EXPLORATION ROUNDUP — Globetrotting Eldorado seeks success in weak gold market — Discovery, resource confirmation take edge off restructuring plan

Exploration work at grassroots and advanced-stage exploration and development projects in Turkey and Brazil is returning heartening results for Eldorado Gold (ELD-T).

The company recently discovered gold at its wholly owned Kisladag project in a remote region of Turkey, 370 km southwest of Ankara. Trenching and shallow percussion drilling have outlined a large, low-grade gold zone associated with a silicified and argillic altered volcanic breccia. A 0.8-gram gold envelope extends along a strike length of more than 400 metres, with a width averaging 250 metres.

Within the envelope, four sampled trenches totalling 867 metres averaged 1.1 gram gold. A 30-hole percussion drilling program, which began in September, is testing the zone to a depth of 50 metres. Results from the first four holes included 52.4 metres of 0.83 gram, 48 metres of 0.7 gram, 52.4 metres of 1.02 grams and 52.4 metres of 1.5 grams gold.

The company expects to spend US$100,000 more on the program before year-end.

Drilling at the WT gold project, also in Turkey, has confirmed a previously announced resource of 3.1 million tonnes grading 14.6 grams gold per tonne.

Metallurgical, geotechnical and mine engineering studies were also completed during the year.

“WT has the potential to be a low-cost producer, developable in a difficult, low gold market,” says Paul Wright, vice-president of mining.

Eldorado controls more than 41,000 sq. km of prospective exploration ground in those countries, as well as in Argentina, and is intent on farming out certain non-core projects.

It has entered into an agreement with Cominco (CLT-T) to joint-venture two Brazilian base metal projects. Cominco can earn a 60% interest in the 284-sq.-km Narciso and the 178-sq.-km Paiol Queimado projects by spending $3 million on exploration over four years.

Beat up and bruised by the current bear market for the yellow metal, Eldorado is licking its wounds and taking steps to lower costs, conserve cash and increase revenues.

“We are completing a review of all our exploration, development and operating assets to ensure our balance sheet reflects a reasonably conservative gold price outlook,” states President Richard Barclay in the company’s 9-month review.

The company’s aggressive restructuring plan includes:

* reviewing all expenditures in an attempt to conserve cash; * increasing its long-term gold hedging position by selling forward to the year 2003 at an average price of US$375 per oz. for an average of more than 75,000 oz. per year;

* renegotiating a 5-year credit facility of $50 million with NM Rothschild & Sons;

* suspending or halting most international development and exploration programs; and

* reducing its workforce from more than 1,700 people to about 1,100, as well as lowering head office staff by one-third.

Eldorado owns and operates three gold mines: La Colorada and La Trinidad in Mexico and Sao Bento in Brazil. As of Sept. 30, the company had US$28.6 million in cash and available credit.

In the third quarter, Eldorado posted a loss of US$9.1 million (or US13cents per share) on revenue of US$16.2 million, compared with a loss of US$2 million (US7cents per share) on US$13.3 million in revenue for the corresponding quarter in 1996.

For the first nine months of 1997, the company incurred a loss of US$15.9 million (US22cents per share) on sales of US$51 million, compared with a loss of US$486,000 (US2cents per share) on US$21.8 million for the same period a year ago.

Eldorado has written off several items, including:

* US$1.1 million in property costs in light of current gold prices; * US$2.7 million in deferred due diligence costs related to the unsuccessful acquisition of African assets from Gencor; and

* US$1 million related to writedowns taken by equity accounted investments with 18%-owned Croesus Mining of Australia.

Gold production for the third quarter amounted to 46,085 oz. at a cash operating cost of US$290 per oz. For the first nine months of the year, production totalled 142,879 oz. at an average cash cost of US$280 per oz., compared with 55,926 oz. at US$270 per oz. for the corresponding period of 1996.

Eldorado realized a gold price of US$353 per oz. for the first nine months of 1997, compared with US$392 per oz. a year ago.

The Sao Bento mine, which was acquired in July 1996, produced 27,003 oz.

during the quarter at a cash cost of US$294 per oz. Production increased by 6.4% and cash costs were lower by 10.4% when compared with last year’s third quarter. For the 9-month period, the Brazilian underground mine produced 79,502 oz. at a cash cost of US$295 per oz. Production at year-end is expected to reach 107,000 oz.

An expansion program at Sao Bento, nearly complete, is expected to cost US$22 million — about US$6 million less than the original US$28 million estimate.

La Colorada, the open-pit, heap-leach mine in Mexico’s Sonora state, produced 12,649 oz. at a cash cost of US$310 per oz. during the third quarter, representing a 37.5% increase in production and a 24.5% increase in cash costs when compared with the same period in 1996. Production for the first nine months totalled 41,003 oz. at a cash cost of US$294 per oz.

Escalating cash costs are attributed to several factors, including a higher stripping ratio, a lower grade, a crushing requirement, a slower leaching time, and a lower recovery rate.

In a concerted effort to lower unit cash costs at La Colorada, Eldorado has taken several aggressive steps, including:

* replacing senior operations management;

* developing a detailed life-of-mine operating plan;

* reducing personnel to 110 from 180; and

* negotiating to obtain a long-term mining contract.

Meanwhile, La Trinidad, in neighboring Sinaloa state, produced 6,433 oz. in the third quarter at a cash cost of US$234 per oz. For the 9-month period, production totalled 22,374 oz. at US$204 per oz, and, at year-end, the mine is expected to have cranked out 30,000 oz. La Trinidad began operating in October 1996.