Kisladag fine-tuned (July 31, 2003)

An optimization study calling for an accelerated expansion of the proposed Kisladag gold mine in Turkey provides a better return on capital, reports Eldorado Gold (ELD-T).

The study, prepared by Hatch Associates and based on a feasibility study it tabled earlier this year, proposes that Eldorado double production capacity in the first year of operations and take over mining in the third year. Under the previous plan, the plant was to be expanded in the fifth year of operation, by which time contract mining will have ended.

The ultimate volume of material to be pushed through the plant remains unchanged, though mining would now last 12 years, not 14. Hence annual production rates are higher: a total of 155,000 oz. would be produced in the first year, and an annual average of 246,000 oz. thereafter.

Life-of-mine cash costs now ring in at US$149 per oz.; total production costs, at US$201 per oz. Both are better than original projections.

Also, initial capital costs now top US$58 milion, and sustaining capital is projected to be US$47.5 million, whereas expansion capital has been reduced to US$30.7 million and working capital kept unchanged at US$2.3 million. The US$3.6 million in extra upfront costs reflects Eldorado’s decision to drill and blast the pit right from the get-go.

According to the study, the new plan raises Kisladag’s internal rate of return to 37% from 32.6% and its net present value to US$160 million from US$146 million. All estimates are based on a gold price of US$325 per oz. and a discount rate of 5%.

Meanwhile, definition drilling inside the pitshell is scheduled for completion shortly. Holes are being aimed at an inferred resource classified as waste.

Eldorado expects to begin construction by year-end.

The company earned US$1.8 million (US1 per share) on revenue of US$9.3 million in the three months ended June 30, compared with US$2.3 million on US$12.4 million in the similar period of 2002. The recent quarter includes a foreign exchange gain of US$2.5 million arising from the appreciation of the Canadian dollar against the greenback (84% of the company’s US$41.6 million in cash is held in the form of loonies).

For the first half of the year, Eldorado pocketed US$4.4 million on US$18.2 million, compared with US$2.1 million on US$18.5 million a year ago. The appreciation of the Canadian dollar accounts for most of the improvement.

In Brazil, the Sao Bento mine produced 21,831 oz. during the recent quarter, bringing its 6-month production to 48,603 oz. Quarterly output is off 3% from a year ago, whereas 6-month production is up 9%.

Comparable quarterly cash costs were 19% higher, at US$230 per oz., and total production costs, 16% higher, at US$343. A similar picture emerges for the 6-month comparisons, all of which reflects the appreciation of the Brazilian real.

Eldorado sold 48,222 oz. in the first six months of the year, fetching an average US$356 per oz.

Production levels in the mill have returned to normal, following a scheduled first-quarter maintenance shutdown of one of the two autoclaves used to treat the refractory ore. The mill processed 94,497 tonnes in the second quarter and 186,601 tonnes in the first half of the year.

Headgrades averaged 9.25 grams per gold, though they were 6% lower in the second quarter.

Eldorado still expects to produce 95,000 oz. in each of 2003 and 2004, at a cash cost of US$230 per oz. Both forecasts are less than earlier predictions, reflecting a recent decision to deepen the shaft by 370 metres.

Meanwhile, crews have drilled just over half of a 12,000-metre program of underground exploration and infill drilling. Results are pending.