Eldorado proves its mettle in China’s goldfields

VANCOUVER — With three successful gold operations in China, Vancouver-based producer Eldorado Gold (ELD-T, EGO-N) has established a strong track record in a mining jurisdiction that offers a variety of challenges for international developers. Eldorado expects its Chinese operations to account for roughly 44% of its 775,000-oz. gold production in 2012, and is at the permit stage with its Eastern Dragon gold project in China’s Heilongjiang province.

Eldorado’s most mature mine is the Tanjianshan gold operation in China’s Qinghai province — the company holds a 90% interest in the asset. Eldorado became the first North American gold producer to be granted a Chinese mining certificate in 2007, following the acquisition of Afcan Mining for roughly US$60 million in 2005.

Tanjianshan is expected to contribute between 100,000 oz. and 110,000 oz. gold for Eldorado during 2012 at cash costs in the US$445 to US$460 range. The mine remains on track to meet its guidance, having producing 55,988 oz. gold during the first half of the year at cash operating costs of US$419 per oz.

Tanjianshan holds 5.5 million proven and probable tonnes grading 3.16 grams gold per tonne for 562,000 contained oz. The current reserve package is expected to support another five years of operation, with Eldorado currently investing US$10 million in capital development — including US$5.9 million on construction of a fourth tailings dam.

The company is in the process of an exploration campaign at Tanjianshan, focused on a 5,000-metre diamond drill program below its open-pit, with the potential of bridging mineralization between the main JLG and M7 zones. An additional 4,500 metres has been allocated for target generation and regional exploration.

Eldorado acquired an 82% stake in the Jinfeng gold operation in China’s Guizhou province when it acquired China-focused Sino Gold for US$2 billion in 2009. Jinfeng is expected to produce roughly 125,000 oz. gold during 2012, with cash costs clocking in at around US$680 per oz. The mine is on track to meet the lower end of its guidance, having produced roughly 61,000 oz. gold during the first half of the year at average costs of US$703 per oz.

Eldorado processed lower head-grades at Jinfeng during the second quarter as the company pumps US$50 million into the mine to improve operations. Since Jinfeng’s open-pit is in a waste stripping phase, Eldorado is processing lower-grade stockpiled ore as it completes additional underground development and a variety of plant improvement initiatives.

According to Eldorado’s second-quarter conference call the company is completing a series of land acquisitions around Jinfeng to expand operations and expects to conclude negotiations by the end of the year.

“We are stripping right now in the pit,” explained director and CEO Paul Wright. “We’re mining waste at a fairly good rate, so that the pit wall’s being brought down to access the ore at the bottom of the pit and over in the wrong band area. We will continue to feed from the stockpile until [around] the end of the year, and then we’ll be back into open-pit material early next year.”

In June Eldorado announced the successful validation of its new deposit model at Jinfeng, with step-out and infill drilling returning strong grades that include: 29 metres grading 5.92 grams gold in hole S0253, from just below the design pit; 19 metres averaging 6.19 grams gold in hole S0258; and 4 metres carrying 12.58 grams gold in hole U0141.

Eldorado’s smallest producer is the White Mountain gold mine in China’s Jilin province. The company acquired 95% of the project in the Sino Gold acquisition in 2009. White Mountain is an underground cut-and-fill operation expected to contribute roughly 80,000 oz. gold to Eldorado’s 2012 production profile at cash costs around US$550 per oz.

White Mountain is on pace to meet its guidance, having produced 40,000 oz. gold over the first half of 2012 at average costs of US$579 per oz. During the second quarter Eldorado paid a one-time charge for crusher repairs at the mine, which saw cash costs jump to US$622 per oz.

Eldorado is spending US$15 million at White Mountain this year, which will fund ongoing underground development, as well as the raising of the tailings dam wall. The company is also conducting a 12,000-metre, down-plunge drill campaign to test mineralization discovered in 2011. In addition, Eldorado is completing 6,000 metres of diamond drilling on five exploration targets at White Mountain.

Though Eldorado’s China-based operations remain on track in regards to production, the company did run into a hold-up at its Eastern Dragon development in late July when the Heilongjiang Provincial Development and Reform Commission (PDRC) notified the company it would require formal approval of its project permit from the National Development and Reform Commission (NDRC) — effectively bumping Eastern Dragon’s permit process to the national level.

“We’re currently in the process of compiling and preparing the documents to support the application and are scheduling meetings in August and trying to further clarify the permitting time frame, and we expect to provide an update [next quarter],” commented Wright. “[I]n broad terms, the move to go to NDRC is unfortunate in that if we had done it 16 months ago when we started our application with PDRC, I think we had a good chance of having that permit already in place. So I don’t necessarily see the permitting process at NDRC more difficult than at PDRC, it’s just the time that’s been spent going through the application process at the state level.”

Eastern Dragon has low capital intensity — with a US$45-million price tag — and the open-pit, carbon-in-leach mine is expected to produce 80,000 oz. gold during a 7 year life at cash costs of roughly US$75 per oz., net silver by-product credits.