EX-99.1 2 newsrelease.htm NEWS RELEASE DATED FEBRUARY 24, 2012 MD - Filed by Filing Services Canada Inc. (403) 717-3898

NEWS RELEASE ELD No. 12-09
TSX: ELD   NYSE: EGO   ASX: EAU February 24, 2012

Eldorado Reports Year-End Financial and Operational Results
Record Earnings and Production in 2011
Earnings per share $0.58
 Cash Flow per share from operating activities before changes in non-cash working capital $0.91(3)
(all figures in United States dollars unless otherwise noted)

VANCOUVER, BC – Paul N. Wright, President and Chief Executive Officer of Eldorado Gold Corporation, (“Eldorado” the “Company” or “we”)  is pleased to report on the Company's financial and operational results for the year ended December 31, 2011.  Eldorado reported profit attributable to shareholders of the Company of $318.7 million for the year ended December 31, 2011.

“During 2011, the Company achieved record earnings from its gold mining operations on sales of 658,919 ounces of gold at an average realized gold price of $1,581 per ounce and average cash operating costs of $405 per ounce. As a result of this strong performance, the Company generated $502.1 million in cash during the year from operating activities, paid Cdn$0.11 per share in dividends to Company shareholders and paid $92.4 million in debt, net of additional borrowings. During the year we also commenced the start-up of Efemcukuru in Turkey, received a key permit in Turkey to expand Kisladag, and announced our plan to acquire European Goldfields Limited. The completion of the transaction will significantly increase the Company’s gold reserves” said Paul Wright, President and CEO of Eldorado Gold.

2011 Highlights

 
•
Gold production increased 4% (658,652 ounces – 2011; 632,539 ounces – 2010).
 
 
•
Gold revenues increased 33% ($1,042.1 million – 2011; $782.8 million – 2010).
 
 
•
Basic earnings per share increased 41% ($0.58 per share – 2011; $0.41 per share – 2010).
 
 
•
Cash generated from operating activities before changes in non-cash working capital(3) increased 40% ($502.1 million – 2011; $357.9 million – 2010).
 
 
•
The Company paid dividends totalling Cdn$0.11 per share compared to Cdn$0.05 per share in 2010.
 
 
•
The Company entered into a $280.0 million revolving credit facility with HSBC and a syndicate of four other banks (see page 17 of Management’s Discussion and Analysis for details related to the revolving credit facility).
 
 
•
The Company completed Kisladag’s Phase III expansion which increased production capacity at the mine by 25%, and announced the results of a study validating its intention to further double the mine capacity by the third quarter of 2014.
 
 
•
The Company entered into an agreement to acquire European Goldfields Limited. Shareholders of both the Company and European Goldfields Limited approved the transaction on February 21, 2012, and court approval was obtained on February 22, 2012.
 
 
•
Efemcukuru completed start-up of operations during which it produced concentrate containing approximately 20,000 contained ounces of gold.
 
 
 
 
 
Summarized Annual Financial Results
 
($millions except as noted)
2011
2010
2009(1)
Revenues(2)
$1,098.9
$791.2
$358.5
Gold sold (ounces)
658,919
639,949
360,226
Average realized gold price ($/ounce)
$1,581
$1,223
$995
Earnings from gold mining operations(3)
$610.8
$400.7
$188.2
Profit attributable to shareholders of the Company
$318.7
$221.0
$102.4
Earnings per share attributable to shareholders of the Company – Basic ($/share)
$0.58
$0.41
$0.26
Dividends paid – (Cdn$/share)
$0.11
$0.05
-
Cash flow from operating activities before changes in non-cash working capital(3)
$502.1
$357.9
$147.0
Cash and cash equivalents
$393.8
$314.3
$265.4
(1) Financial results prepared in accordance with CGAAP.  (2) Revenues include proceeds from the sale of iron ore produced by Vila Nova in the amount of $56.8 million in 2011 ($8.3 million – 2010; $nil – 2009). (3) Non-IFRS measures. Please see page 15 of our Management’s Discussion and Analysis for the year ended December 31, 2011 for a discussion of these measures.
 
Review of Annual Financial Results
 
Profit attributable to shareholders of the Company for the year ended December 31, 2011 increased to $318.7 million, or $0.58 per share, compared to $221.0 million, or $0.41 per share in 2010. The following main factors impacted our profit for the year as compared to 2010:
 
·  
Gold revenues increased $259.2 million, or 33% due to a 29% increase in the average realized gold price and a 3% increase in gold sales volume; iron ore revenues increased $48.5 million, reflecting the first full year of production at Vila Nova
 
·  
Production costs increased $68.5 million, or 25% due to a full year of production at Vila Nova ($30.3 million – 2011, $4.3 million – 2010), higher operating costs at Kisladag, and higher production taxes at Tanjianshan and Jinfeng related to changes in laws governing mining taxation
 
·  
Depreciation and amortization increased $15.3 million, or 14% mainly as a result of an increase in the depreciation rate at Jinfeng due to a reduction in reserves, higher depreciation at White Mountain related to higher sales volume, and higher depreciation at Vila Nova due to a full year of operation ($4.7 million – 2011, $1.0 million – 2010)
 
·  
Income tax expense increased $78.6 million or 90% due to:
 
1) higher taxable income; 2) withholding taxes paid on dividends from the Company’s Chinese and Turkish subsidiaries; and 3) the impact of the weakening of the Turkish lira on the Company’s tax asset base in Turkey. Tax expense increased approximately $25.6 million ($0.05 per share) year over year as a result of the impacts of items 2 and 3 above.
 
 
 
 
 
Operations highlights, outlook, and annual updates
 
 Operating highlights and outlook

 
2011
2010
2012 outlook(4)
Total
  
 
 
Gold ounces produced
658,652
632,539
730,000 to 775,000
Cash operating costs ($ per ounce) (1)
405
382
430 to 450
Kisladag
  
 
 
Gold ounces produced
284,648
274,592
285,000 to 295,000
Cash operating costs ($ per ounce) (1)
374
329
385 to 395
Tanjianshan
    
 
Gold ounces produced
114,972
113,864
100,000 to 110,000
Cash operating costs ($ per ounce) (1)
377
383
445 to 460
Jinfeng
    
 
Gold ounces produced
177,757
181,950
120,000 to 125,000
Cash operating costs ($ per ounce) (1)
442
425
675 to 695(3)
White Mountain
    
 
Gold ounces produced
81,275
62,133
75,000 to 80,000
Cash operating costs ($ per ounce) (1)
474
487
535 to 550
Efemcukuru
    
 
Gold ounces produced
n/a
n/a
125,000 to 135,000
Cash operating costs ($ per ounce) (1)
n/a
n/a
330 to 350
Eastern Dragon
    
 
Gold ounces produced
n/a
n/a
25,000 to 30,000
Cash operating costs ($ per ounce) (1) (2)
n/a
n/a
65 to 80
Vila Nova
    
 
Iron ore tonnes produced
537,958
182,808
560,000 to 600,000
Cash operating costs ($ per tonne sold) (1)
64
41
65 to 75

(1)  Cash operating costs is a non-GAAP measure. See page 15 of our Management’s Discussion and Analysis for the year ended December 31, 2011 for more information 

(2) Eastern Dragon cash operating costs are net of silver by-product credits. 

(3) Approximately $140/oz are adjustments for the ore stockpile inventory

(4) Outlook uses the following assumptions:


Gold price:      $1,700 per ounce
Exchange Rates
Iron ore price:    $100 per tonne
Silver price:          $35 per ounce
Oil price:            $100 per barrel
RMB vs USD    6.20
Euro vs USD     1.40
YTL vs USD     1.70
Real vs USD      1.60
   

 
 
 
 
Annual updates – Operations

Kisladag

Gold production for 2011 of 284,648 ounces was 4%, or 10,056 ounces higher than 2010. Total tonnes placed on the leach pad per quarter increased as a result of the completion of the Phase III upgrade of the crushing circuit to 12.5 million tonnes per year. Gold inventory levels on the leach pad decreased by 38,940 ounces in 2011 as a result of intermediate leaching, begun in 2010. During 2011 a study was completed confirming the Company’s expectation that the average recovery rate of all sulphide ore placed on the leach pad was higher than the feasibility study rate of 60% used in the leach pad inventory estimates since the mine began production. As a result, an adjustment was made to increase the estimated recoverable ounces remaining on the leach pad by 19,495 ounces, using an average recovery rate of 62% for all sulphide ore

A combination of higher operating costs and a lower grade resulted in a higher average cash operating cost per ounce compared with 2010. Operating costs were higher than 2010 due to higher electricity, reagent, and maintenance costs associated with the higher throughput.

In 2011, a study was completed validating the Company’s intention to double the mine capacity by the third quarter of 2014 to 25.0 million tonnes per year as a result of Kisladag’s increasing reserves. The expansion would include construction of additional process facilities as well as expansions to the leach pad and waste dumps to handle the higher plant throughput as well as an average of 8.0 million tonnes per year of low grade ore which would be transported directly from the pit to a dedicated run-of-mine (ROM) leach pad. Equipment sizing in the mining fleet would be increased to accommodate the additional ore and waste handling. Subject to receipt of required government permits, completion of the expansion is anticipated by the third quarter of 2014, at an estimated capital cost of $354.0 million.

Tanjianshan

Gold production for 2011 of 114,972 ounces was 1% above, or 1,108 ounces higher than 2010 while tonnes milled and grade were lower than 2010, respectively. Extra tanks were installed during 2011 to increase the retention time of the leach circuit, which in turn improved the average recovery rate year over year from 80.9% to 82.1%. Additionally, flotation concentrate produced in prior years from ore mined from the Qinlongtan pit between 2007 and 2008 was added to the roaster feed; and, “scats”, or partially milled “reject” stockpile material reclaimed by using a specialized crusher, was added to the flotation circuits. These two stockpiled materials were responsible for approximately 10,000 ounces of extra production.

For the year, cash operating costs per ounce were 1.6% or $6 per ounce lower than 2010 reflecting higher silver credits as a result of higher silver prices as compared with 2010. Total cash costs per ounce in 2011 were 17% higher than 2010 mainly due to the effect of higher gold prices on royalties, and the imposition of a new tax (ecological compensation fee) levied at a rate of 40RMB per tonne mined.

Jinfeng

Gold production for 2011 of 177,757 ounces was 2%, or 4,193 ounces, lower than 2010. This was mainly due to lower throughput and head grade. These two items were partially offset by an improvement in recovery.
 
 
 
 

Cash operating costs were 4% higher in 2011 or $17 per ounce reflecting the impact of the decrease in treated head grade and the slightly lower throughput. Total cash costs increased 6% due to the effect of higher gold prices on royalties and production taxes.

A total of 689,737 tonnes of ore was mined from the open pit in 2011 (2010 - 1,432,278 tonnes). Mining of the open pit stopped in the second quarter pending completion of the acquisition of land required for a planned cutback. It is expected that the land purchase will be completed in 2012. A total of 494,422 tonnes of ore were mined from the underground (2010 - 405,015 tonnes). Additionally, a total of 360,806 tonnes of stockpiled ore were fed to the plant.

White Mountain

Gold production for 2011 of 81,275 ounces was 31%, or 19,142 ounces higher than 2010 due to higher throughput and average grade, as well as increased recovery rates. The increase in tonnes was due to an increase in underground working faces as a result of expanded mine development. Recovery at White Mountain is a function of the ore type that is being treated. Approximately 15% of the current orebody is sulphide material and recoveries are significantly lower in this material. During  the fourth quarter, a caustic pre-treatment system was commissioned that provides significantly better recoveries in the sulphide material and slightly better recoveries in the oxide material.
 
Cash operating costs per ounce were 3% lower in 2011 or $13 per ounce as the effect of the increase in head grade and recovery rates was partially offset by higher stope development and backfill costs.

Efemcukuru

Efemcukuru began commissioning operations in June 2011 and treated 112,612 tonnes of ore at 8.21 g/t gold by year end. The operation encountered a number of challenges during commissioning which delayed the transition to full commercial production until December 2011.

Mining operations were impacted by voids encountered as a result of unanticipated prior mine workings. The mine development plan was modified and accelerated during the second half of the year to develop extra working areas to increase production. During commissioning of the processing facilities at Efemcukuru, modifications were made to the tailings handling systems to reach design capacity. Approximately 20,000 ounces of contained gold in concentrate was produced during the year and shipped to Kisladag where a treatment plant was constructed in the second half of 2011 to process Efemcukuru concentrate. The Kisladag concentrate treatment plant began commissioning at the end of 2011 and is expected to treat the concentrate accumulated during commissioning along with normal production so that no stockpile remains at the end of 2012.

Vila Nova

Vila Nova produced 537,958 wet metric tonnes of iron ore at an average grade of 63.9% Fe during 2011. A total of 473,387 dry metric tonnes of iron ore in the form of lump and sinter feed was sold on the spot market during 2011 at an average price of $120 per dry metric tonne. The mine commenced operations in 2010 but due to production and shipping difficulties only recorded sales of iron ore during the fourth quarter of 2010. Production during 2011 reflected a full year of production and matched Company targets.
 
 
 
 

Annual updates – Development projects

Tocantinzinho
Engineering and permitting activities were conducted during 2011 related to completion of a positive prefeasibility study for Tocantinzinho. The study was based on a 4.4 million tonne per year open pit operation using a combination of flotation and cyanide leach to recover gold from the granite hosted orebody. Capital costs are estimated at $383.5 million, including the infrastructure required to support the project. The average production rate is projected to be 159,000 ounces per year at an average cash cost of $559/ounce.

In addition to the work carried out on the engineering studies, preparations were completed for the Environmental Impact Assessment (EIA) study, which was submitted to the state government in July 2011.  Processing of the EIA application within the Brazilian government was delayed during the year due to a jurisdictional dispute between the state and federal governments over responsibility for permitting in the project area.  By year end, the jurisdictional dispute was resolved in favour of the state government.

Perama Hill
During 2011, the Company worked closely with the Greek government to advance the processing of the Preliminary Environmental Impact Assessment study (PEIA).  Progress was made during the year to move the permitting process forward with the recognition of Perama Hill as a key development project by the Greek government. The Company received PEIA approval in February 2012 and plans to submit the full EIA report in Q1 to address any outstanding technical issues. Eldorado is awaiting joint ministerial approval for the Fast Track process and expects to receive all permits and licenses in 2012. This will be followed by construction of the mine.  The Company’s public relations efforts continued during 2011, with a focus on maintaining and strengthening relations with the local villages, as well as developing relations with the local and state politicians.

Eastern Dragon
Construction activities were ongoing at the Eastern Dragon project during 2011.During the year, site buildings were enclosed and major mechanical and electrical phases of the plant were completed. In November, construction was suspended pending receipt of permitting required to complete development of the mine. This includes construction on the tailings handling and storage facilities, as well as the open pit and rock dump areas which are now scheduled for completion in 2012, corresponding with final completion of construction and commissioning to the plant in Q3.

Annual updates – Exploration

Exploration drilling in 2011 totalled approximately 120,000 metres at seventeen exploration projects in Turkey, China, Brazil, and Nevada.

Turkey
Kisladag
At Kisladag, over 10,700 metres of diamond drilling were completed in 2011. The drilling focused on planned infrastructure sites for the Phase IV expansion, areas along the periphery of the known deposit, and previously untested conceptual targets. No significant new zones of mineralization were intersected.

Comprehensive soil sampling and a three dimensional induced polarization survey were completed over an area of approximately 20 square kilometres surrounding the deposit, extending the existing survey data that were collected early in the exploration history of the deposit.  Results of these programs are being integrated with lithological, alteration, and structural data to define drill targets for potential satellite ore bodies to be tested during 2012.

 
 
 
 
 

Efemcukuru
At Efemcukuru, approximately 9,500 metres of exploration drilling were completed during the year on the Kestani Beleni Northwest Extension and the Kokarpinar vein targets. The Kestani Beleni Northwest Extension target underlies a strong gold-in-soil anomaly along strike from the North, Middle, and South ore shoot resources. The 2011 drilling program tested this target area over a strike length of approximately 750 metres to a depth of about 250 metres, and identified a new shallow zone of gold mineralization that remains open downdip.  At the Kokarpinar vein, gold values were reported in four out of six drillholes targeting previously untested segments of the vein along strike from and below ore-grade surface samples.

Reconnaissance programs
Drilling campaigns were completed in 2011 at the AS Au-Cu porphyry prospect (760 metres), the Malatya-Hasancelebi IOCG prospect (1,500 metres), the Sayacik porphyry Au prospect (1,770 metres), and the Sizma sediment-hosted gold prospect (3,450 metres).  Multiple targets were tested at the AS, Sayacik, and MH projects, but results failed to improve on those from previous drilling campaigns; no further work is planned for these projects.  At the Sizma project, the 2011 drilling program outlined a tabular, stratiform zone of anomalous to low-grade gold mineralization within a foliated sandstone/siltstone/mudstone sequence.

Mapping, geochemical sampling, and magnetic survey programs were completed during 2011 at early-stage projects in the Pontide Belt (Dolek and Sebin projects) and at the Atalan project in western Turkey.  This work has defined drill targets at all of these projects, which will be tested during 2012.

China
Tanjianshan
The 2011 exploration program at Tanjianshan focused on resource conversion of the 323 Deposit, with approximately 10,300 metres drilled.  The drilling confirmed and expanded the previously defined mineralized zones, and will support application for a mining license covering the deposit.  Drilling was also completed at the Qinlongtan deeps and Zhongxinshang targets, and reconnaissance sampling and mapping programs were completed in the several areas of the Tanjianshan exploration licenses.

Jinfeng
During 2011, drilling was completed on exploration targets in the Jinfeng district at the Jinluo, Qiaojiang, Da’ao, and Jinfeng 42 license areas, and at the Jinfeng mine proper.  Minesite drilling included surface  and underground programs with targeted step-outs along the known major mineralized fault zones (F2, F3, F6), infilled gaps in the existing resource model, and tested conceptual targets developed during the year through a detailed reinterpretation of structural controls on mineralization.  This program is ongoing, and is supported by positive results to date.

Exploration elsewhere in the district tested soil and outcrop geochemical anomalies associated with mineralized fault zones for Jinfeng-style mineralization (Jinluo, Qiaojiang, Jinfeng 42 license areas), and broad antiformal folds for stratiform mineralization similar to that present at the nearby Shuiyindong gold deposit (Da’ao license).  The best results were obtained from mineralized fault zones at the Qiaojiang license area and at the Weiruo prospect in the Jinluo license areas.

 
 
 

White Mountain
Infill and stepout drilling of the White Mountain deposit was completed during the year from both surface and underground drill stations.  The surface drilling program expanded the deep ore lens discovered in late 2010 at the northern end of the deposit with two new high grade intercepts.  Underground exploration drilling was successful in filling in gaps in the existing resource, and targeted areas of Inferred Resources along the margins of the main deposit.

