Eldorado proves its mettle in China’s goldfields

With three 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 44% of its 775,000 oz. gold production in 2012, and it 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 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 produced 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. gold. The current reserve package is expected to support another five years of operation, with Eldorado investing US$10 million in capital development, including US$5.9 million on building a fourth tailings dam.

The company is carrying out 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 got 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 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 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 more 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 year-end.

Eldorado is stripping right now in the pit. Director and CEO Paul Wright said the pit wall is being brought down to access the ore at the bottom of the pit, and over in the wrong band area. Eldorado will continue to feed from the stockpile until the end of the year, and then  be back into open-pit material early next year.

In June Eldorado announced its validated deposit model at Jinfeng, with stepout and infill drilling returning strong grades that include 29 metres grading 5.92 grams gold in hole 253, from just below the design pit; 19 metres of 6.19 grams gold in hole 258; and 4 metres of 12.58 grams gold in hole 141.

Eldorado’s smallest producing asset is the White Mountain gold mine in China’s Jilin province. The company acquired 95% of the project with the Sino Gold acquisition. White Mountain is an underground cut-and-fill operation expected to contribute 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 underground development and 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. Eldorado is also completing 6,000 metres of diamond drilling on five exploration targets at White Mountain.

Eldorado’s China-based operations remain on track in regards to production, but the company ran into a hold-up at its Eastern Dragon development in late July when the Heilongjiang Provincial Development and Reform Commission (PDRC) notified the company that 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.

Eldorado says it’s preparing documents and scheduling meetings to support the application. It’s  trying to clarify the permitting time frame, and hopes to update the market next quarter.

“The move to go to NDRC is unfortunate in that if we had done it sixteen months ago when we started our application with PDRC, I think we had a good chance of having that permit already in place,” Wright commented. “So I don’t necessarily see the permitting process at NDRC as more difficult than at PDRC, it’s just the time that’s been spent going through the application process at the state level.”

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