Kisladag costs lowered by pro-mining stance

Vancouver – Two mining-friendly laws recently passed by the Turkish government are expected to improve the profitability of Eldorado Gold’s (ELD-T) Kisladag gold project in western Turkey. One of these laws exempts the gold mining industry from the value added tax (VAT) and the other consolidates the various sectors of the mining industry.

The company is at the permitting stage of its proposed open-pit, heap-leach mine which would produce 3.3 million oz. gold over a mine life of 15 years. Construction is slated to start in the third quarter of 2004.

The company had been lobbying the Turkish government for new legislation that would exempt gold production from the VAT. The exemption covers mining activities including exploration, construction, purchase of equipment, mine operation, smelting and refining. Vendors will not charge VAT for their goods and services and by the same token, Eldorado will not charge VAT on sales of its gold production.

Eldorado had been worried that its costs at Kisladag would be negatively impacted by the effects of the 18% VAT. Estimated initial capital costs would have soared to US$73.3 million, compared with US$54 million quoted in the March 2003 feasibility study. Cash operating costs had risen to US$188 from US$152 per oz. gold; total production costs had climbed to US$244 from US$203 per oz.; the after-tax net present value would have been US$286 million, compared with US$255 million in the feasibility study; and the after-tax internal rate of return was expected to be lowered to 29% from 32.6%.

Under the VAT exemption, the company estimates that the initial capital investment for the project will decrease by US$10.7 million and cash operating cost will decrease by US$23 per ounce to US$165.

The company is particularly pleased by the resolution of the VAT issue. Paul Wright, the company’s President and CEO commented “this change improves the return on the Kisladag project to 43% at a US$350 per ounce gold price".

Also boding well for the mining industry and the company is that all activities in hard rock, soft rock and industrial minerals mining including quarrying and aggregate industries will be consolidated under a new mining act.

Helpful changes include: the 5% fee on capital installations on forest lease lands no longer applies; the expropriation law governing acquisition of land critical to fulfilling investment applies to mining activities; and, rather than the straight 3% royalty on operating cash costs, the royalty will be 1% on the sales value of ore processed off site while ore processed on site will be reduced to 1%.