Elsewhere in the White Mountain district, drilling was completed at the Xiaoshiren and Zhenzhumen prospects.  Both prospects represent similar structural/stratigraphic settings to that characterizing the White Mountain deposit.  At Xiaoshiren, 4,500 metres of drilling tested targets along strike and down dip from high-grade surface trenches and 2010 drillhole intersections.  At the previously undrilled Zhenzhumen prospect, one of the four drillholes completed (1,300 metres total) intersected a high grade, near-surface baritic breccia zone that is texturally and mineralogically similar to the White Mountain orebody, yet occurs at a deeper stratigraphic level.

Brazil
Tocantinzinho
At the Tocantinzinho project, the 2011 exploration program tested targets peripheral to the known deposit defined by soil geochemistry surveys, geophysical surveys (induced polarization, magnetic), and surface exposures of mineralized material.  Grid-based auger drilling was employed to further define targets within broad gold-in-soil anomalies prior to drilling.  Approximately 17,500 metres were drilled during the year.  The best gold intercepts in the program consisted of narrow but high grade zones associated with fault zones or quartz+sulphide veins along the Tocantinzinho Trend southeast of the deposit and beneath garimpo workings south of the deposit.  Also in 2011, existing soil surveys were extended into areas west, east, and north of the main deposit. The surveys identified several new targets to be tested in 2012.

Reconnaissance
At the Agua Branca project, 1,532 metres of drilling tested targets at the Carlinho and Camarao Hill zones.  At Camarao Hill, drillhole AB46 intersected an interval of 154 m grading 1.1 g/t Au and extended known mineralization 250 metres to the northeast of previous drilling.  Based on the results of this drillhole and the exploration potential of the surrounding area, Eldorado exercised its option to earn 100% of the Agua Branca project through a $1.9 million payment to the owner.

West of Tocantinzinho at the Piranhas project, exploration activities completed in 2011 included extending the existing area of soil sampling, and employing grid-based auger drilling to define diamond drilling targets within a broad gold-in-soil anomaly.

Reserves and Resources

Resources in all categories increased 4% compared to our 2010 resource statement while reserves increased 2% compared to our 2010 reserve statement.  Reserves at the end of 2011 totalled 19.0 million contained ounces of gold, compared with 18.6 million ounces at the end of 2010. The majority of the reserve increase came from Kisladag and Jinfeng, while decreases at the other operating mines due to production in 2011 were partially offset by newly discovered reserves at these mine sites. Complete mineral reserve and resource data including tonnes, grades and ounces as well as major assumptions and qualified persons responsible for these numbers are shown below in Table 1.
 
 
 

Table 1: Eldorado Gold Mineral Reserves and Resources, as of December 31, 2011
Project
Mineral Reserves
  
Mineral Resources
Gold
Tonnes
Grade
In-situ Gold
  
Tonnes
Grade
In-situ Gold
 
(x1000)
Au g/t
ounces (x1000)
  
(x1000)
Au g/t
ounces (x1000)
Kisladag
              
Proven
114,955
0.91
3,368
Measured
121,590
0.88
3,436
Probable
344,915
0.64
7,148
Indicated
458,270
0.59
8,619
Proven+Probable
459,870
0.71
10,516
M+I
579,860
0.65
12,055
       
Inferred
380,760
0.40
4,921
Efemcukuru
              
Proven
1,016
12.42
406
Measured
1,122
13.68
494
Probable
4,007
8.30
1,069
Indicated
4,304
8.50
1,177
Proven+Probable
5,023
9.13
1,475
M+I
5,426
9.57
1,670
       
Inferred
2,524
5.96
484
Perama
              
Proven
2,477
4.44
354
Measured
3,064
4.30
424
Probable
7,220
2.68
621
Indicated
9,375
3.18
958
Proven+Probable
9,697
3.13
975
M+I
12,439
3.46
1,382
       
Inferred
8,766
1.96
554
Tanjianshan
              
Proven
4,299
3.19
441
Measured
5,373
2.94
509
Probable
1,229
3.07
121
Indicated
3,820
2.52
309
Proven+Probable
5,528
3.16
562
M+I
9,193
2.77
818
       
Inferred
3,137
3.50
353
Jinfeng
              
Proven
8,671
3.74
1,043
Measured
12,119
3.59
1,397
Probable
8,661
3.75
1,045
Indicated
13,126
3.46
1,459
Proven+Probable
17,332
3.75
2,088
M+I
25,245
3.52
2,856
       
Inferred
10,630
3.18
1,086
White Mountain
              
Proven
3,776
3.70
449
Measured
4,892
3.62
569
Probable
2,072
3.65
243
Indicated
2,868
3.23
297
Proven+Probable
5,848
3.68
692
M+I
7,760
3.47
866
       
Inferred
4,907
5.22
824
Eastern Dragon
              
Proven
837
11.07
297
Measured
800
12.48
322
Probable
2,253
6.46
467
Indicated
2,700
6.04
530
Proven+Probable
3,090
7.71
764
M+I
3,500
7.50
852
       
Inferred
2,200
2.67
190
Tocantinzinho
              
Proven
17,735
1.39
792
Measured
19,777
1.29
820
Probable
31,315
1.17
1,183
Indicated
50,457
0.97
1,574
Proven+Probable
49,050
1.25
1,975
M+I
70,234
1.06
2,394
       
Inferred
6,950
0.66
147
Total Gold
              
Proven
153,766
1.45
7,150
Measured
168,737
1.47
7,971
Probable
401,672
0.92
11,897
Indicated
544,920
0.85
14,923
Proven+Probable
555,438
1.07
19,047
M+I
713,657
1.00
22,893
       
Inferred
419,874
0.63
8,559
               
Iron
Tonnes
Grade
    
Tonnes
Grade
  
Vila Nova
(x1000)
Fe %
    
(x1000)
Fe %
  
Proven
2,338
63.4
  
Measured
2,338
63.4
  
Probable
6,603
60.0
  
Indicated
7,295
60.9
  
Proven+Probable
8,941
60.9
  
M+I
9,633
61.5
  
       
Inferred
2,022
61.2
  
 
 
 
 
Notes on Mineral Resources and Reserves:
1) Mineral reserves and mineral resources are as of December 31, 2011
2) Mineral reserves are included in the mineral resources.
3) The Eastern Dragon Project also contains economic concentrations of silver. The silver grade for the project’s Proven and Probable reserves averages 71 g/t Ag (7.0 million in-situ ounces) whereas the average silver grade in the Measured and Indicated resources equals 73 g/t Ag (8.3 million in-situ ounces).
 
Mineral Reserve Notes:
1) Gold price used was $1250/oz except for Eastern Dragon and Tocantinzinho projects which used $1000 and the Efemcukuru mine which used $825/oz.
2) Cut-off grades (gold g/t): Kisladag: 0.20 g/t oxide, 0.31 g/t sulphide; Efemcukuru: 4.0 g/t;Perama: 0.8 g/t; Tanjianshan: 1.6 g/t JLG sulphide, 1.3 g/t JLG oxide/transition, 1.5 g/t 323 Pit; Jinfeng: 0.8 g/t open pit, 2.3g/t underground; White Mountain: 1.5 g/t; Eastern Dragon: 1.0 g/t open pit, 1.7g/t underground; Tocantinzinho: 0.49 g/t sulphide, 0.43 g/t oxide.
 
 
3) Qualified Persons:
Richard Miller, P.Eng., Manager, Mining for the Company is responsible for the Kisladag, Tanjianshan, Jinfeng open pit and Perama reserves;
Norm Pitcher, P.Geo., Cheif Operating Officer for the Company, is responsible for the Jinfeng underground, White Mountain, Eastern Dragon and Efemcukuru reserves;
Sean Gregerson, P. Eng., Business Development Manager for the Company, is responsible for the Tocantinzinho reserves;
Roberto Costa, principal of Roberto Costa Engenharia Ltda, is responsible for the Vila Nova iron reserves.
 
Mineral Resource Notes:
1) Cut-off grades (gold g/t): Kisladag: 0.25 g/t; Efemcukuru: 3.0 g/t; Perama: 0.5 g/t; Jinfeng: 0.7 g/t open pit, 2.0 g/t underground; Tanjianshan: 1.0 g/t; White Mountain: 1.0 g/t; Eastern Dragon: 1.0 g/t; Tocantinzinho: 0.3 g/t .
 
2) Qualified Persons:
Stephen Juras, Ph.D., P.Geo. and Director, Technical Services for the Company is responsible for the Kisladag, Efemcukuru, Perama, Tanjianshan, Tocantinzinho, Jinfeng, White Mountain and Eastern Dragon resources.
Roberto Costa, principal of Roberto Costa Engenharia Ltda, is responsible for the Vila Nova iron resources.
 
Eldorado currently intends to de-list from the official list of the ASX during the second half of the 2012 calendar year. Further details of any proposed de-listing process and the options available to CDI holders will be provided when these arrangements are finalized.

Eldorado is a gold producing, exploration and development company actively growing businesses in Turkey, China, Greece, and Brazil. With our international expertise in mining, finance and project development, together with highly skilled and dedicated staff, we believe that our company is well positioned to grow in value as we create and pursue new opportunities.

ON BEHALF OF
ELDORADO GOLD CORPORATION

“Paul N. Wright”

Paul N. Wright
President and Chief Executive Officer
 
Eldorado will host a conference call on Friday, February 24, 2011 to discuss the 2011Year-End Financial and Operating Results at 11:30 a.m. EDT (8:30 a.m. PDT).  You may participate in the conference call by dialling 416-340-8527 in Toronto or 1-877-440-9795 toll free in North America and asking for the Eldorado Conference Call with Chairperson: Paul Wright, President and CEO of Eldorado Gold.  The call will be available on Eldorado’s website. www.eldoradogold.com.  A replay of the call will be available until March 2, 2012 by dialling 905-694-9451 in Toronto or 1-800-408-3053 toll free in North America and entering the Pass code: 6780348.
 
 
 
 
 
JORC Competent Person Statement
 
The information in this news release that relates to Kisladag, Tanjianshan, Jinfeng open pit and Perama Ore Reserves is based on information compiled by Richard Miller, P.Eng, who is a Member of the Association of Professional Engineers and Geoscientists of BC. Richard Miller is a full time employee of Eldorado Gold Corporation.
 
Information in this news release that relates to Jinfeng underground, White Mountain, Eastern Dragon and Efemcukuru Ore Reserves is based on information compiled by Norm Pitcher, P.Geo, who is a Member of the Association of Professional Engineers and Geoscientists of BC. Norm Pitcher is a full time employee of Eldorado Gold Corporation.
 
Sean Gregersen, P.Eng, is responsible for the Tocantinzinho Ore Reserves. Sean Gregersen is a Member of the Association of Professional Engineers and Geoscientists of BC and a full time employee of Eldorado Gold Corporation.
 
Roberto Costa, principal of Roberto Costa Engenharia Ltda, is responsible for the Vila Nova iron ore reserves.
 
Stephen Juras, Richard Miller and Sean Gregersen have sufficient experience which is relevant to the style of mineralization and type of deposit under consideration and to the activity which they are undertaking to qualify as Competent Persons as defined in the 2004 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves and are Qualified Persons as defined in the Canadian National Instrument 43-101 (Standards of Disclosure for Mineral Projects).
 
Stephen Juras, Ph.D., P.Geo, and Director, Technical Services for the Company, is responsible for the Kisladag, Efemcukuru, Perama, Tanjianshan, Tocantinzinho, Jinfeng, White Mountain and Eastern Dragon Mineral Resources. Stephen Juras is a full time employee of Eldorado Gold Corporation.
 
Roberto Costa, principal of Roberto Costa Engenharia Ltda, is responsible for the Vila Nova iron ore resources.
 
Roberto Costa, Sean Gregersen, Stephen Juras, Richard Miller, and Norm Pitcher are the Qualified Persons as defined in the Canadian National Instrument 43-101 (Standards of Disclosure for Mineral Projects).
 
Norm Pitcher, Stephen Juras, Richard Miller, Sean Gregersen and Roberto Costa consent to the inclusion in the report of the matters based on the information in the form and context in which it appears.
 
Certain of the statements made herein may contain forward-looking statements or information within the meaning of the United States Private Securities Litigation Reform Act of 1995 and applicable Canadian securities laws. Often, but not always, forward-looking statements and forward-looking information can be identified by the use of words such as "plans", "expects", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates", or "believes" or the negatives thereof or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved. Forward-looking statements or information herein include, but are not limited, to the Company’s 2011 Financial and Operating Results.

Forward-looking statements and forward-looking information by their nature are based on assumptions and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements or information.  We have made certain assumptions about the forward-looking statements and information and even though our management believes that the assumptions made and the expectations represented by such statements or information are reasonable, there can be no assurance that the forward-looking statement or information will prove to be accurate.  Furthermore, should one or more of the risks, uncertainties or other factors materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in forward-looking statements or information.  These risks, uncertainties and other factors include, among others, the following:  gold price volatility; discrepancies between actual and estimated production, mineral reserves and resources and metallurgical recoveries; mining operational and development risk; litigation risks; regulatory restrictions, including environmental regulatory restrictions and liability; risks of sovereign investment; currency fluctuations; speculative nature of gold exploration; global economic climate; dilution; share price volatility; competition; loss of key employees; additional funding requirements; and defective title to mineral claims or property, as well as those factors discussed in the sections entitled “Forward-Looking Statements” and "Risk Factors" in the Company's Annual Information Form & Form 40-F dated March 31, 2011. 

Cautionary Note Regarding Mineral Reserves and Mineral Resources

The terms “Mineral Reserve”, “Proven Mineral Reserve” and “Probable Mineral Reserve” used in this release are Canadian mining terms as defined in accordance with National Instrument 43-101 – Standards of Disclosure for Mineral Projects under the guidelines set out in the Canadian Institute of Mining, Metallurgy and Petroleum (the “CIM”) Standards on Mineral Resources and Mineral Reserves, adopted by the CIM Council on August 20, 2000 as may be amended from time to time by the CIM.  These definitions differ from the definitions in the United States Securities & Exchange Commission (“SEC”) Guide 7.  In the United States, a mineral reserve is defined as a part of a mineral deposit which could be economically and legally extracted or produced at the time the mineral reserve determination is made.
 
 
 
 

The terms “Mineral Resource”, “Measured Mineral Resource”, “Indicated Mineral Resource”, “Inferred Mineral Resource” used in this release are Canadian mining terms as defined in accordance with National Instruction 43-101 – Standards of Disclosure for Mineral Projects under the guidelines set out in the CIM Standards. Mineral Resources which are not Mineral Reserves do not have demonstrated economic viability.
 
For a detailed discussion of resource and reserve estimates and related matters see the Company’s reports, including the Annual Information Form and Form 40-F dated March 31, 2011 and technical reports filed under the Company’s name at www.sedar.com and www.sec.gov respectively.

Cautionary Note to US Investors Concerning Estimates of Measured, Indicated and Inferred Resources
Note to U.S. Investors.  While the terms “mineral resource”, “measured mineral resource,” “indicated mineral resource”, and “inferred mineral resource” are recognized and required by Canadian regulations, they are not defined terms under standards in the United States and normally are not permitted to be used in reports and registration statements filed with the SEC.  As such, information contained in this report concerning descriptions of mineralization and resources under Canadian standards may not be comparable to similar information made public by U.S companies in SEC filings.  With respect to “indicated mineral resource” and “inferred mineral resource” there is a great amount of uncertainty as to their existence and a great uncertainty as to their economic and legal feasibility.  It cannot be assumed that all or any part of an “indicated mineral resource” or “inferred mineral resource” will ever be upgraded to a higher category.  Investors are cautioned not to assume that any part or all of mineral deposits in these categories will ever be converted into reserves.
 
There can be no assurance that forward-looking statements or information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements.  Accordingly, you should not place undue reliance on the forward-looking statements or information contained herein.  Except as required by law, we do not expect to update forward-looking statements and information continually as conditions change and you are referred to the full discussion of the Company's business contained in the Company's reports filed with the securities regulatory authorities in Canada and the U.S.

Eldorado Gold Corporation’s common shares trade on the Toronto Stock Exchange (TSX: ELD) and the New York Stock Exchange (NYSE: EGO). Our Chess Depositary Interests trade on the Australian Securities Exchange (ASX: EAU).

Contact:
 
Nancy Woo, VP Investor Relations
Eldorado Gold Corporation
Phone: 604.601.6650 or 1.888.353.8166                                                                                                           1188, 550 Burrard Street
Fax: 604.687.4026                                                                                                                                   Vancouver, BC V6C 2B5
Email: nancyw@eldoradogold.com                                                                                                           Web site: www.eldoradogold.com
Request for information packages:reception@eldoradogold.com

 
 
 
 
 PRODUCTION HIGHLIGHTS
 
 
First
Quarter
2011
Second
Quarter
2011
Third
Quarter
2011
Fourth
Quarter
2011
Fourth
Quarter
2010
 
2011
 
2010
 
Gold Production
              
  Ounces Sold
148,530
162,164
179,513
168,712
149,022
658,919
639,949
  Ounces Produced
148,577
162,429
179,195
168,451
148,374
658,652
632,539
  Cash Operating Cost ($/oz)1,3,4
410
397
397
418
418
405
382
  Total Cash Cost ($/oz)2,3,4
462
477
463
486
460
472
423
  Realized Price ($/oz - sold)
1,397
1,510
1,700
1,686
1,373
1,581
1,223
 
Kisladag Mine, Turkey
              
  Ounces Sold
50,832
66,392
87,121
80,572
59,741
284,917
279,025
  Ounces Produced
50,833
66,688
86,788
80,339
59,815
284,648
274,592
  Tonnes to Pad
2,341,635
3,194,051
3,520,220
3,374,541
2,021,057
12,430,447
10,372,719
  Grade (grams / tonne)
1.04
0.92
0.90
0.97
1.00
0.95
1.06
  Cash Operating Cost ($/oz)3,4
386
389
377
353
382
374
329
  Total Cash Cost ($/oz)2,3,4
408
411
401
379
354
398
339
 
Tanjianshan Mine, China
              
  Ounces Sold
28,493
31,977
26,935
27,564
30,710
114,969
116,765
  Ounces Produced
28,493
31,977
26,935
27,567
30,710
114,972
113,864
  Tonnes Milled
238,070
264,698
218,330
284,138
244,867
1,005,236
1,049,952
  Grade (grams / tonne)
3.90
4.23
4.25
3.56
4.59
3.96
4.19
  Cash Operating Cost ($/oz)3,4
402
343
353
415
349
377
383
  Total Cash Cost ($/oz)2,3,4
515
596
541
616
459
567
485
 
Jinfeng Mine, China
              
  Ounces Sold
48,518
46,381
44,187
38,672
38,282
177,758
182,026
  Ounces Produced
48,564
46,350
44,202
38,641
37,560
177,757
181,950
  Tonnes Milled
384,400
397,987
379,352
383,226
387,710
1,544,965
1,557,199
  Grade (grams / tonne)
4.32
4.05
4.26
3.63
3.81
4.06
4.24
  Cash Operating Cost ($/oz) 3,4
430
401
424
525
486
442
425
  Total Cash Cost ($/oz) 2,3,4
482
457
509
596
585
507
480
 
White Mountain Mine, China
              
  Ounces Sold
20,687
17,414
21,270
21,904
20,289
81,275
62,133
  Ounces Produced
20,687
17,414
21,270
21,904
20,289
81,275
62,133
  Tonnes Milled
140,211
192,558
191,157
184,956
169,669
708,882
622,418
  Grade (grams / tonne)
5.71
3.71
4.15
4.29
4.06
4.37
3.98
  Cash Operating Cost ($/oz) 3,4
438
518
475
472
498
474
487
  Total Cash Cost ($/oz) 2,3,4
475
564
519
519
536
517
522
 
1
Cost figures calculated in accordance with the Gold Institute Standard.
2
Cash Operating Costs, plus royalties and the cost of off-site administration.
3
Cash operating costs and total cash costs are non-GAAP measures.  See the section "Non-GAAP Measures" of this Review.
4
Cash operating costs and total cash costs have been recalculated for prior quarters based on ounces sold.
 

