, no. The underground development is underway.
Mm-hmm.
Has been for a couple of years.
Yeah. Okay, thanks.
You're welcome.
There are no further questions at this time. I'll turn the call back over to the presenters.
Well, thank you, operator, and thank you, everybody, for attending, and enjoy the weekend.
This concludes today's conference call. Thank you for joining. You may now disconnect.