 

 

 

 

Eldorado Gold Corporation
Consolidated Balance Sheets
(Expressed in thousands of U.S. dollars)
 
   
Note
    
December 31, 2011
    
December 31, 2010
    
January 1, 2010
  
                         
                         
ASSETS
                        
Current assets
                        
Cash and cash equivalents
    

5

       393,763       314,344       265,369  
Restricted cash
    

6, 15

       55,390       52,425       50,000  
Marketable securities
   

7

       2,640       8,027       13,951  
Accounts receivable and other
    

8

       42,309       42,437       26,434  
Inventories
    

9

       164,057       147,263       129,197  
     

 

       658,159       564,496       484,951  
Non-current inventories
    

9

       26,911       29,627       31,534  
Investments in significantly influenced companies
    

10

       18,808       6,202       -  
Deferred income tax assets
    

18

       4,259       -       -  
Restricted assets and other
    

11

       38,430       19,328       13,759  
Property, plant and equipment
    

12

       2,847,910       2,699,787       2,527,567  
Goodwill
    

13

       365,928       365,928       324,935  
     

 

       3,960,405       3,685,368       3,382,746  
LIABILITIES & EQUITY
    

 

                          
Current liabilities
    

 

                          
Accounts payable and accrued liabilities
    

14

       168,367       145,695       153,036  
Current debt
    

15

       81,031       98,523       56,499  
     

 

       249,398       244,218       209,535  
Debt
    

15

       -       68,140       134,533  
Asset retirement obligations
    

16

       43,213       33,228       26,995  
Defined benefit plan
    

17

       19,969       12,019       7,811  
Deferred income tax liabilities
    

18

       336,579       330,512       355,425  
     

 

       649,159       688,117       734,299  
Equity
    

 

                          
Share capital
    

19

       2,855,689       2,814,679       2,671,634  
Treasury stock
    

 

       (4,018 )     -       -  
Contributed surplus
    

 

       30,441       22,967       17,865  
Accumulated other comprehensive (loss) income
    

 

       (10,069 )     (1,637 )     2,227  
Retained earnings (deficit)
    

 

       382,716       125,221       (69,423 )
Total equity attributable to shareholders of the Company
    

 

       3,254,759       2,961,230       2,622,303  
Attributable to non-controlling interests
    

 

       56,487       36,021       26,144  
              3,311,246       2,997,251       2,648,447  
              3,960,405       3,685,368       3,382,746  
 
 Approved on behalf of the Board of Directors
 
          (Signed) Robert R. Gilmore        Director                         (Signed) Paul N. Wright         Director                                                
 
                               
Date of approval:   February 23, 2012
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
 
Eldorado Gold Corporation
Consolidated Income Statements
(Expressed in thousands of U.S. dollars except per share amounts)
 
 
 
                   
For the year ended December 31
  
Note
    
2011
    
2010
  
                   
Revenue
                  
  Metal sales
           1,098,933       791,175  
                       
Cost of sales
                      
  Production costs
    

27

       346,484       277,974  
  Depreciation and amortization
    

 

       122,414       107,157  
Total cost of sales
    

 

       468,898       385,131  
Gross profit
    

 

       630,035       406,044  
     

 

                  
Exploration expenses
    

 

       30,773       22,501  
Mine standby costs
    

 

       -       1,335  
General and administrative expenses
    

 

       59,239       44,935  
Defined benefit plan expense
    

17

       2,088       1,337  
Share based payments
    

20

       19,722       17,112  
Foreign exchange loss
    

 

       5,367       2,712  
Operating profit
    

 

       512,846       316,112  
     

 

                  
Gain on disposal of assets
    

 

       (2,729 )     (592 )
Gain on marketable securities
    

 

       (664 )     (6,572 )
Loss on investments in significantly influenced companies
    

 

       4,225       531  
Other income
    

 

       (7,673 )     (13,468 )
Asset retirement obligation accretion
    

16

       1,546       2,727  
Interest and financing costs
    

28

       5,331       8,089  
     

 

                  
Profit before income tax
    

 

       512,810       325,397  
Income tax expense
    

18

       165,587       86,939  
Profit for the year
    

 

       347,223       238,458  
     

 

                  
Attributable to:
    

 

                  
Shareholders of the Company
    

 

       318,662       221,001  
Non-controlling interests
    

 

       28,561       17,457  
Profit for the year
    

 

       347,223       238,458  
     

 

                  
Weighted average number of shares outstanding
    

29

                  
Basic
    

 

       549,791       542,861  
Diluted
    

 

       551,625       545,850  
     

 

                  
Earnings per share attributable to shareholders of the Company:
    

29

                  
Basic earnings per share
    

 

       0.58       0.41  
Diluted earnings per share
    

 

       0.58       0.40  
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 

 
 
 Eldorado Gold Corporation
Consolidated Statements of Comprehensive Income
(Expressed in thousands of U.S. dollars)
 
 
 
For the year ended December 31
  
Note
    
2011
    
2010
  
                   
Profit for the year
           347,223       238,458  
Other comprehensive income (loss):
                      
Change in fair value of available-for-sale financial assets
           (989 )     13,480  
Income tax on items taken to equity
           12       (40 )
Reversal of unrealized gains on available-for-sale investments on acquisition of subsidiary
       -       (11,424 )
Realized gains on disposal of available-for-sale financial assets transferred to net income
       (794 )     (3,245 )
Actuarial losses on defined benefit pension plans
    

17

       (6,661 )     (2,635 )
Total other comprehensive (loss) income for the year
             (8,432 )     (3,864 )
Total comprehensive income for the year
             338,791       234,594  
                         
Attributable to:
                        
Shareholders of the Company
             310,230       217,137  
Non-controlling interests
             28,561       17,457  
Total comprehensive income for the year
             338,791       234,594  
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
 
 
 Eldorado Gold Corporation
Consolidated Statement of Cash Flows
(Expressed in thousands of U.S. dollars)
 
 
 
                   
For the year ended December 31
  
Note
    
2011
    
2010
  
                   
Cash flows generated from (used in):
                  
Operating activities
                  
Profit for the year
           347,223       238,458  
Items not affecting cash
                      
Asset retirement obligation accretion
           1,546       2,727  
Depreciation and amortization
           122,414       107,157  
Unrealized foreign exchange loss
           6,500       5,802  
Deferred income tax expense (recovery)
           1,804       (8,083 )
Gain on disposal of assets
           (2,729 )     (592 )
Loss on investment in significantly influenced companies
           4,225       531  
Gain on marketable securities
           (664 )     (6,572 )
Share based payments
           19,722       17,112  
Defined benefit plan expense
           2,088       1,337  
            502,129       357,877  
                       
Changes in non-cash working capital
    

21

       9,948       (59,509 )
              512,077       298,368  
Investing activities
                        
Acquisition of subsidiaries net of cash received
             -       (6,083 )
Purchase of property, plant and equipment
             (272,818 )     (226,296 )
Proceeds from the sale of property, plant and equipment
             147       23,756  
Purchase of marketable securities
             (1,823 )     (11,983 )
Proceeds from the sale of marketable securities
             8,154       15,611  
Non-registered supplemental retirement plan investments, net
             (7,045 )     -  
Investments in significantly influenced companies
             (16,830 )     (6,727 )
Increase in restricted cash
             (2,957 )     (2,463 )
Increase in restricted assets and other
             -       (7,007 )
              (293,172 )     (221,192 )
Financing activities
                        
Issuance of common shares for cash
             31,600       35,907  
Dividend paid to non-controlling interests
             (8,095 )     (7,580 )
Dividend paid to shareholders
             (61,167 )     (26,357 )
Purchase of treasury stock
             (6,438 )     -  
Long-term and bank debt proceeds
             5,782       59,839  
Long-term and bank debt repayments
             (98,169 )     (90,010 )
Loan financing costs
             (2,999 )     -  
              (139,486 )     (28,201 )
Net increase in cash and cash equivalents
             79,419       48,975  
Cash and cash equivalents - beginning of year
             314,344       265,369  
Cash and cash equivalents - end of year 393,763 314,344
                         
 
 
The accompanying notes are an integral part of these consolidated financial statements.

 
 
 
 
 Eldorado Gold Corporation
Consolidated Statements of Changes in Equity
(Expressed in thousands of U.S. dollars)
 
For the year ended December 31,
  
2011
          
2010
  
    $           $  
Share capital
                      
Balance beginning of year
     2,814,679               2,671,634  
Shares issued upon exercise of share options, for cash
     30,115               35,895  
Transfer of contributed surplus on exercise of options
     9,410               12,020  
Shares issued in consideration for interests acquired
     -               95,118  
Shares issued upon exercise of warrants, for cash
     1,485               12  
Balance end of year
     2,855,689               2,814,679  
                         
Treasury stock
                        
Balance beginning of year
     -               -  
Purchase of treasury stock
     (6,438 )             -  
Shares redeemed upon exercise of restricted share units
     2,420               -  
Balance end of year
     (4,018 )             -  
                         
Contributed surplus
                        
Balance beginning of year
     22,967               17,865  
Share based payments
     19,304               16,557  
Share based payments on Brazauro warrants and options
                  
converted
     -               565  
Shares redeemed upon exercise of restricted share units
     (2,420 )             -  
Transfer to share capital on exercise of options
     (9,410 )             (12,020 )
Balance end of year
     30,441               22,967  
                         
Accumulated other comprehensive (loss) income
                  
Balance beginning of year
     (1,637 )             2,227  
Other comprehensive (loss) income for the year
     (8,432 )             (3,864 )
Balance end of year
     (10,069 )             (1,637 )
                         
Retained earnings (deficit)
                        
Balance beginning of year
     125,221               (69,423 )
Dividends paid
     (61,167 )             (26,357 )
Profit attributable to shareholders of the Company
     318,662               221,001  
Balance end of year
     382,716               125,221  
Total equity attributable to shareholders of the Company
     3,254,759               2,961,230  
                         
Non-controlling interests
                        
Balance beginning of year
     36,021               26,144  
Profit attributable to non-controlling interests
     28,561               17,457  
Dividends paid
     (8,095 )             (7,580 )
Balance end of year
     56,487               36,021  
                         
Total equity
     3,311,246               2,997,251  
 

 

 

 

 The accompanying notes are an integral part of these consolidated financial statements.
 
 
 
 

 

 

Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)


1.  
General Information
 
Eldorado Gold Corporation (“Eldorado” or the “Company”) is a gold exploration, development, mining and production company. The Company has ongoing exploration and development projects in Turkey, China, Greece and Brazil. The Company acquired control of Sino Gold Mining Ltd. (“Sino Gold”) in December 2009, including its two producing mines, Jinfeng and White Mountain, as well as the Eastern Dragon development project. It also completed in July 2010 the acquisition of Brazauro Resources Corporation (“Brazauro”), whose main asset is the Tocantinzinho exploration and development project in Tapajós, Brazil.
 
Eldorado is a public company which is listed on the Toronto Stock Exchange, New York Stock Exchange and the Australian Stock Exchange and is incorporated and domiciled in Canada.
 

2.  
Basis of preparation and first-time adoption of IFRS
 
    The Company prepares its financial statements in accordance with Canadian generally accepted accounting principles as set out in the Handbook of the Canadian Institute of Chartered Accountants (“CICA Handbook”). In 2010, the CICA   Handbook was revised to incorporate International Financial Reporting Standards (“IFRS”), and require publicly accountable enterprises to apply such standards effective for years beginning on or after January 1, 2011. Accordingly the Company has commenced reporting on this basis in these consolidated financial statements. In the financial statements, the term “Canadian GAAP” refers to Canadian GAAP before the adoption of IFRS.
 
These consolidated financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board. These are the Company’s first consolidated financial statements prepared in accordance with IFRS and IFRS 1 ‘First-time Adoption of International Financial Reporting Standards’ (“IFRS 1”) has been applied. Subject to certain IFRS 1 transition elections disclosed in Note 32, the Company has consistently applied the same accounting policies in its opening IFRS balance sheet as at January 1, 2010 and throughout all years presented, as if these policies had always been in effect. Note 32 discloses the impact of the transition to IFRS on the Company’s reported balance sheet and comprehensive income, including the nature and effect of significant changes in accounting policies from those used in the Company’s consolidated financial statements for the year ended December 31, 2010.
 
    The consolidated financial statements were authorized for issue by the Board of Directors on February 23, 2012.
 
    Upcoming changes in accounting standards
 
    The following standards and amendments to existing standards have been published and are mandatory for Eldorado’s annual accounting periods beginning January 1, 2013, or later periods:
 
·  
IFRS 9 ‘Financial Instruments: Classification and Measurement’ – This is the first part of a new standard on classification and measurement of financial assets that will replace IAS 39, ‘Financial Instruments: Recognition and Measurement’. IFRS 9 has two measurement categories: amortized cost and fair value. All equity instruments are measured at fair value. A debt instrument is recorded at amortized cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest. Otherwise it is measured at fair value with changes in fair value through profit or loss. In addition, this new standard has been updated to include guidance on financial liabilities and derecognition of financial instruments. This standard is effective for years beginning on or after January 1, 2015. The extent of the impact of adoption of IFRS 9 has not yet been determined.
 
·  
IFRS 11 ‘Joint Arrangements’ – This standard replaces the guidance in IAS 31 Interests in Joint Ventures.  Under IFRS 11, joint arrangements are classified as either joint operations or joint ventures.  Joint venture entities are now accounted for using the equity method. 
 
Upon application of IFRS 11, entities which had previously accounted for joint ventures using proportionate consolidation shall collapse the proportionately consolidated net asset value into a single investment balance at the beginning of the earliest period presented.  The investment’s opening balance is tested for impairment in accordance with IAS 28 and IAS 36 ‘Impairment of Assets’. 

 
1
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)
 
2.   Basis of preparation (continued)
 
Any impairment losses are recognized as an adjustment to opening retained earnings at the beginning of the earliest period presented. The Company intends to adopt IFRS 11 in its financial statements for the annual period beginning on January 1, 2013.  The Company does not expect IFRS 11 to have a material impact on the consolidated financial statements.
 
·  
IFRS 12 ‘Disclosure of Interests in Other Entities’ – This IFRS shall be applied by companies with an interest in subsidiaries, joint arrangements, associates or unconsolidated structured entities.  The application of this standard intends to enable users of the financial statements to evaluate the nature of and risks associated with its interests in other entities, and the effects of those interests on its financial position, financial performance and cash flows. Companies will be required to disclose information about significant judgments and assumptions made in determining the control of another entity, the joint control of an arrangement or significant influence over another entity and the type of joint arrangement when the arrangement has been structured through a separate vehicle.  This standard is effective for years beginning on or after January 1, 2013.   The Company does not expect IFRS 12 to have a material impact on the consolidated financial statements.
 
·  
IFRS 13, ‘Fair value measurement’, aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRS. The requirements do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRS. The Company is yet to assess IFRS 13’s full impact and intends to adopt IFRS 13 no later than the accounting period beginning on or after January 1, 2013.
 
·  
IFRIC 20 ‘Stripping costs in the production phase of a surface mine’ – This interpretation applies to waste removal costs that are incurred in open pit mining activity during the production phase of the mine.  Recognition of a stripping activity asset requires the asset to be related to an identifiable component of the ore body.  Stripping costs that relate to inventory produced should be accounted for as a current production cost in accordance with IAS 2, ‘Inventories’. Stripping costs that generate a benefit of improved access and meet the definition of an asset should be accounted for as an addition to an existing asset.  Existing stripping costs on the balance sheet at transition that do not relate to a specific ore body should be written off to opening retained earnings. The stripping activity asset shall be depreciated on a systematic basis, over the expected useful life of the identified component of the ore body that becomes more accessible as a result of the stripping activity.  This interpretation is effective for years beginning on or after January 1, 2013. The Company does not expect IFRIC 20 to have a material impact on the consolidated financial statements as the Company currently applies comparable principles to those found in this interpretation.
 
·  
There are no other IFRS or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Company.
 

3.  
Significant accounting policies
 
The principal accounting policies set out below have been applied consistently to all years presented in these consolidated financial statements, and have been applied consistently by Eldorado entities. Refer to Note 32 for the IFRS 1 exemptions taken in applying IFRS for the first time.
 
3.1      Basis of presentation and principles of consolidation
 
(i)      Subsidiaries and business combinations
 
Subsidiaries are entities controlled by Eldorado. Control exists when Eldorado has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that currently are exercisable are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

 
2
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)
 3.   Significant accounting policies (continued)

The acquisition method of accounting is used to account for business acquisitions. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are generally measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest.
 
The excess of the cost of acquisition over the fair value of Eldorado’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets acquired, the difference, or gain is recognised directly in the income statement.
 
Transaction costs, other than those associated with the issue of debt or equity securities, which the Company incurs in connection with a business combination, are expensed as incurred.
 
The most significant wholly owned and partially owned subsidiaries of Eldorado, are presented below:
 

Subsidiary
Location
Ownership interest
Status
Operations and development projects owned
Qinghai Dachaidan Mining Ltd (“QDML”)
China
90%
Consolidated
TJS Mine
Tüprag Metal Madencilik Sanayi ve Ticaret AS (“Tüprag”)
Turkey
100%
Consolidated
Kişladağ Mine
Efemcukuru Mine
Unamgen Mineração e Metalurgia S/A
Brazil
100%
Consolidated
Vila Nova Iron Ore Mine
Thracean Gold Mining SA
Greece
100%
Consolidated
Perama Hill Project
Sino Guizhou Jinfeng Mining Limited
China
82%
Consolidated
Jinfeng Mine
Sino Gold Jilin BMZ Mining Limited
China
95%
Consolidated
White Mountain Mine
Heihe Rockmining Limited
China
95%
Consolidated
Eastern Dragon Project
Brazauro Resources Corporation (“Brazauro”)
Brazil
100%
Consolidated
Tocantinzinho Project

(ii)      Investments in associates (equity accounted investees)
 
Associates are those entities where Eldorado has the ability to exercise significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when the Company holds between 20 and 50 percent of the voting power of another entity. Joint ventures are those entities over whose activities the Company has joint control, established by contractual agreement and requiring unanimous consent for strategic financial and operating decisions.
 
 
Associates and jointly controlled entities are accounted for using the equity method (equity accounted investees) and are recognized initially at cost. The consolidated financial statements include Eldorado’s share of the income and expenses and equity movements of equity accounted investees, after adjustments to align the accounting policies with those of Eldorado, from the date that significant influence or joint control commences until the date that significant influence or joint control ceases. When the Company’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest (including any long-term investments) is reduced to nil and the recognition of further losses is discontinued except to the extent that the Company has an obligation or has made payments on behalf of the investee.
 
 
At each balance sheet date, the investment in associates is assessed for indicators of impairment.
 
(iii)  Transactions with non-controlling interests
 
Eldorado treats transactions with non-controlling interests as transactions with third parties. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.
 
(iv)   Transactions eliminated on consolidation
 
Intra-company and intercompany balances and transactions, and any unrealized income and expenses arising from all such transactions, are eliminated in preparing the consolidated financial statements.
 
 
3
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)

 
3.  Significant accounting policies (continued)
 
3.2      Foreign currency translation
 
(i)      Functional and presentation currency
 
Items included in the financial statements of each of Eldorado’s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated financial statements are presented in US dollars, which is the Company’s functional and presentation currency, as well as the functional currency of all significant subsidiaries.
 
(ii)      Transactions and balances
 
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rate at that date. Foreign exchange gains and losses resulting from the settlement of such transactions, and from the translation of monetary assets and liabilities denominated in foreign currencies, are recognised in the income statement.
 
  3.3 Property,  plant and equipment
 
(i)      Cost and valuation

Property, plant and equipment are carried at cost less accumulated depreciation and any impairment in value. When an asset is disposed of, it is derecognized and the difference between its carrying value and net sales proceeds is recognized as a gain or loss in the income statement.

 
(ii)      Property, plant and equipment
 
Property, plant and equipment include expenditures incurred on properties under development, significant payments related to the acquisition of land and mineral rights and property, plant and equipment which are recorded at cost on initial acquisition. Cost includes the purchase price and the directly attributable costs of acquisition or construction required to bring an asset to the location and condition necessary for the asset to be capable of operating in the manner intended by management.
 
(iii)      Depreciation
 
Mine development costs, property, plant and equipment and other mining assets whose estimated useful life is the same as the remaining life of the mine are depreciated, depleted and amortized over a mine’s estimated life using the units-of-production method calculated based on proven and probable reserves.  Capitalized development costs related to a multi-pit operation are amortized on a pit-by-pit basis over the pit’s estimated life using the units-of-production method calculated based on proven and probable reserves related to each pit.
 
Property, plant and equipment and other assets whose estimated useful lives are less than the remaining life of the mine are depreciated on a straight-line basis over the estimated useful life of the assets.
 
Where components of an asset have a different useful life and cost that is significant to the total cost of the asset, depreciation is calculated on each separate component.
 
Depreciation methods, useful lives and residual values are reviewed at the end of each year and adjusted if appropriate.
 
(iv)  Subsequent costs
 
Expenditure on major maintenance or repairs includes the cost of replacement parts of assets and overhaul costs.  Where an asset or part of an asset is replaced and it is probable that further future economic benefit will flow to the Company, the expenditure is capitalized.  Similarly, overhaul costs associated with major maintenance are capitalized when it is probable that future economic benefit will flow to the Company and any remaining costs of previous overhauls relating to the same asset are derecognized.  All other expenditures are expensed as incurred.
 
 
 
4
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)


3.  Significant accounting policies (continued)
 
(v)  Deferred stripping costs
 
Stripping costs incurred during the production phase of a mine are considered production costs and are included in the cost of inventory produced during the period in which the stripping costs are incurred, unless the stripping activity can be shown to be a betterment of the mineral property, in which case the stripping costs are capitalized. Betterment occurs when stripping activity increases future output of the mine by providing access to additional reserves. Stripping costs incurred to prepare the ore body for extraction are capitalized as mine development costs (pre-stripping). Capitalized stripping costs are amortized on a unit-of-production basis over the economically recoverable proven and probable reserves to which they relate.
 
(vi)  Borrowing costs
 
Borrowing costs are expensed as incurred except where they are directly attributable to the financing of construction or development of qualifying assets requiring a substantial period of time to prepare for their intended future use.  Interest is capitalized up to the date when substantially all the activities necessary to prepare the asset for its intended use are complete.
 
Investment income arising on the temporary investment of proceeds from borrowings is offset against borrowing costs being capitalized.
 
(vii) Mine standby and restructuring costs
 
Mine standby costs and costs related to restructuring a mining operation are charged directly to expense in the period incurred. Mine standby costs include labour, maintenance and mine support costs during temporary shutdowns of a mine. Restructuring costs include severance payments to employees laid off as a result of outsourcing the mining function.
 
3.4      Exploration and evaluation expenditures
 
Exploration expenditures reflect the costs related to the initial search for mineral deposits with economic potential or obtaining more information about existing mineral deposits. Exploration expenditures typically include costs associated with the acquisition of mineral licenses, prospecting, sampling, mapping, diamond drilling and other work involved in searching for ore. All expenditures relating to exploration activities are expensed as incurred except for the costs associated with the acquisition of mineral licenses which are capitalized.
 
Evaluation expenditures reflect costs incurred at development projects related to establishing the technical and commercial viability of developing mineral deposits identified through exploration or acquired through a business combination or asset acquisition.
 
Evaluation expenditures include the cost of:
 
i)  
establishing the volume and grade of deposits through drilling of core samples, trenching and sampling activities in an ore body that is classified as either a mineral resource or a proven and probable reserve;
 
ii)  
determining the optimal methods of extraction and metallurgical and treatment processes;
 
iii)  
studies related to surveying, transportation and infrastructure requirements;
 
iv)  
permitting activities, and;
 
v)  
economic evaluations to determine whether development of the mineralized material is commercially justified, including scoping, prefeasibility and final feasibility studies.
 
Evaluation expenditures and the subsequent mine development costs are capitalized if management determines that there is sufficient evidence to support probability of generating positive economic returns in the future. A mineral resource is considered to have economic potential when it is expected the technical feasibility and commercial viability of extraction of the mineral resource is demonstrable considering long-term metal prices. Therefore, prior to capitalizing such costs, management determines that the following conditions have been met:
 
§  
There is a probable future benefit that will contribute to future cash inflows;
§  
The Company can obtain the benefit and control access to it, and;
§  
The transaction or event giving rise to the benefit has already occurred.
 
Expenditures incurred on extensions of mineral properties which are already being mined or developed that increase production volume or extend the life of those properties are also capitalized. Capitalized expenditures are assessed for potential impairment at the end of each reporting period.

 

 
 
5
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)


3.5      Goodwill
 
Goodwill represents the excess of the cost of an acquisition over the fair value of Eldorado's share of the net assets of the acquired business at the date of acquisition. When the excess is negative (negative goodwill), it is recognized immediately in income. Goodwill on acquisition of subsidiaries and businesses is shown separately as goodwill in the financial statements. Goodwill on acquisition of associates is included in investments in significantly influenced companies and tested for impairment as part of the overall investment.
 
Goodwill is carried at cost less accumulated impairment losses and tested annually for impairment. Impairment losses on goodwill are not reversed. The impairment testing is performed annually or more frequently if events or changes in circumstances indicate that it may be impaired.
 
Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. If the composition of one or more cash-generating units to which goodwill has been allocated changes due to a re-organization, the goodwill is re-allocated to the units affected.
 
The gain or loss on disposal of an entity includes the carrying amount of goodwill relating to the entity sold.
 
 
Acquisitions prior to January 1, 2010
 
 
On transition to IFRS, Eldorado elected to restate only those business combinations that occurred on or after January 1, 2010. In respect of acquisitions prior to January 1, 2010, goodwill represents the amount recognized under Eldorado’s previous accounting framework, Canadian GAAP.
 
3.6      Impairment of non-financial assets
 
Other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.  An impairment test is performed when the impairment indicators demonstrate that the carrying amount may not be recoverable and it is reviewed at least annually.
 
An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount.  The recoverable amount is the higher of an asset’s fair value less cost to sell and value in use.   For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units, or ‘CGU’s).  These are typically the individual mines or development projects.
 
Value in use is determined as the present value of the future cash flows expected to be derived from an asset or CGU based on the detailed mine and/or production plans. The estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
 
Fair value less cost to sell is the amount obtainable from the sale of an asset or CGU in an arm’s length transaction between knowledgeable, willing parties, less the costs of disposal. For mining assets, fair value less cost to sell is often estimated using a discounted cash flow approach because a fair value is not readily available from an active market or binding sale agreement. Estimated future cash flows are calculated using estimated future prices, mineral reserves and resources, operating and capital costs. All assumptions used are those that an independent market participant would consider appropriate. Non-financial assets other than goodwill impaired in prior periods are reviewed for possible reversal of the impairment when events or changes in circumstances indicate that an item is no longer impaired.
 
 
6
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)


3.  Significant accounting policies (continued)
 
3.7      Financial assets
 
(i) Classification
 
The Company classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables, and available-for-sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.
 
(a) Financial assets at fair value through profit or loss
 
Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short-term. Derivatives are also categorised as held for trading unless they are designated as hedges.
 
(b) Loans and receivables
 
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those with maturities of greater than 12 months after the end of the reporting period, which are classified as non-current assets. Eldorado’s loans and receivables comprise cash and cash equivalents, restricted cash, accounts receivable and other, and restricted assets and other in the balance sheet.
 
(c) Available-for-sale financial assets
 
Available-for-sale financial assets are non-derivative financial assets that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless the investment matures or management intends to dispose of it within 12 months of the end of the reporting period. Eldorado’s available-for-sale financial assets comprise marketable securities not held for the purpose of trading.
 
(ii) Recognition and measurement
 
Financial assets are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in the income statement. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are subsequently carried at amortised cost using the effective interest method.
 
Gains or losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are presented in the income statement within ‘Gain or loss on marketable securities’ in the period in which they arise. Dividend income from ‘financial assets at fair value through profit or loss’ is recognised in the income statement as part of other income when Eldorado’s right to receive payments is established.
 
Gains or losses arising from changes in the fair value of available-for-sale financial assets are recognized in other comprehensive income and presented within equity.
 
When marketable securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognised in other comprehensive income are included in the income statement as ‘Gain or loss on marketable securities’.
 
 (iii)  Impairment of financial assets
 
 
The Company assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.
 
 
 
7
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)
 
3.  Significant accounting policies (continued)
 
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. An impairment loss in respect of an available-for-sale financial asset is calculated by reference to its fair value. In the case of equity instruments classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is also evidence that the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset that was previously recognized in profit or loss – is removed from equity and recognized in the income statement.
 
All impairment losses are recognized in profit or loss. Any cumulative loss in respect of an available-for-sale financial asset recognized previously in equity is transferred to profit or loss.
 
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognized. Impairment losses recognized for equity securities are not reversed.
 
3.8  Derivative financial instruments
 
 
Derivatives are recognized initially at fair value on the date a derivative contract is entered into. Subsequent to initial recognition, derivatives are measured at fair value, and changes in fair value thereafter are recognized in profit and loss. Fair values for derivative instruments are determined using valuation techniques, using assumptions based on market conditions existing at the balance sheet date. Derivatives are not accounted for using hedge accounting.
 
3.9       Inventories
 
 
Inventories are valued at the lower of cost and net realizable value. Costs incurred in bringing each product to its present location and conditions are accounted for as follows:
 
i)  
Product inventory consists of stockpiled ore, ore on leach pads, crushed ore, in-circuit material at properties with milling or processing operations, doré awaiting refinement and unsold bullion. Product inventory costs consist of direct production costs including mining, crushing and processing; site administration costs; and allocated indirect costs, including depreciation and amortization of property, plant and equipment.
 
Inventory costs are charged to production costs on the basis of ounces of gold sold. The Company regularly evaluates and refines estimates used in determining the costs charged to production costs and costs absorbed into inventory carrying values based upon actual gold recoveries and operating plans.
 
Inventories for which processing and sale is not expected to complete within one year are classified as non-current.
 
Net realizable value is the estimated selling price, less the estimated costs of completion and selling expenses.
 
ii)  
Materials and supplies inventory consists of consumables used in operations, such as fuel, chemicals, reagents and spare parts, which are valued at the lower of average cost and net realisable value and, where appropriate, less a provision for obsolescence. Costs include acquisition, freight and other directly attributable costs.
 
3.10  Trade receivables
 
 
Trade receivables are amounts due from customers for bullion, doré or iron ore sold in the ordinary course of business.
 
 
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less a provision for impairment where neccesary.
 
3.11   Cash and cash equivalents
 
 
Cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly liquid investments with maturities at the date of acquisition of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet.
 

 
 
8
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)


3.   Significant accounting policies (continued)
 
3.12   Share capital
 
 
Common shares are classified as equity. Incremental costs directly attributable to the issue of common shares and share options are recognized as a deduction from equity, net of any tax effects. Common shares held by the Company are classified as treasury stock and recorded as a reduction of shareholders’ equity.
 
3.13  Trade payables
 
 
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.
 
 
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
 
3.14   Debt and borrowings
 
 
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost, calculated using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest rate method.
 
 
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates.
 
3.15  Current and deferred income tax
 
 
Income tax expense comprises current and deferred tax. Income tax expense is recognized in the income statement except to the extent that it relates to items recognized either in other comprehensive income or directly in equity, in which case it is recognized in other comprehensive income or in equity, respectively.
 
 
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings. The tax rate used is the rate that is substantively enacted.
 
Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
 
A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
 
3.16   Employee benefits
 
(i)      Defined benefit plans
 
Certain employees have entitlements under Company pension plans which are defined benefit pension plans.  For defined benefit plans, the level of benefit provided is based on the length of service and earnings of the person entitled.
 
 
 
9
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)
 
3.  Significant accounting policies (continued)
 
The cost of the defined benefit plan is determined using the projected unit credit method.  The related pension liability recognized in the consolidated balance sheet is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets.
 
The Company obtains actuarial valuations for defined benefit plans for each balance sheet date. Actuarial assumptions used in the determination of defined benefit pension plan liabilities are based on best estimates, including discount rates, rate of salary escalation and expected retirement dates of employees. The expected long-term rate of return on assets is estimated based on the fair value of plan assets, asset allocation and expected long-term rates of return.
 
Actuarial gains and losses are recognized in full in the period in which they occur in other comprehensive income without recycling to the statement of income in subsequent periods.  Current service cost, the vested element of any past service cost, the expected return on plan assets and the interest arising on the pension liability are included in the same line items in the statement of income as the related compensation cost.
 
Past service costs are recognized immediately to the extent the benefits are vested, and otherwise are amortized on a straight-line basis over the average period until the benefits become vested.
 
(ii) Termination benefits
 
 
Eldorado recognizes termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal, or providing benefits as a result of an offer made to encourage voluntary termination.  Benefits falling due more than twelve months after the end of the reporting period are discounted to their present value.
 
(iii)  Short-term benefits
 
 
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing plans if Eldorado has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
 
3.17   Share-based payment transactions
 
The Company applies the fair value method of accounting for all stock option awards and equity settled restricted share units. Under this method the Company recognizes a compensation expense for all stock options awarded to employees, based on the fair value of the options on the date of grant which is determined by using the Black-Scholes option pricing model. For equity settled restricted share units, compensation expense is recognized based on the quoted market value of the shares. The fair value of the options and restricted share units are expensed over the vesting period of the awards with a corresponding increase in equity. No expense is recognized for awards that do not ultimately vest. Deferred share units are liability awards recorded at the quoted market price at the grant date. The corresponding liability is marked to market at each reporting date.
 
         3.18   Provisions
 
 
A provision is recognized if, as a result of a past event, Eldorado has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.
 
 
Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.
 
 
 
10
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)


3.  Significant accounting policies (continued)
 
(i)      Rehabilitation and restoration
 
 
Provision is made for mine rehabilitation and restoration when an obligation is incurred. The provision is recognised as a liability with a corresponding asset recognised in relation to the mine site. At each reporting date the rehabilitation liability is re-measured in line with changes in discount rates, and timing or amount of the costs to be incurred. The rehabilitation liability is classified as an ‘Asset retirement obligation’ on the balance sheet.
 
 
The provision recognised represents management’s best estimate of the present value of the future costs required. Significant estimates and assumptions are made in determining the amount of restoration and rehabilitation provisions. Those estimates and assumptions deal with uncertainties such as: requirements of the relevant legal and regulatory frameworks, the magnitude of necessary remediation activities and the timing, extent and costs of required restoration and rehabilitation activity.
 
 
These uncertainties may result in future actual expenditure differing from the amounts currently provided. The provision recognised is periodically reviewed and updated based on the facts and circumstances available at the time. Changes to the estimated future costs for operating sites are recognised in the balance sheet by adjusting both the restoration and rehabilitation asset and provision. Such changes give rise to a change in future depreciation and financial charges.
 
3.19  Revenue recognition
 
Revenue from the sale of bullion, doré and iron ore is recognized when persuasive evidence of an arrangement exists, the bullion, doré and iron ore has been shipped, title has passed to the purchaser, the price is fixed or determinable, and collection is reasonably assured.
 
3.20  Finance income and expenses
 
 
Finance income comprises interest income on funds invested (including available-for-sale financial assets), gains on the disposal of available-for-sale financial assets and changes in the fair value of financial assets at fair value through profit or loss. Interest income is recognized as it accrues in profit or loss, using the effective interest method.
 
 
Finance expenses comprise interest expense on borrowings, unwinding of the discount on provisions, changes in the fair value of financial assets at fair value through profit or loss and impairment losses recognized on financial assets. All borrowing costs are recognized in profit or loss using the effective interest method, except for those amounts capitalized as part of the cost of qualifying property, plant and equipment.
 
3.21   Earnings per share
 
 
Eldorado presents basic and diluted earnings per share (EPS) data for its common shares. Basic EPS is calculated by dividing the profit or loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to common shareholders and the weighted average number of common shares outstanding for the effects of all dilutive potential common shares, which comprise warrants and share options granted to employees.

4.  
Critical accounting estimates and judgements
 
 
The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
 
 
Estimates and underlying assumptions are reviewed at each period end. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
 
 
 
11
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)
 
4.  Critical accounting estimates and judgements (continued)
 
Significant areas requiring the use of management estimates include assumptions and estimates relating to determining defined proven and probable reserves, value beyond proven and probable reserves, fair values for purposes of purchase price allocations for business acquisitions, asset impairment analysis, determination of recoverable metal on leach pads, reclamation obligations, share-based payments and warrants, pension benefits, valuation allowances for deferred income tax assets, the provision for income tax liabilities, deferred income taxes and assessing and evaluating contingencies. Actual results could differ from these estimates.

5.  
   Cash and cash equivalents
 
 
December 31, 2011
$
December 31, 2010
$
January 1, 2010
$
Cash at bank and on hand
387,761
312,844
264,669
Short-term bank deposits
6,002
1,500
700
 
393,763
314,344
265,369

6.  
Restricted cash
 
Restricted cash represents short-term interest-bearing money market securities and funds held on deposit as collateral for the following loans:
 
 
December 31, 2011
$
December 31, 2010
$
January 1, 2010
$
   
 
 
Eastern Dragon CMB standby letter of credit loan (Note 15(e))
52,390
52,425
-
Unamgen HSBC letter of credit
3,000
-
-
Eastern Dragon CCB loan (Note 15(g))
-
-
50,000
 
55,390
52,425
50,000

7.  
Marketable securities
 
 
 
All marketable securities owned by the Company are categorized as available-for-sale.
 
The fair value of all equity securities is based on the balance sheet date bid prices in an active market.

8.  
Accounts receivable and other
 
 
December 31, 2011
$
December 31, 2010
$
January 1, 2010
$
Trade receivables
7,037
7,233
-
Value added and other taxes recoverable
7,679
4,196
5,956
Other receivables and advances
5,528
8,990
9,123
Prepaid expenses and deposits
22,065
22,018
11,355
 
42,309
42,437
26,434
 
 
 
12
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)



9.  
Inventories
 
December 31, 2011
$
December 31, 2010
$
January 1, 2010
$
Current
      
Ore stockpiles
47,544
39,483
37,503
In-process inventory including doré
50,583
62,366
56,098
Materials and supplies
65,930
45,414
35,596
 
164,057
147,263
129,197
Non-current
      
Ore stockpiles
19,112
15,659
15,987
In-process inventory
7,799
13,968
15,547
 
26,911
29,627
31,534
 
Non-current inventories represent material not scheduled for processing within the next twelve months at the TJS mine.
 
 
The cost of materials and supplies consumed during the year and included in production costs amounted to $143,985 (2010 – $114,778).

10.  
 Investments in significantly influenced companies
 
December 31, 2011
$
December 31, 2010
$
January 1, 2010
$
   
 
 
Serabi Mining Plc (“Serabi”)
3,646
6,202
-
Kopy Goldfields (“Kopy”)
3,959
-
-
Glory Resources (“Glory”)
11,203
-
-
 
18,808
6,202
-
 
(a) Serabi
 
 
During 2011, the Company acquired an additional 2,340,000 units of Serabi for $1,318 pursuant to the Serabi initial public offering on the Toronto Stock Exchange.  Each unit consisted of one ordinary share and one half of one share purchase warrant.  As at December 31, 2011, the Company holds 16,840,000 ordinary shares and 2,420,000 purchase warrants of Serabi. This represents an approximately 26.3% interest in Serabi or 29% if the Company exercises all of its share purchase warrants.
 
The investment in Serabi is being accounted for under the equity method as follows:
 
 
2011
2010
 
$
$
Balance at January 1,
6,202
-
Purchases during the year
1,318
6,727
Equity loss for the year
                  (3,874)
                  (525)
Balance at December 31,
3,646
6,202
 
Based on quoted market prices, the fair value of the Company’s investment in Serabi at December 31, 2011 was $1,490. Subsequent to December 31, 2011, the Company acquired an additional 4,500,000 units of Serabi for $696 to maintain its 26.3% interest in the Company. Each unit consisted of one ordinary share and one sixth of one share purchase warrant.
 
Serabi is a gold mining company that is focused on the Tapajós region of Northern Brazil.
 
 
13
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)



10. Investments in significantly influenced companies (continued)
 
 (b) Kopy
 
In September 2011, the Company entered into a purchase agreement with Kopy and acquired 1,700,000 ordinary shares for $2,470.  The Company acquired an additional 1,000,000 ordinary shares of Kopy for $1,803 in October 2011 for a total investment of 2,700,000 ordinary shares. This represents a 28.9% interest in Kopy.
 
The investment in Kopy is being accounted for under the equity method as follows:

 
2011
 
$
Balance at January 1,
-
Purchases during the year
4,273
Equity loss for the period
                  (314)
Balance at December 31,
3,959
 
Based on quoted market prices, the fair value of the Company’s investment in Kopy at December 31, 2011was $2,297.
 
Kopy is focused on gold exploration and development in the Lena Goldfields area of the Irkutsk region of Russia.

(c) Glory
 
In November 2011, the Company entered into a purchase agreement with Glory and acquired 44,595,920 ordinary shares for $11,240.  This represents a 19.9% interest in Glory and, under the agreement, gives the Company the ability to appoint one board member in Glory.
 
The investment in Glory is being accounted for under the equity method as follows:
 
 
2011
 
$
Balance at January 1,
-
Purchases during the year
11,240
Equity loss for the period
                  (37)
Balance at December 31,
11,203
 
Based on quoted market prices, the fair value of the Company’s investment in Glory at December 31, 2011was $9,142.
 
Glory currently holds mineral interests in the Sapes gold project in Thrace, Greece.

11.  
Restricted assets and other
 
 
December 31, 2011
$
December 31, 2010
$
January 1, 2010
$
Restricted non-current asset – SERP (Note 17)
14,456
7,872
7,066
Restricted credit card deposits
648
656
618
Restricted non-current marketable securities
-
-
156
 
15,104
8,528
7,840
Non-current accounts receivable
369
352
2,477
Prepaid loan costs (Note 15(i))
2,849
-
-
Environmental guarantee deposits
12,304
10,448
3,442
Deposit on land acquisition at Jinfeng
7,804
-
-
 
38,430
19,328
13,759

 
 
14
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)

12.  Property, plant and equipment
 
                               
   
Land and buildings
    
Plant and equipment
    
Capital works in progress
    
Mineral properties and leases
    
Total
  
    $       $       $       $       $    
Cost
                                        
Balance at January 1, 2010
     259,068       612,347       95,810       1,723,178       2,690,403  
Acquisition of Brazauro
     -       118       -       108,282       108,400  
Additions
     25,585       120,713       44,475       71,083       261,856  
Finalization of purchase price allocation for Sino
     -       -       -       (58,523 )     (58,523 )
Other movements
     -       268       -       261       529  
Disposals and writedown of mineral interests
     (724 )     (4,549 )     -       (25,596 )     (30,869 )
Balance at December 31, 2010
     283,929       728,897       140,285       1,818,685       2,971,796  
                                         
Balance at January 1, 2011
     283,929       728,897       140,285       1,818,685       2,971,796  
Additions/transfers
     58,067       185,012       (81,593 )     118,299       279,785  
Other movements
     -       (6,303 )     -       -       (6,303 )
Disposals
     (345 )     (1,418 )     -       (3,430 )     (5,193 )
Balance at December 31, 2011
     341,651       906,188       58,692       1,933,554       3,240,085  
                                         
Depreciation and impairment losses
                                  
Balance at January 1, 2010
     (35,558 )     (120,662 )     -       (6,616 )     (162,836 )
Depreciation for the year
     (22,412 )     (56,411 )     -       (32,124 )     (110,947 )
Disposals
     273       1,501       -       -       1,774  
Balance at December 31, 2010
     (57,697 )     (175,572 )     -       (38,740 )     (272,009 )
                                         
Balance at January 1, 2011
     (57,697 )     (175,572 )     -       (38,740 )     (272,009 )
Depreciation for the year
     (31,712 )     (63,869 )     -       (27,611 )     (123,192 )
Disposals
     1,847       1,179       -       -       3,026  
Balance at December 31, 2011
     (87,562 )     (238,262 )     -       (66,351 )     (392,175 )
                                         
Carrying amounts
                                        
At January 1, 2010
     223,510       491,685       95,810       1,716,562       2,527,567  
At December 31, 2010
     226,232       553,325       140,285       1,779,945       2,699,787  
Balance at December 31, 2011
     254,089       667,926       58,692       1,867,203       2,847,910  
 
 
The amount of capitalized interest during the year ended December 31, 2011 included in property, plant and equipment was $3,651 ($2010 – $2,897).
 

 
 
15
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)
 

 

13.  Goodwill
 
 
2011
2010
 
$
$
Cost
    
Balance at January 1,
          365,928
          324,935
Adjustments to preliminary purchase price allocation
                    -
            40,993
Balance at December 31,
          365,928
          365,928
 
The preliminary purchase price allocation for the Sino Gold acquisition was finalized as at December 31, 2010. Changes from that originally reported include a reduction of $58,523 to mining interest, an increase of $40,993 to goodwill, a reduction of $1,464 to accounts payable and accrued liabilities, a reduction of $16,474 to future income taxes and an increase in the purchase price of $408.
 
There has been no goodwill impairment recorded for the years ended December 31, 2011 and 2010.
 
Impairment tests for goodwill
 
Goodwill is allocated to Eldorado’s cash-generating units (CGUs). As of December 31, 2011, all goodwill for the Company relates to our China operating segment.
 
The recoverable amount of a CGU is determined based on the higher of the fair value less costs to sell and value-in-use. These calculations use pre-tax cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using the estimated growth rates stated below.
 
Goodwill is allocated to the Jinfeng, White Mountain, Eastern Dragon and Tanjianshan CGUs in the amounts of $138,529, $50,276, $174,885 and $2,238, respectively.  Recoverability of goodwill is determined using fair value less costs to sell calculations.
 
The key assumptions used for fair value less cost to sell calculations are as follows:
 
 

2011

2010
Gold price ($/oz)
$1,300 - $1,700
$1,050 - $1,400
Discount rate
7% - 9%
7% - 9%
 
These assumptions have been used for the analysis of each CGU.
 
 
The discount rates used are pre-tax and reflect specific risks relating to the relevant CGUs.
 
The values assigned to the key assumptions represent management’s assessment of future trends in the gold mining industry and in the global economic environment. The assumptions used are management’s best estimates and are based on both current and historical information from external and internal sources.
 

 
 
16
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)
 

 

14.  
Accounts payable and accrued liabilities
 
 
December 31, 2011
$
December 31, 2010
$
January 1, 2010
$
Trade payables
67,056
55,786
27,786
HST and other taxes
40,256
26,627
28,630
Accrued expenses
61,055
63,282
96,620
 
168,367
145,695
153,036
 
15.  
Debt
 
 
December 31, 2011
$
December 31, 2010
$
January 1, 2010
$
Current:
  
 
 
Jinfeng construction loan  (a)
19,929
21,139
-
White Mountain fixed asset project loan  (c)
-
9,749
3,633
White Mountain working capital project loan (c)
-
6,176
5,991
White Mountain working capital loan (d)
-
7,549
-
Eastern Dragon CMB standby letter of credit loan (e)
50,786
48,317
-
Eastern Dragon HSBC revolving loan facility (f)
10,316
5,593
-
Eastern Dragon CCB loan (g)
-
-
46,875
 
81,031
98,523
56,499
Non-current:
      
Jinfeng construction loan  (a)
-
52,951
97,867
White Mountain fixed asset project loan  (c)
-
15,189
24,214
Jinfeng working capital loan (b)
-
-
12,452
 
-
68,140
134,533
       
Total debt
81,031
166,663
191,032

(a) Jinfeng construction loan
 
In 2009, Guizhou Jinfeng Mining Ltd. (“Jinfeng”), our 82% owned subsidiary entered into a RMB 680.0 million ($107,921) construction loan facility (“the construction loan”) with China Construction Bank (“CCB”). The construction loan has a term of 6 years commencing on February 27, 2009 and is subject to a floating interest rate adjusted annually at 95% of the prevailing lending rate stipulated by the People’s Bank of China for similar loans. The effective interest as at December 31, 2011 is 6.27%. The construction loan is secured as following:
 
i)  
Sino Gold corporate guarantee;
 
ii)  
pledge all shares held by Sino Gold in Jinfeng;
 
iii)  
mortgage on all fixed assets of Jinfeng with a value above $100;
 
iv)  
mortgage on Jinfeng mining license and exploration license; and
 
v)  
mortgage on land use right.
 
While the construction loan is outstanding, Jinfeng is required to obtain written consent from CCB before transferring funds to Sino Gold or any of its subsidiaries and must have a leverage ratio of 64% or lower in order to distribute dividends to its shareholders.
 


 
 
17
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)
 

15.    Debt (continued)
 
Principal repayment of this loan is as follows: for the years 2011, 2012 and 2013 – quarterly payments of RMB 35.0 million ($5,555); for the year 2014 – quarterly payments of RMB 32.5 million ($5,158); and for the year 2015 a final payment of RMB 130.0 million ($20,632). Any pre-payments are applied to reduce future payments starting from the final payment.
 
During 2010, Jinfeng pre-paid RMB 180.0 million ($28,567) on the outstanding balance of this loan and during 2011 it made scheduled quarterly payments of RMB 35.0 million ($5,555) each.  Additionally, during 2011 Jinfeng pre-paid RMB 230.0 million ($36,503) on the outstanding balance of this loan, leaving a balance owing of RMB 130.0 million ($20,632) at December 31, 2011.
 
Net deferred financing costs in the amount of $703 have been included as an offset in the balance of the loan in the financial statements and are being amortized using the effective interest method.
 
(b) Jinfeng working capital loan
 
In 2009, Jinfeng entered into a RMB 85.0 million ($12,452) working capital loan (“the working capital loan”) with CCB.
 
The working capital loan has a term of 3 years and is due on August 17, 2012. This loan is subject to a floating interest rate adjusted annually at 95% of the prevailing lending rate stipulated by the People’s Bank of China for similar loans.
 
While the working capital loan is outstanding, Jinfeng is required to obtain written consent from CCB before transferring funds to Sino Gold or any of its subsidiaries and is required to have a leverage ratio of 64% or lower in order to distribute dividends to its shareholders.
 
During 2010, Jinfeng pre-paid the full amount of this loan.
 
(c) White Mountain project loan
 
In 2008, Sino Gold Jilin BMZ Mining Limited (“White Mountain”), our 95% owned subsidiary, entered into a project loan (“project loan”) with CCB. The project loan has two components:

i)  
A fixed asset loan of RMB 190.1 million ($30,170) with final payment due on September 2013 (fully paid); and
 
ii)  
A working capital project loan of RMB 40.9 million ($6,176) due on November 2010 (fully repaid).
 
The interest rate on the project loan was the prevailing lending rate stipulated by the People’s Bank of China, adjusted annually for the fixed asset loan and twice a year for the working capital loan.
 
The project loan was secured by a Sino Gold corporate guarantee and White Mountain’s fixed assets with a value above $100.  The security was released in October, 2011.
 
During 2011, White Mountain completed its scheduled payment of RMB 14.5 million ($2,301) and made additional prepayments of RMB 150.8 million ($23,933). As at December 31, 2011 this loan has been repaid in full.
 
 
(d) White Mountain working capital loan
 
In 2010, White Mountain entered into a RMB 50.0 million ($7,549) working capital loan with China Merchants Bank (“CMB”).
 
The working capital loan had a term of one year and was due on September 1, 2011. This loan was subject to a floating interest rate adjusted annually to the prevailing lending rate stipulated by the People’s Bank of China for similar loans.
 
This loan was secured by a letter of guarantee issued by Eldorado.
 
In January 2011, White Mountain pre-paid the full amount of this loan.
 
 
18
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)
 
15.                 Debt (continued)
 
(e) Eastern Dragon CMB standby letter of credit loan
 
In January 2010, Rock Mining Industry Development Company Limited (“Eastern Dragon”), our 95% owned subsidiary, entered into a RMB 320.0 million ($50,786) standby letter of credit loan with CMB. This loan has a one year term and is subject to a floating interest rate adjusted quarterly at 90% of the prevailing lending rate stipulated by the People’s Bank of China for working capital loans. This loan is collateralized by way of a restricted cash deposit of $52,200 as funding of the irrevocable letter of credit issued by Sino Gold to CMB. The interest rate on this loan as at December 31, 2011 was 5.90%. This loan is subject to an annual management fee of 10% of the interest accrued on the drawn down and outstanding amount. This management fee is paid in advance quarterly.
 
On February 5, 2010, Eastern Dragon made a drawdown on this loan which was used to repay its letter of credit loan with CCB. Subsequent to December 31, 2011, this loan was extended for a second year term to January 2013 and the annual management fee of 10% of the interest accrued on the outstanding amount paid quarterly was removed. In addition, the floating interest rate is now adjusted monthly at the prevailing lending rate. The collateral by way of a restricted cash deposit has been increased to $56,500.
 
This loan is to be repaid when Eastern Dragon obtains the required project approval that will allow it to complete the first drawdown on its project-financing loan.
 
(f) Eastern Dragon HSBC revolving loan facility
 
In May 2010, Eastern Dragon entered into a RMB 80.0 million ($12,697) revolving facility (“the Facility”) with HSBC Bank (China). The Facility can be drawn down in minimum tranches of RMB 1.0 million ($159) or its multiples. Each drawdown bears interest fixed at the prevailing lending rate stipulated by the People’s Bank of China on the date of drawdown. The Facility has a term of up to one year. Subsequent to December 31, 2011, the Facility was reviewed by the bank and was extended to November 30, 2012.  The interest rate on this loan as at December 31, 2011 was 6.71%.
 
In December 2011, Eastern Dragon repaid RMB12.5 million ($1,984) on the Facility. As at December 31, 2011, RMB 65.0 million ($10,316) was outstanding.
 
The Facility is secured by a letter of guarantee issued by Eldorado. Eldorado must maintain at all times a security coverage ratio of 110% of the amounts drawn down. As at December 31, 2011, the security coverage is $11,348.
 
This Facility is to be repaid in full when Eastern Dragon obtains the required project approval that will allow it to complete the second drawdown on the project-financing loan.
 
(g) Eastern Dragon CCB loan
 
In 2008, Eastern Dragon entered into a RMB 320.0 million ($46,875) standby letter of credit loan (“LC loan”) with CCB. The interest rate on this loan as at December 31, 2009 was 5.40%. The LC loan was collateralized by way of irrevocable letter of credit drawn on CCB. The letter of credit was collateralized by Sino Gold’s funds held by Bank of China Sydney Branch as restricted cash.
 
During 2010, the LC loan was repaid and the restricted cash was released.
 
(h) Eastern Dragon CMB project-financing loan
 
In 2009, Eastern Dragon entered into a RMB 450.0 million ($71,418) project-financing loan (“project-financing loan”) with CMB. The project-financing loan has three components:
 
i)  
A 5 year term, RMB 320.0 million ($50,786) long term loan (“the long term loan”) to replace the LC loan with CCB;
 
ii)  
A 4 year term RMB 100.0 million ($15,871) fixed asset loan (“the fixed asset loan”); and
 
iii)  
A one year term RMB 30.0 million ($4,761) working capital loan (“the working capital loan”).
 

 
 
19
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)
 
15.                 Debt (continued)
 
The project-financing loan is subject to a floating interest rate adjusted quarterly to 90% of the prevailing lending rate stipulated by the People’s Bank of China for similar loans.
 
The project-financing loan will be secured by an irrevocable letter of Guarantee issued by Sino Gold. Under the terms of the agreement, the following conditions are required to be met before the first drawdown:
 
 1.  
Obtain project approval from the Heilongjiang Provincial Development and Reform Commission;
2.  
Sino Gold to open an offshore banking business bank account with CMB and deposit $40,000;
3.  
The aggregate of the amount deposited in the offshore account, Eastern Dragon registered capital and shareholder loan is at least $84,660 (this threshold has been reached as at December 31, 2009).
 
In addition, before the drawdown on the fixed asset loan, Eastern Dragon should obtain the gold operation permit.
 
The working capital loan can be drawn down once the following conditions are satisfied:
 
i)  
The project obtains the mining license;
 
ii)  
The project has been developed and in production;
 
iii)  
The gold operation permit has been granted; and
 
iv)  
The safety production permit and environmental protection permit have been granted.
 
The project-financing loan requires Eastern Dragon to maintain a liability to asset ratio of 70% or lower, excluding shareholder loan and total banking debt cannot exceed RMB 550.0 million ($87,289) and it is subject to an annual management fee of 10% of the annual interest on the drawn down amount.
 
No amounts were drawn down under the project-financing loan as at December 31, 2011.
 
(i) HSBC revolving credit facility
 
 
In October 2011, the Company entered into a $280.0 million revolving credit facility with HSBC (“the credit facility”) and a syndicate of four other banks. The credit facility matures on October 12, 2015 and is secured by the shares of SG Resources and Tuprag, wholly owned subsidiaries of the Company.
 
 
The credit facility contains covenants that restrict, among other things, the ability of the Company to incur additional indebtedness exceeding $200.0 million, make distributions in certain circumstances, sell material assets and carry on a business other than one related to the mining business. Significant financial covenants include a maximum debt to Earnings before Interest, Taxes, Depreciation and Amortization (“EBITDA”) of 3.5:1 and a minimum EBITDA to interest of 3:1.  The Company is in compliance with these covenants at December 31, 2011.
 
 
Loan interest is variable, set at the lesser of LIBOR plus an interest rate margin or Prime rate plus interest rate margin dependent on a leverage ratio pricing grid.  The Company’s current leverage ratio is less than 1:1.  At this ratio, interest charges and fees are as follows: LIBOR plus margin of 1.75% and undrawn standby fee of 0.40%. Fees of $2,999 were paid on the establishment of the credit facility. This amount was deferred as a pre-payment for liquidity services and will be amortized over the term of the credit facility. As at December 31, 2011, the prepaid loan cost on the balance sheet was $2,849 (Note 11).
 
(j) Entrusted loan
 
In November 2010, Eastern Dragon, HSBC Bank (China) and QDML, entered into a RMB 12.0 million ($1,904) entrusted loan agreement, which was subsequently increased to RMB 180.0 million ($28,567) in June 2011.
 
Under the terms of the entrusted loan, QDML with its own funds entrusts HSBC Bank (China) to provide a loan facility in the name of QDML to Eastern Dragon.
 
The entrusted loan can be drawn down in tranches. Each drawdown bears interest fixed at the prevailing lending rate stipulated by the People’s Bank of China on the date of drawdown. Each draw down has a term of three months and can be rolled forward at the discretion of QDML. The interest rate on this loan as at December 31, 2011 was 4.59%.
 

 
 
20
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)
 

15.  Debt (continued)
 
As at December 31, 2011, RMB 119.0 million ($18,886) had been drawn under the entrusted loan.
 
Subsequent to December 31, 2011, RMB15.0 million ($2,381) was drawn under this loan.
 
The entrusted loan has been recorded on a net settlement basis.

16.  Asset retirement obligations   
 

Asset retirement obligations

  Brazil China Turkey Total
  $ $ $ $
At January 1, 2010
 1,062 20,555 5,378 26,995
Accretion during the year
 95 2,268 364 2,727
Revisions to estimate of obligation
 1,684 (5,720 7,542 3,506
At December 31, 2010
 2,841 17,103 13,284 33,228
Estimated undiscounted amount
 3,805 22,658 39,533 65,996
     
At January 1, 2011
 2,841 17,103 13,284 33,228
Accretion during the year
 135 855 556 1,546
Revisions to estimate of obligation
 269 1,991 6,179 8,439
 At December 31, 2011 3,245 19,949 20,019 43,213
 Estimated undiscounted amount 4,281 25,788 51,640 81,709
 

 

 

The Company’s asset retirement obligations relate to the restoration and rehabilitation of the Company’s mining operations and projects under development. The expected timing of the cash flows in respect of the provision is based on the closure of the various mining operations.

 
The provision is calculated as the present value of estimated future net cash outflows based on the following key assumptions:

 

 

Asset retirement obligations

  Brazil China Turkey
 
At January 1, 2010
Inflation rate
 2.5 2.5 to 3.3 2.5
Discount rate
 4.4 4.4 to 7.0 4.6

At December 31, 2010
Inflation rate
 5.0 4.0 5.0
Discount rate
 3.3 2.0 to 3.3 4.1 to 4.3
At December 31, 2011
Inflation rate
 3.5 3.5 3.5
Discount rate
 3.1 3.1 3.1

 

The discount rate is a risk-free rate determined based on US Treasury bond rates. US Treasury bond rates have been used for all of the mine sites as the liabilities are denominated in US dollars as the majority of the expenditures are expected to be incurred in US dollars. The inflation rates used in determining the present value of the future net cash outflows are based on worldwide inflation rates.
 
 
Environmental guarantee deposits exist with respect to the environmental rehabilitation of the mines in China (Note 11).
 
 
21
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)
 

 

17.  
Defined benefit plans
 
 
 
 
December 31, 2011
December 31, 2010
 
$
$
Balance sheet obligations for:
    
Pension plan
                           388
                        329
Non-registered supplementary pension plan
                      19,581
                   11,690
 
                      19,969
                   12,019
     
 
Year ended December 31, 2011
Year ended December 31, 2010
 
$
$
Income statement charge for:
    
Pension plan
                           118
                        132
Non-registered supplementary pension plan
                        1,970
                     1,205
 
                        2,088
                     1,337
 
     
Actuarial losses recognised in the statement of other comprehensive income in the period (before tax)
                        6,661
                     2,635
Cumulative actuarial losses recognised in the statement of other comprehensive income (before tax)
                        9,296
                     2,635
 

 

The Company operates defined benefit pension plans in Canada with two components: a registered pension plan (“the Pension Plan”) and a non-registered supplementary pension plan (“the SERP”). These plans, which are only available to certain qualifying employees, provide benefits based on an employee’s years of service and final average earnings at retirement. There are no indexation features. Annual contributions related to these plans are actuarially determined and made at or in excess of minimum requirements prescribed by legislation.
 
Eldorado’s plans are actuarially evaluated for funding purposes on a three-year cycle. The Pension Plan and the SERP were last actuarially evaluated on January 1, 2011 and January 1, 2009 respectively for funding purposes and the next required valuation will be as of January 1, 2014 for the Pension Plan and January 1, 2012 for the SERP. The measurement date used to determine all of the accrued benefit obligation and plan assets for accounting information was December 31, 2011 and 2010.
 
The SERP is designed to provide supplementary pension benefits to qualifying employees affected by the maximum pension limits under the Income Tax Act and the Company is not required to pre-fund any benefit obligation under the SERP.
 
Total cash payments
 
Cash contributed to the Pension Plan and the SERP was $7,549 (2010 – nil). Cash payments totalling $174 were made directly to beneficiaries during the year (2010 – $167). The Company expects to contribute $128 to the Pension Plan and $169 to the SERP in 2012.
 
The estimated future pension payments for the next five years and five years thereafter are as follows:
 
 
2012
2013
2014
2015
2016
2017 and later
 
$
$
$
$
$
$
Estimated future pension payments
169
228
1,280
1,280
1,488
1,490
 
 
 
22
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)
 
17.      Defined benefit plans (continued)
 
The amounts recognised in the balance sheet are determined as follows:
 
   
December 31, 2011
    
December 31, 2010
  
   
Pension Plan
    
SERP
    
Pension Plan
    
SERP
  
    $       $       $       $    
                                 
Present value of funded obligations
     2,101       19,581       1,609       11,690  
Fair value of plan assets
     (1,713 )     -       (1,280 )     -  
Liability on balance sheet
     388       19,581       329       11,690  
 
 
The Company has $14,456 (2010 – $7,872) in an investment account to fund its SERP obligation. This amount is included in restricted assets and other (Note 11).

The movement in the defined benefit obligation over the year is as follows:

 
 
2011
2010
 
Pension Plan
SERP
Total
Pension Plan
SERP
Total
 
$
$
$
$
$
$
Balance at January 1,
              1,609
        11,690
          13,299
                1,268
       7,685
        8,953
Current service cost
                 120
          1,292
            1,412
                   127
          705
           832
Interest cost
                   92
             678
               770
                     81
          500
           581
Actuarial losses
                 265
          6,396
            6,661
                     64
       2,571
        2,635
Benefit payments
                    -
           (174)
             (174)
                      -
        (167)
         (167)
Exchange variance
                   15
           (301)
             (286)
                     69
          396
           465
Balance at December 31,
              2,101
        19,581
          21,682
                1,609
     11,690
      13,299
 

The movement in the fair value of plan assets of the year is as follows:
 
   
2011
    
2010
  
   
Pension Plan
    
SERP
    
Pension Plan
    
SERP
  
    $       $       $       $    
At January 1,
     1,280       -       1,137       -  
Expected return on plan assets
     94       -       76       -  
Actuarial gains and losses
     58       -       -       -  
Contributions by employer
     322       -       -       -  
Exchange variance
     (41 )     -       67       -  
At December 31,
     1,713       -       1,280       -  

 
 
23
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)

17.      Defined benefit plans (continued)
 
The amounts recognised in the income statement are as follows:
 
 
   
2011
    
2010
  
   
Pension Plan
    
SERP
    
Pension Plan
    
SERP
  
    $       $       $       $    
                                 
Current service cost
     120       1,292       127       705  
Interest cost
     92       678       81       500  
Expected return on plan assets
     (94 )     -       (76 )     -  
Defined benefit plans expense
     118       1,970       132       1,205  
 
The actual return on plan assets was $152 (2010 – $76).
 
 
The principal actuarial assumptions used were as follows:
 
 
2011
2010
 
Pension Plan
SERP
Pension Plan
SERP
 
%
%
%
%
         
Expected return on plan assets
                  6.5
                 6.5
                     6.5
                 6.5
Discount rate - beginning of year
                  5.5
                 5.5
                     6.0
                 6.0
Discount rate - end of year
                  4.5
                 4.5
                     5.5
                 5.5
Rate of salary escalation
                  3.0
                 3.0
                     4.5
                 4.5
Average remaining service period of active employees expected to receive benefits
 6.7 years
 6.7 years
 5 years
 5 years

The assumptions for the expected long-term rate of return on plan assets for the purposes of the actuarial valuation are based on the asset mix of the portfolio, historical data from similar plans and the review of projected returns by asset class.
 
Plan Assets
The assets of the Pension Plan and the amounts deposited in the SERP account are managed by a major investment management company and are invested only in conformity with the investment requirements of applicable pension laws.

The following table summarizes the defined benefit plans’ weighted average asset allocation percentages by asset category at December 31:
 
 
   
December 31, 2011
  
December 31, 2010
  
   

Pension Plan

  

SERP

  

Pension Plan

  

SERP
Cash and equivalents
  
2%
  
2%
  
4%
  
4%
Fixed income
  
98%
  
43%
  
96%
  
51%
Equity
  
                              -
  
55%
  
                              -
  
45%
Total
  
100%
  
100%
  
100%
  
100%
 

The sensitivity of the overall pension liability to changes in the weighted principal assumptions is:
 
 
Change in assumption
Impact on overall liability
Discount rate
Increase by 0.5%
Decrease by 6.2%
 
Decrease by 0.5%
Increase by 6.9%
Salary escalation rate
Increase/decrease by 0.5%
Increase/decrease by 0.2%
 

 
 
24
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)
 
 
18.  
Income tax expense and deferred taxes
 
 
Total income tax expense consists of:
 
   
December 31,
    
December 31,
  
   
2011
    
2010
  
    $       $    
Current tax expense
     163,783       95,022  
Deferred tax expense (recovery)
     1,804       (8,083 )
      165,587       86,939  
 
Total income tax expense attributable to geographical jurisdiction is as follows:
 
 
   
2011
      
2010
          $  
Turkey
     94,781       47,780
China
     70,131       38,876
Greece
     260       -
Brazil
     125       -
Canada
     172       283
Other jurisdictions
     118       -
      165,587       86,939
 
Factors affecting income tax expense for the year:
 
 
 
2011
2010
 
 
$
Profit before income tax
                  512,810
                  325,397
Canadian statutory tax rate
26.50%
28.50%
Tax on profit at Canadian statutory tax rate
                  135,895
                    92,738
Items that cause an increase (decrease) in income tax expense:
    
     
Foreign income subject to different income tax rates than Canada
                  (23,973)
                  (23,463)
Derecognition (initial recognition) of deferred tax assets
                    (7,634)
                             -
Non-tax effected operating losses and capital gains
                    16,593
                      9,488
Non-deductible expenses and other items
                      9,302
                      8,118
Foreign exchange and other translation adjustments
                    18,699
                    (2,702)
Amounts under (over) provided in prior years
                      5,800
                       (518)
Withholding tax on foreign income
                    10,905
                      3,278
Income tax expense
                  165,587
                    86,939
 
The Canadian income tax rate declined during the year due to changes in the law that reduced corporate income tax rates in Canada.
 
 
The change for the year in the Company's net deferred tax position was as follows:
 

 
 
25
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)

 

18.      Income tax expense and deferred taxes (continued)
 
       
2011
2010
       
$
$
Net deferred tax asset (liability)
      
Balance at January 1,
    
                (330,512)
                (355,425)
Deferred income tax (expense) recovery in the income statement
                    (1,804)
                      8,083
Deferred income tax charged to other comprehensive income
                         (12)
                           40
Adjustments to acquisitons
  
                             -
                    16,474
Other
      
                             8
                         316
Net balance at December 31,
  
                (332,320)
                (330,512)
 

 

The composition of the Company’s net deferred income tax asset and liability and deferred tax expense (recovery) is as follows:
 
                           
Expense (recovery)
  
Type of temporary difference
  
Deferred tax assets
    
Deferred tax liabilities
    
on the income statement
  
   
2011
    
2010
    
2011
    
2010
    
2011
    
2010
  
    $       $       $       $       $       $    
Property, plant and equipment
     1,838       3,286       346,687       338,876       9,259       (9,463 )
Loss carryforwards
     11,142       6,581       -       -       (4,561 )     833  
Liabilities
     11,534       7,678       6,365       494       2,015       (1,257 )
Other items
     1,536       -       5,318       8,687       (4,909 )     1,804  
Balance at December 31,
     26,050       17,545       358,370       348,057       1,804       (8,083 )
 

 

Unrecognized deferred tax assets
2011
2010
     
$
$
Tax losses
    
                    61,287
                    61,599
Other deductible temporary differences
                      9,639
                    19,218
Total unrecognized deferred tax assets
                    70,926
                    80,817

 
 
Unrecognized tax losses

At December 31, 2011 the Company had losses with a tax benefit of $61,287 (2010 – $61,599) which are not recognized as deferred tax assets. The Company recognizes the benefit of tax losses only to the extent of anticipated future taxable income that can be reduced by the tax losses.  The gross amount of the tax losses for which a tax benefit has not been recorded expire as follows:
 
 
26
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)
 
18.      Income tax expense and deferred taxes (continued)
 
 
Expiry date
 Canada
 Brazil
 Greece
 Australia
 Total
   
 $
 $
 $
 $
 $

2012

  
                   -
                   -
           1,611
                   -
           1,611

2013

 

           5,989
                   -
           1,652
                   -
           7,641

2014

 

           6,030
                   -
                   -
                   -
           6,030

2025

 

           7,938
                   -
                   -
                   -
           7,938

2026

 

         14,868
                   -
                   -
                   -
         14,868

2027

 

         10,725
                   -
                   -
                   -
         10,725

2028

 

         25,965
                   -
                   -
                   -
         25,965

2029

 

         23,455
                   -
                   -
                   -
         23,455

2030

 

           7,480
                   -
                   -
                   -
           7,480

2031

 

         46,445
                   -
                   -
                   -
         46,445

No Expiry
                   -
           9,397
                   -
         28,346
         37,743
   
       148,895
           9,397
           3,263
         28,346
       189,901
             
Capital losses with no expiry
         96,868
                   -
                   -
                   -
         96,868
             
Tax effect of total losses not recognized
         49,342
           2,174
              653
           8,504
         60,673

 
Deductible temporary differences

At December 31, 2011 the Company had deductible temporary differences for which deferred tax assets of $9,639(2010 – $19,218) have not been recognized because it is not probable that future taxable profits will be available against which the Company can utilize the benefits. The vast majority of the temporary benefits have no expiry date.

Temporary differences associated with investments in subsidiaries
 
The Company has not recognized deferred tax liabilities in respect of unremitted earnings that are considered indefinitely reinvested in foreign subsidiaries.  At December 31, 2011, these earnings amount to $1,028,127 (2010 – $649,791).  Substantially all of these earnings would be subject to withholding taxes if they were remitted by the foreign subsidiaries.
 
Tax Credits

The Company has $18,600 (2010 – nil) of tax credits that have not been recognized.

Other factors affecting taxation
 
During the year the Company recognized deferred income tax assets in respect of its Villa Nova iron ore operations.  This operation has operated profitably throughout the year and is expected to in the future.  Prior to this year the Company had significant tax losses in Brazil for which no deferred tax asset had been recorded.  Since it is probable that the Villa Nova iron ore operation will be able to use a portion of those losses and the losses do not expire, the Company has recorded a deferred income tax asset at December 31, 2011 of $4,259 in respect of those losses and certain other temporary differences.
 
During the year the Turkish Lira has weakened substantially.  This has caused a deferred income tax expense during the year of $18,470 due to the reduction in the value of the future tax deductions associated with the Turkish operations.  The Company expects that in the future significant foreign exchange movements in either the Turkish Lira or Chinese Renminbi in relation to the U.S. dollar will cause significant volatility in the deferred income tax expense or recovery.
 
 

 

27
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)
 

19.  
Share capital
 
 
Eldorado’s authorized share capital consists of an unlimited number of voting common shares without par value and an unlimited number of non-voting common shares without par value. At December 31, 2011 there were no non-voting common shares outstanding (December 31, 2010 – none).
 
Voting common shares
Number of
Shares
Total
$
     
At January 1, 2010
537,136,235
2,671,634
Shares issued upon exercise of share options, for cash
5,056,216
35,895
Estimated fair value of share options exercised
-
12,020
Shares issued for acquisition of subsidiary
5,993,898
95,118
Shares issued for cash upon exercise of warrants
843
12
At December 31, 2010
548,187,192
2,814,679
Shares issued upon exercise of share options, for cash
3,399,096
30,115
Estimated fair value of share options exercised
-
9,410
Shares issued for cash upon exercise of warrants
96,629
1,485
At December 31, 2011

551,682,917
2,855,689

20.  
Share-based payments
 
 
(a) Share option plans
 
The Company has two share option plans (“Plans”) approved by the shareholders under which share purchase options (“Options”) can be granted to directors, officers, employees and consultants.
 
The Company’s Employee Plan (“Employee Plan”), as amended from time to time, was established in 1994. Subject to a 10-year maximum, Employee Plan Options generally have a five-year term. Employee Plan Options vest at the discretion of the Board of Directors at the time an option is granted, typically in three separate tranches over two years. As at December 31, 2011, a total of 9,710,429 options (2010 – 5,424,669) were available to grant to employees, consultants or advisors under the Employee Plan.
 
The Company’s Directors and Officers Plan (“D&O Plan”) was established in 2003 and amended in 2005. Subject to a 10-year maximum, D&O Plan Options generally have a five-year term. D&O Plan Options vest at the discretion of the Board of Directors at the time an option is granted, typically in three separate tranches over two years. As at December 31, 2011, a total of 9,687,704 Options (2010 – 4,990,394) were available to grant to directors and officers under the D&O Plan.
 
Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:
 
 
2011
2010
 
Weighted average exercise price 
Cdn$
Number of
options
Weighted average exercise price
Cdn$
Number of
options
At January 1,
9.49
8,720,524
6.11
8,928,901
Granted
16.53
3,869,691
13.30
5,448,842
Exercised
8.70
(3,399,096)
7.37
(5,056,216)
Forfeited
14.96
(575,006)
11.76
(601,003)
At December 31,
12.60
8,616,113
9.49
8,720,524
 
 
 
28
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)
 
20.      Share-based payments (continued)
 
 
At December 31, 2011, 4,992,624 share purchase options (December 31, 2010 – 5,423,758) with a weighted average exercise price of Cdn$10.57 (December 31, 2010 – Cdn$7.32) had vested and were exercisable. Options outstanding are as follows:

   
December 31, 2011
   
Total options outstanding
  
Exercisable options

Range of
exercise
price
Cdn$

  
  Shares
  
Weighted average
remaining
contractual
life (years)
  
Weighted average
exercise price
Cdn$
  
Shares
  
Weighted average
exercise price
Cdn$
                     

$4.00 to $4.99

  
1,218,686
  
1.8
  
4.88
  
1,218,686
  
4.88

$5.00 to $5.99

  
82,500
  
0.6
  
5.31
  
82,500
  
5.31

$6.00 to $6.99

  
471,000
  
1.1
  
6.42
  
471,000
  
6.42

$7.00 to $7.99

  
284,333
  
0.5
  
7.24
  
284,333
  
7.24

$9.00 to $9.99

  
302,900
  
2.3
  
9.64
  
302,900
  
9.64

 $11.00 to $11.99

  
10,000
  
2.2
  
11.40
  
10,000
  
11.40

 $12.00 to $12.99

  
183,500
  
3.1
  
12.60
  
116,833
  
12.44

$13.00 to $13.99

  
2,616,916
  
3.1
  
13.23
  
1,381,091
  
13.23

$15.00 to $15.99

  
453,646
  
4.3
  
15.54
  
231,215
  
15.44

$16.00 to $16.99

  
2,919,026
  
4.1
  
16.66
  
858,329
  
16.66

$18.00 to $18.99

  
24,000
  
3.9
  
18.81
  
16,000
  
18.81

 $19.00 to $20.02

  
49,606
  
4.4
  
19.35
  
19,737
  
19.46

 

                   
   
8,616,113
  
3.1
  
12.60
  
4,992,624
  
10.57
 
The assumptions used to estimate the fair value of options granted during the years ended December 31, 2011 and 2010 were:
 
   

2011

  

                    2010
   

 

 

 

Risk-free interest rate (range)
  

1.60% – 2.05%

  

     1.69% – 1.99%
Expected volatility (range)
  

 29% – 61%

  

          38% – 73%
Expected life (range)
  

     0.8 – 2.8 years

 0.8 - 2.8 years                 
Expected dividends
  

Cdn $0.10    

  

                    Nil
Forfeiture rate
  

4%    

  

                  4%
 
The weighted average fair value per stock option was Cdn$3.75 (2010 – Cdn$4.12). Volatility was determined based on the historical volatility over the estimated lives of the options.
 
 
 (b) Restricted share unit plan
 
 
In March 2011, the Company commenced a Restricted Share Unit (‘‘RSU’’) plan whereby restricted share units may be granted to senior management of the Company.  Once vested, an RSU is exercisable into one common share entitling the holder to receive the common share for no additional consideration. A portion of the RSUs granted have a vesting schedule where half vest immediately and the remaining half vest on the first anniversary of the grant.  The remaining portion of the RSUs granted vest over two years with one third of the RSUs vesting immediately.
 
 
The current maximum number of common shares authorized for issue under the RSU plan is 1,500,000. A total of 416,454 restricted share units with a weighted average grant-date fair value of Cdn$15.69 per unit were granted during the year ended December 31, 2011 and 168,027 were exercisable at December 31, 2011.
 
 
Fair value of each RSU issued is determined as the closing share price at grant date.
 
 
 
29
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)

 

20.      Share-based payments (continued)
 
 
A summary of the status of the restricted share unit plan and changes during the year ended December 31, 2011 is as follows:
 
 
Total RSUs
Balance at December 31, 2010
-
RSUs Granted
416,454
Redeemed
(146,059)
Forfeited
(16,808)
Balance at December 31, 2011
253,587

As at December 31, 2011, 253,587 common shares purchased by the Company remain held in trust in connection with this plan. At the end of the period, 21,968 restricted share units are fully vested and exercisable. These shares purchased and held in trust have been included in treasury stock in the balance sheet.
 
 
Restricted share units expense for the year ended December 31, 2011 was $5,166.
 
 
(c) Deferred share units plan
 
 
In July 15, 2010 the Company adopted the Independent Directors Deferred Share Unit (“DSU”) Plan under which DSU’s will be granted by the Board from time to time to independent directors (“participants”). The performance period of each DSU commences on the Grant Date and expires on the Termination Date of the participant. The Termination Date is when the participant ceases to be a Director of the Company. On redemption each unit entitles the participant to receive a cash payment equal to the market value of the Company’s shares on the date of redemption. At December 31, 2011, 65,982 DSUs were outstanding (2010 – 29,970) with a value of $910 (2010 – $573), which is included in accounts payable and accrued liabilities.

21.  
Supplementary cash flow information
 
 
December 31, 2011
$
December 31, 2010
$
   
 
Changes in non-cash working capital
    
Accounts receivable and other
(7,902)
(14,307)
Inventories
(13,299)
(12,452)
Accounts payable and accrued liabilities
31,149
(32,750)
Total
9,948
(59,509)
     
Supplementary cash flow information
    
Income taxes paid
 134,594
93,056
Interest paid
 7,856
10,415
     
Non-cash investing and financing activities
    
  Shares, options and warrants  issued on acquisition of subsidiaries
 - 95,683

 
 
 
30
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)


22.  
Financial risk management
 
22.1 Financial risk factors
 
 
Eldorado’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk and price risk), credit risk and liquidity risk. Eldorado’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on Eldorado’s financial performance.
 
(a)  
Market risk
 
 
(i) Foreign exchange risk
 
The Company operates principally in Canada, Turkey, China, Brazil and Greece, and is therefore exposed to foreign exchange risk arising from transactions denominated in foreign currencies. Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the entity’s functional currency.
 
Eldorado’s cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities and debt are denominated in several currencies, and are therefore subject to fluctuation against the U.S. dollar.
 
The table below summarizes Eldorado’s exposure to the various currencies denominated in the foreign currency, as listed below:
 
 
 

Canadian 
dollar

Australian dollars

Euro

Turkish
lira

Chinese
renminbi

Brazilian
real
             
             
Cash and cash equivalents
        20,837
          1,308
              61
        65,989
         855,214
         7,097
Marketable securities
          2,686
                  -
                 -
                 -
                    -
                -
Accounts receivable and other
          2,353
                  -
            499
          8,560
           90,695
       25,189
Accounts payable and accrued liabilities
       (12,424)
              (12)
             (38)
      (59,520)
       (672,734)
     (12,740)
Debt
                  -
                  -
                 -
                 -
       (510,568)
                -
Net balance
        13,452
          1,296
            522
        15,029
       (237,393)
       19,546
             
Equivalent in U.S. dollars
 $     13,227
 $       1,318
 $         675
 $       7,956
 $      (37,676)
 $    10,433
 
 
 
Based on the balances as at December 31, 2011, a 1% increase/decrease in the U.S. dollar exchange rate against all of the other currencies on that date would have resulted in a decrease/increase of approximately $41 in profit before taxes. There would be no effect in other comprehensive income.
 
 
Cash flows from operations are exposed to foreign exchange risk, as commodity sales are set in U.S. dollars and a certain amount of operating expenses are in the currency of the country in which mining operations take place.
 
 (ii) Metal price risk and other price risk
 
Eldorado is subject to price risk for fluctuations in the market price of gold and iron ore. Gold and iron ore prices are affected by numerous factors beyond the Company’s control, including central bank sales, producer hedging activities, the relative exchange rate of the U.S. dollar with other major currencies, global and regional demand and political and economic conditions.
 
Worldwide gold and iron ore production levels also affect their prices, and the price of these metals is occasionally subject to rapid short-term changes due to speculative activities. The Company has elected not to actively manage its exposure to metal price risk at this time. From time to time, Eldorado may use commodity price contracts to manage its exposure to fluctuations in the price of gold and iron ore.
 
Other price risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices.

 
 
 
31
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)


22.
Financial risk management (continued)
 
Eldorado’s other price risk includes equity price risk, whereby the Company’s investments in marketable securities are subject to market price fluctuation.
 
 
(iii) Interest rate risk
 
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate due to changes in market interest rates. Current financial assets and financial liabilities are generally not exposed to interest rate risk because of their short-term nature. Eldorado’s debt is exposed to interest rate risk as it is subject to floating interest rates. As at December 31, 2011 the average interest rate in Eldorado’s debt was 6.09% (2010 – 5.94%). A 10% increase or decrease in the interest rate on debt held at December 31, 2011 would result in a $125 increase or decrease (2010 – $670) in the Company’s profit before tax.
 
(b) Credit risk
 
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents, restricted cash and accounts receivable. Eldorado deposits its cash and cash equivalents, including restricted cash, with high credit quality financial institutions as determined by rating agencies. As at December 31, 2011, approximately 37% (2010 – 44%) of Eldorado’s cash and cash equivalents, including restricted cash, are held with one financial institution. The Company considers this to be its only significant credit risk exposure.
 
Eldorado sells its gold bullion exclusively to large international financial institutions or on the Istanbul and Shanghai Gold Exchanges and its dore exclusively to refineries. Payment is normally in advance or within one week of receipt of shipment. The historical level of customer defaults is negligible which reduces the credit risk associated with trade receivables at December 31, 2011.
 
(c) Liquidity risk
 
Liquidity risk is the risk that an entity will encounter difficulty in raising funds to meet commitments associated with financial instruments. The Company manages liquidity by maintaining adequate cash and cash equivalent balances and by using its lines of credit as required. Management monitors and reviews both actual and forecasted cash flows, and also matches the maturity profile of financial assets and liabilities. Contractual maturities relating to debt are included in Note 15.
 
22.2 Capital risk management
 
Eldorado’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of our mining projects.  Capital consists of all of the components of equity; share capital from ordinary shares, contributed surplus, accumulated other comprehensive income, retained earnings and non-controlling interests.
 
Consistent with others in the industry, Eldorado monitors capital on the basis of the debt to capital ratio and debt to EBITDA. The debt to capital is calculated as debt, including current and non-current debt, divided by capital.  Debt to EBITDA is calculated as debt, including current and non-current debt, divided by earnings before interest costs, taxes and depreciation.  This policy includes a target debt to capital ratio of less than 30% and a debt to EBITDA target ratio below 3.5.
 
As at December 31, 2011, our debt to capital ratio was 2.4% (2010 – 5.6%) and our debt to EBITDA ratio was 0.12 (2010 – 0.36).
 
These policy targets are managed through the repayments and issuances of debt as well as the continuing management of operations and capital expenditures.
 
 
 
 
32
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)


22.
Financial risk management (continued)
 
22.3 Fair value estimation
 
Fair values are determined directly by reference to published price quotations in an active market, when available, or by using a valuation technique that uses inputs observed from relevant markets.
 
The three levels of the fair value hierarchy are described below:
 
·  
Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
 
·  
Level 2 – Inputs that are observable, either directly or indirectly, but do not qualify as Level 1 inputs (i.e.,quoted prices for similar assets or liabilities).
 
·  
Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
 
Assets and liabilities measured at fair value on a recurring basis as at December 31, 2011 include:
 
 
 
 
Balance at December 31, 2011
Quoted Prices in Active Markets for Identical Assets
Significant Other Observable Inputs
Significant Unobservable inputs
 
           $
  
              $
  
           $
  
              $
     
(Level 1)
  
(Level 2)
  
(Level 3)
Assets
              
               
Held-for-trading
              
Restricted asset (SERP)
14,456
  
14,456
  
                     -
  
                     -
               
Available-for-sale financial assets
              
  Marketable securities
2,640
  
2,640
  
                     -
  
                     -
               
Total assets
17,096
  
17,096
  
                     -
  
                     -
               

 
 
No liabilities are measured at fair value on a recurring basis as at December 31, 2011.
 
The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The quoted market price used for financial assets held by the group is the current bid price. These instruments are included in Level 1. Instruments included in Level 1 comprise primarily publicly-traded equity investments classified as held-for-trading securities or available-for-sale securities.

23.  
Commitments
 
The Company’s contractual obligations, not recorded on the balance sheet, at December 31, 2011, include:

   
2012
$
  
2013
$
  
2014
$
  
2015 and later
$
                 
Operating leases and capital expenditures
  

10,337

 

3,560

 

3,491

 

1,930
Purchase obligations
  

81,785

 

5,133

 

1,056

 

562
   

 

 

 

 

 

 

 

Totals
  

92,122

 

8,693

 

4,547

 

2,492

 
 
 
33
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)


23.
Commitments (continued)
 
 
Purchase obligations in 2012 relate primarily to mine expansion projects at Kişladağ, mine development projects at Tocantinzinho and Eastern Dragon as well as operating and maintenance supply contracts at our operating mines.

24.  
Contingencies
 
 
The Company is involved in legal proceedings from time to time, arising in the ordinary course of its business. As at December 31, 2011, the amount of ultimate liability with respect to these actions will not, in the opinion of management, materially affect Eldorado’s financial position, results of operations or cash flows.

25.  
Related party transactions
 
 
Key management includes directors (executive and non-executive), officers and senior management. The compensation paid or payable to key management for employee services is shown below:
 
   
2011
2010
   
$
$
Salaries and other short-term employee benefits
  
18,897
7,966
Termination benefits
  
732
                 -
Post-employment benefits
  
95
87
Share-based payments
  
17,104
25,556
   
36,828
33,609

26.  
Financial instruments by category
 
 
Fair value
 
The following table provides the carrying value and the fair value of financial instruments at December 31, 2011 and December 31, 2010:
 
   
December 31, 2011
          
December 31, 2010
  
   

Carrying amount

    

Fair value

          

Carrying amount

    

Fair value

  
    $             $       $       $    
Financial Assets
                                      
Held-for-trading
                                      
  Restricted assets and other (SERP)
     14,456       14,456               7,872       7,872  
                                         
Available-for-sale
                                        
  Marketable securities
     2,640       2,640               8,027       8,027  
                                         
Loans and receivables
                                        
  Cash and cash equivalents
     393,763       393,763               314,344       314,344  
  Restricted cash
     55,390       55,390               52,425       52,425  
  Accounts receivable and other
     34,630       34,630               38,241       38,241  
  Restricted assets and other
     23,974       23,974               11,456       11,456  
                                         
Financial Liabilities
                                        
  Accounts payable and accrued liabilities
     168,367       168,367               145,695       145,695  
  Debt
     81,031       81,031               166,663       166,663  

 
 
34
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)
 

 

27.  
Production costs
 
 
2011
2010
 
$
$
Production costs
    
     
Labor
                 59,079
                  47,302
Fuel
                 30,580
                  22,143
Reagents
                 39,873
                  29,910
Electricity
                 31,753
                  25,146
Mining contractors
                 31,677
                  42,415
Operating and maintenance supplies and services
                 73,532
                  62,725
Finance and administrative costs
                 19,210
                  23,579
Inventory change
                 13,185
(2,375)
Royalties, production taxes and selling expenses
                 47,595
                  27,129
Total production costs
               346,484
                277,974
 

 

28.  
Interest and financing costs
 
 
2011
2010
 
$
$
     
Interest expense
                   4,208
                    7,730
Financing fees
                   1,123
                       357
Interest on capital leases
                        -
                           2
Total interest and financing costs
                   5,331
                    8,089

 

 

29.  
Earnings per share
 
The weighted average number of ordinary shares for the purposes of diluted earnings per share reconciles to the weighted average number of ordinary shares used in the calculation of basic earnings per share as follows:

 
 
December 31,
December 31,
 
2011
2010
 
(in thousands)
(in thousands)
     
Weighted average number of ordinary shares used in the calculation
    
of basic earnings per share
               549,791
                542,861
Diluted impact of stock options
                   1,834
                    2,989
     
Weighted average number of ordinary shares used in the calculation
    
of diluted earnings per share
               551,625
                545,850
 
The earnings used to calculate basic and diluted earnings per share for the year ended December 31, 2011 were $318,662 (2010 – $221,001).

 
 
35
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)
 


30.  
Segment information
 
Identification of reportable segments
 
The Company has identified its operating segments based on the internal reports that are reviewed and used by the chief executive officer and the executive management (the chief operating decision makers or CODM) in assessing performance and in determining the allocation of resources.
 
The CODM considers the business from both a geographic and product perspective and assesses the performance of the operating segments based on measures of profit and loss as well as assets and liabilities. These measures include operating profit, expenditures on exploration, property, plant and equipment and non-current assets, as well as total debt. During the year ended December 31, 2011, Eldorado had five reporting segments based on the geographical location of mining and exploration and development activities.
 
30.1  Geographical segments
 
Geographically, the operating segments are identified by country and by operating mine or mine under construction. The Brazil reporting segment includes the Vila Nova mine, development activities of Tocantinzinho and exploration activities in Brazil. The Turkey reporting segment includes the Kişladağ and the Efemçukuru mines and exploration activities in Turkey. The China reporting segment includes the TJS, Jinfeng and White Mountain mines, the Eastern Dragon development project and exploration activities in China.
 
The Greece reporting segment includes the development activities of the Perama Hill development project. The Other reporting segment includes operations of Eldorado’s corporate office and exploration activities in other countries. Financial information about each of these operating segments is reported to the CODM on at least a monthly basis.
 
 

2011

 

 

 

 

 

 

Turkey

China

Brazil

Greece

Other

Total
Information about profit and loss
            
Metal sales from external customers
      455,311
     586,759
         56,863
              -
                 -
    1,098,933
Production costs
      117,189
     198,995
         30,300
              -
                 -
       346,484
Depreciation
        11,342
     104,154
           4,689
              -
         2,229
       122,414
Operating profit
      326,780
     283,610
         21,874
              -
(2,229)
       630,035
             
Other material items of income and expense
            
Exploration costs
        10,515
         8,741
           5,639
              -
         5,878
         30,773
Income tax expense
        94,781
       70,131
              125
         260
            290
       165,587
             
Information about assets and liabilities
            
Property, plant and equipment
      591,896
  1,903,793
       185,667
  163,239
         3,315
    2,847,910
Goodwill
                 -
     365,928
                   -
              -
                 -
       365,928
Non-current assets
      591,896
  2,269,721
       185,667
  163,239
         3,315
    3,213,838
             
Additions to property, plant and equipment
            
during the year
      166,601
       82,249
         17,532
      2,902
         2,062
       271,346
Total debt
                 -
       81,031
                   -
              -
                 -
         81,031

 
 
36
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)

30. Segment information (continued)
 
 
 

2010

 

 

 

 

 

 

Turkey

China

Brazil

Greece

Other

Total
Information about profit and loss
            
Metal sales from external customers
      339,151
      443,699
         8,325
              -
                 -
       791,175
Production costs
        96,658
      177,045
         4,271
              -
                 -
       277,974
Depreciation
        14,419
        90,304
         1,031
              -
         1,403
       107,157
Operating profit
      228,074
      176,350
         3,023
              -
(1,403)
       406,044
             
Other material items of income and expense
            
Exploration costs
        13,181
          3,464
         3,063
              -
         2,793
         22,501
Income tax expense
        47,780
        38,876
                -
              -
            283
         86,939
             
Information about assets and liabilities
            
Property, plant and equipment
      431,392
   1,924,959
     179,612
  160,335
         3,489
    2,699,787
Goodwill
                  -
      365,928
                -
              -
                 -
       365,928
Non-current assets
      431,392
   2,290,887
     179,612
  160,335
         3,489
    3,065,715
             
Additions to property, plant and equipment
            
during the year
      141,001
      101,089
         9,560
      2,368
         2,421
       256,439
Total debt
                  -
      166,663
                -
              -
                 -
       166,663

 
   The Turkey and China segments derive their revenues from sales of gold.  The Brazil segment derives its revenue from sales of iron ore.
 
The measure of non-current assets does not include non-current inventories, investments in significantly influenced companies, deferred tax assets, and other items in restricted assets and other, including post-employment benefit assets.
 
The measure of total debt represents the current and long-term portions of debt.
 
30.2                   Economic dependence
 
 
At December 31, 2011, each of our Chinese mines had one major customer, to whom each sells its entire production, as follows:
 
TJS  Mine
Henan Zhongyuan Gold Smelter Factory Co. Ltd.of Zhongjin Gold Holding Co. Ltd.
Jinfeng Mine
China National Gold Group Corporation
White Mountain Mine
Refinery of Shandong Humon Smelting Co. Ltd.
 
 
30.3 Seasonality/cyclicality of operations
 
 
Management does not consider operations to be of a significant seasonal or cyclical nature.
 

31.  
Events occurring after the reporting date
 
On December 18, 2011, the Company announced that it had entered into a definitive agreement with European Goldfields Limited ("European Goldfields") pursuant to which Eldorado agreed to acquire all of the issued and outstanding common shares of European Goldfields by way of a plan of arrangement (the "Arrangement") under the Yukon Business Corporations Act.
 
Under the Arrangement, shareholders of European Goldfields will receive 0.85 Eldorado shares and C$0.0001 in cash per European Goldfields share (the "Exchange Ratio"). Each outstanding option of European Goldfields shall be exchanged for options of Eldorado that will entitle the holder to receive, upon the exercise thereof, Eldorado shares based upon the Exchange Ratio and otherwise on the same terms and conditions as in the original European Goldfields option. The total transaction value is estimated to be approximately C$2.4 billion based on the Eldorado share price on February 23, 2012.
 

 

 

37
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)

 

31.  
Events occurring after the reporting date (continued)

The transaction was to be carried out by way of court-approved plan of arrangement and required shareholders’ approval. The shareholders of both Eldorado and European Goldfields approved the transaction on February 21, 2012 and court approval was obtained on February 22, 2012.
 
 
32.  
Explanation of transition to IFRS
 
 
The accounting policies set out in Note 3 have been applied in preparing the financial statements for the year ended December 31, 2011, the comparative information presented in these financial statements for the year ended December 31, 2010 and in the preparation of an opening IFRS balance sheet at January 1, 2010 (Eldorado’s date of transition).
 
 
In preparing its opening IFRS balance sheet, Eldorado has adjusted certain amounts reported previously in financial statements prepared in accordance with Canadian GAAP. An explanation of how the transition from Canadian GAAP to IFRS has affected Eldorado’s financial position, financial performance and cash flows is set out in the following tables and the notes that accompany the tables.
 
 
1.    Initial elections upon adoption
 
 
Set out below are the applicable IFRS 1 exemptions applied by Eldorado in the conversion from Canadian GAAP to IFRS:
 
 
1.1  IFRS exemption options:
 
 
Exemption for business combinations
 
IFRS 1 provides the option to apply IFRS 3, ‘Business combinations’, prospectively from the transition date or from a specific date prior to the transition date. This provides relief from full retrospective application that would require restatement of all business combinations prior to the transition date. The Company elected to apply IFRS 3 prospectively to business combinations occurring after its transition date. Business combinations occurring prior to the transition date have not been restated.

 
Exemption for share-based payment transactions
 
An IFRS 1 exemption allows the Company to not apply IFRS 2, ‘Share-based payment’, to equity instruments granted after November 7, 2002 that vested before the date of transition to IFRS. The Company has elected to take the exemption and, as a result, was only required to recalculate the impact on any share based payments that have not vested at the date of transition.

 
Exemption for employee benefits
 
IFRS 1 provides relief from applying IAS 19, ‘Employee benefits’, for the recognition of actuarial gains and losses. In line with the exemption, the Company elected to recognize all cumulative actuarial gains and losses that existed at its transition date in opening retained earnings for all its employee benefit plans.

 
Exemption for borrowing costs
 
IFRS 1 allows a first time adopter to apply the transitional provisions set out in IAS 23, Borrowing Costs.  Taking this exemption allows the Company to apply IAS 23 prospectively from the date of transition.
 
The Company has not elected to adopt the remaining voluntary exemptions or they do not apply to the Company.
 

 
38
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)

 
 
32.
Explanation of transition to IFRS (continued)
 
 
2.     Reconciliations of Canadian GAAP to IFRS
 
IFRS 1 requires an entity to reconcile equity and comprehensive income from that previously reported under Canadian GAAP to that under IFRS. The following tables represent the reconciliation from Canadian GAAP to IFRS for the opening balance sheet (January 1, 2010) and at December 31, 2010. The Company’s first-time adoption did not have an impact on cash flows. As there were no material adjustments to cash-flows, no reconciliation has been provided.

 

 

 

 

 

 

 

 

 


 
39
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)
 

 

 
32.
Explanation of transition to IFRS (continued)
 
 
2.1  Opening balance sheet (January 1, 2010)
 
   

Canadian GAAP

Effect of transition

IFRS
     

to IFRS
January 1, 2010

 

 
Note
    
ASSETS
        
Current assets
        
Cash and cash equivalents
  
           265,369
                       -
           265,369
Restricted cash
  
             50,000
                       -
             50,000
Marketable securities
  
             13,951
                       -
             13,951
Accounts receivable and other
  
             26,434
                       -
             26,434
Inventories
  
           129,197
                       -
           129,197
   
           484,951
                       -
           484,951
Long term inventories
  
             31,534
                       -
             31,534
Restricted assets and other
  
             13,872
                 (113)
             13,759
Property, plant and equipment
(a); (c); (f)
        2,580,816
            (53,249)
        2,527,567
Goodwill
  
           324,935
                       -
           324,935
   
        3,436,108
            (53,362)
        3,382,746
         
LIABILITIES & EQUITY
        
Current liabilities
        
Accounts  payables and accrued liabilities
(bii); (e)
           157,250
              (4,214)
           153,036
Current debt
  
             56,499
                       -
             56,499
Deferred income taxes
(aii)
               4,264
              (4,264)
                       -
   
           218,013
              (8,478)
           209,535
Debt
  
           134,533
                       -
           134,533
Asset retirement obligations
(c)
             26,566
                  429
             26,995
Pension fund obligation
(b)
                       -
               7,811
               7,811
Deferred income taxes
(a); (c); (e); (f)
           390,242
            (34,817)
           355,425
   
           769,354
            (35,055)
           734,299
Non-controlling interests
(d)
             26,144
            (26,144)
                       -
Equity
        
Share capital
  
        2,671,634
                       -
        2,671,634
Contributed surplus
  
             17,865
                       -
             17,865
Accumulated other comprehensive income
  
               2,227
                       -
               2,227
Deficit
  
            (51,116)
            (18,307)
            (69,423)
Total equity attributable to shareholders of the Company
        2,640,610
            (18,307)
        2,622,303
Attributable to non-controlling interests
(d)
                       -
             26,144
             26,144
   
        2,666,754
               7,837
        2,648,447
   
        3,436,108
            (53,362)
        3,382,746

 
40
 
Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)
 
32.      Explanation of transition to IFRS (continued)
 
 
2.2
Balance sheet (December 31, 2010)
 
 
   
Canadian GAAP
Effect of transition
IFRS
     
to IFRS
  
 
Note

December 31, 2010
ASSETS
        
Current assets
        
Cash and cash equivalents
  
           314,344
                       -
           314,344
Restricted cash
  
             52,425
                       -
             52,425
Marketable securities
  
               8,027
                       -
               8,027
Accounts receivable and other
  
             42,437
                       -
             42,437
Inventories
  
           147,263
                       -
           147,263
Deferred income taxes
(aii)
                  606
                 (606)
                       -
   
           565,102
                 (606)
           564,496
Long term inventories
  
             29,627
                       -
             29,627
Investment in significantly influenced company
  
               6,202
                       -
               6,202
Restricted assets and other
  
             19,328
                       -
             19,328
Property, plant and equipment
(ai); (c)
        2,793,722
            (93,935)
        2,699,787
Goodwill
  
           365,928
                       -
           365,928
   
        3,779,909
            (94,541)
        3,685,368
         
LIABILITIES & EQUITY
        
Current liabilities
        
Accounts  payables and accrued liabilities
(bii); (e)
           152,781
              (7,086)
           145,695
Current debt
  
             98,523
                       -
             98,523
Deferred income taxes
(aii)
               2,915
              (2,915)
                       -
   
           254,219
            (10,001)
           244,218
Debt
  
             68,140
                       -
             68,140
Asset retirement obligations
(c)
             24,275
               8,953
             33,228
Pension fund obligation
(b)
                       -
             12,019
             12,019
Deferred income taxes
(a); (c); (e)
           430,020
            (99,508)
           330,512
   
           776,654
            (88,537)
           688,117
Non-controlling interests
(d)
             36,021
            (36,021)
                       -
Equity
        
Share capital
  
        2,814,679
                       -
        2,814,679
Contributed surplus
  
             22,967
                       -
             22,967
Accumulated other comprehensive income
(bi)
                  998
              (2,635)
              (1,637)
Retained earnings (deficit)
  
           128,590
              (3,369)
           125,221
Total equity attributable to shareholders of the Company
        2,967,234
              (6,004)
        2,961,230
Attributable to non-controlling interests
(d)
                       -
             36,021
             36,021
   
        3,003,255
             30,017
        2,997,251
   
        3,779,909
            (94,541)
        3,685,368

 

 
41
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)
 
 

32.      Explanation of transition to IFRS (continued)
 
2.3      Reconciliation of Total Comprehensive Income
 
Reconciliations between the Canadian GAAP and IFRS total comprehensive income for the year ended December 31, 2010 are provided below:
 
 
 
Note

Year ended
   

December 31, 2010
     
Comprehensive Income under Canadian GAAP
  
                                     222,291
Profit adjustments
    
Reduction in pension expense
(b)
                                         1,037
Increase in depreciation of asset retirement obligation (net of tax)
(c)
                                           (274)
Decrease in severance provision expense (net of tax)
(e)
                                            300
Revision to asset retirement obligation liability (net of tax)
(c)
                                           (866)
Foreign exchange (loss) gain on reversal of deferred income tax
(a)
                                       12,223
Tax adjustment to reflect foreign exchange difference
(aii)
                                         2,518
     
Other comprehensive income adjustments
    
Recognition of actuarial gains/losses in other comprehensive income
(bi)
                                        (2,635)
Total IFRS adjustments to comprehensive income 12,303
Comprehensive Income under IFRS 234,594
 
Explanatory Notes

a)  
i)      Under IFRS, deferred income taxes are not recognized on an asset acquisition providing certain conditions are met,
whereas they are under Canadian GAAP. During 2008, Eldorado completed the acquisition of Frontier Pacific Corporation (“Frontier”) and accounted for this transaction as an asset acquisition. Accordingly, a deferred tax liability was recognized under Canadian GAAP. The reversal of the deferred income tax liability recognized on the acquisition of Frontier results in an adjustment to decrease property, plant and equipment by $51,440, decrease deferred income tax liabilities by $37,582 and increase deficit by $13,858 at January 1, 2010.

Further, in 2010 Eldorado completed the acquisition of all of the issued and outstanding common shares of Brazauro that it had not already owned. This transaction was accounted for as an asset acquisition and a deferred income tax liability was recorded under Canadian GAAP. The reversal of the deferred income tax liability recognised under Canadian GAAP resulted in an adjustment to decrease property, plant and equipment by $47,682 and decrease deferred income tax liabilities by $49,441 as of December 31, 2010 and a foreign exchange gain of $1,759 being recognized in the income statement for the year ended December 31, 2010.

The reversal of these deferred income tax liabilities resulted in a reduced foreign exchange movement under IFRS compared to Canadian GAAP during the year ended December 31, 2010, resulting in an adjustment to further decrease deferred income tax liabilities by $1,685 and an increase in foreign exchange gain for the same amount.

 
ii)
Under Canadian GAAP, no future tax assets or liabilities are recognized for temporary differences associated with the cost of non-monetary assets and liabilities of subsidiaries where the tax basis is measured in a currency different from the functional currency. IFRS requires that deferred taxes be recognized in respect of these foreign exchange differences by translating the tax bases of the assets and liabilities at the year end rate and comparing to the accounting carrying value calculated at historical rates.  Upon adoption of IFRS, this resulted in an adjustment to decrease property, plant and equipment by $1,864, decrease deferred income tax liability by $1,620 and increase the deficit by $244.

 
42
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)
 
 


32.      Explanation of transition to IFRS (continued)
 
Further to the adjustment at January 1, 2010, for the year ended December 31, 2010 this resulted in an adjustment to decrease the deferred income tax liability by $11,297, increase foreign exchange gain by $8,779 and decrease deferred income tax expense by $2,518.

As required under IFRS, all deferred taxes are reclassified and presented as non-current in the balance sheet.

b)  
i)      Under Canadian GAAP, Eldorado applied the corridor method of accounting for actuarial gains and losses.
Under this method, gains and losses are recognized only if they exceed specified thresholds. Under IFRS the Company has not used the corridor method, resulting in the carrying value of the net liability for pension fund obligations and deficit increasing by $2,020 to recognize cumulative net actuarial losses as at January 1, 2010 in accordance with the IFRS exemption.

For the year ended December 31, 2010, actuarial losses of $2,635 were recognized within other comprehensive income.
 

ii)  
Under IFRS, Eldorado expenses the cost of past service benefits awarded to employees under post employment benefit plans over the year in which the benefits are vested. Under Canadian GAAP, Eldorado expensed past service costs over the weighted average service life of active employees remaining in the plan. This adjustment increased benefit fund obligations and deficit by $2,665 as at January 1, 2010.

For the year ended to December 31, 2010 this resulted in an adjustment to decrease the pension expense by $1,440, decrease the foreign exchange gain by $403 and decrease the pension liability by $1,037.

As required under IFRS, the pension liability is presented as a separate line item. Accordingly, these amounts have been reclassified in the financial statements.

c)  
IFRS requires that asset retirement obligations are discounted using a current discount rate specific to the related future liability or a risk-free interest rate if risks are incorporated into the related cash flows. Under Canadian GAAP, a credit adjusted risk-free rate was used. As a result, the asset retirement obligation recorded at January 1, 2010 has been re-measured using the risk-free discount rate in effect at that date, given that risks have been incorporated into the related cash flows, and an adjustment has been recorded to the corresponding asset. This resulted in an increase in property, plant and equipment of $370, an increase in asset retirement obligation of $429, a decrease in the deferred income tax liability of $11 and an increase in deficit of $48 at January 1, 2010. As a result of this, the annual accretion of the liability increased under IFRS.

In addition to the adjustment at January 1, 2010, the Company revised the asset retirement obligation estimates at December 31, 2010, resulting in an adjustment to the asset retirement obligations and property, plant and equipment. Under IFRS, the asset retirement obligation recorded at December 31, 2010 has been re-measured using the discount rate in effect at that date, and an adjustment has been recorded to the corresponding asset. This item resulted in an increase in property, plant and equipment of $6,996, an increase in asset retirement obligation of $8,524, a decrease in the deferred income tax liability of $388, an increase in asset retirement obligation costs of $1,163 all as at December 31, 2010, and for the year ended December 31, 2010 an increase in depreciation of $365 and a decrease in deferred income tax expense of $297 related to the asset retirement obligation costs and $91 related to the depreciation.

d)  
Under IFRS, the non-controlling interests’ share of the net assets of subsidiaries is included in equity and their share of the comprehensive income of subsidiaries is allocated directly to equity. Under Canadian GAAP, non-controlling interests were presented as a separate item between liabilities and equity in the statement of financial position and the non-controlling interests’ share of income and other comprehensive income were deducted in calculating net income and comprehensive income of the entity.

Non-controlling interest of $26,144 at January 1, 2010 has been reclassified to equity. Similar adjustments were made at December 31, 2010 of $36,021.



 
43
 
 
 Eldorado Gold Corporation
Notes to the Consolidated financial statements
(Expressed in thousands of U.S. dollars, unless otherwise stated)
 
32.      Explanation of transition to IFRS (continued)
 
e)  
IFRS requires provisions to be recorded at fair value rather than carrying value, therefore the severance provision at January 1, 2010 in Turkey was reduced by $975, creating a deferred tax liability of $195 on transition. The offsetting entry for these adjustments was recorded against retained earnings. During the 2010 year the provision was decreased by $375 and the deferred tax liability increased by $75. The decrease has been accrued over the year on a straight-line method, with the offsetting entry recorded in the income statement.

f)  
As part of the IFRS transition and the evaluation of components of property, plant and equipment, the Company recorded at January 1, 2010 a decrease of $315 to property, plant and equipment, a decrease of $63 to the deferred tax liability and an increase of deficit of $252.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 
44